No one is watching to see that tribally owned 8(a) companies are not passing through most of their work to subcontractors, the Government Accountability Office found.

In its first review of the tribal 8(a) program in five years, GAO said some contracting officers are still confused about whether the procuring agency or SBA is responsible for monitoring. Other C.O.’s said they were unsure how to monitor the use of subcontractors.

After reviewing 71 contracts that had subcontracts, the auditors said, “We found no evidence of regular and systematic monitoring of the limitations on subcontracting.”

Although SBA has adopted new regulations restricting subcontracting in 8(a) joint ventures, the auditors said the regulations are hollow because the agency lacks the data necessary to monitor compliance: “SBA does not have a way to track the information it needs and lacks clear procedures to deter certain prohibitions addressed in the regulations—for example, sister subsidiaries winning follow-on sole-source contracts and joint-venture partners unduly benefiting from their 8(a) partners’ contracts by performing most of the work or improperly subcontracting to an affiliate.”

SBA said it has begun planning an overhaul of its data collection.

GAO said tribally owned firms accounted for almost one-third of 8(a) contract dollars in 2010, with the vast majority going in sole-source contracts to Alaska Native Corporations. The tribal companies can receive 8(a) sole-source awards in unlimited amounts, and GAO found that agencies continue to dole out the awards for reasons of speed and convenience.

The Defense Department now requires agencies to write a formal justification for any 8(a) sole-source contract over $20 million, but that rule had not take effect at the time of the GAO audit.

GAO found that some Alaska 8(a) firms operate like large businesses, relying on other subsidiaries of the same company for support. Illustrating the interconnected nature of the operations, one Alaska firm had a single executive who served as the point of contact for all seven of its 8(a) subsidiaries.

GAO said many startup tribal businesses were admitted to the program based on the experience of their managers—experience gained while working for a sister tribal firm. Many of the new tribal firms cited the past performance of a sister firm as evidence of their own capabilities. Some of the firms also cited their ability to quickly subcontract with sister firms and to share personnel with sister firms. One ANC firm boasted that it could transfer staff and management from sister firms as workloads dictated.

Those practices are allowed under current rules, but the auditors noted that SBA has the authority to determine if they are consistent with the purposes of the 8(a) program, “which is to develop sustainable small disadvantaged businesses.”

Some of the Alaska firms have enjoyed spectacular growth. The auditors found one firm reported average annual revenues of $31,000, but two years later its revenues had soared to $21 million because of federal contracts. Another tribal company had one employee when it applied for 8(a) certification and reported 124 employees a year later. More than half of all Alaska Native 8(a) companies left the program early, usually because they had outgrown size standards.

The Alaska companies have pointed to their support of impoverished local tribes, but a 2009 study by the Senate’s contracting subcommittee said that support added up to only $615 per tribal member per year for a large group of the Alaska corporations.

Rep. Edward Markey, D-MA, called for congressional hearings on the GAO findings. Legislation is pending in both houses that would end the special procurement preferences for tribally owned companies.

But Alaska’s Republican senator, Lisa Murkowski, told the Anchorage Daily News, “They say, ‘Look, additional monitoring, additional oversight is going to be required. But they didn’t say there should be statutory changes, they didn’t say participants should be restricted.”