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I’m back with another live Substack video. This is probably going to be our last post and video of the year. That’s my plan, unless something crazy happens in the next couple of weeks, like the SBA just ends the 8(a) program. So hopefully this will be the last video of the year.
It’s been a big year for GovCon Intelligence. We’re going to end the year with 1,600 subscribers. We started just on July 9th of this year, and this is the 38th post in the six months that we’ve been in operation. So I want to take this opportunity to thank everybody that subscribes for reading, for watching, following, commenting, et cetera. Thank you so much for your comments, your questions, and your feedback. It really means a lot to me.
I look forward to 2026. I’m committed to continuing to bring all of you expert analysis, unique insights, and especially the data and the context that you need. There’s just so much happening in government contracting; it’s hard to keep up. This newsletter helps you to do that. With that, I’ll go on to updates, questions, and cases. We actually have a few people joining us live, so feel free to put any questions that you have into the chat.
The 8(a) Fraud Debate and Senate Hearings
First, I want to go over the article that I posted earlier this week about the amount of confirmed fraud in the 8(a) program. The article was stating that the amount of confirmed fraud is barely enough to buy a Toyota Corolla. The point of the article was to respond to, in part, and analyze the Senate hearing that took place the week before about fraud in SBA programs and to get some context behind the big 8(a) audit that everybody in the 8(a) program is going through.
Additionally, at the same time, there were letters that went to 22 federal agencies giving examples of what the Senate chair called fraud or abuse of SBA programs. In looking through some of those examples, it looked like they were primarily about NAICS code compliance. A few of them were about the LOS (Limitations on Subcontracting).
In my view, complying with the NAICS code rules is, first of all, complicated. It has some exceptions, but not complying with it, to me, would not be fraud. That’s really an SBA responsibility rather than the company being responsible for that.
Nuances of Limitations on Subcontracting (LOS)
On LOS, I’ve said it several times in articles, but I’ll say it again: there are exceptions to LOS. That is a very nuanced rule. There is the “similarly situated entity” exception. There’s also consideration for mixed contracts. So if you have a contract that combines both supplies and services, you don’t have to comply with the LOS for both of those. You comply with one or the other, and the one that you’re not required to comply with can do what you want. There’s not an LOS that applies to that.
Additionally, companies that are in a MPA (Mentor-Protege Arrangement) have a different calculation for LOS.
SBA Audit Updates and FAQs
The big update from this week was that SBA published an FAQ and sent out a notice to all the companies that received the 8(a) audit letter. First, the deadline for the audit has been extended by two weeks to January 19th. Second, they clarified some points in the original audit letter. You can find the FAQ at the SBA Atlassian website.
The big questions they answered include:
Fiscal Year: They clarified it is the participant’s fiscal year you are responding to, not the Government Fiscal Year.
Sub-ledger Schedule: Item number 13 in the audit letter asked for a “sub-ledger schedule,” a term SBA seemed to create out of thin air. They clarified that if there is no sub-ledger, you just provide a brief explanation and attest to its absence.
Revenue History: For firms without a history of revenue (likely entity-owned firms as most 8(a) firms need two years of business for “potential for success”), they should submit a statement attesting to this.
MySBA Certifications: The Certify system is being phased out for annual reviews and these submissions. Instead, it goes to MySBA Certifications. You must create an account and claim the business to respond to this data call.
The FAR Overhaul
We also have the FAR overhaul. That was the big news for 2025. The drafters issued the PDF version this week; it is about 1,600 pages. We went from 2,000 pages to 1,600 pages—a 20% decrease. Some of that shifted over to the Companion Guide and supplementary materials, but it’s still a drop.
Acquisition.gov sent out an email about a new FAR online course and an IdeaScale site for feedback. However, this is not the official regulatory notice and comment period yet. Under Supreme Court precedent, agencies must respond to significant comments filed during the official period. They do not have to respond to feedback on IdeaScale. I will let everyone know when the official period starts.
Q&A Session
Q: Can you “stack” the 40% rule for JVs on top of LOS?
In an SBA Joint Venture under a Mentor-Protege arrangement, the protege must perform at least 40% of the work done by the JV. If the JV is performing a services contract where the LOS requires the prime to do 50%, the protege’s 40% of that 50% equals 20% of the total contract. This is technically legal if structured correctly. While the audit letter doesn’t focus heavily on JVs, I wouldn’t be surprised if SBA scrutinizes them more in the future or seeks regulatory changes to prevent this 20% minimum.
Q: Is the ultimate intent to do away with set-aside programs?
During the Senate hearing, some witnesses called for the elimination of all set-aside programs. I think that is the wrong approach. You can limit sole source awards without affecting set-asides. Research shows there is often more competition on small business set-asides than on full and open competitions because small businesses feel they have a realistic chance of winning against similar companies rather than Large Businesses.
Q: Is there rampant fraud in the 8(a) program?
Neither the GAO (Government Accountability Office) nor the SBA OIG (Office of Inspector General) has done a comparative assessment of fraud rates across different groups. While there is some fraud, the 8(a) program may actually have less fraud than what occurs in private contracting or newer authorities like CSO (Commercial Solutions Opening) or OTA (Other Transaction Authority).
Q: How do you challenge a Social Disadvantage narrative?
The process is unclear. SBA determines if an individual experienced discrimination, but it’s not necessarily their core competency. There is a process in the FAR for challenging Small Disadvantaged Business status, but it rarely happens and there isn’t a robust adjudication process for it.
Q: Will the audit uncover LOS violations?
I don’t know that the questions SBA is asking will allow them to uncover LOS violations accurately. LOS is a product of the NDAA of 2013 and is very nuanced. You have to look at “similarly situated entities,” mixed contract types, and profit retention. Looking at accounting data for 4,300 submissions is likely not enough to make a resolute decision on LOS compliance.
Caselaw update
GAO: Certificates of Competency (COC) and Binary Choices
The Government Accountability Office (GAO) recently issued a notable case regarding the Certificate of Competency process. This process is triggered when a federal agency finds a small business to be “non-responsible”; the agency must then refer the matter to the SBA, giving the business a chance to appeal.
In this case, the Army evaluated a company, C-Slope, and assigned it a “Satisfactory Confidence” rating for past performance. C-Slope protested, arguing the Army should have referred the evaluation to the SBA under COC procedures.
The Rule: SBA rules require a COC referral for “responsibility-type” determinations, such as a Pass/Fail or Go/No-Go evaluation.
The Ruling: GAO denied the protest. It ruled that the Army’s evaluation was not a binary choice. Because the evaluation included multiple possible ratings (Substantial Confidence, Satisfactory Confidence, and two levels below that), it did not act as a “non-responsibility” determination.
Key Takeaway: If an evaluation isn’t a simple “Pass/Fail,” agencies generally do not have to refer the matter to the SBA for a COC.
COFC: The “Once 8(a), Always 8(a)” Rule and Coordination
The Court of Federal Claims (COFC) addressed the “Once 8(a), Always 8(a)” rule, which states that if a requirement is accepted into the 8(a) program, its follow-on must remain there unless the SBA specifically releases it.
This case focused on the definition of “coordination” with the SBA when an agency decides a requirement is “new” (and therefore exempt from the follow-on rule).
Context: The National Institutes of Health (NIH) determined a requirement was “new” rather than a follow-on due to:
A 77% price increase over the prior contract.
The addition of significant AI-related tasks that didn’t exist in 2019.
The Ruling: Judge Ryan Holte ruled that the NIH and SBA had sufficiently “coordinated.” The agency sent the determination to the SBA, and the SBA confirmed via email that it was a new contract and no release was required.
Key Takeaway: Informal “back and forth” communication (like email confirmation) can satisfy the SBA’s requirement for agency coordination on new requirements.
SBA OHA: Ownership Changes and “Gaps” in Eligibility
The SBA Office of Hearings and Appeals (OHA) looked at a status protest involving Service-Disabled Veteran-Owned Small Business (SDVOSB) eligibility during complex ownership transitions.
The protester argued that Caduceus was ineligible because of a 12-day gap during a multi-step transaction where shares were sold back to the company before being sold to a second veteran owner.
The Ruling: Judge Christopher Holloman denied the protest. He found that the firm was qualified at the time of the offer and remained eligible after the transaction concluded.
Key Takeaway: Minor administrative gaps in documentation during a multi-step ownership change do not automatically cause a firm to forfeit its status.
Criminal Case: 8(a) Fraud and the “Unconstitutionality” Defense
A case in the Middle District of Pennsylvania involved an alleged $80 million conspiracy to defraud the 8(a) program.
The Argument: The defendants tried to have the indictment thrown out by citing the Ultima Services case. They argued that if the 8(a) program’s use of “presumptions of social disadvantage” is unconstitutional, then they cannot be prosecuted for violating its rules.
The Ruling: The judge rejected this. He stated that even if certain entry rules for the program are unconstitutional, individuals still cannot engage in fraudulent conduct to gain access to it.
GAO: SBIR Phase III Sole Source Authority
GAO clarified the limits of Small Business Innovation Research (SBIR) Phase III awards, which allow for sole-source contracts. The case was Bode Technology.
ICE awarded a Phase III contract for rapid DNA testing. A protester argued it was improper because the contract included commercially available items and lacked a high proportion of original SBIR research.
The Ruling: GAO upheld the award. It confirmed that Phase III work only needs to derive from, extend, or complete prior SBIR efforts.
Key Takeaway: There is no “price test” or specific percentage of research required for a Phase III award; if it relates to the prior technology, the sole-source authority stands.
GAO: 8(a) Eligibility and GSA MAS Pools
This case called The Building People involved the GSA Multiple Award Schedule (MAS) 8(a) Pool.
The Scenario: The Department of Energy asked the SBA for an eligibility determination for an order off the GSA 8(a) pool. The SBA found the firm ineligible. The firm protested, saying the agency wasn’t even required to ask the SBA for a determination for a competitive order.
The Ruling: GAO ruled that while the agency might not have been required to check with the SBA, nothing prohibited them from doing so. Once the SBA declared the firm ineligible, the agency was right to deny the award.
Key Takeaway: GAO will not overturn an agency’s decision to deny a contract if the SBA has issued an underlying determination of ineligibility.
With 20 years of Federal legal experience, Sam Le counsels small businesses through government contracting matters, including bid protests, contract compliance, small business certifications, and procurement disputes. Sam obtained his law degree from the University of Virginia and formerly served as SBA’s director of procurement policy. His website is www.samlelaw.com.
This video is for informational purposes only and does not constitute legal advice.
