Small Business: SBA Could Better Focus Its 8(a) Program to Help Firms
Obtain Contracts (Letter Report, 07/20/2000, GAO/RCED-00-196).

The Small Business Administration's 8(a) program--the federal
government's primary vehicle for developing small businesses owned by
socially and economically disadvantaged persons--is not meeting client
expectations. First, SBA's efforts are not aligned with the needs or
expectations of 8(a) firms. Firms want SBA to provide more assistance
that will help them obtain contracts. SBA has stressed business
management skills, even though most firms joined the program to obtain
8(a) contracts. This misalignment of SBA efforts and 8(a) firms' needs
has been further compounded by the fact that most 8(a) contract dollars
go to a small number of firms. Second, SBA has no way to tell how well
the 8(a) program is working or know the full extent of business
development assistance provided to firms. SBA is unable to measure the
8(a) program's performance in such basic areas as the level of training
provided, whether such training matched firms' needs, or even the amount
of 8(a) contracts the firms obtained. GAO summarized these two reports
in testimony before Congress; see: Small Business: Expectations of Firms
in SBA's 8(a) Program Are Not Being Met, by Stanley J. Czerwinski,
Associate Director for Housing and Community Development Issues, before
the Senate Committee on Small Business. GAO/T-RCED-00-261, July 20 (15
pages).

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-00-196
     TITLE:  Small Business: SBA Could Better Focus Its 8(a) Program to
	     Help Firms Obtain Contracts
      DATE:  07/20/2000
   SUBJECT:  Small business assistance
	     Performance measures
	     Minority business assistance
	     Program evaluation
	     Small business contracts
	     Management information systems
	     Government contracts
	     Technical assistance
IDENTIFIER:  SBA 8(a) Program
	     SBA 7(j) Management Assistance Program
	     SBA Business Assessment Tool Program
	     SBA 8(a) Business Development Mentor Protege Program

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GAO/RCED-00-196

Appendix I: Objectives, Scope, and Methodology

26

Appendix II: GAO's Survey of 8(a) Firms

33

Appendix III: Comments From the Small Business Administration

44

Table 1: Percentage of Minority and Disadvantaged Groups That Considered
Overcoming Discrimination as a Major
Reason for Joining the 8(a) Program 17

Table 2: Sampling Errors for Selected Percentages 28

Table 3: Sampling Errors for Selected Estimates 28

Table 4: Summary of Returns to 8(a) Mail Surveys 31

Figure 1: Number of 8(a) Contracts Awarded to Firms That Have
Been in the 8(a) Program at Least 2 Years 7

Figure 2: Percentage of Firms That Have Not Obtained an 8(a)
Contract Based on the Amount of the Owners' Management Experience 8

Figure 3: Percentage of Firms That Have Obtained No 8(a) Contracts
by Their Years in Business Before Joining the 8(a) Program 9

Figure 4: Major Reasons Firms Joined the 8(a) Program 16

Figure 5: Major Reasons for Firms' Satisfaction and Dissatisfaction
With the 8(a) Program 18

Figure 6: Satisfaction of 8(a) Firms Based on Whether They Joined
the 8(a) Program to Learn to Manage a Business 19

Figure 7: Owners' Experience Managing Current 8(a) Firms and
Other Companies 20

IG Inspector General

SBA Small Business Administration

Resources, Community, and
Economic Development Division

B-284055

July 20, 2000

The Honorable Christopher S. Bond
Chairman, Committee on Small Business
United States Senate

Dear Mr. Chairman:

The 8(a) program, administered by the Small Business Administration (SBA),
is one of the federal government's primary vehicles for developing small
businesses that are owned by socially and economically disadvantaged
individuals. To be certified by SBA for participation in the program,
applicants must show that their firms are owned by socially and economically
disadvantaged individuals, meet SBA's small business size standards, and
have a reasonable potential for success, as defined in SBA regulations.
Firms in the program are eligible for contracts that federal agencies set
aside for 8(a) firms and may receive SBA technical assistance and management
training. In fiscal year 1999, about 6,000 small businesses participated in
the program, and $6.2 billion was awarded in 8(a) contracts.

Concerned about whether the program is helping 8(a) firms become more
competitive, you asked us to examine (1) the extent to which firms are
obtaining federal contracts, (2) how SBA tracks the training and assistance
provided to firms, and (3) how firms view the program. In examining the
firms' views, we focused on the reasons why firms join the program, what
assistance firms want from SBA, and how satisfied they are with the program.
To address these questions, we conducted a nationwide mail survey of 1,200
firms randomly selected from SBA's database of 5,432 active 8(a) firms. Our
survey response rate was 71 percent (853 firms) and our results can be
generalized to the entire population of active 8(a) firms in the program as
of September 30, 1999. Appendix I provides a more detailed description of
our objectives, scope, and methodology. Our survey and the responses to it
are provided in appendix II.

Access by firms to 8(a) contracts--long considered the program's biggest
benefit--remains a problem. A long-standing concern cited in our previous
reports and those of the SBA Inspector General is that a few firms receive
most of the 8(a) contracts, effectively limiting the developmental
opportunities available to other firms in the program. For example, in
fiscal year 1998, 209 firms received 50 percent of the 8(a) contract
dollars. SBA acknowledges this problem and has made some changes in the
program to address it, but SBA officials said that because of differences in
firms' skills and experience and other factors, it is reasonable that not
all 8(a) firms will receive contracts from the program. In addition, SBA
relies on other federal agencies to make the contract awards, and federal
procuring officials are confronted with the competing objectives of
accomplishing their agencies' missions at a reasonable cost and achieving
the 8(a) program's business development goals.

SBA remains unable to track the training and assistance it provides to 8(a)
firms. We reported in 1992 that SBA did not know the full extent of
management and technical assistance provided to 8(a) firms because it did
not track the assistance provided. Almost a decade later, we found that SBA
still does not have a method of systematically tracking the training and
assistance firms receive. The lack of such a system impairs SBA's ability to
measure the program's performance and to determine what assistance firms
need. SBA piloted a Business Assessment Tool in 1999 that would evaluate
firms' business development needs, but at the time of our review, SBA had
not completed its review of the pilot.

According to our survey results, almost all firms joined the program to
obtain 8(a) contracts, wanted SBA to provide contracting assistance, and
were more satisfied with the program if they had received a contract.
Eighty-six percent of the firms surveyed joined the program to obtain 8(a)
contracts. However, only about one-fifth of the firms joined the program to
learn more about how to manage a business. One reason for these firms' not
placing a higher priority on learning to manage a business is that a large
majority of the firms had owners with over 10 years' experience managing a
business. In addition, the firms themselves were not new; over half the
firms we surveyed had been in business 5 years or more before joining the
program. Overall satisfaction with the program was mixed, but firms that
received 8(a) contracts were more satisfied than those that did not. We are
recommending that SBA take a number of actions aimed at better meeting the
purpose of the program, the needs and expectations of the firms in the
program, and improving SBA's ability to determine how well the program is
working. We provided a draft of this report to SBA for its review and
comment. SBA concurred with the report's recommendations and provided
technical clarifications, which were incorporated as appropriate.

The Small Business Act, as amended, authorizes the 8(a) program. The purpose
of the program--which was named for a section of the Small Business Act--is
to help eligible socially and economically disadvantaged small businesses to
compete in the American economy through business development activities.
Toward this end, the Congress made three major legislative attempts--in
1978, 1980, and 1988--to improve SBA's administration of the program and to
emphasize its business development aspects. The Congress enacted the 1988
act and subsequent amendments partly because the program was not developing
firms in the program into viable businesses. To remedy this and other
problems, the 1988 act made a number of changes to improve the program's
organization and participation standards, business development activities,
and overall management.

To be eligible for the 8(a) program, a firm must be a small business that is
at least 51-percent owned and controlled by one or more socially and
economically disadvantaged individuals. A firm is considered small if it
meets size standards established by SBA for the firm's particular industry.
Under the program, certain ethnic groups, such as African and Hispanic
Americans, are presumed to be socially disadvantaged. Other individuals can
be admitted to the program if they can adequately document that they are
socially disadvantaged. In addition, to qualify as economically
disadvantaged, an individual must have a net worth of less than $250,000,
excluding his or her ownership interest in the firm and a primary personal
residence. A firm must also generally have been in business at least 2 years
and possess a reasonable prospect for success in the private sector as
determined by SBA on the basis of elements such as the firm's operating
revenue and access to capital and credit.

Firms that enter the program are eligible to receive contracts that federal
agencies set aside for the program and to receive business development
assistance from SBA. Competition for 8(a) contracts is limited to firms
within the program. Firms can obtain other federal contracts, but do so in
competition with firms outside the program. Firms' 9-year program
participation is divided into two stages--a developmental stage covering
years 1 through 4 and a transitional stage covering years 5 through 9.
During the transitional years, firms are required to meet certain non-8(a)
business contract levels in an effort to ensure firms do not develop an
unreasonable reliance on the program. According to 8(a) program regulations,
firms may also receive business development assistance, such as contract
support, financial assistance, training in developing business strategies to
enhance their ability to compete for contracts, training in transitional
business planning, and assistance in forming joint ventures with other
firms.

A business opportunity specialist in the SBA district office that serves the
geographical area where a firm's principal place of business is located is
normally assigned to service the firm while it is in the program. The
business opportunity specialist is responsible for, among other things,
assisting the firm with preparing a business plan, conducting annual reviews
of the firm's progress in implementing its plan, providing technical
assistance, analyzing year-end financial statements for certain compliance
issues, and coordinating additional assistance and training for the firm
through SBA's 7(j) Management and Technical Assistance Program.

Because access to 8(a) contracts has long been considered the program's
biggest benefit, firms' success in obtaining these contracts has been a
long-standing concern. The Congress in amending the 8(a) program in 1988
sought to improve the fair and equitable distribution of federal contracting
opportunities by increasing the number of competitive small businesses owned
and controlled by socially and economically disadvantaged individuals.
Nonetheless, as our prior reports and those of the SBA Inspector General
(IG) have noted, (1) a large percentage of the total dollar value of program
contracts was awarded to very few firms, and (2) about half the firms in the
program in a given year receive none of these contracts. For example, our
analysis of SBA's fiscal year 1998 program data showed that 50 percent ($3.2
billion) of the dollar value of the 8(a) contracts and modifications went to
only 209 of the more than 6,000 firms in the program, while over 3,000 firms
did not get any program contracts. According to SBA, because the
developmental status of each firm in the program varies greatly in any given
year, the number of firms that seek 8(a) contracts will be less than the
total number of firms in the program. The IG also listed the concentration
of 8(a) contracts among a few firms as one of the 10 most serious management
challenges facing SBA in both fiscal years 1999 and 2000. The concentration
of program contract awards has also been reported as a material weakness in
SBA's Federal Managers Financial Integrity Act Report every fiscal year
since 1994.

According to our survey results, many firms have yet to actually receive an
8(a) contract. For example, as shown in figure 1, 24 percent of our survey
respondents who have been in the program for at least 2 years have not
obtained an 8(a) contract. Of those survey respondents who joined the
program primarily to obtain contracts and who have been in the program for
at least 2 years, 35 percent indicated that they have not been successful in
obtaining a contract. One survey respondent wrote that their firm is going
into its fourth year in the program without obtaining any 8(a) contracts.
The respondent wrote that their firm was under the impression that SBA staff
would assist them in contacting federal agencies and obtaining these
contracts. Instead, the firm has had to use its time and resources to fill
out the paperwork required by SBA but has nothing to show for its efforts.
According to the program's regulations, admission into the program does not
guarantee that firms will receive 8(a) contracts. Firms are also informed
upon joining the program that participation does not guarantee their
obtaining an 8(a) contract.

In our analysis of the survey data, we examined different factors to
determine if there were any relationships between firms that have not yet
obtained 8(a) contracts and (1) the number of years of the owners' overall
owner management experience or (2) the number of years a firm was in
business before joining the program. The survey data indicate firms that
have owners with less management experience are not as likely to obtain 8(a)
contracts compared with firms with more experienced owners. As illustrated
in figure 2, nearly 63 percent of the firms surveyed have owners with 2 to 4
years' management experience and have not obtained a contract.

Our survey data indicate that no significant relationship exists between the
amount of time a firm has been in business before joining the program and
its success in obtaining an 8(a) contract. For example, as illustrated in
figure 3, there is no statistical difference between firms that have been in
business less than 2 years and those that have been in business over 10
years with regard to their success in obtaining an 8(a) contract.

SBA agrees that the concentration of program contracts among a few firms is
a problem and has made changes to the 8(a) program in an attempt to reduce
the concentration. For example, SBA revised the program's regulations in
June 1995 and eliminated a loophole that allowed firms to obtain sole source
contracts above a limit set for the program. In 1998, SBA attempted to make
the 8(a) contracting process more attractive for federal agencies by
negotiating memorandums of understanding that allowed federal agencies to
contract directly with 8(a) firms. Federal agency officials we interviewed
generally viewed this change as having a positive impact on the process.
Officials at one agency commented that their memorandum of understanding has
reduced the time it takes them to issue an 8(a) contract by at least 30
days. Also, in June 1998, SBA again revised the program's regulations to,
among other things, limit the total dollar amount of sole source contracts
firms can receive and allow 8(a) firms and other small businesses to form
joint ventures to enhance their ability to obtain larger federal contracts.
SBA stated in December 1999 that these efforts, along with others, were
reducing the contract concentration problem. The agency reported a
40-percent reduction in the dollar amount of 8(a) contracts awarded to the
top 10 firms between fiscal years 1997 and 1998. However, our analysis of
SBA's fiscal year 1999 program data showed that this was a short-term
reduction because the dollar amount of 8(a) contracts awarded to the top 10
firms increased by 45 percent between fiscal years 1998 and 1999.

At the same time, SBA officials said that because of the differences in
skills and experience among the firms and conflicting federal procurement
objectives, it is reasonable that not all firms in the program will receive
8(a) contracts. According to SBA, 8(a) firms are no different from other
small businesses--some will be more successful than others. Among the
factors that define a firm's success in obtaining 8(a) contracts are the
firm's proximity to federal agencies; the firm's capabilities, access to
credit and capital, and effective marketing; and the share of each federal
agency's prime contracting dollars devoted to the program. The program's
regulations state that admission to the program does not guarantee that a
participant will receive 8(a) contracts. In addition, SBA relies on other
federal agencies to make the contract awards, and federal procuring
officials are confronted with the competing objectives of accomplishing
their agencies' missions at a reasonable cost and achieving the 8(a)
program's business development goals.

Impairs Its Ability to Measure Program Performance

SBA remains unable to track the training and assistance it provides to 8(a)
firms. Almost a decade after we first reported that SBA did not track the
assistance it provides to firms, we found that SBA still does not have a
method of systematically tracking the training and assistance firms receive.
The lack of such a system impairs SBA's ability to measure the program's
performance and to determine what assistance firms need. SBA piloted a
Business Assessment Tool in 1999 that would evaluate firms' business
development needs, but at the time of our review, SBA officials had not
completed their assessment of the pilot. SBA has attempted to enhance the
training component of the program over the last several years, but its
efforts are limited in the number of firms they can serve because of funding
constraints.

Although SBA wants to emphasize business development for 8(a) firms, it does
not currently have a method for systematically tracking the business
development training and assistance 8(a) firms receive. In January 1992, we
reported that the full extent of the management and technical assistance
provided to 8(a) firms was unknown because SBA did not have a computer
network that enabled the agency to collect this information.1 In September
1996, SBA testified it had implemented an automated information system that
enabled the agency to monitor, among other things, what kind of assistance
was provided to firms and what progress was made with business development.
Yet SBA is not currently tracking the training and assistance provided to
8(a) firms. SBA's Deputy Assistant Administrator for Technology said that
SBA's current information system had the capacity to track management
training from the 7(j) Management and Technical Assistance Program when the
system was initially implemented, but this capacity was never used because
7(j) program funding was reduced. If information on training and assistance
is needed, the 8(a) program manager said headquarters would send an
information request to the district offices. However, officials in SBA's
district offices in Atlanta, Dallas-Fort Worth, New York City, and San
Francisco told us that they do not have systems to track the training or
assistance that they or others provide to 8(a) firms. Officials in SBA's
Washington, D.C., district office informed us that since SBA did not have a
centralized system to track training or assistance provided to 8(a) firms,
the district office maintained a spreadsheet with this information. Our
report on SBA's 8(a) information system discusses this issue as well as
other concerns with that system.2

In addition, SBA does not have a systematic way of assessing the business
development needs of 8(a) firms or the effect of the assistance it provides
to address these needs. SBA currently relies on its business opportunity
specialists to make such an assessment through their periodic contacts with
the firms and their reviews of the firms' business plans and the annual 8(a)
program reports firms provide. It is the business opportunity specialists'
responsibility to provide advice and guidance on management and marketing,
technical, financial, and contracting assistance and to refer firms to other
sources, both within and outside SBA, for additional assistance. However,
many business opportunity specialists are also responsible for a myriad of
other tasks, such as making sure that firms comply with the program's
regulations before they receive 8(a) contracts, reviewing annual financial
reports from firms, and increasingly, for program marketing activities as
well. For example, in the Atlanta, Dallas-Fort Worth, and New York City
district offices, business opportunity specialists are responsible for all
tasks associated with the firms in their portfolios. In these offices, the
number of 8(a) firms each business opportunity specialist was responsible
for at the time of our visits ranged from a low of 25 to a high of 43. In
the San Francisco and Washington, D.C., district offices, the business
opportunity specialists have a larger number of firms in their portfolios,
but they divide up the servicing responsibilities. For the most part, the
business opportunity specialists that we interviewed said that they believe
the time they have to assess 8(a) firms' developmental needs and to provide
needed assistance is limited. SBA officials in each of the district offices
we visited also told us that because of travel constraints and other
factors, business opportunity specialists are unable to make annual site
visits to all the 8(a) firms in their portfolios, as recommended in SBA's
operating procedures for the program.

In an effort to better identify what type of assistance and training an 8(a)
firm requires, SBA piloted an automated Business Assessment Tool, but at the
time of our review, the SBA Associate Deputy Administrator responsible for
the 8(a) program said he was uncertain whether the tool would be implemented
because of budget constraints. The assessment tool was designed to match
information from a series of 58 questions that assess a firm's developmental
assistance needs with the business training and counseling resources
provided by SBA and other service providers. The tool also provided a
mechanism for tracking the training and assistance recommended. In July
1999, SBA piloted the Business Assessment Tool at 14 SBA district offices
where it was used to assess 53 firms. SBA officials said that the tool,
which is not integrated into SBA's current information system, is being
reassessed because the pilot showed that it could be improved by being made
more user friendly. For example, if a business opportunity specialist was
not able to complete all the data entries in one session, the tool would not
save the entries already completed.

Improvement

SBA changed how it measures the success of the 8(a) program by realigning
the program's performance goals in the agency's fiscal year 2001 annual
performance plan with the program's business development emphasis. As
required by the Government Performance and Results Act, agencies must
prepare annual performance plans that inform the Congress of, among other
things, the performance goals for major programs and the measures used to
gauge program performance. Previously, the 8(a) program's success--as
measured in SBA's fiscal year 2000 plan--was based on the number of firms
still independently owned and operated 3 years after leaving the program.
SBA now defines the program's success as the number of 8(a) firms that
complete the 9-year program term (or graduate early from the program) and
receive business development assistance. Though the fiscal year 2001 plan
did not provide specific details on what business development assistance
involved, the plan stated that it included technical, management, and
federal contract assistance.

However, as reported in our review of SBA's fiscal year 2001 performance
plan, the new measure SBA adopted to assess the success of the 8(a) program
is an output measure--completing the program and receiving business
development assistance--and is a weaker performance measure than the outcome
measure SBA adopted in its fiscal year 2000 plan--continued business
operation 3 years after leaving the program.3 SBA's supporting information
on the program's success rates in its 2001 plan for fiscal years 1997
through 1999 shows that the agency counted all firms that completed the
program as successful because district office procedures dictate that every
8(a) firm receive at least one training session. Yet as we previously
discussed, SBA has no systematic way to track the extent to which this and
other assistance was provided.

A second performance goal in SBA's fiscal year 2001 performance plan--to
increase the ability of small and disadvantaged businesses to successfully
supply the government with goods and services by providing them with
increased contracts and business development assistance--also affects the
8(a) program. The 2001 plan shows that SBA will measure this goal based on
the percentage of firms that receive federal contracts, technical
assistance, and mentoring. However, like the 8(a) program's new goal to
measure program success, this performance goal also focuses on outputs
rather than on outcomes. For example, SBA's target output measure for
technical assistance is that in fiscal year 2001, 25 percent of small and
disadvantaged businesses, including 8(a) firms, should receive business
development and financial assistance through a number of SBA programs.

Limited

As part of its emphasis on business development, SBA devoted a significant
amount of the funding from the 7(j) program to executive education for 8(a)
firms. Since fiscal year 1996, SBA has earmarked from 40 to 50 percent of
its 7(j) funding for this training. The executive education training, given
to select 8(a) firm executives who are nominated for participation by SBA
district offices, is conducted at various colleges and universities across
the country. A senior SBA program adviser estimated that about 10 percent of
the 8(a) firms have had executives participate in this training. The
training is divided into two parts--a basic course for executives from firms
in the developmental or transitional stages of the program and an advanced
course for executives who have attended the basic course. Both courses focus
on developing needed business skills for an 8(a) firm's president or chief
executive officer.

Owners of two 8(a) firms we interviewed when developing our survey had taken
the executive training and were very positive about the impact it had on
their businesses. For example, one of the owners said that as a result of
the training, she was able to expand her personnel firm so that it now
provides business services. The other owner said that he considered himself
very proficient in the engineering field but lacked sophisticated management
skills. He credited the training with helping him focus his business plan
and further develop his management skills. However, both owners stressed
that SBA selects the more successful firms for executive development
training.

Funding for the 7(j) program has decreased dramatically starting in fiscal
year 1996. The program's funding for fiscal years 1990 through 1995 averaged
about $8.4 million per year, exceeding SBA's average budgetary request of
$7.2 million per year. In contrast, for fiscal years 1996 through 1999,
funding for 7(j) averaged about $2.6 million per year, well below SBA's
average budgetary request of $7.1 million. As a result of the decreased 7(j)
funding levels, the 8(a) program manager said that SBA has relied on its
other programs, such as the Small Business Development Centers and the
Women-Owned Business Centers, to provide business development assistance to
8(a) firms. These programs have always been available to firms, but
according to the program manager, they generally do not provide firms with
specific contracting assistance.

During fiscal year 1999, SBA initiated the 8(a) Business Development
Mentor-Protï¿½gï¿½ Program. The program encourages private sector relationships
with mentors who can provide technical assistance, financial assistance
(equity investments or loans), subcontract support, and assistance in
performing prime contracts through joint venture arrangements with 8(a)
firms. As of April 2000, SBA had established 40 mentor-protï¿½gï¿½ agreements
and planned to have an additional 60 agreements in place by the end of
fiscal year 2000. Nonetheless, if this participation level continues, the
Mentor-Protï¿½gï¿½ program will only be able to reach a small fraction of the
over 6,000 8(a) firms.

Their Satisfaction Depends on Contracting Opportunities

The most important reason that 86 percent of the firms cited for joining the
8(a) program was to obtain federal contracts set aside for the program.
However, only about one-fifth of the firms in the program felt that they
needed assistance from SBA in learning how to manage a business and would
rather have had SBA assistance in finding contract opportunities. Overall
satisfaction with the program was mixed, but firms that received 8(a)
contracts were more satisfied than those that did not.

According to our survey results, a major reason 86 percent of the firms
cited for joining the 8(a) program was to obtain federal contracts that are
set aside for the program. As shown in figure 4, a significant number of the
firms we surveyed also entered the program to broaden their customer base to
include the federal government and to increase their net income. For
example, one respondent wrote that their firm is an established company that
joined the 8(a) program just to expand its opportunities with the federal
government. Another survey respondent wrote that the program should do more
to help good minority companies obtain federal contracts.

Another major reason firms joined the 8(a) program was to overcome barriers
of discrimination. While 69 percent of the respondents gave this reason, the
percentage varied somewhat depending on the group with which a firm's owner
identified. As table 1 indicates, 81 percent of the firms owned by minority
women considered overcoming discrimination to be a major reason for joining
the program, while 58 percent of the firms owned by Hispanic Americans saw
it as a major reason. One survey respondent wrote that discrimination still
exists and that, without the 8(a) program, it would have been almost
impossible for their company to compete against large corporations for
federal contracts. Another survey respondent wrote that the program is the
only one available for minority firms to grow their businesses.

 Minority/disadvantaged group Percentage
 Minority women               81
 Nonminority women            78
 African American             78
 Native American              64
 Asian American               63
 Hispanic American            58

Receipt

Overall satisfaction with the program was mixed, but firms that received
8(a) contracts were more satisfied than those that did not. For example,
over 48 percent of the firms in the program for at least 2 years that had
obtained at least one 8(a) contract were satisfied with the program.
However, only about 9 percent of the firms in the program for at least 2
years that had not obtained an 8(a) contract were satisfied. One respondent
wrote in their survey that they were frustrated because their firm had spent
a considerable amount of money marketing to various federal agencies for
over 2 years with no results.

When asked about satisfaction with general aspects of the 8(a) program,
firms expressed the most dissatisfaction with two items relating to
contracting issues. As shown in figure 5, 58 percent of 8(a) firms indicated
that they were dissatisfied with the amount of contracting opportunities
from the program. Over half the firms surveyed were also dissatisfied with
their efforts to find the right contact at a federal agency to discuss
potential 8(a) contracts. Additionally, over 40 percent were dissatisfied
with the amount of individual assistance SBA provided and the level of
interest federal agencies showed for working with 8(a) firms. One respondent
commented in their survey that their firm had not received any assistance
from its business opportunity specialist in over 5 years. One respondent
also wrote that they did not even know who to contact at SBA and that the
only information they received from SBA was paperwork for recertification
and requests for financial information. Another respondent wrote that
federal agencies were reluctant to use the 8(a) program. The respondent also
wrote that SBA had failed to understand the concerns of federal agencies and
that this kept the agencies from using the program.

Other firms were more satisfied with the amount of contracting opportunities
provided by the 8(a) program. For example, one survey respondent noted that
that the program had helped their business to gain not only government
contracts but also commercial ones. Another firm wrote that the program had
provided an opportunity to participate in federal government contracts that
were not available to the firm prior to joining.

Note: Those who responded "uncertain" were not included in this figure. As a
result, totals do not tally to 100 percent.

According to our survey, firms that joined the 8(a) program to learn to
manage a business were generally more satisfied with the program than those
that did not join for this purpose. Half of the firms we surveyed that
joined the program to learn more about managing a business were satisfied,
while only 30 percent of those that did not join for this purpose were
satisfied. Additionally, as illustrated in figure 6, 60 percent of those
that joined to learn to manage a business were satisfied with the business
knowledge gained from the program. In contrast, only 24 percent who said
that they did not join to learn to manage a business were satisfied with the
business knowledge gained.

Firms that joined the program to learn to manage a business also joined to
obtain 8(a) contracts. For example, 83 percent of the firms that joined to
learn to manage a business reported that obtaining 8(a) contracts was a
major reason for joining. However, most of the firms that joined the program
to learn to manage a business were dissatisfied with the contracting aspect
of the program--only 26 percent of these respondents were satisfied with the
amount of 8(a) contract opportunities.

While firms that joined the 8(a) program to learn to manage a business were
generally more satisfied with the program, only about one-fifth of those
surveyed indicated that this was a major reason for joining. One reason for
these firms' not placing a higher priority on learning to manage a business
is that a large majority of the firms already had business experience. As
shown in figure 7, 70 percent of firms had owners with over 10 years'
experience managing their current 8(a) firm and other companies.
Furthermore, over 50 percent of the firms we surveyed were in business 5
years or more before joining the program. One respondent wrote in their
survey that their company had been in business 12 years before being
certified as an 8(a) firm. Another respondent wrote that they had over 20
years business experience and just needed help finding contracting
opportunities, help they had not received from their local SBA office.

According to our survey data, most firms would like to see SBA implement
changes that would place a greater emphasis on increasing 8(a) contract
opportunities. For example, 90 percent of those surveyed wanted SBA to place
a high priority on increasing efforts to link 8(a) firms with specific
federal program managers. Over 80 percent wanted SBA to make sure that
contacts at federal agencies are familiar with the program. Furthermore, 83
percent of the survey respondents wanted SBA to increase the number of ways
the agency informs 8(a) firms about contract opportunities. Among the survey
comments we received, one respondent stated that SBA should change the
nature of the 8(a) program from a business development program to a
contracting program. The respondent wrote that by changing the nature of the
program, SBA would have more time to monitor compliance and promote the
program to other federal agencies. Another survey respondent wrote that SBA
should be more involved with firms as they seek out contracts and suggested
that SBA hold quarterly meetings with firms at their place of business to
discuss their progress. A third survey respondent wrote that SBA should
place its highest priority on seeing that firms obtain their first 8(a)
contract. Additionally, SBA's assessment of the data collected during SBA's
pilot of the Business Assessment Tool also emphasized an increased
contracting focus and recommended that contract assistance or counseling be
provided to over 80 percent of the 53 firms assessed.

The purpose of the 8(a) program is to assist eligible small disadvantaged
firms compete in the American economy through business development. SBA's
program regulations state that, among other things, business development
includes training to aid in developing strategies to compete successfully
for both 8(a) and non-8(a) contracts. Our survey showed that 8(a) firms join
the program primarily to obtain contracts and that their satisfaction with
the program is tied to their receipt of contracts. Therefore, SBA should
consider making contracting assistance its first priority for the program.
To do this, SBA would need to increase its outreach efforts to federal
agencies and develop strategies to increase the percentage of 8(a) firms
that obtain contracts. In addition, SBA's district offices would need to
focus resources on helping inform firms about contract opportunities,
assisting firms with contracts at federal agencies, and being more involved
with firms as they seek and negotiate contracts. By focusing its efforts on
providing contracting assistance and outreach to federal agencies, SBA could
better achieve the purpose of the program, improve customer satisfaction,
and make more progress toward eliminating its long-standing problem with
contract concentration.

SBA has no way to tell how well the 8(a) program is working. SBA has never
surveyed its customers in a meaningful way as we did to determine what their
needs are and to find out how satisfied they are with the program.
Additionally, almost a decade after we first reported that SBA did not know
the full extent of business development assistance provided to 8(a) firms
because it did not track this assistance, SBA still does not have a tracking
system in place. The Business Assessment Tool that SBA developed and piloted
is a step in the right direction in terms of tracking training needs and the
assistance provided, but pilot tests showed that it needs to be improved
before it can be implemented. The lack of systematic data limits SBA's
ability to monitor the program's results and to assess its effectiveness
under the Government Performance and Results Act in an accurate and
meaningful way. SBA has revised the program's success measure to include a
provision of business development assistance as a factor. Yet the measure is
meaningless because SBA simply assumes that every firm that completes the
9-year program has received a training session. Thus, all a firm has to do
to be successful under this measure is to stay in the program for 9 years
and attend one training session.

Because SBA does not know what business development assistance its
customers--the 8(a) firms--want or need from the program, its efforts are
not aligned with the needs and expectations of the firms. Recognizing that
the owners of over two-thirds of the firms in our survey had over 10 years
of management experience and that training funds available through the 7(j)
program are severely limited, SBA could limit business development
assistance that is not contracting-related to only the 8(a) firms that are
identified as requiring it. Length of management experience could be used as
a simple indicator to determine which firms might need assistance and which
do not. Alternatively, SBA could refocus 7(j) program funding toward
contracting-related training and refer firms that need management training
to other sources.

To better address the purpose of the 8(a) program, meet the needs and
expectations of the firms in the program, and improve SBA's ability to
determine how well the program is working, we recommend that the
Administrator of the Small Business Administration take the following steps:

ï¿½ Instruct the district offices to place their highest priority on helping
inform firms about contracting opportunities, assisting firms with contacts
at federal agencies, and becoming more involved with firms as they seek and
negotiate contracts.

ï¿½ Periodically perform a nationwide sample survey of 8(a) firms to obtain
measurable program data. At a minimum, the survey should assess whether SBA
assistance is meeting the firms' expectations and needs.

ï¿½ Provide a method for collecting data on each firm's training needs for
tracking the assistance provided.

ï¿½ Revise the 8(a) program's success measure in SBA's future annual
performance plans to make the measure a more meaningful assessment of the
program's impact.

Reassess the agency's use of 7(j) Management and Technical Assistance
Program funding. The reassessment should consider whether to devote most of
the 7(j) program's funding to training designed to develop the abilities of
8(a) firms to obtain contracts or to retain the current business development
focus but restrict the training to firms with a demonstrated need.

We provided a draft of our report to SBA for its review and comment. SBA
concurred with the report's recommendations and provided technical
clarifications, which were incorporated as appropriate. SBA's comments are
in appendix III.

We conducted our review from September 1999 through July 2000 in accordance
with generally accepted government auditing standards.

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report for 30 days. At that
time, copies of this report will be sent to the Honorable John Kerry,
Ranking Minority Member of the Committee; other interested congressional
committees; the Honorable Aida Alvarez, Administrator, Small Business
Administration; and other interested parties. We will also make copies
available to others on request.

If you or your staff have any questions about this report, please contact me
at (202) 512-7631. Key contributors to this report were Susan Campbell, Amy
Carroll, Andy Clinton, Fran Featherston, Curtis Groves, Barbara Johnson, and
Kirk Menard.

Sincerely yours,

Stanley J. Czerwinski
Associate Director, Housing,
Community Development, and
Telecommunications Issues

Objectives, Scope, and Methodology

Our objectives were to determine (1) the extent to which firms in the Small
Business Administration's (SBA) 8(a) program are obtaining federal
contracts, (2) how SBA tracks the training and assistance provided to firms,
and (3) how firms view the program. In answering our first and second
objectives, we visited and interviewed SBA officials involved with the 8(a)
program at SBA headquarters in Washington, D.C., and at SBA district offices
in Atlanta, Dallas-Fort Worth, New York City, San Francisco, and Washington,
D.C. We selected these district offices based on the number of 8(a) firms
they oversee and the geographic locations of the offices. Officials at SBA
headquarters and the five district offices provided us with information on
SBA's management of the 8(a) program, its current focus, and recent SBA
initiatives intended to improve the program.

We also obtained and reviewed SBA's annual performance plans from fiscal
years 1999 through 2001; annual SBA reports to the Congress on the 8(a)
program from fiscal years 1995 through 1998; the program's regulations,
which included the most recent changes from June 1998; various SBA
procedural and information notices about the program; SBA's March 2000
proposed reorganization plan involving the program; and our prior reports on
the program dating back to 1981. We also reviewed reports by the SBA
Inspector General and information on the 8(a) program and discussed with
Inspector General officials their past work involving the program.

To obtain a perspective on the focus of the program beyond SBA, we
interviewed officials from selected Offices of Small Disadvantaged Business
Utilization and various contracting officers for the Air Force, the
Department of Education, the Environmental Protection Agency, the General
Services Administration, the Office of Personnel Management, and the
Department of Veterans Affairs. We selected these federal agencies because
of the dollar amount of 8(a) contracts they awarded to 8(a) firms in fiscal
year 1998, according to information from the Federal Procurement Data
System.4 The Air Force, General Services Administration, and Department of
Veterans Affairs were 3 of the 10 federal agencies with the highest dollar
amount of 8(a) contracts. The Department of Education, Environmental
Protection Agency, and Office of Personnel Management were 3 of the 15
federal agencies with the lowest 8(a) contract amounts above $1 million. We
also obtained information on the program from our interviews with officials
at the Minority Business Enterprise Legal Defense and Education Fund and the
National Federation of 8(a) Companies.

To answer our third objective on how firms view the program, we conducted a
nationwide mail survey of active 8(a) firms. Our survey focused on the
reasons why firms join the program, what assistance firms want from SBA, and
how satisfied they are with the program. To determine which firms were
eligible for our survey, we obtained a data file from SBA of all 8(a) firms.
We then drew a random sample of 1,200 firms out of the 5,432 firms in the
program listed as active as of September 30, 1999, and mailed our survey to
these 1,200 firms.

Since we used a sample (called a probability sample) of 1,200 8(a) firms to
develop our estimates, each estimate has a measurable precision, or sampling
error, that may be expressed as a plus/minus figure. A sampling error
indicates how closely we can reproduce from a sample the results that we
could obtain if we were to take a complete count of the universe using the
same measurement methods. By adding the sampling error to and subtracting it
from the estimate, we can develop upper and lower bounds for each estimate.
This range is called a confidence interval. Sampling errors and confidence
intervals are stated at a certain confidence level--in this case, 95
percent. For example, a confidence interval at the 95-percent confidence
level means that in 95 out of 100 instances, the sampling procedure we used
would produce a confidence interval containing the universe value we are
estimating.

Table 2 shows sampling errors for selected estimates that use the entire
group of firms responding to our survey. Sampling errors are no more than 3
percent at the 95-percent confidence level for any estimate that has at
least 750 respondents answering the question. Sampling errors for subgroups
will be larger, depending upon the number of respondents in the subgroup.
Table 3 shows sampling errors at the 95-percent confidence level for
estimates in our report that use subgroups of firms.

 Reported survey percentages (between 750 and 853 respondents) Sampling
                                                               error
 1 to 5 percent                                                ï¿½1 percent
 6 to 20 percent                                               ï¿½2 percent
 21 to 79 percent                                              ï¿½3 percent
 80 to 94 percent                                              ï¿½2 percent
 95 to 99 percent                                              ï¿½1 percent

   (Continued From Previous Page)    Number of    Estimated      Sampling
                                       cases       percent        error
 Table 1: Percentage of minority and
 disadvantaged groups that
 considered overcoming
 discrimination as a major reason
 for joining the 8(a) program
 Minority woman                      117        81             ï¿½6 percent
 Nonminority woman                   18         78             ï¿½19 percent
 African American                    253        78             ï¿½5 percent
 Native American                     56         64             ï¿½11 percent
 Asian American                      153        63             ï¿½7 percent
 Hispanic American                   187        58             ï¿½6 percent
 Figure 1: Number of 8(a) contracts
 awarded to firms that have been in
 the 8(a) program at least 2 years
 None                                553        24             ï¿½3 percent
 1 to 2 contracts                    553        31             ï¿½3 percent
 3 to 5 contracts                    553        20             ï¿½3 percent
 6 to 10 contracts                   553        13             ï¿½2 percent
 11 and over                         553        12             ï¿½2 percent
 Figure 2: Percentage of firms that
 have not obtained an 8(a) contract
 based on the amount of the owners'
 management experience
 2 to 4 years                        38         63             ï¿½14 percent
 5 to 7 years                        103        51             ï¿½9 percent
 8 to 10 years                       101        36             ï¿½8 percent
 Over 10 years                       580        33             ï¿½3 percent
 Figure 3: Percentage of firms that
 have obtained no 8(a) contracts by
 their years in business before
 joining the 8(a) program
 Less than 2 years                   87         33             ï¿½9 percent
 2 to 4 years                        318        38             ï¿½5 percent
 5 to 7 years                        177        36             ï¿½6 percent
 8 to 10 years                       101        31             ï¿½8 percent
 Over 10 years                       141        40             ï¿½7 percent
 Figure 6: Satisfaction of 8(a)
 firms based on whether they joined
 the 8(a) program to learn to manage
 a business
 Reason for joining 8(a) program:
 Amount of business knowledge gained
 Major reason                        178        60             ï¿½6 percent
 Minor reason                        252        46             ï¿½5 percent
 Not a reason                        382        24             ï¿½4 percent
 Reason for joining 8(a) program:
 Amount of individual assistance SBA
 provides in developing business
 Major reason                        178        46             ï¿½6 percent
 Minor reason                        252        38             ï¿½5 percent
 Not a reason                        382        23             ï¿½4 percent
 Reason for joining 8(a) program:
 The match between the training 8(a)
 offers and what firms need
 Major reason                        178        44             ï¿½6 percent
 Minor reason                        252        28             ï¿½5 percent
 Not a reason                        382        15             ï¿½3 percent
 Selected estimates from text of
 report
 Percentage satisfied with 8(a)
 program for firms in program at
 least 2 years
 No awards                           117        09             ï¿½5 percent
 1 or more awards                    410        48             ï¿½4 percent
 Percentage of firms with one or
 more awards
 Firms who joined 8(a) program to
 obtain contracts                    635        41             ï¿½3 percent
 Percentage of firms satisfied with
 8(a) program
 Firms that reported learning to     161        51             ï¿½7 percent
 manage a business was a major
 reason for joining 8(a) program
 Firms that reported learning to     349        30             ï¿½4 percent
 manage a business was not a reason
 for joining 8(a) program
 Percentage of firms that joined
 program to obtain 8(a) contracts
 Firms that reported learning to     176        83             ï¿½5 percent
 manage a business was a major
 reason for joining 8(a) program
 Percentage of firms satisfied with
 amount of contract opportunities
 Firms that reported learning to     188        26             ï¿½6 percent
 manage a business was a major
 reason for joining 8(a) program

We conducted 11 pretests of our survey with 8(a) firms in 3 of SBA's 10
regions. We selected firms for our pretest to provide testing from a variety
of regions and from both firms that had and had not received 8(a) contract
awards. We also conducted our pretesting with firms in a variety of
industries. Each pretest consisted of a visit with a firm's representative
by two members of our staff. The pretest attempted to simulate the actual
survey experience by asking the firm's representative to fill out the
questionnaire while our staff observed and unobtrusively took notes. Then
the firm's representative was interviewed about the questionnaire items to
ensure that (1) questions were readable and clear, (2) terms used were
clear, (3) the survey did not place undue burden on firms that would result
in a lack of cooperation, and (4) the survey appeared independent and
unbiased in its point of view. Appropriate changes were incorporated in the
final survey based on our pretesting.

In addition to our pretesting, we discussed a draft copy of our
questionnaire with officials at SBA headquarters and the SBA Inspector
General office in Washington, D.C. We incorporated comments from these
discussions, as appropriate.

During the pretesting phase of our survey, it became evident that
respondents considered the survey questions to be sensitive. Specifically,
one respondent expressed the opinion that firms might be concerned that they
would jeopardize their status with the 8(a) program if their answers were
made public. To address these concerns, we developed procedures to guarantee
the complete anonymity of all survey responses. To do this, we did not
retain any identification of a respondent on the survey booklet or return
envelope. This procedure prevented us from knowing the identity of the
respondents for any of the surveys returned to us. The use of a separate
return postcard allowed us, nevertheless, to track which respondents did and
did not mail back survey responses so that we could follow up on
nonresponses. In discussing these procedures with pretest respondents, they
told us these measures would be helpful in encouraging survey responses.

To increase the response to our survey, we mailed a prenotification letter
to respondents a week before we mailed the survey on January 13, 2000. We
also used three mailings after the survey mailings, including (1) a reminder
postcard a week after the survey, (2) a reminder letter to nonrespondents 16
days after the survey, and (3) a replacement survey for respondents not yet
responding, mailed 4 weeks after the survey. During the return period, over
100 survey packages were returned to us because of incorrect addresses. We
attempted a second mailing to these firms when we could locate replacement
addresses. We received the last survey included in our analysis on April 7,
2000.

We received survey responses from 853 firms for a response rate of 71
percent. Additionally, we received responses from 22 firms that no longer
are active in the 8(a) program. Only respondents active in the program at
the time of our survey are included in our survey results in this report.
Table 4 shows a summary of the survey returns.

 Survey information                                      Number of 8(a)
                                                         firms
 Population size                                         5,432
 Total sample size                                       1,200
 Surveys returneda                                       875
 Eligible                                                853
 Not eligible                                            22
 Surveys not returned                                    325
 Undeliverableb                                          29
 Nonresponsec                                            296
 Response rate (number of eligible surveys
 returned/total sample size)                             71%

aDoes not include surveys returned that were not filled out.

b106 of the 1,200 survey addresses obtained from SBA's 8(a) database were
incorrect. We obtained correct addresses for 77 of the 106 firms through
additional effort on our part.

cIncludes surveys returned blank, surveys received after our deadline, and
surveys not received.

We conducted our review from September 1999 through July 2000 in accordance
with generally accepted government auditing standards.

GAO's Survey of 8(a) Firms

Comments From the Small Business Administration

(385824)

Table 1: Percentage of Minority and Disadvantaged Groups That Considered
Overcoming Discrimination as a Major
Reason for Joining the 8(a) Program 17

Table 2: Sampling Errors for Selected Percentages 28

Table 3: Sampling Errors for Selected Estimates 28

Table 4: Summary of Returns to 8(a) Mail Surveys 31

Figure 1: Number of 8(a) Contracts Awarded to Firms That Have
Been in the 8(a) Program at Least 2 Years 7

Figure 2: Percentage of Firms That Have Not Obtained an 8(a)
Contract Based on the Amount of the Owners' Management Experience 8

Figure 3: Percentage of Firms That Have Obtained No 8(a) Contracts
by Their Years in Business Before Joining the 8(a) Program 9

Figure 4: Major Reasons Firms Joined the 8(a) Program 16

Figure 5: Major Reasons for Firms' Satisfaction and Dissatisfaction
With the 8(a) Program 18

Figure 6: Satisfaction of 8(a) Firms Based on Whether They Joined
the 8(a) Program to Learn to Manage a Business 19

Figure 7: Owners' Experience Managing Current 8(a) Firms and
Other Companies 20
  

1. Small Business: Problems in Restructuring SBA's Minority Business
Development Program (GAO/RCED-92-68 , Jan. 31, 1992).

2. Small Business: SBA's 8(a) Information System Is Flawed and Does Not
Support the Program's Mission (GAO/RCED-00-197 , July 20, 2000).

3. Observations on the Small Business Administration's Fiscal Year 1999
Performance Report and Fiscal Year 2001 Performance Plan (GAO/RCED-00-207R ,
June 30, 2000).

4. Air Force 8(a) contract dollars are combined with overall 8(a)
information for the Department of Defense.
*** End of document ***