The Small Business Administration’s (SBA) 8(a) Business Development program offers small, disadvantaged businesses tremendous opportunities for sole source and limited competition contracts. During the program, participants can be awarded sole source contracts up to $4.5 million for goods and services ($7.5 million for manufacturing). But what does the contracting process entail and what should 8(a) contractors know to avoid mistakes?
Listen to Susan Moser, Partner and Leader of Cherry Bekaert’s Government Contracting practice and Eric Poppe, a Managing Director in the Government Contracting practice discuss the 8(a) contracting process and sole source awards, including certified cost and pricing data to determine fair market price, preaward surveys and best practices.
If you haven’t already, catch up on other episodes in our podcast series discussing various aspects of the Small Business Administration’s (SBA) 8(a) Business Development Program:
- Part 1: The SBA 8(a) Business Development Program – What Is It and What Are the Requirements?
- Part 2: The SBA 8(a) Business Development Program Application Process and Requirements
- Part 3: What Are the Compliance Requirements for 8(a) Certified Companies?
- Part 5: Winning an 8(a) Competitive Contract
- Part 6: Small Business Administration (SBA) Mentor-Protégé Program
- Part 7: The Lifecycle of an SBA 8(a) Company
- Part 8: OIG Report: SBA’s Business Development Assistance to 8(a) Program Participants
In future 8(a) segments, we will discuss competitive contracts and the All Small Mentor Protégé Program.
Our Government Contractor Services group has an in-depth understanding of the 8(a) program and advises 8(a) government contractors through each step of the process to add value and anticipate ongoing opportunities. From the initial important decisions made in becoming an 8(a), to the first contract, to how the company is growing throughout the life of the program.
View All Government Contracting Podcasts
ERIC POPPY: Hello, welcome to Cherry Bekaert's GovCon Podcast, where we discuss current government contracting trends, compliance matters, and best practices to guide federal contractors forward.
ERIC POPPY: My name's Eric Poppy. I'm a senior manager with Cherry Bekaert's Government Contract Services Group. With me today is Susan Moser, the leader of Cherry Bekaert's Government Contract Services Group.
SUSAN MOSER: Thanks. Happy to be here. I always enjoy talking about the 8(a) program.
ERIC POPPY: Quick background on me: I started this firm's practice more than 20 years ago after having been a client of the firm as a controller and then a CFO for two different 8(a) companies. I've basically spent most of my career working with 8(a) companies. As we've said in some of our other podcast series, we're very bullish on the 8(a) program and we're excited to help companies learn more about how to be successful in it.
ERIC POPPY: This is our fourth podcast in this series on the 8(a) program overall. Today we wanted to talk a little more about the contracting process and sole source awards. We get a lot of questions from new participants about getting their first 8(a) award, especially a sole source award. What are things to be worried about, potential pitfalls, or what's involved with that process? Do you mind starting with an overview of the 8(a) contracting process and sole source awards?
SUSAN MOSER: Sure. A little background: the term "8(a) contractors" comes from section 8(a) of the Small Business Act, which established the program authorizing the SBA to enter into contracts with agencies on behalf of small businesses. The SBA is actually contracting with agencies for small business contracts.
SUSAN MOSER: The 8(a) Business Development Program, commonly called the 8(a) program, accepts a small business as a participant. Participants are considered participants of the SBA and, for contracting purposes, the SBA is the prime contracting party with the agency. The program is nine years long and gives companies the opportunity to compete with limited competition. 8(a) contractors can be awarded contracts either on a sole source basis or on a competitive basis.
SUSAN MOSER: Competitive awards occur when there's a reasonable expectation that at least two qualified 8(a) small businesses can submit offers and the resulting contract can be awarded at a fair market price. If the government estimates the value will exceed $7.5 million for manufacturing or $4.5 million for all other requirements, such as services, the procurement is generally treated as competitive unless it was already designated as a sole source award for a tribally owned or Alaska Native Corporation.
SUSAN MOSER: Sole source 8(a) awards can be made when the agency determines there is a qualified 8(a) participant that is responsible, the contract can be awarded at a fair market price, and the government estimate does not exceed $7.5 million for manufacturing or $4.5 million for all other requirements. There are exceptions: Alaska Native and tribally owned 8(a) companies are eligible for higher-dollar sole source awards, and agencies can award 8(a) sole source contracts up to $22 million with appropriate sole source justification. Last year, the DOD introduced authority for 8(a) sole source awards up to $100 million with a required sole source justification.
ERIC POPPY: For many companies, receiving a sole source award—say a services contract at $4.5 million where you're not competing against other companies—is a remarkable opportunity.
SUSAN MOSER: One thing to mention: there are limitations on how many sole source contracts an 8(a) firm can receive. In general, 8(a) firms cannot receive additional 8(a) sole source awards once they have a combined total of competitive and sole source awards in excess of $100 million. There are other limits tied to company size and number of employees, which have different mechanics. Also, during the transitional stage—the last five years of participation—there are targets for the number of non-8(a) awards a participant must meet before the SBA will accept sole source contracts on its behalf. Those targets vary by year.
SUSAN MOSER: The point of the program is to make firms viable competitive businesses after graduation, so the SBA limits sole source reliance as participants progress through the program.
ERIC POPPY: To step back, agencies must notify the SBA or apply to offer an acquisition to the 8(a) program if they want to award it as an 8(a) sole source. They must provide estimated period of performance, NAICS codes, a description of the work, contract type considerations, and any special restrictions or history. Is that right?
SUSAN MOSER: Yes. Once a requirement is identified as appropriate for the 8(a) program, it generally stays in the program. There are a few paths for acquisitions to enter the 8(a) program. The SBA can advise an agency of 8(a) participants' capabilities through a search letter, or the contracting activity can request potential participants. The SBA can also ask 8(a) participants to contact agencies.
SUSAN MOSER: Each agency typically has a Small Business Utilization office—often referred to as SADBU or the office of small business programs. The SBA can request contracting officers offer acquisitions to the 8(a) program through those offices. Those small business utilization offices are advocates for small business. If there's an agency you're interested in, get to know the SADBU office and make them aware of your capabilities.
SUSAN MOSER: The most common way requirements are identified for the 8(a) program is that agencies review proposed acquisitions to identify requirements that can be offered to the SBA. Agencies can self-market to 8(a) participants, reach out to their small business utilization offices, or consult the SBA.
ERIC POPPY: Most agencies are pretty good about advocating for 8(a) use. It's an easy contracting route, and you usually don't have to educate agencies on sole source contract vehicles.
SUSAN MOSER: One caution: if you're an 8(a) and you receive a sole source award, there's another hurdle that many companies forget—the pricing and cost support piece. For sole source awards, contracting under FAR subpart 15 procedures often requires cost and pricing data and a demonstrable fair and reasonable price.
SUSAN MOSER: Many companies think a fixed-price contract means they don't have to show how they derived costs, but in a limited-competition sole source, the government can request that information. I always tell people: if you get a sole source award, it's your best opportunity to maximize pricing, but you must be able to demonstrate how you derived costs and justify them.
ERIC POPPY: When putting together a proposal, it comes down to the basis of estimates and having documentation to support the proposed cost. It can't just be historical reference or a claim about market rates. You must justify the reasonableness of the proposed cost and the components that make it up.
ERIC POPPY: For direct labor, show the basis for salary information and hours. Salary basis could be current employee actuals, market research, and escalation for out years using labor indices. Hours might use historical data or consider learning curves. For materials, include supplier quotes and multiple estimates where possible. For indirect rates, explain single-year versus multi-year rates. Profit must also be supported and shown as reasonable. Each component of the proposal should trace to source documentation.
SUSAN MOSER: Often, contracting officers will use Standard Form 26 as the contract form and ask for a proposal. Unlike competitive procurements, a sole source request may not initially ask for a voluminous technical approach or detailed price support. That's a mistake some companies make: they assume a cap or budget—such as $4.5 million for services—and submit a price close to that without preparing detailed support.
SUSAN MOSER: If the government asks for a cost justification or a cost proposal audit, you need to be prepared to provide the supporting documentation. Don't scramble to find documentation after the fact.
ERIC POPPY: A best practice is to assemble files for each cost element as you build the price, keeping source documentation readily available. Over time, that repository becomes useful for future proposals, and as you win more work you build better justification for costs.
SUSAN MOSER: A couple other items to be aware of for a first sole source: contracting officers may request a pre-award survey of the 8(a) participant, depending on the contract type. Even for fixed-price contracts, they may request an accounting system survey, a financial capability assessment, or a certificate of competency from the SBA. The goal is to gain confidence that the firm can perform.
SUSAN MOSER: A few prohibitions to remember: contracting officers cannot break up requirements into smaller pieces solely to award multiple sole source contracts to one company and evade dollar thresholds. Follow-on requirements are not automatically awarded to the same firm; awarding follow-on work depends on circumstances, prior awards, and how close a firm is to program graduation.
ERIC POPPY: We're coming to the end of this episode on sole source awards within the 8(a) program. Do you have closing thoughts for a new 8(a) trying to win its first sole source award—any documentation or process tips?
SUSAN MOSER: First, identify agencies where you already do business or agencies that are more adept at 8(a) awards. Use SADBU offices and the SBA to help identify sole source opportunities. Don't become overly reliant on sole source awards; they should be stepping stones. Approach sole source awards with your eyes open: get help to price appropriately if it's fixed price, ensure your basis of estimate is fair and reasonable, and confirm you can perform.
SUSAN MOSER: Take advantage of sole source awards to prepare for 8(a) competitive contracts. Build relationships with agencies, attend industry days, and use matchmaking events from associations to find opportunities.
ERIC POPPY: Thank you, Susan, for discussing sole source awards and the 8(a) program. Please tune in next time for our podcast on 8(a) competitive contracts.
