Infotech and the Law: Federal sole-source contracting remains an open secret

Jonathan Cain

If you think that large sole-source contracts are awarded only to a handful of well-connected big companies with the resources to manage dozens of subcontractors in difficult surroundings, you are not privy to one of Washington's open secrets: Such contracts are available to almost anyone to provide almost any service procured by an agency.

It was not supposed to be this way. Competition for contracts was meant to be the touchstone of procurement policy. It was embodied in the Competition in Contracting Act and, in theory, has survived repeated subsequent "improvements" in procurement law.

Competition for contracts is to be avoided only if a senior agency official makes an objective determination that the circumstances are so urgent, the need so compelling or the requirement so secret that full-and-open competition is not in the public interest.

The reality, as the Government Accountability Office said in its April report, "Contract Management: Increased Use of Alaska Native Corporations' Special 8(a) Provisions Calls for Tailored Oversight," is that hundreds of millions of dollars of contracts annually are awarded on a sole-source basis, and agency procurement offices depend on the practice.

These are not the large construction or recovery contracts that have been the subject of widespread attention. They are everyday contracts for a host of services.
This is how it is done: Certain entities, designated by statute as eligible to receive contracts under Section 8(a), are allowed to receive contracts on a sole-source basis in any amount. These entities, Alaskan Native Corporations, Indian tribes and certain community development corporations, may be awarded contracts, of any size, without competition.

In addition, these entities may form subsidiaries ? some have formed dozens ? to do different kinds of work without being subject to rules that would limit their eligibility under Section 8(a) if they were privately owned.

Any company may subcontract with an 8(a) entity to do the 8(a)'s contract work. Under the rules for 8(a) contracts for IT services, for example, the 8(a) is supposed to do at least half the contracted work with its own employees and calculate the numbers every six months. The idea is to prevent non-8(a) companies from using the 8(a) merely as a front to get contracts that the non-8(a) otherwise would be ineligible to receive.

The reality, as GAO found, is that there is virtually no effective mechanism to enforce the 50 percent requirement. As a result, GAO said, "we found almost no evidence that the agencies are effectively monitoring compliance with this requirement, particularly where 8(a) ANC firms have partnered with large firms."

GAO found that in the departments it studied, including Defense, Energy, Homeland Security and Transportation, contracting officers were directing large IT service providers to enter into subcontracts with specific 8(a)s so that sole-source awards could be made to the 8(a) and done by the preferred subcontractor.

Several agencies said that they would be willing to work with the Small Business Administration, which administers the 8(a) program, to better enforce the subcontracting requirements in the law. SBA's comments, however, defended its operation of the program and gave no indication that it intends to change its level of oversight.

It would appear that the sole-source service contract window will remain open for the foreseeable future.

Jonathan Cain is a member of the law firm Mintz Levin Cohn Ferris Glovsky and Popeo PC in Reston, Va. The opinions expressed in this article are his. He can be reached by e-mail at jcain@mintz.com.

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