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Audit Report 6-15: Audit of Monitoring Compliance with 8(a) Business Development Regulations during 8(a) Business Development Contract Performance

Date Issued: 
Thursday, March 16, 2006
Report Number: 

On March 16, 2006, the OIG issued Audit Report 6-15, Audit of Monitoring Compliance with 8(a) Business Development Regulations during 8(a) Business Development Contract Performance.  This audit began with a complaint about potential violations by an 8(a) Business Development company when completing contracts, and was expanded to include SBA’s and the procuring agencies’ monitoring of compliance with 8(a) Business Development (BD) regulations during the performance of 8(a) BD contracts.  The objectives of this audit were to determine whether (1) Federal agencies ensured that companies complied with 8(a) BD contracting requirements when completing 8(a) BD contracts, and (2) whether an 8(a) BD company complied with critical contracting requirements in completing 8(a) BD contracts.  In addition, after receiving a complaint, the OIG audited an 8(a) BD firm to determine whether it could be viewed as a disadvantaged firm that allowed a non-disadvantaged company to perform its 8(a) BD requirements.

The OIG found that neither the SBA nor procuring agencies ensured that 8(a) BD companies complied with applicable regulations when competing 8(a) BD contracts.  The SBA did not conduct surveillance reviews to determine whether procuring agencies were effectively monitoring for 8(a) BD regulation compliance.  Further, at one of the reviewed 23 procuring agencies, the OIG determined that one company appeared to have violated significant regulations on 7 of 13 contracts reviewed, with a combined value of $2 million.  Specifically:  (1) the company subcontracted out 100 percent of the work on all 13 contracts, (2) the company was unduly dependent on the subcontractors and did not have a joint venture agreement which is required when working closely on an 8(a) BD contract, (3) the company falsified payroll records it submitted to the procuring agency in connection with six contracts, and (4) the company did not meet the requirements to perform out of state contracts. 

The OIG found that the SBA was not aware that the 23 major procuring agencies failed to monitor 8(a) BD compliance, and had no requirements for such monitoring.  The OIG recommended that the SBA: (1) revise the partnership agreements so that procuring agencies are specifically required to monitor 8(a) BD companies’ compliance with specified contract and FAR requirements, and 8(a) BD regulations;  (2) inform contracting officers and technical representatives of their responsibilities concerning 8(a) compliance, and (3) acknowledge that the SBA can take back the delegated authority if it does not adequately monitor 8(a) BD company compliance with 8(a)BD regulations.  The OIG also recommended that the Associate Administrator for Field Operations ensure that surveillance reviews of procuring agencies were conducted on a regular basis to ensure that procuring agencies effectively monitor for and enforce compliance with specified 8(a) BD regulations on the contracts they administer.