8(a) Program Facing GOP Cuts, Reform

Republican leaders are preparing to overhaul the controversial 8(a) small-business program by reducing its race-based entry requirements and drastically scaling back its sole-source contracts.

In compensation, Republicans may boost federal advice and support for very small businesses, and possibly divert a greater share of money to very small contractors --regardless of ethnic ownership -- and away from well-connected 8(a)s and larger businesses, said a congressional staff member.

8(a) contractors across the country are already feeling the political wind. They packed a tense hearing of the House Committee on Small Business, chaired by Kansas Rep. Jan Meyers, where these proposals were outlined by the program's critics and supporters, including administration officials and businessmen.

While Republican members of Congress were usually critical of the program, Democrat members steadfastly supported the set-aside programs, winning cheers from an audience of 8(a) contractors from as far away as Georgia and Nebraska, and presaging a tough political battle in the House and the Senate.

Meyers is preparing legislation to overhaul the Small Business Agency and its 8(a) program, established in 1969 by President Nixon to aid social and economically disadvantaged business owners. Since then, it has become a preserve for racial and ethnic minorities, who own more than 99.9 percent of the 5,356 approved 8(a) firms. That has prompted criticism the program is unfair to businesses owned by whites. In 1994, the Democrat-controlled Congress extended to all agencies a Defense Department program that allocated 5 percent of contracts to small disadvantaged businesses.

Of the $205 billion awarded in prime contracts by the government in 1994, small firms won $36.7 billion, 8(a) firms won $4.4 billion, women-owned firms earned $1.9 billion, and small disadvantaged businesses won $6.1 billion in Pentagon contracts. All but 174 of 5,990 8(a) contracts were awarded without competition.

Republicans, including Meyers, declined to confirm how the 8(a) program would be changed, but they did outline a series of problems to be addressed.

First, the 8(a) contracting program duplicates the SDB effort extended to all federal agencies in 1994, charged Meyers.

Democrats on the panel denied any duplication, but Robert Neal, associate deputy administrator for government contracting and minority enterprise development at the Small Business Administration that runs the 8(a) program, said his agency was planning to increase training, support and contracts for the smaller 8(a)s. Another criticism was that the 8(a) program is too focused on race. It was not intended to be "a program almost entirely defined by race," said Meyer.

But racial divisions quickly came to the surface during the hearing. Arnold O'Donnell, co-owner of O'Donnell Construction Co., a non-8(a) firm based in Washington, told the committee the "program is one of the most expensive and socially divisive procurement systems I have encountered." 8(a) contractors cheered in response to Democrats' rebuttals of Republican charges the program is a form of racism, and Fernando Galaviz, vice chairman of the National Federation of 8(a) Companies, based in Arlington, Va., said "98 percent of contracts go to non-minority firms. We only get the crumbs."

The racial element of the program "is an issue that raises strong feelings on all sides," said Meyer. "When you lock someone in, you lock someone out," she said.

Another problem is that too many 8(a) contracts are awarded sole-source to too few firms, and too little business support or advice is provided to help many 8(a) firms graduate into the commercial sector, said GAO official Judy England-Joseph.

In 1994, 50 firms - 1 percent of all 8(a)s - netted about 25 percent of the $4.37 billion awarded, while 56 percent did not get any contracts, according to a statement released by England-Joseph. Of those firms, 22 also placed in the top 50 during 1993, the statement said.

Future contracts "would be used as a training tool.... [and] agencies have to get into the spirit of the thing," he said.

The committee may choose to impose more competition on the 8(a) firms, said one committee staff member. One option is to allow less competition in government-unique work, such as the dredging of waterways, but force more competition where 8(a)s can pursue commercial contracts, such as computer consulting and services, he said.

Another option to help minority-owned business without fostering race-based programs would be to increase beyond 20 percent the amount of government contracts that go to small firms, said the staff member.

"We must not fight each other for [shares of] the 20 percent," said Nancy Archulettta, president of MEVATEC Corp., an 8(a) dredging firm based in Huntsville, Ala. Instead, government should try to expand the share of government contracts that go to small businesses, she said.

Any revision of the minority set-aside laws would have to run the gauntlet of interest groups. They'd also have to win approval in the Senate, where Sen. Roth is also preparing a revision of the program. Any effort to expand small-business contracts beyond 30 percent would also have to overcome opposition from larger companies, which are already suffering from government-wide budget cuts.