The U.S. Small Business Administration (SBA) recently announced an “immediate and full-scale audit” of its 8(a) business development program. The announcement stems from a “years-long fraud and bribery scheme involving a former federal contracting officer and two 8(a) contractors,” as detailed in a Department of Justice (DOJ) press release. This scheme involving two 8(a) contractors appears to be isolated to a few bad actors rather than broader issues with the social and economic disadvantage requirements of the 8(a) program.. Nevertheless, SBA is treating this reason to reassess the integrity of the entire 8(a) program. We know from working with many solid 8(a) contactors that this is not the case. In this client alert, we highlight the importance for 8(a) contractors to understand what may happen in SBA’s investigation and what you should do to be prepared.
Over the years, our firm has assisted many federal contractors in responding to SBA program examinations, including proposed early terminations from the program, as well as investigations by the SBA Inspector General and the DOJ. A common thread that runs through each of these situations is the need to be prepared, responsive, and cooperative. Our process includes reviewing documents, interviewing key parties, and analyzing the applicable regulations and circumstances before the examiner or investigator. Taking these proactive steps allows us, as much as possible, to stay ahead of the examiner or investigator.
Being prepared also ensures we can determine the best response strategy to ameliorate any concerns that have been raised and reach a positive resolution regarding the examination or investigation as quickly as possible. In many instances, the examiner or investigator may overlook or misinterpret key facts or regulatory requirements. Staying “ahead of the curve” allows us to present and explain the evidence and applicable regulatory requirements in a way that streamlines the process to a positive resolution. And, in those cases when a quicker resolution is not possible, preparedness along with responsiveness and cooperation is almost always the best way to manage the examination or investigation process as it unfolds.
For 8(a) program examinations and investigations, we have encountered cases that run the full gamut of 8(a) eligibility requirements. Most often, 8(a) examinations and investigations pertain to the majority owner’s economic disadvantage, which includes their annual compensation, personal net worth, and total assets. Examinations and investigations may focus on figures that have been reported to SBA, how asset values were determined, and transfers of assets, among other financial-related issues. We’ve also handled 8(a) program examinations and investigations that deal with the owner’s social disadvantage, ownership and control of the company, potential affiliation between the 8(a) firm and other businesses, as well as compliance with joint venture and performance of work requirements.
We expect that SBA’s upcoming review of the 8(a) program will delve into the common issues we have seen over the years in handling 8(a) program examinations and investigations. Considering SBA’s announcement, it is a good idea to do an internal assessment of your 8(a) program compliance now and make sure you are accurately reporting information to SBA. We recommend preemptively looking under the hood to prepare for any potential audit or investigation by examining your governing documents and any corporate changes, size and affiliation considerations, as well as ongoing contractual compliance. Using outside counsel to help with this internal assessment provides protection and rigor to your compliance posture, and we can help to identify potential issues that you may need to correct. When SBA’s investigation reaches your firm, your preemptive approach will help you better navigate the process and demonstrate your good faith efforts to comply with the 8(a) program requirements.
