Terry Gerton Let’s start our new year by digging into what’s happening with the 8(a) program. It is probably under the tightest scrutiny in its 47-year history. Why does this administration care so much? What are they looking for?

Emily Murphy I think that there are a few things that have converged right now and that have sort of put 8(a) in the spotlight. And part of it is actually what the Biden administration did with the 8(a) program. But if you remember, there’s a statutory goal that says 5 percent of prime contract dollars are supposed to be awarded to small, socially and economically disadvantaged businesses. And 8(a) is the primary tool for making those awards. But President Biden, via executive order and some memos out of OMB, raised that goal to 15 percent, which brought a lot more money into the program, brought a more interest and scrutiny into the program, and led to the first of the lawsuits that we’ve seen in, you know, serious lawsuits we’ve seen in about 20 years since post-Adarand, about the 8(a) program. There was the Ultima case that was decided in ’23 that said SBA could no longer presume certain categories were socially disadvantaged. So that’s what led to people starting to look at the 8(a) program and put things in flux. The other thing actually goes back maybe about 10 years further, which was Congress back in 2013, 2014 looked at limitation on subcontracting and how did you make sure, not just in the 8(a) program but in all the socioeconomic programs, that if you’re giving work, setting aside work to a type of companies, the work was actually being done by those companies. And the old rules always said that 51 percent of the cost of the labor or 51 percent of the costs of the goods had to be done by the small business getting the work, 8(a), woman-owned, HUBZone, service deal, veteran, but it was really hard to figure out if anyone was following that because small businesses don’t usually engage in cost accounting. They certainly don’t have the cost basis of their subcontractors to figure it out. So you never could really figure out whether anyone was complying. And it created weird requirements for small businesses that we were hoping would grow into large businesses where it said, just you’re better off not teaming with anyone, just go it alone because you’re not gonna get in trouble. But then as soon as you’ve become a large business or an other-than-small business, we want you to start contracting with other small businesses. So Congress came in and said, all right, rather than this 51 percent of cost basis, we’re just gonna look at the dollars that are awarded to the company. And if, and we’re gonna start saying that 50 percent of the dollars that are rewarded to a company under any contract may be subcontracted to companies that are not similarly situated. So if an award went to a small business, they and other small businesses had to keep 50 percent of the dollars, and that they could use non-small businesses to do the remaining 50 percent of the work. They could work with other 8(a)s to meet that 50 percent goal and then the remaining 50 percent, they could used small businesses or women in small businesses or large businesses. But the plan was then to use the electronic subcontracting reporting system to track that and see whether or not that was being applied with. That hasn’t happened. But the changes, and it took a while to get the regulations in place to implement those, have now given us some insight to how subcontracting is, it’s made it much more easy to audit whether or not all small businesses, but in this case, 8(a)s, are following those rules. And there was the O’Keefe Media Group where they caught one company on saying that they were subcontracting more than I think they were allowed to under the program. So you had these changes of the goals which President Trump rolled back very beginning of January of 2025, but that didn’t change the fact that a lot of new money had come into the program and so the program was gonna get a lot more scrutiny. It sort of led us to where we are now.

Terry Gerton Well, the Pentagon has just announced that they’re going to conduct their own line-by-line review. What does the administration hope to learn separately from the SBA investigation by the DOD? Taking a deep dive.

Emily Murphy When I saw the secretary’s announcement on that, I thought it was interesting that he was making two different points. The first one was he wanted to make sure that all the contracts that were being awarded using the 8(a) program were following limitations of contracting. But he said that they were really gonna focus on those that were above $20 million. Now, sole source contracts above $20 million don’t go to just your average 8(a) company. There’s a cap on sole source awards, and it depends on whether it’s for goods or services. But it’s less than half of that amount. The only companies getting $20 million sole source awards through the 8(a) program are Alaska Native corporations, Native Hawaiian organizations, tribally-owned organization. They don’t have the same affiliation restrictions that traditional 8(a)s have, don’t the same management restrictions. So it’s a special subclass of 8(a)s and they said that when they focused on those who have $20 million, I thought it was interesting that they seemed to be looking at the larger 8(a) companies, the ones that have taken on more and more of this work.

Terry Gerton Should we read anything particular into that focus?

Emily Murphy I would think that that was the distinction I saw between the general 8(a) reviews taking place at SBA, the requests for review that were put out by Sen. Ernst (R-Iowa) and Senate Small Business and the work that was happening at the Pentagon. I also thought it was interesting that the Pentagon said the other thing they wanted to do was make sure that these contracts were for things that align with their priorities. Now that’s always a good thing to do. You don’t want to be spending money on things that don’t align with your priorities. But I thought it was an interesting take from the secretary’s announcement that the contracts that he was focusing on were those that were tribal organization-owned 8(a) companies.

Terry Gerton I’m speaking with Emily Murphy. She’s senior fellow at the George Mason University Baroni Center for Government Contracting and a former GSA administrator. Emily, let’s turn to the other agency that’s digging into the 8(a)s, Treasury. They’re looking at $9 billion of performance-based contracts. Where does that fit in this puzzle?

Emily Murphy The Treasury’s looking at similar issues with task orders and others issued under the 8(a) program to whether or not they met the requirements, but also it’s also getting into limitation on sub-contracting. So you’re seeing similar trends across all of the investigations. Well, the Secretary of War was talking about beltway bandits and Administrator Loeffler was talking instead about just looking at all 4,000 plus 8(a)s, Treasury is looking specifically at those that they awarded and that’s a good place to start for them and to make sure that they’re actually meeting, once again, that you’re not having what they’re calling a pass-through where, now one thing I do think is interesting is that this is all focused only on the 8(a) program where the pass-thru issue exists for all small business contracts and so if I were a small business, I’d making sure that any work that I’m doing, I wouldn’t assume that this is going to stop with the 8(a) companies. I think that the 8(a)s, because of that 15% goal in the prior administration are getting a lot of focus. But I would be concerned if I were another small business to make sure that I was documenting that I was following limitation on subcontracting.

Terry Gerton Let’s dig into that a little bit because the all of this activity collectively has sort of raised the level of angst among the government contracting community. If you were a legitimate small business 8(a) provider, what should you expect as these reforms move forward?

Emily Murphy If you’re following the rules, this shouldn’t itself be a fundamental challenge, with two caveats on that. The first one being, pause in the work and awards made to any 8(a) is going to change your pipeline and whether or not you’re able to exist. So if your pipeline was based on sole source awards of $4 million, $5 million, and there is a freeze on awards. That’s gonna put you in a more difficult spot in terms of does the agency that was going to make the award have the capacity to go out and run a competition? Will they do it as an 8(a) set aside rather than as a sole source? Does it need to be removed from the 8(a) program first in order for that to happen? So there’s some contracting challenges that go with that. The other challenge you’ve got is that if you look at the model deviation to part 19 of the FAR that was issued last summer. It changed the basis of award for 8(a) as well and it said that if 8(a) companies are on a multiple-award contract that, instead of doing sole sources to those 8(a)s you should do a competitive award and that if something has previously been in the 8(a) program and you want to instead award it to another socioeconomic group, say serviceable veterans or women, you no longer need to go to SBA and ask their permission. You can go ahead and do it on your own. So those are the challenges I’d be focused on more if I were an 8(a) company that was convinced it was complying with the limitation on subcontracting.

Terry Gerton And what do you think the administration is anticipating on the other side when they get these investigations complete and they see the results are we going to see tighter rules? Are we gonna see a new version of the 8(a) something completely different

Emily Murphy Well, Congress hasn’t really gotten self-involved in the 8(a) program in decades now. SBA is somewhat constrained as to what can or cannot change in the program on its own. And there are stakeholders on both sides of the 8(a) issue in Congress. You’ve got the ranking member on the House Small Business Committee has been a long time champion at the 8(a) program. Senators from states that have a lot of tribal contracting tend to be supportive of the program because it brings work back, a revenue back to their states and to communities that they consider to be underserved. So how much flexibility the administration will have to make structural changes to the program it remains to be seen and how much collaboration that they’re going to get? Are they going to take the results of that investigation and go to Congress and ask for changes? Or are they just going to change the practice of how they use the tools? Because again, there’s a 5% goal for awarding contracts to socially and economically disadvantaged — companies owned by socially and economically disadvantaged individuals. But there is no mandate that you must use the 8(a) program to do that. Does the administration then decide by administrative practice that they’re gonna pull back and they’re going to find other ways of meeting that goal?

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