DoD Usage of Sole-Source Procurements to 8(a) Firms Continues to Decline

The Small Business Administration's (SBA's) 8(a) program is the Federal Government's primary vehicle for developing small businesses. Tribal 8(a) firms, such as firms owned by Alaska Native Corporations, can with sole-source contracts for any dollar amount in the 8(a) program, while other 8(a) firms generally must compete for contracts valued above certain dollar thresholds.

Back in March 2011, the FAR (Federal Acquisition Regulation) was amended to include a new requirement for a written justification for sole-source 8(a) awards over $20 million, where previously no justification was required.

The Appropriations Act of 2015 contained a provision requiring GAO to assess the impact of the 8(a) justification at the Department of Defense. That GAO assessment report was recently issued. It addresses (i) trends among DoD sole-source and competitive 8(a) awards from fiscal years 2006 through 2015 and (ii) the factors to which DoD officials attribute these trends. GAO reviewed 14 sole-source contracts over $20 million, nine of which were followed by additional contracts for the same requirement.

GAO found that the number of sole-source contracts over $20 million at the Department of Defense has been steadily declining since 2011 when the new requirement for a written justification for these contracts went into effect. In contrast, the number of competitive 8(a) contracts over $20 million has increased in recent years.

Since September 2014, DoD has awarded only two sole-sourced 8(a) contracts, one for vehicle maintenance and repair and the other for engineering services. The contracting officer for the vehicle maintenance and repair contract told that GAO that these services would not be needed in the future. The contracting officer for the engineering services contract indicated that the last time for a sole-source award - in the future, awards for engineering services competition.

Contracting officers interviewed for this study overwhelmingly cited an agency-wide emphasis un using competition to obtain benefits, such as better pricing, as a reason for the decline in the use of sole-source 9(a) contracts over $20 million. Other factors included declining budgets and contract values falling under the $20 threshold that didn't require justification.

The GAO made no recommendations. You can read the full GAO report here.

Justification and Approval (J&A)

Earlier this week, we reported on the final rule that prohibits the Government from awarding any contract greater than $20 million under the SBA's 8(a) Business Development Program without first obtaining written justification. This written justification, known as J&As (Justification and Approval) in the trade, must be made publicly available for at least 30 days. The Government has chosen to post these J&As on FedBizOpps. Actually, this final rule replaces an interim rule from nearly year ago so these J&As have been available for some time. We decided to take a look at some of them and here are a few observations.

While there are dozens of J&As posted to FedBizOps, we were unable to locate any that were for $20 million plus awards to 8(a) firms. Perhaps there are not that many.

The key to a sole source justification is to demonstrate that the contractor has some kind of unique qualification. Many J&As were for spare parts that only the manufacturer of the full product can deliver. Those justifications are fairly obvious. However, the documentation for many seemed vague. "Expediency" was often used as justification.

Even in sole source procurement, the Government must determine that the price or cost is fair and reasonable. Since these justifications are prospective, the contracting officer has usually not yet determined price reasonableness. So, the J&A typically states that the contracting officer will determine, though various available means, analyses, and comparisons, that the price is reasonable.

The "quality" of J&As varies by Agency. Some are bereft of information and details while others go to great lengths to justify their decision and action. In either case, we were often left wondering about the sufficiency of the justification.

Most of the J&As we looked at included a section describing the Government's planned actions to remove barriers to future competition. In most cases, the Agency offered no substantive plans to further competition for the products being purchased.