In an announcement made earlier this month, the U.S. Treasury Department unveiled “a comprehensive audit of all contracts and task orders awarded under preference-based contracting, totaling approximately $9 billion in contract value across Treasury and its bureaus.” The Treasury Department added that “[t]he audit will examine potential misuse of the Small Business Administration’s [SBA] 8(a) Business Development Program, and other initiatives that provide federal contracting preferences to certain eligible businesses.” Treasury’s announcement follows on that department’s “suspension of all contracts and task orders with ATI Government Solutions” last month. Public records and a post on social media site X by the SBA Administrator reveal that the SBA had suspended ATI, a Native-American-owned business, from the SBA’s 8(a) program in October because of allegations of misuse of the 8(a) program. Treasury’s announcement is also consistent with the SBA’s prior announcement of “an immediate and full-scale audit of the agency’s 8(a) Business Development Program,” which began in June.
The 8(a) program, which takes its name from Section 8(a) of the Small Business Act of 1958, is intended “to assist eligible small disadvantaged business concerns compete in the American economy through business development” through training, technical assistance, and contracting opportunities. To qualify for the SBA’s 8(a) program, businesses must, among other things, constitute a “small business” under the regulations set forth at 13 C.F.R. Part 121; be “unconditionally owned and controlled by one or more socially and economically disadvantaged individuals who are of good character and citizens of and residing in the United States”; and demonstrate “potential for success.” Given the current administration’s stated opposition to what it considers to be discriminatory government programs, it is certainly possible that Treasury’s department-wide audit may well expand to include not just 8(a) program contractors but also those participating in the Service-Disabled Veteran-Owned Small Business (SDVOSB), Women-Owned Small Business (WOSB), and HUBZone programs.
According to the Treasury announcement, its “acquisition professionals have been instructed to require detailed staffing plans and monthly workforce performance reports for all service contracts. These tools will help detect non-performance and pass-through contracting that could point to potential fraud.”
Consequently, given that the object of the audit is to detect fraud, it would be prudent for contractors operating pursuant to preference-based small business programs to:
- Review all contracts and task orders awarded under any preference-based initiative for compliance with eligibility and performance requirements;
- Ensure that its small-business partners are performing the required share of work and that no arrangements resemble an impermissible “pass-through” structure;
- Maintain clear records of work allocation, certifications, and communications that evidence compliance with contract and task order requirements; and
- Establish protocols for responding to audit requests and consider engagement with counsel for proactive risk assessment.