Statement of the Hon. Judy Chu on Native 8(a) Contracting: Emerging Issues
Washington, October 22, 2019
In the 116th Congress, this Committee has been committed to taking a closer look at the various SBA contracting programs. Earlier this year, we held an oversight hearing on the Women-Owned Small Business Program, followed by a hearing where we discussed the contracting programs that help veterans bridge the gap between military service and entrepreneurship.
Most recently, we examined the 8(a) Business Development program, which had not been the subject of a hearing for more than a decade. Today’s hearing is a continuation of those efforts, in which we will be discussing the 8(a) Business Development program as it applies to native 8(a) contractors.
Last year alone, the federal government awarded more than $550 billion in contracts for goods and services, with nearly $18 billion going to firms participating in the 8(a) Business Development program. The 8(a) program has helped to level the playing field for small businesses owned by at least 51 percent socially and economically disadvantaged individuals. Moreover, it provides increased access to the federal marketplace and business development assistance to thousands of small firms each year.
In the 1980s, the 8(a) program was expanded to include small businesses owned by three disadvantaged groups: Indian tribes, Alaska Native Corporations or ANCs, and Native Hawaiian Organizations or NHOs. By including these groups in the 8(a) program, Congress sought to harness the purchasing power of the federal government to address the disproportionate levels of economic hardship experienced by indigenous communities. In fact, one-in-four American Indians and Alaska Natives were living in poverty in 2012. By including tribes, ANCs, and NHOs in the 8(a) program, Congress helped to foster economic development and help native communities achieve self-sufficiency. Today, there are approximately one thousand firms owned by Indian tribes, ANCs, and NHOs participating in the 8(a) program.
This hearing will focus on the 8(a) program as it related to group-owned native contracting firms, which differs in some ways to how individually-owned firms interact with the program. For example, while individual owners and their firms can only participate once in the program, there is no limit as to the number of times Indian tribes, ANCs, and NHOs can participate. Consequently, they can confer program eligibility to multiple small businesses for up to 9 years each. And unlike individually-owned businesses, group-owned native 8(a) contractors may receive sole-source contracts in any dollar amount.
These differing requirements and additional benefits are a reflection of the social responsibility borne by these groups. Native 8(a) contractors, unlike individually owned firms, use their profits to directly benefit entire communities of hundreds or thousands of disadvantaged individuals. The success of group-owned native 8(a) firms is directly connected to the provision of much-needed services to each and every member of the community.
The important objectives and worthwhile purpose of the Native 8(a) program is not in question. However, there have been longstanding problems with SBA’s oversight and implementation of the program, which this Committee intends to address.
For instance, SBA revised its regulations regarding the 8(a) program in 2011, which included changes applicable to native contractors. Among them, SBA prohibited the award of sole source contracts to native 8(a) contractors if the contract was previously and immediately performed by a sister company. Additionally, it made technical updates to prevent sister companies with same NAICS code from participating in the 8(a) program simultaneously.
Following the issuance of these regulations, GAO conducted two reports focused on native 8(a) contracting – one in 2012 and another one in 2016. Troublingly, these reports found that SBA did not have the adequate resources and lacked critical data to enforce these regulations.
The 2016 GAO report found that there are systemic issues that impede SBA from providing proper oversight, including weaknesses in SBA’s data collection, supervisory review, staffing, and guidance that restrict the agency’s ability to determine whether the program is achieving its objectives.
And in addition to the GAO’s findings, this summer the Los Angeles Times published reports of business owners misrepresenting themselves as Native American in order to benefit from the program. SBA has stated that it did not violate rules in certifying these contractors and attributed their eligibility to the regulations in place prior to 2011, when individual contractors were not required to be an enrolled member of a Federally- or State-recognized Indian Tribe in order to participate. We know from our recent hearing that certification of 8(a) firms has been a longstanding issue for SBA. But it is our responsibility to conduct thorough oversight of these allegations, and this hearing will help us to follow the facts and ensure that SBA is responding to these allegations adequately.
We owe all businesses in the 8(a) program, including those from native communities, the certainty that the program is operating as Congress intended. It is also our job to ensure that the successes of native 8(a) contractors, which empower and help communities become self-sufficient, are not overshadowed by the inability of SBA to properly manage the program.
Today’s hearing will provide us with the opportunity to hear about the oversight issues from GAO. We will also learn from program participants about the importance of the 8(a) program, its performance, and what it means for native communities. It is through this oversight that we will gain the tools we need to strengthen the 8(a) program.