Participation in the Small Business Administration’s flagship 8(a) business development program has been shrinking in recent years, even while federal contracting for 8(a) firms has remained high.

Darryl Hairston, associate administrator of the SBA’s Office of Business Development, who oversees the 8(a) program, spoke with Set-Aside Alert editor Alice Lipowicz about the recent trends and challenges to the program.

Set-Aside Alert: We have seen a decrease in the number of firms with 8(a) certification from fiscal years 2006 to 2011. From 9,667 8(a) companies in 2006, the number was nearly steady for two years, and then dropped to 8,827 in fiscal 2009, 8,444 in 2010 and 7,814 in 2011.

Overall, the 8(a) program experienced a net loss of 1,853 firms during the six-year period, a 19% reduction. How do you explain this pattern?

Darryl Hairston: Over the years, we have seen participation in 8(a) go through cycles. There was a big influx of firms in 2001-2003. We had a big uptick at that time. Those firms are now completing their nine-year enrollment. This year alone, we stand to lose 900 8(a) firms from the program due to program completion. We will lose another 300 from early graduation, termination or other reasons.

We are attracting new companies to the 8(a) program, but companies are exiting at a higher rate. We are aggressively pursuing recruitment efforts to attract more firms.

We are not seeing any changes in the rate of new applications. We get about 45-50 new applications for 8(a) certification per week. There has been no diminished interest.

Set-Aside Alert: While the number of 8(a) firms generally has been in decline since fiscal 2006, the federal contracting dollars going to 8(a) firms generally have risen during that period. What do you make of these patterns?

Darryl Hairston: Here are the numbers for 8(a) contract spending from the Federal Procurement Data System: $12.4 billion for fiscal 2006; $10.3 billion for fiscal 2007; $15.3 billion for fiscal 2008; $18.6 billion for fiscal 2009; $18.4 billion for fiscal 2010 and $16.6 billion for fiscal 2011. That is our most recent official number.

(Editor’s note: Total federal contract spending per fiscal year during the period was $432 billion in 2006; $469 billion in 2007; $541 billion in 2008; $540 billion in 2009; $540 billion in 2010; and $539 billion in 2011, from USASpending.gov.)

The percentage of 8(a) spending, relative to total federal contract spending, per fiscal year, was 2.9% in 2006; 2.2% in 2007; 2.8% in 2008; 3.4% in 2009; 3.4% in 2010; and 3.1% in 2011.)

Darryl Hairston: Looking at 8(a) spending as a percentage of total federal spending, the trends are pretty consistent. There was a big bump in spending in 2009 and 2010 as a result of the stimulus spending (American Recovery and Reinvestment Act of 2009).

We also have to look at the number of contracting actions for 8(a) firms. In fiscal 2006, there were 89,000 contracting actions; in fiscal 2007, 62,000; in fiscal 2008, 100,000; in fiscal 2009, 111,000; fiscal 2010, 116,000 and fiscal 2011, 117,000. The actions include new contracts, extensions, modifications, etc. That data shows a growing amount of 8(a) activity, suggesting a larger number of transactions are happening, with more contracts under Simplified Acquisition procedures and smaller contracts.

We see a pretty steady flow of funds into the 8(a) program. The federal agencies are committed to 8(a). They like the firms, the services and the fact that they can expedite contracts through competitive 8(a) sourcing or sole-source contracts.

Doing a competitive 8(a) procurement has certain advantages. Would you rather evaluate five proposals or 100 proposals? The agencies can expedite the process, and they see 8(a) as a real benefit.

Among the 8(a) firms, professional services do well, along with IT and construction. We can still do better, especially in the IT area.

Set-Aside Alert: With sequestration and budget cuts, we are seeing decreases in overall federal spending. What is the impact on the 8(a) program?

Darryl Hairston: You will see some shrinkage in the contracting dollars available. That is not a real surprise. In the government, the budget is going to go through up periods and down periods.

I don’t know if (current federal spending reductions) will be harmful to the 8(a) program. The 8(a) program is primarily a tool for business development. My goal is to improve the business development assistance as much as possible. We are not totally relying on government contracts for that; we need other opportunities as well.

Read PART II in the next issue of Set-Aside Alert on June 28

Chart: Federal 8(a) contract value.