The 8(a) small business contracting program is in a fight for its life.
From Capitol Hill to the courts to now the executive branch, the 47-year-old program is facing questions about its legitimacy and challenges to its true impact like never before.
Over the course of the last two weeks, the 8(a) program and firms taking part in the socioeconomic program have seen:
The Center for Individual Rights, a conservative public interest organization, and the Wisconsin Institute for Law and Liberty file a lawsuit in U.S. District Court for the Eastern District of Louisiana in mid-November seeking to “force the repeal of an unconstitutional racial preference regulation that has been incorporated into many federal contract, loan, investment, and grant programs. “
The Small Business Administration send a letter to more than 4,300 8(a) firms seeking 13 different data, ranging from a list of the company’s employees to bank statements for the last three fiscal years to a copy of all 8(a) contracts, as part of its ongoing audit of the program.
Sen. Joni Ernst (R-Iowa), the chairwoman of the Small Business and Entrepreneurship Committee, wrote a letter to 22 agencies yesterday calling on them to “to halt new 8(a) sole-source contract awards.” Ernst’s request comes after she introduced legislation that would suspend all 8(a) sole source contracts until SBA completes its audit.
Each of these on their own would be enough to put the 8(a) program under pressure, but taken altogether, experts say the program is under such an attack that it could mean the end of what many believe has been a successful contracting program.
“The administration has been targeting this program and wanting to shut it down since taking office,” said one former SBA executive, who requested anonymity in order to talk about the program. “They presume it is handouts and a diversity, equity and inclusion (DEI) program.”
Ernst has been leading the charge over the past several months to address what she believes is wide-spread fraud in the 8(a) program. Her concerns come from two specific recent cases. In June, a U.S. Agency for International Development contracting officer and three owners of companies pled guilty for their roles in a decade-long bribery scheme involving at least 14 prime contracts under the 8(a) program worth over $550 million.
Sen. Joni Ernst (R-Iowa) is the chairwoman of the Small Business and Entrepreneurship Committee. (AP Photo/J. Scott Applewhite)
Then in October, a video from the O’Keefe Media Group, a right-wing activist organization, showing that an official from ATI Government Solutions admitted to defrauding the SBA’s 8(a) program.
Ernst highlighted these two cases and what she called the Biden administration’s “indifference toward the 8(a) program integrity” as the reasons for the need for agencies to review and Asuspend sole source contracts.
“The SBA’s 8(a) program is the largest set-aside program at the agency, which dished out $40-plus billion in contract awards during fiscal 2024 alone. Yet decades of Government Accountability Office (GAO), SBA’s Office of Inspector General, and Justice Department probes expose the same rot,” Ernst wrote to agencies. “Sloppy oversight and weak enforcement measures allow 8(a) participants to act as pass-through entities, snagging unlimited no-bid deals with little transparency. Every loophole guts public trust and rigs the system against honest competitors.”
Ernst is asking agencies to respond by Dec. 22 as to whether they plan to suspend 8(a) sole source contracting. She also wants agencies to review all sole source and set-aside contracts they awarded since 2020.
On Wednesday, Ernst will take a deeper look at the 8(a) program, holding a hearing with witnesses ranging from the Project on Government Oversight to the Government Accountability Office to Open The Books, a non-profit government watchdog organization, to a reporter from the Daily Wire.
Ernst’s letter and hearing comes on the heels of the SBA requiring all 8(a) firms to submit 13 data sets as part of its ongoing audit of the program.
By Jan. 5, 8(a) vendors must send to SBA:
General ledger for the last three full fiscal years (CSV files only)
Trial balance as of the last day for each of the last three fiscal year-ends (CSV files only)
IRS Form 4506 covering the last three full fiscal years (PDF files only)
Bank statements as of the last day for each of the last three fiscal year-ends (PDF files only)
Bank reconciliations as of the last day for each of the last three fiscal year-ends (PDF files only)
Payroll register and reconciliation (including any distributions to any owner) monthly for the last three full fiscal years (PDF files only)
List of all employees, broken out by contracts those employees are servicing, for the last three full fiscal years (PDF files only)
List of all vendors (as well as all joint ventures) for the last three full fiscal years (PDF files only)
Copy of all 8(a) contracts on which the firm is currently working for the last three full fiscal years (PDF files only)
Subcontracting agreements related to the contracts in item 9 (for the last three full fiscal years) (PDF files only)
Financial statements which include, at a minimum, the year-end balance sheet, YTD P&L, cash flow statement, and the statement of equity for each of the last three fiscal years (CSV files only)
Financial statement reconciliation to the year-end Trial Balance for the last three fiscal years (CSV files only), and
For each of the last three full fiscal years, a sub-ledger schedule tying to the year-end trial balance accounts for: all accounts receivable accounts, all accounts payable accounts and all P&L accounts (CSV files only)
“To the extent that your firm submitted any particular information in routine annual reporting, that particular information need not be submitted again,” wrote Wendell Davis, SBA’s general counsel, in the letter, which Federal News Network obtained. “Failure to respond to the SBA’s inquiry may result in a determination that your firm is not eligible for continued participation in the 8(a) Program and may result in further investigative or additional remedial action.”
Emails to SBA seeking more details on the audit were not returned.
Contracting experts say the fact the letter came from the General Counsel’s Office and not just the Office of Government Contracting and Business Development means that this is now a legal and compliance investigation, not an administrative refresh.
“By shifting the audit to SBA legal, SBA can look far beyond whether firms filed the right paperwork to get 8(a) certified. They can analyze contract execution, where most fraud occurs, and trace how money, control, and influence move between partners — including patterns involving [program managers, contracting officers, business opportunity specialists] and others,” wrote Robb Wong, a former associate administrator in SBA’s Office of Government Contracting and Business Development, on LinkedIn. “In short, they’re looking for tails that wag the dog: money flowing indirectly to parties who couldn’t receive it directly under the rules. If this sounds foreign to you, you’re probably fine. If it hits close to home — slow down, re-examine your documents, and make sure the story they tell still supports 8(a) ownership, control, and eligibility.”
Wong, who is now managing executive at Deep Water Point & Associates, offered some guidance for companies:
File on time. Miss the deadline and you’re out.
Ensure your documents support ownership, control and continued eligibility.
Verify your teaming agreements comply with limitations on subcontracting and actual workshare.
Confirm your performance documentation matches what you proposed — and what you certified.
Be thorough. The burden of compliance is on you; SBA can draw negative inferences from gaps in information and evidence.
The third piece of this probe is the lawsuit filed by the Center for Individual Rights in November. CIR isn’t new to challenging the 8(a) program, bringing the Ultima lawsuit to court in 2023 and eventually winning the case, which led to SBA requiring companies to provide a narrative as to why they are socially and/or economically disadvantaged.
CIR says this challenge is different because than the Ultima case.
“In Ultima, the SBA was harming our client, so we just addressed the SBA’s use of the rule. Now, the Center for Individual Rights, together with our colleagues at Wisconsin Institute for Law and Liberty, represent clients who were harmed by other agencies applying the SBA’s rule. Because the SBA’s rule is woven throughout other race-based government programs, we are now challenging the rule itself,” said Mike Petrino, the organization’s lead attorney. “This case challenges the regulation issued by the Small Business Administration — because the SBA, not Congress, created the legal presumption that every individual who is a member of certain races and ethnicities is ‘socially disadvantaged.’ This case is also different [from previous challenges] because it addresses unlawful discrimination by more than one agency. The SBA’s rule is at the heart of numerous race-based programs administered by different agencies. Instead of challenging each-and-every instance where an agency, applying the SBA’s rule, discriminates against someone, this lawsuit targets the source of the unlawful discrimination by addressing the rule itself.”
Petrino said CIR and the Wisconsin Institute don’t want to end the 8(a) program, but just remove any racial preferences that they say SBA inserted into the law.
“Section 8(a) as passed by Congress would still be in effect, and the SBA could try again to create a program that comports with the Constitution and Section 8(a),” he said.
The post SBA audit, lawsuit puts 8(a) program deeper in cross-hairs first appeared on Federal News Network.