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Federal Market Intelligence for Small Business |
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Set-Aside Alert exclusive analysis:While 8(a) set-asides slump, are riskier SDB awards soaring?SBA IG warns of ineligible self-cert SDB awardee risk; Also, FY2020 rule disallowed protests of disadvantagedIn federal contracting, 8(a) Business Development firms and self-certified Small Disadvantaged Businesses (SDBs) have an uneasy relationship. Companies in both categories are counted as small and disadvantaged. The 8(a) firms are certified by the Small Business Administration and can be awarded set-asides. The SDBs are largely self-certified, which the SBA’s Inspector General views as inherently risky. Awards in both categories--along with competitive 8(a) awards and those to a few SBA-certified SDBs--comprise total SDB procurements. In recent years, 8(a) set-aside awards have fallen while total awards to SDBs have soared. In fiscal 2014, 8(a) set-asides made up half of all SDB awards, but by fiscal 2021 the 8(a) set-aside portion had been reduced to below 20%, according to Set-Aside Alert’s exclusive research. While 8(a) set-aside awards have been languishing since a sharp drop in fiscal 2018, total awards for SDBs jumped by more than 30% from fiscal 2018 to 2021. The self-certified SDBs--which far outnumber the 8(a) firms and the few SBA-certified SDBs--appear to be benefiting from that growth. The SBA’s Inspector General recently warned of possible ineligibility for $12.4 billion in prime contracts awarded to self-certified SDBs that were not also certified in other SBA programs in fiscal 2021. The IG also noted that the danger of ineligible self-certified SDBs gaining awards is increasing as President Joe Biden’s administration is raising the SDB procurement goal. Last year, Biden raised the SDB goal to 11%, up from 5%. His aim is to lift the SDB goal to 15% by 2026. Furthermore, the Inspector General noted that fraud risks also are rising due to the Trump Administration in fiscal 2020 removing the ability to protest a small business’ disadvantaged status. “Even though self-certification is inherently risky, SBA removed regulations allowing for protests of a firm’s disadvantaged business status in FY 2020,” the IG wrote in the Top Management and Performance Challenges Facing the SBA in Fiscal 2023 report, released in October 2022. While the SBA in September 2022 issued a new proposed rule to restore the ability to protest disadvantaged status, it is not yet a final rule. SDBs vs. 8(a)s As Set-Aside Alert has reported previously, 8(a) set-aside awards fell by 35% in fiscal 2018 and have been slumping since then. Are 8(a)s losing out partly because a large number of risky self-certified SDBs have flooded the market? Since disadvantaged status cannot be protested at this time, how can agencies be sure that the self-certified SDBs are fully eligible for that status? As of May 5, the federal Dynamic Small Business Search (DSBS) database showed 157,147 self-certified SDB firms. That included:
Removing firms with the additional certifications leaves 148,457 active self-certified SDBs. At the same time, DSBS listed only 6,365 certified 8(a) firms. That is a much smaller number than that of the self-certified SDBs. Also, SBA’s Fiscal 2022 Annual Performance Report counted an even smaller number of 8(a) firms: 4,958 in fiscal 2022. Federal Data While 8(a) set-aside awards fell dramatically in fiscal 2018 and have been mostly flat since then, SDB awards have expanded, according to the SBA’s annual Procurement Scorecards. All years are fiscal years. From 2018 to 2021, while 8(a) set-asides stayed depressed, total SDB procurements rose by 34%.
Meanwhile, 8(a) set-asides have shrunk. In fiscal 2014, 8(a) set-asides made up 50% of all SDB awards, but by 2021, the 8(a) set-aside percentage had dropped to 19%. Data is from USA Spending.
The pattern of SDB expansion vs. 8(a) set-aside shrinkage has persisted for the past 7 years. From 2014-2021, total SDB awards were up 80%, while 8(a) set-asides were down 27%. It is also possible that the growth in SDB awards has been due partly to growth in competitive 8(a) awards. However, that possibility could not be assessed because data on competitive 8(a) awards was not available from USA Spending or SBA.
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