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Is the 8(a) process worth all the trouble?

Ultimately, yes. However, musical-chairs leadership and a lack of direction have blunted the effectiveness of an important program for black business.

Want to stage a high-stakes, big-city version of "The Hatfields vs. The McCoys"? Line up several African-American business owners on one side of a room and a group of U.S. Small Business Administration (SBA) officials on the other and ask: "What's wrong with the 8(a) program?"

Then duck.

Although the controversial minority set-aside program hasn't touched off any

deadly shootouts, it has been known to provoke a heated war of words between disgruntled 8(a) entrepreneurs and defensive SBA administrators. The fact that both sides remain at odds is no surprise. The hard truth is that this legislatively mandated federal government program - which falls under section 8(a) of the Small Business Act - has never live up to its advanced billing. Since its establishment in 1968, charges of mismanagement, lack of direction and limited resources have topped the laundry list of criticisms and complaints leveled at the program. And who can forget the Wedtech scandal? It was a dark day at the SBA in 1987 when it was learned that the Bronx, N.Y.-based defense contractor posed as a minority-owned firm and bribed government officials to gain set-aside contracts.

It seems like everyone has something negative to say about the 8(a) program. A January report submitted by the U.S. General Accounting Office (GAO) to the House and Senate Committees on Small Business, charged that the lack of data on many program activities has hurt the SBA's ability to effectively manage the program. After extensive interviews with program officials, congressional leaders and current and former 8(a) participants, BLACK ENTERPRISE agrees that the 24-year-old program remains seriously flawed and deeply troubled.

An increasing number of the program's black business owners are tired of toughing out a lengthy certification process, fed up with receiving insufficient management assistance and disenchanted with the SBA's musical chairs management record. Above all many black chief executives are questioning the value of a program designed to make fledgling minority business competitive in the private sector. Since black-owned firms make up 48.3% of the 3,919 companies in the nine-year program (see chart, "The 8(a) Breakdown"), their words carry considerable weight.

"The SBA in and of itself is inefficient," contends Jimmie Taylor, president of Alaska Quality Control & Technical Services Ltd., an Anchorage-based professional engineering and testing services firm that received its 8(a) certification six years ago. "When Reagan talked about getting rid of it, that wasn't such a bad idea."

Adds John Robinson, president of Black Diamond Enterprises Ltd., a Capitol Heights, Md., manufacturing and engineering firm: "Going to the dentist is probably better than going to 8(a). It's mind-boggling what they asked you to do."

Existing 8(a) business owners are not the only people complaining. "The 8(a) process is arcane and quite bizarre," says Robert T. Lhulier, the SBA's one-time chief of staff. "The agency doesn't have the resources to help these companies through the program."

Now the president of Robert T. Lhulier & Associates, a Newark, Del.-based consulting firm, Lhulier is trying to change that. As a consultant, it is his job to make it easier for entrepreneurs to successfully get into the program and to teach them how to make it work for them. Considering the number of companies often trapped in the 8(a) labyrinth, he shouldn't have a time finding clients.

The Birth Of 8(a)

Having its origins in 1968, the SBA's 8(a) program was designed to give socially and economically disadvantaged owners access to lucrative government contact dollars. The goal was simple: After receiving several years of management and technical assistance, 8(a) firms were expected to have the necessary skills and contacts to make it on their own in the mainstream.

However, a not-so-funny-thing happened on the road to fostering minority business development. Instead of creating a host of multimillion-dollar success stories, the program consistently graduated companies that were not sufficiently prepared to compete for contracts with the big boys in the private sector. The result? A large number of former 8(a) companies have gone - and continue to go - out of business shortly after leaving the development program.

Want proof? In 1991, the district offices of the SBA looked at 645 former 8(a) companies that left the program between Oct. 1, 1987 and Sept. 30, 1990. Of those firms, an astounding 42% went out of business. The study also revealed that 48% were still in business, 7% had seriously curtailed operations, and 3% were acquired by other firms. Although the SBA says it doesn't know the ethnicity of those firms, it's safe to say that many of those closed up shop were black-owned. Since 8(a) was launched, 9,340 companies have participated in the program. And 57% of those were owned by blacks.

"If the 8(a) program a were a business," notes congressman John Conyers Jr. (D-Mich) and senior member and a co-founder of the Congressional Black Caucus (CBC), "they wouldn't qualify for the program themselves. Their performance is unacceptable."

Conyers is right. The program was so embarrassingly ineffective that in 1988, Congress had to step in and draft the Business Opportunity Development Reform Act. That legislation sought to improve access to the program and reduce administrative blunders by doing the following:

* Requiring current 8(a) firms to submit revised business plans so the SBA could better track their development

* Mandating that certification applications be processed within 90 days

* Instructing firms to compete for specific contracts.

It's four years later and unfortunately the SBA is still cleaning up its act. The certification process is still drawn-out and burdensome, the management and financial assistance remain woefully inadequate, and too many companies continue to fail after graduating.

So, who is responsible for cleaning up this king-sized mess? The first name that comes to mind is SBA Administrator Patricia Saiki. As a former two-term congresswoman from Hawaii, Saiki brings limited small business experience to the table. Saiki is also new to the position - she was appointed SBA administrator in March 1991.

The individual who has been charged with revamping the 8(a) program is a former revenues collections manager for the City of New Orleans. The problem is she's still cutting her federal government teeth. Her name: Judith A Watts. Since being named associate administrator for the Office of Minority Small Business & Capital Ownership Development (MSB&COD) last August, Watts' job is to implement the congressional reforms and oversee the SBA's minority small business programs - including 8(a). Translation: It is her task to make things work - or more accurately - turn around.

Although Watts, who has a $31.2 million budget for 1992, has extensive experience as a management and financial consultant, she is still getting at the SBA. That does not bode well for the program since Watts and her nationwide staff of 418 are confronted with a Herculean challenge. The program needs a major-league overhaul. Program participants know it. Congress knows it. Nevertheless, the question remains: What's being done about it?

Why 8(a) Has Failed

If you ask any black business owner he chose 8(a), that answer will be simple: "To help my business grow." For many African-American entrepreneurs, the 8(a) program represents the best - and sometimes only - shot they have at doing substantial business with the government.

Says Weldon H. Latham, small business advocate and partner in the Washington, D.C., law firm of Shaw, Pittman, Potts & Trowbridge, "Despite its problems, the 8(a) program is the most successful federal procurement program that ever existed for minority business."

Carl A. Brown, CEO of Mandex Inc., an $11 million BE 100s telecommunications firm based in Springfield, Va., adds that through the 8(a) program, it might take only five months to land a contract where in the normal competitive arena, it may take a year or more. "That competitive advantage definitely made it easier for me to get contracts. We would have been half our size and grown a lot slower had it not been for 8(a)," says Brown, whose 18-year-old firm graduated from 8(a) in April 1988.

Len Ray, president of RAY Communications Inc., a Norristown, Pa., systems integrator for local area networks and telephone systems, says that the program gave him the opportunity to demonstrate that his company had some capability. "We became certified in 1986, and we didn't get the first contract until two years later," says Ray. "The first one was with the Census Bureau to install cable - the contractor had a ceiling of $75,000 per year. The first year we did about $30,000 worth of work. They liked what we did and after that first year, we signed a three-year contract, and we will do about $200,000 worth of work for the Census Bureau."

William H Smith was another one of those entrepreneurs who heard that 8(a) might give him a good shot at landing a few government contracts. The president of ComTel Productions Inc., a Londonderry, N.H., film, video, interactive production company, says that he applied to the program at the suggestion of a friend. "Initially, I wasn't interested," recalls Smith, whose company has done a series of Medicare videos for the Health Care Financing Administration featuring "20/20" correspondent Hugh Downs. "I didn't want to get bogged down in something that would involve a lot of paperwork. But a friend told me how it helped him establish a real base for his business. I saw this as an opportunity to help my business become more stable through an added source of contracting."

Smith says that since ComTel joined the program, 8(a) has, among other things, enabled his firm to expand into touch screen technology - or as it's more commonly called, interactive video. "We would not have had the opportunity to get into this end of the business as rapidly had it not been for 8(a)," he says.

However, for every William Smith whose expectations were met, there are hundreds of other 8(a) business owners who walk away disappointed.

Take Jim Taylor. The president of Alaska Quality Control & Technical Services contends that 8(a) has been a total disaster for him. Taylor, whose 10-year-old firm grossed $900,000 in sales last year, says he joined 8(a) in 1986 because it was touted as a minority business development program.

However, Taylor laments that the program hasn't done much to help his company grow. Since joining, he says that he has landed only two contracts totaling $232,000. The first was a $32,000 job to analyze asbestos samples at Elmendorf Air Force Base in Anchorage and the second was a $200,00 contact to install telephone systems for the U.S. Fish & Wildlife agency. Fortunately for Taylor, 98% of his business in non-8(a).

The 8(a) contract that sticks in his mind, however, is the $1.5% million job to manage a computer research effort at Elmendorf. While pursuing that contract earlier this year, Taylor says he got little support from the SBA. It was an adversarial situation, he recalls, and a lot of unnecessary volleying. "One of the people at Elmendorf told me about the project and asked what SIC [standard industrial classification] codes I had. [SIC codes refer to the type of business an 8(a) firm is in.] I told him and he said he'd list the project under this particular code," recalls Taylor. "When I got to the SBA, the first thing they said was, |What is the size of the contract?' I told them it's for $1.5 million. They thought it was for more than $3 million, which means I would have had to compete for it against other 8(a) companies. I finally got that settled with them, but they were not trying to sit down with me to work out the contract."

I's hard to pinpoint the main reason why 8(a) remained in such a shambles for so long and why it's been allowed to fail countless entrepreneurs. In fact, it's downright impossible. But if you had to start somewhere, you might as well look at the numerous personnel changes at the MSB&COD over the past two years.

Between January and September of last year, the key position of associate administrator was held by four individuals - including Judith Watts. And between May 1990 and December 1991, four persons served as deputy associate administrator for Policy Coordination, Program Certification and Eligibility. No agency - government or not - can maintain a consistent agenda when its top officials are constantly walking or being pushed out the door. (See, "What's Next For The SBA? June 1989.)

Another major reason why the 8(a) program remains ineffective is that in this advanced age of ours, the SBA still relies on a manual racking system. No wonder processing paperwork is bureaucrat's worst nightmare. Just asking a simple question like, "What's going on with my application?" might take weeks - or months to get answered where or why processing delays manual tracking system does not identify where or why processing delays occur because it does not track the application through all its stages and often lacks data for stages that are tracked.

This has serious implications. According to the GAO, an astounding 76% of all new applicants approved or declined by the SBA during the first 11 months of 1990 exceed the act's new 90-day application processing requirement. The SBA met the requirement for only about 24% of the 268 applications that it approved or declined between January and November of 1990. The GAO found that the average processing time was 117 days - and even that's rare.

Ask your average 8(a) business owner how long it took him to get certified and the standard response is "two years." Len Ray, of RAY Communications, says he was rejected twice during the certification process. "They stopped processing me one time," says Ray with a laugh, "because they said I didn't put the dates on my resume."

Ray, however, insists that he did.

The SBA maintains that it's aware of the hardships a manual tracking systems causes and says have a fully automated, $1.1 million system on-line by October 1993. In fact, the first phase of that system went on-line in January.

The Herculean Challenge

Judith Watts is either very naive or knows something nobody else does. In her testimony before the House of Representatives Committee on Small Business in March, Watts said, "While there is still some work to be done in implementing the full range of statutory provisions, we remain confident that we have reached a point where the greatest programmatic changes are behind us, and we can now proceed with full implementation."

That's nice jargon, but the bottom line is that the SBA is far from turning around the program. It's no secret that Watts & Co. have their work cut out for them. She told BLACK ENTERPRISE that her major challenge is to assist a larger percentage of 8(a) business in landing more contracting opportunities. How? Watts says that the SBA plans to increase its involvement with various government agencies to improve their level of knowledge and understanding of the program.

For example, the MSB&COD staff began in December to hold monthly meetings with the directors from various federal offices of Small and Disadvantaged Business Utilization. Specialized sessions focusing on the particular needs of agencies have been held earlier this year with the Agency for International Development and the U.S. Coast Guard. Watts notes that additional outreach programs are scheduled to be held throughout the year. The intent behind the not-so-subtle public relations campaign is obviously to clean up 8(a)'s image and get government agencies to do business with 8(a) firms.

To bring unqualified MSB&COD staffers up to speed, the SBA last August sponsored a four-day National Training Conference in Arlington, Va. Watts says that more than 125 MSB&COD staff members representing each regional office and most district offices participated. The training covered: eligibility and contract issues; reporting requirements; management and technical assistance and outreach.

Training remains a major concern for SBA officials - and with good reason. Due to severe budget cuts during fiscal year 1991, only $189,425 was reliable for MSB&COD staff training compared with $413,665 in 1990. Therefore, in comparison to the 314 employees who were trained in 1990, only 135 received training last year.

Says Watts: "This program has undergone a lot of changes. We have to constantly work to move it forward. But I think the program is doing a good job."

Prescriptions For Change

If the 8(a) program is to ever truly foster the development of small minority-owned business, it'll have to do more than mouth the usual rhetoric.

It's clear that the MSB&COD must find out how much management and technical assistance 8(a) firms require. Inadequate training remains one of the biggest complins 8(a) business owners have about the program. Under the agency's 7(j) management and technical assistance program, the SBA hires contractors to conduct seminars and provide one-on-one assistance in 16 specialized categories, such as loans packaging and accounting. In fiscal year 1990, the SBA spent about $5.7 million providing assistance under the 7(j) program to 1,204, 8(a) firms.

Like many SBA observers, the U.S. Commission on Minority Business Development, is also concerned with 8(a)'s structural problems. "The SBA doesn't have the power or the clout to make the 8(a) program more efficient or effective," says Joshua Smith, the commission's chairman and CEO of Maxima Corp., a Lanham, Md.-based systems engineering company.

Based on the recommendations of the testimony of more than 500 hearing participants, the commission's final report on minority business calls for the following changes:

* Upgrade the Minority Business Development Agency to the Minority Business Development Administration. The new organization would be run by an undersecretary and would fall under Senate mandates instead of executive order.

* Move the technical support and loan divisions to the new agency.

* Transfer the contractual elements of the program to the individual government agencies. In other words, cut out the middleman, which in this case is the SBA.

Implementing a new tracking system is another key to getting the program up to speed. The SBA should know where the delays occur in the application process. It also has to work more diligently to meet the new 90-day processing time frame.

Revamping the 8(a) program hasn't been easy - and it never will be. Considering what has to be done to make it run more effectively, one has to wonder if the SBA Hatfields and minority enterprise McCoys will ever stop fighting.

MAKING YOUR WAY THROUGH THE SBA

There's no doubt about it: The 8(a) program is intimidating. The tons of paperwork, bureaucratic red tape and lengthy certification process are enough to scare off even the most experienced entrepreneur. However, if you're brave enough to go the 8(a) route, here are few pointers that might make your journey less bumpy.

* Find out what and how the government buys before you join the 8(a) program. "Entrepreneurs should do this while they're getting into business," says Jane Palsgrove Butler, deputy associate administrator for programs for the Minority Small Business & Capital Ownership Development Program.

To get a good handle on how to negotiate the government procurement maze, visit your local Small Business Administration or Service Corps of Retired Executives office. Most of these offices have on-site counselors who will give you free advice on government procurement procedures and contracting opportunities. (See sidebar, "For More Information.").

You should also talk to current and former 8(a) participants. Remember, the only way you'll get the "real deal" on how 8(a) works is by speaking to people who have been through the process. * Keep in mind: 8(a) is not a "welfare program." If you expect government contracts to just drop into your lap, then 8(a) is not for you. While the SBA does provide some form of financial, technical and management assistance, it's up to the individual entrepreneur to get the most out of the program. The key: Market your company as aggressively as you would if you competing in the open market.

* Be prepared to submit reams of paperwork. In addition to filling out the 8(a) business eligibility statement, you'll have to sub,it income tax returns showing revenues for each of the previous two years that you were in business.

* Prepare your company for graduation the moment you enter the program. How? Establish a good mix of 8(a) and non-8(a) contracts. Don't wait until two years before your company is scheduled to graduate before pursuing private-sector. Start working as soon as possible so you can land those contracts immediately. "I'm working harder on my commercial base than I am on my 8(a), " says John L. Blake, president of John L. Blake Associates Inc., a Rochester, N.Y., machine tooling supplier.

FOR MORE INFORMATION

Need more information on the 8(a) program or on how the government does business? These sources should answer every question you've ever had about the 8(a) program and small business in general but were afraid to ask.

* Federal Information Center Program (FIC), P.O. Box 600, Cumberland, MD 21501-0600, 301-722-9098, assist people who have questions about federal services, programs and regulations. The program's information specialists will either answer your question directly or refer you to someone who can.

* General Services Administration (GSA), tells you how to sell products and services to the government. It processes mostly new products that have not been solicited by a specific federal agency. There are 12 GSA service centers. They are located in Los Angeles; San Francisco, Denver; Washington; Atlanta; Chicago; Boston; Kansas City; New York; Philadelphia; Fort Worth, Texas; and Auburn, Wash;.

* SBA Hotline Answer Book, by Gustav Berle (John Wiley & Sons, Inc. New York; $14.95 for paperback/$29.95 for hardcover). Having trouble reaching the SBA? Well, don't sweat it, this book professes to answer the 200 most commonly asked questions of the SBA Hotline and it covers a wide variety of small business concerns.

* Service Corps of Retired Executives (SCORE), 409 Third St. SW, Suite 5900, Washington, DC 20024-3212, 202-205-6762, is an affiliate of the SBA with approximately 385 offices or chapters and more than 12,000 executives who provide management consulting. Consulting services are free and confidential. Workshops are held by many chapters and range in price from $5 to $20.

* U.S. Government Printing Office, Superintendent of Documents, Washington, DC 20402,202-783-3238, operates 24 bookstores nationwide and has printed in excess of 20,000 books.

Write for free "Subject Bibliography" forms SB-307 on small business and SB-090 on federal government forms or call information to find the bookstore in your area. You need a Visa or MasterCard to place an order.

* U.S. Small Business Administration (SBA), 409 Third St. SW Washington, DC 20416, 202-205-6600, operates, among other things, offices for Management Assistance, Financial Assistance and Small Business Development Centers.
COPYRIGHT 1992 Earl G. Graves Publishing Co., Inc.
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Title Annotation:minority set-aside program of the Small Business Administration
Author:Thompson, Kevin D.
Publication:Black Enterprise
Date:Aug 1, 1992
Words:3869
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