8(a) Business Development Program Fraud

Under the 8(a) Business Development Program (usually just called the “8(a) Program”), the federal government seeks to award at least 5% of federal contracting dollars to certain small businesses each year. The program helps socially and economically disadvantaged small businesses compete for government contracts. Unfortunately, the program is also plagued by fraudsters that lie about their eligibility or serve as pass-throughs for ineligible businesses that actually perform the work on these contracts.

Qualifying for the 8(a) Program

To be eligible for the 8(a) Program, a business must:

1. Be a small business,
2. Not already have participated in the 8(a) Program,
3. Be at least 51 percent owned and controlled by U.S. citizens who are economically and socially disadvantaged,
4. Be owned by someone whose personal net worth is $750,000 or less,
5. Be owned by someone whose average adjusted gross income for the past three years is $350,000 or less,
6. Be owned by someone with $6 million or less in assets,
7. Have the owner manage day-to-day operations and make long-term decisions,
8. Have all its principals demonstrate good character, and
9. Show potential for success and be able to perform successfully on contracts.

Businesses cannot remain in the 8(a) Program indefinitely; after nine years, they graduate from the program and are no longer eligible to bid on 8(a) contracts.

8(a) Program Fraud

Like other small business assistance programs, the 8(a) Program is often targeted for fraud. In some cases, businesses will lie to the SBA about their eligibility in order to participate in the 8(a) Program. 8(a) businesses will also sometimes serve as “pass-through” entities, nominally bidding on and winning contracts, but actually outsourcing the work (and paying most of the contract value) to another, ineligible business.

Both of these schemes were present in a 2019 settlement with two construction companies and their executives. In that case, the government alleged that VMJ Construction, LLC—purportedly an eligible 8(a) business—bid on and won several set-aside contracts. However, VMJ was actually operated by the owner of an ineligible business, Vigil Contracting. In addition, VMJ allegedly relied almost exclusively on Vigil’s resources to complete the work under the contracts. These businesses and their executives paid $3.6 million to resolve these allegations of fraud.

Identifying 8(a) Program Fraud

Whistleblowers are essential in identifying, reporting, and stopping fraud in the 8(a) Program. Whistleblowers are often employees (or former employees) of an 8(a) business or other government contractor, with inside information about fraud being committed. Sometimes, employees of legitimate 8(a) businesses learn their competitors are cheating the system—this type of information can be equally valuable in detecting and stopping fraud.

8(a) businesses are often approached with proposals to commit fraud—for example, by serving as a financial “pass-through” for an ineligible business while performing very little or none of the work actually required under the contract. Other times, a company might fraudulently obtain certification as an 8(a) business to take advantage of special contracting opportunities. Whistleblowers should be on the lookout for situations in which the purported owner of an 8(a) business doesn’t actually appear to own or manage the business, or where an 8(a) business serves as a government contractor but doesn’t actually perform work on the contract.

Whistleblowers with knowledge of schemes to defraud the 8(a) Program should come forward and speak to a whistleblower attorney. A whistleblower who files a successful complaint under the False Claims Act is entitled to between 15% and 30% of the amount the government recovers.

Our Team

With more than 30 years of experience, the attorneys on Baron & Budd’s whistleblower representation team have represented dozens of clients in government fraud cases returning over $5.4 billion to federal and state agencies, with whistleblower recovery shares as high as 49%. They are ready to help if you have evidence of fraud involving the 8(a) Program.

Please call (866) 845-2164 or complete our contact form if you would like more information. For more information, see What You Need to Know About Becoming a Whistleblower. Please understand that contacting us does not mean that you have established an attorney-client relationship with Baron & Budd, P.C.