For tribal 8(a) firms, SBA has specific oversight responsibility for accepting the firm into the program, which includes ensuring that the  tribal entity owning the firm does not have more than one 8(a) firm in  the same primary line of business, defined by a North American  Industry Classification System (NAICS) code and annually reviewing 8(a) firms to track their progress in the 8(a)  program, including their mix of 8(a) and non-8(a) revenue in the last 5  years in the program and any changes to the firms’ business targets,  objectives, and goals. Obligations to Tribal 8(a) Firms Have Grown Steadily, with Most under Sole- Source Contracts

From fiscal year 2005 through 2010, federal dollars obligated to tribal 8(a)  firms grew from $2.1 billion to $5.5 billion. Obligations to 8(a) firms owned  by ANCs—which represented the majority of these tribal obligations  during each fiscal year—rose steadily, from $1.9 billion to $4.7 billion. The percentage of obligations under competitively awarded tribal 8(a)  contracts increased from fiscal year 2005 to 2010. They further stated these awards help procuring agencies to  meet their small business goals, but added that the program offices’  preference for using the same firms for follow-on contracts also plays a  role.the methods used by contracting officials to determine price  reasonableness in a sole-source environment. savings. Agency Oversight of Subcontracting under Tribal 8(a) Contracts Continues to Be Lacking

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. Of the 87 contracts in our review, 71 had one or more  subcontractors. Confusion Remains about Accountability for Monitoring Subcontracting Limitations

In response to our 2006 recommendations, SBA clarified in its partnership  agreements with the procuring agencies that it is the contracting officer’s  responsibility to monitor compliance with the limits on subcontracting  under 8(a) contracts. Even with these actions, however, we still  found that some contracting officers do not understand that ensuring  compliance with the limitations on subcontracting is their responsibility. However, SBA  will have difficulty enforcing some of these new regulations given the  information currently available. Further, SBA, in its regulations or  elsewhere, has still not addressed some issues we raised in our 2006  report. Finally, in this review we discuss practices that highlight how some  tribal 8(a) firms operate, in effect, like large businesses due to their parent  corporation’s backing and relationships with their sister subsidiaries. SBA  has not reviewed these practices to determine whether they are  acceptable given the business development purpose of the 8(a) program. This situation could allow for a tribal organization to have more  than one 8(a) subsidiary perform most of its work under the same primary  NAICS code, which SBA regulation does not allow. Not monitoring the limitations  on subcontracting can pose a major risk that an improper amount of work  is being done by large business subcontractors under large-dollar value,  sole-source contracts to tribal 8(a) firms. As the new 8(a) tracking database is being developed, take steps to  ensure that it has the capability to provide visibility to district offices into all tribal 8(a) firms’ activity by  tribal entity to ensure compliance with new prohibition to award  sole-source 8(a) follow-on contracts to sister subsidiaries;  track revenue from tribal 8(a) firms’ primary and secondary  industry codes to ensure that subsidiaries under the same parent  company are not generating the majority of their revenue from the  same primary industry; and  track information on 8(a) contracts and task or delivery orders,  including orders awarded under basic ordering agreements, to  help ensure that district officials have information necessary to  enforce the 8(a) program regulations. SBA did not address our recommendations. This  requirement led to our recommendations that SBA determine whether  certain practices we found that are currently allowed under the 8(a)  regulations—such as firms subcontracting to a sister subsidiary—are  consistent with the business development purpose of the 8(a) program. Appendix I: Scope and Methodology

The objectives of this review were to (1) identify trends in government  8(a) contracting with firms owned by Alaska Native Corporations (ANC),  Native Hawaiian Organizations (NHO), and Indian tribes; (2) determine  the reasons federal agencies awarded sole-source contracts to tribal 8(a)  firms and the methods used to make price determinations; (3) assess the  procuring agencies’ oversight of tribal 8(a) contracts for compliance with  subcontracting requirements; and (4) examine the Small Business  Administration’s (SBA) new 8(a) regulation, effective March 14, 2011, to  determine how the changes could affect oversight of tribal firms and the  extent to which previously identified problems are addressed. 6.
What GAO Found

Federal dollars obligated to tribal 8(a) firms grew from $2.1 billion in fiscal year 2005 to $5.5 billion in 2010, a greater percentage increase than non-tribal 8(a) obligations (160 percent versus 45 percent). Obligations to 8(a) firms owned by Alaska Native Corporations (ANC) represented the majority of tribal obligationsevery year during the period, rising to $4.7 billion in 2010. While tribal 8(a) firms comprised 6.2 percent of total 8(a) firms, their obligations accounted for almost a third of total 8(a) obligations in fiscal year 2010. Over the 6 years, the percentage of competitively awarded obligations to tribal 8(a) firms rose; however, solesource contracts remained the primary source of growth, representing at least 75 percent of all tribal 8(a) obligations in a given year.
Consistent with GAOs 2006 review of ANC 8(a) contracting, contracting officials said that awarding contracts to tribal firms under the 8(a) program allows officials to award sole-source contracts for any value quickly, easily, and legally, and helps agencies meet their small business goals. However, the officials added that the program offices push for awarding follow-on contracts to the same firm also plays a role. GAOs review of noncompetitive tribal 8(a) contracts shows the methods used to determine price reasonableness in a sole-source environment. In some cases, when agencies moved away from sole-source tribal 8(a) contracts toward competition, agency officials estimated savings as a result.
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 the subcontractors. Of the 87 contracts in GAOs review, 71 had subcontractors. GAO found that required monitoring of limitations on subcontracting by procuring agencies was not routinely occurring. Similar to what GAO reported in 2006, some contracting officers do not understand that ensuring compliance is their responsibility under partnership agreements with SBA, and the regulations do not make this clear. Further, agency officials did not know how to monitor subcontracting limitations, particularly for indefinite-quantity contracts, as the data are not readily available. Not monitoring the limits on subcontracting can pose a major risk that an improper amount of work is being done by large firms.
In March 2011, SBA revised 8(a) regulations to clarify program rules, correct misinterpretations, and address program issues. Although a positive step, SBA will have difficulty enforcing new regulations pertaining to tribal 8(a) follow-on contracts and joint ventures given the information currently available. SBA told GAO it is currently in the process of developing the requirements for a new 8(a) tracking database. Further, the new regulations do not address some issues GAO has previously raised, such as ANC 8(a) firms under the same parent corporation generating a majority of revenue in the same line of business. SBA regulations do not allow a tribal organization to have more than one 8(a) subsidiary perform most of its work under the same primary business line. GAO also discusses practices that highlight how some tribal 8(a) firms operate, in effect, as large businesses because of their parent corporations backing and interconnectedness with sister subsidiaries. SBA has not reviewed these practices to determine whether they are congruent with the business development purpose of the 8(a) program.

What GAO Recommends

GAO recommends that the Office of Federal Procurement Policy (OFPP) amend acquisition regulations and provide guidance (including data collection) on monitoring the limits on subcontracting. OFPP generally agreed with the recommendations. GAOs recommendations also include that SBA include specific capabilities in its 8(a) database to improve tribal 8(a) tracking and that it examine tribal participation to determine whether certain practices align with the 8(a) programs business development goal. SBA questioned GAOs methodology, which GAO continues to believe is appropriate, but did not address GAOs recommendations.