The partnership agreements explicitly  address subcontracting limitations in a few ways by requiring the  agencies to at the time of the contract award, conduct and document an  assessment of the 8(a) firm’s ability to comply with the subcontracting  limitations;  include monitoring and oversight provisions in all 8(a) contracts to  ensure that the contractors comply with the subcontracting limitations;  and ensure that 8(a) contractors comply with the subcontracting  limitations. Responsibilities for Ensuring Compliance with Subcontracting Limitations Still Not Fully Met or Understood

		Contracting Officers Are Generally Not Ensuring Compliance with Subcontracting Limitations

With two exceptions, the contracting officers we met with generally do not  monitor the amount of subcontracted work to ensure 8(a) contractors  comply with subcontracting limitations, which is consistent with our past  findings. For example, one HHS contracting officer stated that the 8(a)  contractors he works with understand the amount of work they must  perform, should be monitoring the amount of subcontracted work, and  should inform the government if subcontractors perform more work than  allowed. This contracting officer, however, was not aware if the contractor  had performed the required amount of work on the contract we reviewed,  and contractor representatives for this contract told us that they were not  in compliance with the subcontracting limitations at the time we spoke  with them. While agencies’ policies and guidance may  supplement parts of the FAR, the purpose of the FAR is to provide  uniform policies and procedures for federal acquisitions, and most  agencies must follow these regulations. When contracting officers are  not aware of or do not implement their responsibilities to monitor 8(a)  subcontracting limitations, there is an increased risk that contractors are  not in compliance. Large businesses awarded contracts that are  expected to exceed a certain amount are required to develop a plan  detailing the extent to which they will subcontract work to small  businesses, which is evaluated by contracting officers prior to awarding a  contract. They said, however, that they likely could  demonstrate compliance if required. Figure 1 shows  that 5 of the 10 contracts in our sample exhibited one or more of these  situations. Some of these roles, however, should have been performed by the 8(a)  prime contractor, according to the contracting officials. Contracting officers and contractors  reported that these pending changes could have mixed effects on  monitoring compliance. Changes to How Subcontracted Work Is Determined

The NDAA for Fiscal Year 2013 amended the Small Business Act to  change what costs are considered to be subcontracted work under 8(a)  contracts, in part, to make it easier for contractors to determine if they are  in compliance. The NDAA amendments to the Small Business Act were enacted on  January 2, 2013, and it could take years to incorporate these changes  into the FAR. In January 2014, SBA announced that it was  drafting a proposed rule to implement these changes into federal  regulations through the public rulemaking process, which is generally an  initial step in the federal rulemaking process needed to amend the small  business regulations as well as the FAR. The officials stated that SBA will submit the final rule to  the FAR Council, chaired by the Administrator of OFPP, which will then  solicit comments from other interested parties and take steps to  incorporate any changes into the FAR. Instead of needing information on both the 8(a) firm’s and its  subcontractors’ total personnel costs, only the amount paid to  subcontractors would be needed to determine the amount of  subcontracted work. Prior to this  change, no such monetary penalty existed. The Small Business Act did not specify which system to  modify. Recommendations for Executive Action

We recommend that the Administrator of OFPP take appropriate steps to  amend the FAR to include the following three requirements:
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;
Contracting officers shall include monitoring and oversight provisions  in all 8(a) contracts to ensure that the contractors comply with the  subcontracting limitations; and
Prime 8(a) contractors shall periodically report to the contracting  officer on the percentage of subcontracted work being performed.
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 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).
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.

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.