Agencies skirted requirement to justify sole-source awards, GAO finds

Agencies awarded more than $2.3 billion to small disadvantaged companies through sole-source contracts without the required justification because regulators were slow to put a new rule in place, according to a Government Accountability Office report released Dec. 12.

Section 811 of the fiscal 2010 National Defense Authorization Act requires agencies to submit written justification for awarding sole-source contracts worth more than $20 million to 8(a) firms. When the legislation was enacted in April 2010, officials had 180 days to amend the Federal Acquisition Regulation to reflect the new rule. However, the rule was not in place until March 2011, by which time agencies had awarded $2.3 billion in such contracts without justification.

The Office of Federal Procurement Policy attributed the delays primarily to the process for consulting American Indian tribes and Alaska Native Corporations on the requirements, GAO reported. The Small Business Administration’s 8(a) business development program aims to strengthen the position of small companies owned by socially and economically disadvantaged individuals in the federal marketplace, which includes firms owned by American Indians and Alaska Native Corporations.

Five agencies awarded 14 large sole-source set-aside contracts from the time the law was enacted and the rule was in place. Only three of those contracts complied with the new rule — two awarded by the Air Force and one by the State Department.

According to GAO, the remaining agencies did not comply with the rule because contracting officers did not know about it or were confused about the requirements and relied on guidelines in the Competition in Contracting Act of 1984. CICA justifications have different requirements, such as listing sources that expressed interest in the acquisition.

OFPP and the General Services Administration agreed with GAO’s recommendation that they clarify when 8(a) justifications are required. In addition, SBA officials said they would spread the word about the new rule and ensure that agencies submit justifications for the contracts, which SBA must approve.

For its report, GAO also conducted a review of contracting data in the Federal Procurement Data System-Next Generation and found that the government has tended to award fewer sole-source contracts to small businesses in recent years. Compared to fiscal 2008 through 2010, the number and value of those contracts declined significantly in 2011. Agencies awarded only 20 such contracts, after awarding more than 50 in fiscal 2010.

In response to GAO’s findings, one small-business group said the law was not being implemented as intended. Kevin Allis, executive director of the Native American Contractors Association (NACA), said the justification rule has drastically affected American Indian contractors in the federal marketplace.

“In a time of economic recovery, it is imperative that native community-owned federal contractors, who are job-creating small businesses, are able to participate in the federal marketplace as intended,” he said. “This report clearly shows that our communities are being unfairly, and disproportionately, harmed by Section 811.”

Agencies are choosing to view Section 811 as a cap rather than a threshold that triggers the justification process, association officials said.

They pointed to GAO’s finding that the Naval Sea Systems Command has issued guidance to its contracting officers requiring justification for sole-source 8(a) contracts that exceed $4 million as evidence that agency officials are going beyond the scope of law.