Report: Noncompliant set-aside removal process complex

A difficult and lengthy process for removing a company from a Small Business Administration set-aside program often allows noncompliant firms to remain in the program, according to a recent report.

In reviewing 80 company files in SBA's 8(a) set-aside program, the Government Accountability Office found seven examples of small businesses that were repeatedly out of compliance but weren't removed from the program. One noncompliant firm even received a federal set-aside contract, according to the GAO report released Nov. 21.

The purpose of SBA's 8(a) program is to help small and disadvantaged businesses compete for government work. Participating firms are eligible to receive competitive contracts and sole-source set-aside contracts.

Of the 80 companies reviewed, 25 were found to be out of compliance with the program's rules, and one firm didn't provide the required documentation for five of the seven years it was in the program, GAO auditors wrote.

Most firms are terminated for not providing the required documentation, but the process can take months, SBA officials told GAO.

Before removing a company, SBA requires proof that the firm has received two notifications from the agency's district office stating its intent. The SBA headquarters office then issues a letter of intent and gives the company with an opportunity to justify why it should stay in the program. If the company doesn't respond, SBA officials make a final decision to remove the company from the program and send a fourth notice of termination. However, the company has 45 days to appeal the decision.

Officials told GAO the process takes at least four months after a firm is notified of SBA's intent to terminate it from the program. As a result, firms that no longer meet program criteria consume SBA resources that otherwise might be focused on compliant firms, GAO auditors wrote.

In a letter to GAO, Calvin Jenkins, deputy associate administrator for government contracting and business development at SBA, agreed with GAO's recommendation to speed the termination process. He added that the agency is already working to streamline the process.

Under a proposed new process, SBA headquarters would send one notification of its intent to terminate rather than two, which could reduce the time to remove a company from the 8(a) program. The attempts to contact companies multiple times ? twice by the district office and twice by the agency's headquarters ? caused the delays.

Officials said they expect the new process to help the agency remove a company from the program in less than two months.

The new procedures are expected to be in place in December, Jenkins wrote.