New study: is 8(a) meeting its goals?

      The Small Business Admin-istration’s program assisting small companies with socioeconomic disadvantages may be falling short on meeting its original goals, according to a new academic study.

      While the 8(a) Business Development Program participants do relatively well in winning federal contracting--thanks to set-asides and sole-source awards--they do not necessarily graduate from 8(a) as strong, viable businesses, the study published in Small Business Economics said.

      Overall, the study suggests that the 8(a) program is a boon to the companies in the short term, but may not be fulfilling its goals of helping small firms with socioeconomic disadvantages grow and prosper in their communities.

8(a) goals

      The 8(a) Business Development Program was set up in 1953 to assist small and disadvantaged companies, mostly owned by minorities, by offering them preferences in federal contracts. The 8(a) participants also get technical and management assistance and access to mentor-protege agreements.

      Small disadvantaged firms won $39 billion in federal contracts in fiscal 2016, which was 39% of all small business contracts and 9.5% of all federal contracts. The 8(a) firms make up a large portion of the small disadvantaged firms.

The study

      The study evaluated 8(a) firms both in the short term, in winning federal contracts, and in the long term, in surviving and thriving after graduation from 8(a).

      The study compared 2007-2012 data from roughly 3,700 8(a) participants to data from two groups: 6,700 non-8(a) small disadvantaged firms and 1,600 service-disabled veteran-owned small businesses (SDVOSBs).

      On the contracting front, the 8(a)s are doing great. But they are much more dependent on government work alone.

      The 8(a) firms have the highest level of average awards by a wide margin, Author Grant Lewis of George Mason University wrote in the study. “Remarkably, their average contract awards are 6.5 times greater than for (non-8(a) small disadvantaged firms).”

      However, by also comparing average annual sales and other factors, he concluded that the positive effects for 8(a) participants are driven directly by the government awards and not by stimulating successful business practices, as was intended by program designers.

Key findings

      Overall, the author found that:

• 8(a) firms are more likely to go out of business in six years than the firms owned by service-disabled veterans.
• The 8(a) firms also had no edge over the non-8(a) small disadvantaged in terms of staying in business.
• Furthermore, while the 8(a)s grow faster than the non-8(a) disadvantaged, they grow more slowly than those owned by the service-disabled veterans.

      “All the benefits of the 8(a) program therefore appear to be generated by the short-run effect of subsidies. Participating firms outperform because they are being handed more money, not because they are becoming stronger businesses,” the author wrote.

Too much regulation?

      “The multitude of rules surrounding the (8(a)) program has a sharply adverse effect on long-run viability,” the author wrote, adding that this suggests the 8(a) program is not meeting its original goals.

      He blames the nine-year limit for 8(a) participation, saying it is encouraging businesses to exit the market once the benefits expire.

More Information: Study link: http://goo.gl/wgbhLi

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