Firms Worry About 8(a) Program's Long-Term Health

Firms Worry About 8(a) Program's Long-Term Health

Tom Asefi

Rodney Hunt

The federal government's efforts at acquisition streamlining and reform may be providing agencies with more efficient ways to purchase needed goods and services, but the changes appear to be hurting the Small Business Administration's 8(a) program for disadvantaged businesses.

While the 8(a) program is still useful, it is losing some of its effectiveness in helping participating businesses win contracts and gain experience in the federal marketplace, said officials with 8(a) companies.

The 8(a) program helps small, minority-owned and disadvantaged businesses by giving them preferential contracting opportunities with federal agencies and enabling them to partner with larger, successful companies. Companies can belong to the program for nine years.

However, in recent years the government has begun using procurement vehicles that are diluting the effectiveness of the 8(a) designation, according to program advocates. Such vehicles include General Services Administration schedules, blanket purchase agreements, and governmentwide indefinite delivery, indefinite quantity contracts, such as the National Institutes of Health's Chief Information Officer Solutions and Partners II program.

The "8(a) vehicle is no longer one of the premier buying options," said David Steward, chairman and chief executive officer of World Wide Technology Inc., a St. Louis company that graduated Feb. 22 from the 8(a) program.

Steward described the 8(a) experience as positive, but also said the rise of these other contracting vehicles "has a negative impact on 8(a) business for those who are entering into the program now."

Another successful beneficiary of the 8(a) program is RS Information Systems Inc. of McLean, Va. With just two years left in the 8(a) program, Rodney Hunt, the company's owner, president and chief executive officer, said he is looking forward to achieving one of his longtime goals: making the Fortune 1000 list.

The company should hit sales of about $135 million in 2001 and reach $175 million in 2002. But he, too, said the 8(a) program is declining in effectiveness.

"There are too many choices. The government is moving to self-funding contract offices [that] pay for themselves by how many other users they attract," Hunt said. "They're competing against each other for the same pot of business. Smaller 8(a) companies are having to now compete against larger 8(a)s, small companies and even large companies."

Hunt said it's an expensive proposition for any small business to pursue a spot on one of the big IDIQ contracts these days. He estimated it costs from $60,000 to $100,000 just to put together a proposal to qualify for a contract.

Winning a place on these contracts does not guarantee any business, only a chance to compete for more work. "We spent a lot of bid proposal money to make these vehicles, and they're nothing but a contract hunting license," he said.

These observations about the declining value of 8(a) contracts are supported by a General Accounting Office report released Jan. 29. The congressional watchdog agency found that the percentage of government contracts being awarded to small businesses, while still meeting federal goals, has declined from about 25 percent between fiscal 1993 and 1997 to 23 percent ? the mandated minimum ? in 1998 and 1999.

The GAO attributed some of the decline to the rise of large governmentwide acquisition contracts with multiple vendors competing for individual task orders, along with other changes in purchasing strategies.

The government's move toward larger contracts, and larger companies as primes on those contracts, also feeds the stigma that 8(a) companies are somehow less capable of straight-up competition, Hunt and Steward said.

Officials with GAITS Inc. of Springfield, Va., which joined the 8(a) program about two years ago, have been working to separate the company from that stigma.

"We want the respect of the agencies, not just [to be] chosen because of our 8(a) status," said Thomas Asefi, vice president of GAITS. "We're high-end engineers ... we're 8(a), and our prices are competitive."

The company is trying to position itself as a quality provider of wide-area and local-area network services, with its 8(a) status as an added bonus for federal clients, who are required to give a set amount of business to small companies. GAITS is still learning how to make use of its 8(a) enrollment, Asefi said.

The change in the federal purchasing environment hasn't gone unnoticed by the SBA, said Cal Jenkins, district director of the agency's Washington field office, and Sheila Thomas, the assistant director.

The government is trying to move to a leaner, more cost-effective model, they said. Companies "probably have to put together a team," Thomas said. "The contracts are too large for a single contractor."

The agency has moved toward stressing mentor-protégé relationships that encourage 8(a) companies to pair up with major federal contractors, Jenkins said. GAITS, for instance, has a relationship with KPMG Consulting Inc. in McLean, Va., according to Asefi.

The SBA also offers a host of other services, including one-on-one counseling, seminars and workshops, and soliciting set-asides from other agencies.

"[SBA] can coach you and guide you to the various agencies, coach you through the contracting process, which is a very arduous process whether it's a sole-source or a competitive IDIQ," said Steward of World Wide Technology. "The 8(a) program was a launching pad for us. It gave us a chance to learn the contract process, have a level playing field [and] a chance to get sole-source opportunities."

As for the perceived stigma, "there shouldn't be," SBA's Jenkins said. He said many contracting officers regard large businesses as a safer choice than 8(a) firms because the large companies have a track record of performance.

"That's sort of a bad view of things, and one of the areas where SBA works with agencies," he said.

Even as it started the program, World Wide Technology was planning for life afterward by pursuing business not only in the government market, but also in the much broader commercial space, Steward said. Government 8(a) contracts now represent about 12 percent to 13 percent of its business, perhaps about 30 contracts, down from a high of as much as 60 percent to 70 percent several years ago.

RS Information Systems gets 90 percent of its work from the federal government, but only 35 percent of its work in 2000 was through the 8(a) program. Its 2001 goal is to drop 8(a) work to under 25 percent.

Hunt said the 8(a) program should continue, but sees areas for reform and improvement. SBA needs to develop a strategy for working with the agencies that have governmentwide contracts, such as the NIH and NASA, as well as GSA, he said.

At one time "8(a) was the game," said Hunt. Now federal agencies have new procurement choices and companies in the 8(a) program "have to think of a way to get back into the game."

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