FALSE CLAIMS ACT DEFENSE
8(A) CONTRACT AND SET ASIDE CONTRACTS
In addition to the dozens of whistleblower lawsuits filed against health care organizations and health care providers each year, actions against defense contractors and contractors with an 8(a) contract or set aside contracts are increasingly common. The Small Business Administration (SBA) 8(a) contract is designed for small businesses owned by socially and economically disadvantaged persons. These set aside contracts may include service-disabled veteran owned small businesses (SDOVSBs), women-owned small businesses, and/or HUBZone set asides.
The federal agencies that investigate false claims related to the performance or award of these contracts are: SBA Office of Inspector General, Department of Defense Office of Inspector General, Air of Force Office of Special Investigations, and the Defense Contract Audit Agency.
In simple terms, to qualify for an 8(a) contract, the business must be a small business; it must not have previously participated in an 8(a) program; it must be at least 51% owned by U.S. citizens who are economically or socially disadvantaged; meet certain personal net worth requirements ($850,000 or less of personal net worth and/or less than 6.5 Million in assets); and it must demonstrate good character and the potential for success.
A small business seeking to obtain an 8(a) contract must undergo a certification process with the federal procuring agencies’ contracting officers. So, if the contractor is seeking a contract to build a fence on an Air Force Base, the contracting officer is the Air Force. And, in most but not all cases, if the procuring agency decides to award the contract to the 8(a) contractor it will submit an offer letter to the SBA and await SBA’s approval. That means two agencies must approve the contractor. Adding to this convolution, the offer and acceptance time periods and processes also vary depending on the type of contract and the procedures for awarding the contract vary depending on whether the contract is (i) a sole source contract and (ii) a competitive contract under 8(a).
So how do these various 8(a) contracts come up in False Claims Act investigations or lawsuits?
Government Business. Much like a Medicare provider, every government contractor deals directly with the federal government and submits claims to the government for goods or services. In other words, false claims, or someone reporting a possible false claim, are always a risk.
False Certification. To obtain an 8(a) contract with the contracting agency, the contractor must be eligible for the contract which includes being capable of performing the contract. This may arise in the defense contract space, for example, where a contractor who is no longer eligible for 8(a) contract status obtains a contract as an 8(a) contractor.
It also may arise when contractors submit offers to perform contract as service-disabled veteran owned businesses. The Second Circuit Court of Appeals has held that contractors seeking contracts under that status may be liable for false claims where, as there, the complaint made it clear that the contractor was not majority-owned by a service-disabled veteran. United States v. Strock, 982 F.3d 51, 60 (2d Cir. 2020).
Joint Venture agreements. Similarly, disadvantaged persons managing business under an 8(a) contract may enter into joint venture agreements. Those joint venture agreements require the disadvantaged member to perform a specified percentage of the work. In the past, the 8(a) contractor might obtain the award for a contract and then outsource a substantial amount of the work to the non-8(a) joint venture partner by having the non-8(a) partner use its employees to perform work. SBA believes this type of outsourcing of 8(a) contractor status deprives SBA’s real disadvantaged businesses of valuable economic opportunities and undermines the Program’s integrity.
Mentor-Protégé agreements. False claims may also arise when contractors enter into mentor-protégé agreements. In recent years, SBA issued Final Rules simplifying mentor-protégé agreements for 8(a) contractors so that contractors do not need to comply with 2 different mentor-protégé programs. Much like joint venture agreements – which can be performed in tandem with mentor-protégé agreements – false claims liability may attach when a mentor does not provide meaningful assistance to the protégé and simply acts as a conduct for the protégé to receive federal set-aside business. Further, a mentor and protégé cannot be “affiliated” at the time of the mentor-protégé application. Affiliation is determined by, among other things, the power to exercise control although SBA may consider other factors.
15% Rule Issues. Technical issues arise in the 8(a) contract context when the protégé or the disadvantaged 8(a) contract partner in the joint venture agreement is required to perform a specified amount of labor. The definition of what constitutes labor may also be subject to interpretation based on the type of contract, for example, construction contracts can use management, not just labor or costs of supplies, as a metric for measuring the specified amount of work to be performed.
The Firm has represented 8(a) contractors with an 8(a) contract and government contractors seeking an 8(a) contract with the military in criminal and civil investigations related to fraud, false claims, and false certifications. The Firm has also successfully obtained declinations of prosecution on behalf of 8(a) contractors.