SBA Officials Ponder Further Changes in 8(a) Program
SBA Officials Ponder Further Changes in 8(a) Program<@VM>Freeing Up Time<@VM>A Change in Standard<@VM>The Real World
By Heather Hayes
Eight months after the Small Business Administration implemented sweeping reforms to its 8(a) business development program, agency officials are mulling changes to give even more socially and economically disadvantaged firms a shot at becoming independent businesses upon graduation.
The agency wants to continue to expand its mentoring program, examine different subcontracting opportunities and find additional opportunities for 8(a) firms to access capital, said Calvin Jenkins, deputy to the SBA associate deputy administrator for government contracting and minority enterprise development.
"We've really attempted to spread out the 8(a) contract dollars to more firms and, at the same time, make the contracting process faster and more streamlined," he said. So far, it seems to be working.
But Jenkins also promised more in the way of business development products and opportunities.
In 1998, the 8(a) program steered $6.5 billion to federal contractors, including $2 billion for information technology projects.
Reforms put in place last summer give companies the ability to bypass the SBA and deal directly with federal agencies during a contract. The reforms also provide a more equitable distribution of 8(a) contracting opportunities by putting a monetary cap on sole-source contracts.
In addition, the changes enhance the ability of 8(a) firms to obtain large prime contracts by allowing small businesses to team up in joint ventures. The new rules also created a mentor-prot?g? program that encourages partnering between older or graduated 8(a) firms and firms that just entered the program.
Lastly, the changes lower the standard for proving social and economic disadvantaged status to enter the program.
The ability to deal directly with federal agencies appears to offer the most immediate benefit to information technology companies in the program.
In the past, an agency that wanted to offer an 8(a) contract had to go through a two-step process. First, it had to submit its contract requirements to the SBA. Once those requirements were accepted, the SBA would act as an intermediary between the agency and potential bidders, getting its legal and contracting departments to review the solicitation and other documentation. The new rules eliminate the second step altogether.
"It was really a duplicate step," Jenkins said. "After all, the participating agency's contracting and legal people had already looked at the solicitation and blessed it, so all that we were doing was taking extra time and slowing down the procurement."
Now when an agency puts forth a requirement, SBA has five days to respond, and the procurement takes off from there.
The benefits have been obvious to information technology firms.
"That streamlining change has had a very positive effect on us," said Jean Davis, contract vehicle manager for Force 3 Inc., an 8(a) IT solutions provider in Crofton, Md. "It used to take anywhere from three to six weeks to get your paperwork straight, but now it takes only five days. That's a big difference."
Taking the SBA out of the loop strengthened the firm's relationships with its customers, which include various General Services Administration offices, she said.
"They're not calling us, screaming for their products anymore," she said. "Telling them that we couldn't help them yet because their paperwork was on somebody's desk at SBA just didn't cut it. So everybody's a lot happier now."
SBA's reasons for making this particular contracting change was twofold. For starters, far-reaching reforms made into federal procurement laws in 1994 and 1996 had unintentionally hurt the 8(a) program.
"The 8(a) program used to be what I like to call the quickest game in town," Jenkins said. "But that changed when procurement reform gave contracting officers the tools to make faster and easier awards. We needed to do something to streamline the process and make it just as attractive as it used to be for agencies."
Secondly, SBA hoped that by delegating authority to other agencies, it could free up more of its own time to create new business development programs and tools and pay more individual attention to the program's 5,500 companies.
The 8(a) program always has been open to all Americans who could demonstrate social or economic disadvantage, not just to minorities.
Over the years, however, program participants primarily have been African Americans, Hispanic Americans, Native Americans and Asian Americans, a fact that resulted, according to a 1995 Justice Department study, from the application of a tough and stringent legal standard to determine eligibility. That standard required "clear and convincing" proof that an individual had been the victim of social or economic discrimination.
The new SBA rules call for a "preponderance" of evidence, meaning that it's more likely than not that an applicant is at a business disadvantage because of his or her background.
The immediate result of this change, most observers believe, will be the inclusion of more women-owned businesses. In fact, Jenkins said the number of applications and application requests from groups outside of those that traditionally have been participants have spiked dramatically after the change was put into place.
"It's more than we had in the previous two or possibly three years combined," he said.
The number of applications for 8(a) certification grew to 1,793 in 1998, an increase of more than 10 percent from 1997. The number of 8(a) companies receiving certification from groups including white women, the physically disabled, those of Middle East and northern Africa descent rose from seven in 1997 to 19 in 1998.
Officials with IT firms note that the 8(a) field already seems to be more crowded, and some worry about having a limited contracting pie divided up among so many companies.
"My concern is that if it's too populous, there will be less opportunity for the really good companies to succeed, because everyone's out there trying to get a piece of it," said Verle Hammond, CEO of Innolog Inc., an 8(a) strategic logistics planning company in McLean, Va.
"One of the things that smaller companies offer is some unique skill, and the 8(a) program gives firms a chance to demonstrate that skill and gain a toehold within agencies," he said.
But by broadening the entry requirements, he said, "you might end up dampening the real strength and capability of a niche company." In the end, he said, there could be fewer companies succeeding at the back end when they get out of the program.
Others, however, applaud the change as good for competition. "Overall, it's going to foster more entrepreneurial thinking and more out-of-the box thinking among smaller firms," said Harry Martin, president and CEO of Intelligent Decisions Inc., a reseller and PC manufacturer in Chantilly, Va. "I think it's a good thing."
Many of the new rules clearly are aimed at nurturing competition and helping small firms acquire the knowledge and tools it takes to make it in the real world.
"A firm can only stay in this program for nine years," said Jenkins. "After that, they're on their own, so we want them to really use this time not just to win contracts and make money, but to grow and get into a better position to succeed once they graduate."
Because federal procurements have gotten larger and even more competitive, 8(a)s can now improve their chances to gain experience by teaming with each other. IT companies that entered the program after 1997 also are limited to going after only competitive 8(a) contracts once they've earned a total of $100 million in revenues from the program.
"These could be from a combination of sole source and competitive contracts," Jenkins says. "But once they've reached that limit, they're not eligible for sole-source awards anymore. The idea is to spread it out a little bit more, but also to nudge those companies towards more competitiveness."
Some IT firms, however, blanch at the idea of capping revenue.
"I see it as kind of penalizing those firms that are basically going out and marketing, doing the due diligence and providing the quality products and services," said Joe Koenig, vice president of sales and marketing for World Wide Technology Inc., an 8(a) certified systems integrator headquartered in St. Louis, that offers Internet solutions. "It certainly would have affected us because we've definitely earned more than $100 million."
The one reform that most companies applaud is the new mentor-prot?g? program. With this new program, graduated 8(a) firms can team up with young firms and go after set-aside business. The catch, of course, is that the older firm has to demonstrate clearly that the smaller firm is gaining both education and experience from the situation.
"We don't want to see an older firm dominating the contract's performance," Jenkins said. "There have to be a number of employees from the smaller firm involved in the management of the project, and we'd like to see some time set aside for training and other business development opportunities. So we'll really scrutinize those relationships to make sure that the smaller business is getting the desired benefits."
Hammond, whose firm graduates in 2000, described the mentor-prot?g? program as "simply brilliant."
Martin, who calls the program "perfectly symbiotic," already is making plans to participate as a mentor.
Koenig said World Wide Technology, which graduates in 2002, is receiving at least one call a week from younger firms. "We're actively looking at different ones that would make sense to work with, that fit in with our core capabilities," he said.
Even successful young 8(a) firms, such as SMAC Data Systems of Gaithersburg, Md., which holds contracts with the Navy and the National Institutes of Health, have indicated interest in the program, asking for advice in areas such as sales and marketing, production, research and development and strategic planning.
While SBA officials remain happy so far with the reforms, they're not finished tweaking the program.
"We're looking to develop an assessment type of model for all the firms" so it can determine what types of business development training they need, Jenkins said. That way, the SBA can work with 8(a) companies on an individual basis rather than applying a "one-size-fits-all approach," he said.
"We also want to continue to expand our mentoring program, look at some different subcontracting opportunities, and try to find additional opportunities for 8(a) firms to access capital," he said.