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By V. David Zvenyach —

The 8(a) Dustup

Lost in the recent noise and fighting around DEI and fraud in the SBA 8(a) program is a simpler question. Should the federal government keep one of the few procurement mechanisms that actually allows buyers and small businesses to talk to each other like adults and get deals done?

Last week, Secretary Hegseth took to the socials to tell the world how the SBA 8(a) program is “swamp code” for “DEI, race-based contracting” and that he was going to “take a sledgehammer” to the program with a “line-by-line review of every small business sole source, 8(a) contract that is over $20 million, and we’ll look at everything smaller than that too.”[1] At the heart of the audit is the intimation that sole-source contracts are ripe for fraud and enrichment of beltway bandits.

Similarly, the Small Business Administration has announced new guidance that reiterated its position of race neutrality for the 8(a) Program while celebrating the suspension of "1,000 contractors from participation in the 8(a) Program after they failed to submit the documents SBA requested [a month before]." Based on an earlier statement, the SBA is championing the suggestion that a lot of 8(a) companies are just "pass-through vehicle[s] for rampant abuse and fraud."

Predictably, various parts of the procurement community have come to the defense of the program, explaining (for example) that Hegseth’s concerns don’t seem to line up with the actual program requirements and noting that sole-source contracts are hardly limited to 8(a) recipients. Some observers go further, noting the very real political risks involved. And lawyers are revving their engines.

While the debate plays out, I still have the same question I had a few years ago when a court ruling put the 8(a) program “on pause”:

What would happen if the 8(a) program were to disappear or be materially changed. How would agencies handle the loss of directed awards? The program is liked by procurement professionals because it makes their lives easier. Taking it away means that contracting officers will have more work to do. No one wants that.

As I explained then, one of the primary features of the 8(a) program is the ability to do a directed award. With the 8(a) tool removed from the contracting officer’s toolbox, coupled with fewer contracting officers, we might expect slower procurement cycle times.

There’s another thing, though. The unique authority of the 8(a) program to skip competition and get directed awards might actually lead to better product choices by the government.

In startup circles, there’s a concept called “founder-led sales,” which is basically that successful startups should expect CEOs and founders to engage directly in selling to the customer because it helps provide early, critical feedback on product-market fit. Similarly, in corporate circles, there’s a concept called the “Challenger Sale”, which argues that “the secret to sales success for selling complex B2B solutions [is] challenging customers, not building relationships.”

In both cases, the key is that direct customer conversations are not just important for the seller but because they help deliver the right product to the customer.

For government, though? This sort of sales pattern is frowned upon. Instead of proactive pitches from industry, government buyers engage in various forms of reactive market research or, at best, attempts to create formal processes for pitches. To avoid appearance of impropriety or creating organizational conflicts of interest, government and industry are most certainly not engaging in negotiation before solicitation. Best to keep things in email or in RFI responses. And where large incumbents can invest in extensive capture and business development and marketing, smaller players have a much narrower field on which to play.

The sole-source-nature of the 8(a) program, then, is a rather unique exception to the pre-solicitation rule. Small businesses—and usually the founders of the small business—engage in direct negotiation with the government to figure out what’s best for both parties after the founders go through the rigamarole of meeting the government’s compliance requirements.

And that, in my mind, is a good thing.

That said, don't get it twisted. Let me be absolutely clear that, in my experience and estimation, there are definitely plenty of 8(a) companies that stink to high heaven. And I’m not certainly not blind to real concerns about shell corporations and pass throughs. As in any industry, and as in any government program, there will be fraudsters and rent seekers. There will also be well-intentioned companies that are bad at their jobs. There will be fraud, waste, and abuse. And we should applaud when government tries to responsibly address it.

I’m just making the point that the directed-award feature of the 8(a) program is something we might miss with a hyperfocus on fraud, waste, and abuse. After all, it's not like the beltway bandits will disappear if the 8(a) program goes away. It's not like the companies on the back end of the pass-through need the 8(a) program to sell to government. There may be a hidden cost of the 8(a) program, but there's also a real opportunity cost of getting rid of it.

And therein lies the paradox of the 8(a) program. The government doesn’t love 8(a) because of DEI or because it is a vehicle for fraud. The government loves 8(a) because it is an escape valve from its own worst impulses. Instead of hiding behind email and reverse industry days, under the 8(a) program, government folks and small-business founders can talk to each other and figure out what the government actually needs. Wild, I know.

In his speech, Secretary Hegseth claims that “America’s full of great, amazing small businesses” and that sledgehammering the 8(a) program is “part of a larger effort to transform our acquisition ecosystem into one that makes sense for the threats we face in the 21st century.”

Fine. But if I might be so bold, maybe the real reform shouldn’t be to eliminate the 8(a) program but to embrace the parts of it that work? If the government wants a buying experience that’s more in line with the private sector, the government should put less of a focus on competition as a way to eliminate fraud and put more ambition into better communication between government and the seller.

[1] I’m sorry. I just can’t help but imagine that the most lethal fighting force on the planet can surely wield a weapon more lethal than auditors to destroy a program? (“From the Halls of Montezuma to the Tabs of Spreadsheet E!”) Either way, here are the lyrics and video to Peter Gabriel’s 1986 classic “Sledgehammer,” which is excellent background music for article writing. You’re welcome.

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