HR's Critical Role in the Ongoing 8(a) Program Enforcement Actions

Joe Young

Good afternoon, and happy New Year, GovCon HR friends. Welcome to the start of the third year – hard to believe, gentlemen of the GovCon HR Round-Up podcast. It's great to be back with everybody. Hope everybody had wonderful holidays. Welcome to any first-time listeners. My name is Joe Young with GovConPay. I'm going to kick off a little different today as we normally do.

We got a little announcement with GovConPay. I know we have some clients and partners that enjoy the podcast with us. Since we were together last November, I’m excited to share that GovConPay, our software partner that many of us know – isolved – that we work with, we entered into a transaction to be acquired by isolved here in the end of the year.

The exciting thing is they're very excited about the work we're doing with the government contracting space. And, you will see going forward, us listed as a division of isolved, which now brings us a lot of new resources and tools to support our clients in the community. So, we're very excited about.

Declan Leonard

Congratulations on that.

Joe Young

Thank you, gentlemen. So, again, as always, we are coming to you live from the studios here of BLC Digital Strategies in Tysons Corner, Virginia. A subsidiary here of Berenzweig and Leonard. And under the direction of our partner, producer, Mr. Todd Castleberry. Before we jump in today's topic, I always want to recognize our sponsor, our great friends from Berkshire Associates.

For those who aren't familiar, Berkshire are HR compliance experts, with over 50 years of experience in providing compliance services and technology for organizations looking to build their ideal workforce through compliant nondiscrimination services, workforce analytics, and pay equity expertise. So always a special welcome to any clients of Berkshire that are joining us today. As we said, the government's never at a loss for giving us new and timely topics for us to talk about.

Before we jump into that, my fearless hosts here, Seth Berenzweig and Declan Leonard of Berenzweig Leonard. Why don't you guys introduce yourselves again?

Seth Berenzweig

Hi, good afternoon. Seth Berenzweig, co-managing partner here at Berenzweig Leonard. We're trying to comfort Joe about the Eagles, so I know… sorry about that.

Joe Young

We have a new offensive coordinator here in just two hours probably.

Seth Berenzweig

Keep the faith.

Joe Young

Thank you. Thank you. Yes.

Declan Leonard

And I'm Declan Leonard. I'm also managing partner here at Berenzweig Leonard and I head up the employment law practice.

Joe Young

Well, gentlemen, it's not quite as exciting. This time last year, if you remember it was two days after the inauguration.

Declan Leonard

Yeah.

Joe Young

Executive orders started to come out. Our topics were changing as I drove over. So, it was a very exciting January edition last year.

Declan Leonard

Yeah, exciting is one way to say it.

Joe Young

We're going to say exciting. I think most of us are in the government contracting space welcome 2026 with open arms. But with that said, there's definitely a segment of our industry, specifically our folks in the 8(a) program who had continuing excitement through the holiday season. And that's really going to be the topic today: the ongoing program enforcement actions that are being taken by the SBA, and the audits and the information that came out in December. So, Declan, why don't you start us off? There's a lot of attention being paid to these SBA crackdowns on 8(a)s. What exactly is going on and why is it important for our audience to be aware of this, if they're not already heads down in it?

Declan Leonard

Exactly. So, there should be a lot of attention paid to this. On December 5th, you wished everybody a happy holidays. Of course, for 8(a) government contractors, it all came with the prospect of also having to comply with these letters. And we'll talk about those. On December 5th, the SBA issued letters to all 4,300 approximately federal contractors that are part of the 8(a) preferential program.

So, this was not a random selection. This was not just some people got them, some people didn't get them. This was intended to go to all those that are currently in the 8(a) program. It was a letter requesting basically show us all your books, show us all your financial records, show us all your employment records.

We need you to upload those. Originally, they gave a very generous timeline of a couple of days after New Year's, January 5th. They've since extended that to January 19th, which is just... We're taping this on Thursday, before the 19th. So, yeah, it’s the 15th today. So, they really just have a couple of business days and it's actually due on a federal holiday too, which is very strange to me that that what's the date that they would pick?

But anyways, this is a further reflection of the SBA's view that these preferential programs that favor minorities and disadvantaged groups and give them preference in the contracting space, that it is actually fraught with fraud, rampant fraud, rampant abuse. In fact, the SBA had Kelly Leffler, when she announced this, she said it results from our specific findings of rampant fraud and increasingly egregious instances of abuse.

And so, this is not business as usual for the SBA. This is not coming from your friendly representative at the SBA. This is coming directly from the Office of General Counsel's office. So, people have called in an audit. I think it's an enforcement action. I mean, I think that's what they're looking for. They're looking to uncover stuff. This is not just a paper pushing thing. They're looking to uncover stuff.

Joe Young

Yeah. My good friend Rob Wong, who's a former associate administrator of the Office of Government Contracting, the business of the SBA, who's been out on social media, really classify this as a seismic shift. This is unlike anything we have seen before. And everybody needs to take a sense of urgency and seriousness with this, at a level that maybe they've never really seen before inside the SBA.

Seth Berenzweig

Very much so. Yeah, definitely. And just to talk about the elements of how do you comply? As Declan noted, the deadline, which is a supposedly extended deadline, is literally coming on Monday. And at that time, by Monday, you all have to upload a volume of documents across the financial board for the past three years.

You have to provide bank statements, financial statements, general ledgers, contracts, subcontracts, and HR-related records. And you can imagine the stress that's going to be on that filing system online on Monday, which is, a federal holiday. So, unfortunately, it's not like there's going to be anybody there at the SBA to be taking your call if you have a problem with that.

So, I wouldn't wait until Monday. I would file it within the next day or two, if at all possible. I think it's also relevant for just a brief moment to look at this within the lens of what we're dealing with right now from a political standpoint. Waste, fraud, and abuse has been a very hot topic. The government is feeling a lot of pressure on that. There are a lot of investigations that are going on in different parts of the country regarding different elements of waste, fraud, and abuse. The administration's feeling it. They're going to take this seriously. Office of General Counsel is going to take this seriously. This is not an administrative action. It's an enforcement action. This is something that's going to move very hot and very fast.

Declan Leonard

And even, Seth, to pick up on one thing. Even so, they're asking for the last three, they call it “closed fiscal years.” And what's interesting about that is they issued the letters on December 5th. And so if you are a calendar year company, you would look and say 2022, 2023, 2024, but you're responding to it.

Seth Berenzweig

In 2026.

Declan Leonard

In January of 2026. Right. And so, in some respects, there's been that confusion because technically, when you're responding, 2025 has already closed as a fiscal year. If you are a non-calendar fiscal year, you've got to then do that own math and figure out, “Okay, if I close my books in the summer,” then you're really going halfway through 2025.

So again, once again, they put very aggressive enforcement action. But a lot of times they sort of don't follow through quite in the details. And it creates a lot of confusion for already busy and overtaxed contractors.

Seth Berenzweig

And it may end up just going into at least a little bit of a black hole, because while the volume of incoming information at SBA is dramatically going up, the staffing across the agencies in Washington have been going down. So, it's just going to be a hurry up and wait and see situation on this thing that's moving pretty quickly.

Joe Young

Yeah. And what about the situation of you graduated from the aid program in 2025? Then, this comes out. Does this apply to you?

Seth Berenzweig

Today? No. It applies to those that are currently in the program. If you have graduated, it does not apply to you. So, there's just two quick things to note there. If you are in the program and you did not receive the notice, don't say, “Oh, that was a close one. I guess I'd have to comply.” You have to comply. Just because you didn't get the letter doesn't mean that you're not subject to the deadline. I would just go ahead and just check in. Unfortunately, with regards to those that have recently graduated, it means that you're not worrying about it today. But stand by, because the general guidance from the agency has been that they want to look at it in the long term over a window of approximately 15 years or so. So, they may end up having to deal with this sometime in the near future.

Declan Leonard

I think this is step one. Exactly. Yep.

Joe Young

This is the GovCon HR Round-Up podcast. Obviously, we hear audits. We think financial, but you know, why is it so important for HR to be involved in us having this conversation on the podcast today.

Declan Leonard

Yeah. No, it's absolutely critical. And I'll explain why. First off, let's think about like what kinds of records are they asking for. This is not high level. “Hey, send us your compilation of financials.” They're asking not only for your financials, but they want the backup to your financials. They want bank statements. They want a proof of owner distributions. They want general ledgers. I mean this is stuff... This is the type of accounting records that creates that provides a ton of detail. So that's, A, important. But I understand HR doesn't necessarily work on that aspect of it, but what they are looking for is detailed employee records, because you've got to think about what they are really worried about here?

What are they really thinking about? What they think is that 8(a)s are being used by non-8(a)s, larger companies, companies perhaps that already graduated from the program. In order for those larger companies to continue to get a piece of the pie. And so, this is where HR comes into play, because these employment records are going to show.

They're going to show what employees of the 8(a) are connected to, what specific contracts, and whether or not they have truly engaged in the appropriate levels of work share that are required to be in the program. They're going to look at joint ventures. They're going to look at teaming agreements, all of this stuff HR always has a hand in because the level of control over employees is within HR purview.

And that also goes directly to the type of fraud that they're wanting to uncover.

Seth Berenzweig

Yeah, it's a measuring stick for more waste, fraud, and abuse allegations by the government. And if they see that you don't have the requisite allocation of hours of work, of personnel… That the source of that it gets baked into the employment records. So, HR is going to be at the pointy end of the stick. One of the things that may also be interesting as this unfolds is that there could be a variety of incoming inquiries, calls, follow ups by the government.

And I think the company needs to figure out a way to speak through one voice. So, just like if you get a call from, OIG or if you get a call from an agent from the FBI, the company needs to speak through one voice, and they need to think about how to be able to handle those calls because, they're going to be looking for any gaps, inconsistencies.

And that's going to be part of what makes this so dangerous, because even if you put everything in at the right time, if there's any inconsistency in the records, it could also raise a red flag.

Declan Leonard

Yeah. One of the questions that came out as part of this process was some of the companies were saying, “Okay, when I'm providing my employee records, is it just for those employees that are directly connected to 8(a) contracts? What if I have other contracts?” Because, you know, 8(a)s have sometimes open contracts in addition to 8(a) contracts.

And the answer back from SBA in their frequently asked questions: No, absolutely. You’ve got to provide all employee records, whether they're connected to an 8(a) contract or not. So that that alone sort of broadens it. The other thing I'd point out, for purposes of HR and being aware, another thing they're looking at is to make sure that the people that are staffing these contracts have the appropriate educational and skill set that they're supposed to, that they are in the correct labor category, because otherwise that's a billing fraud.

And so, I just want to continue to impress, because I think a lot of times when you look at the list, it looks like, “Oh, that's the CFO. That's going to be our outsourced accounting group.” HR has their hands full on this one.

Seth Berenzweig

Well, you've actually raised a really interesting point because not only could this give rise to issues relative to the Justice Department, the U.S. Attorney's Office at a minimum, it could also give rise to questions and coming from DOL, because if you have someone who's classified as a med tech III, but they should have been classified as a med tech II…

Then you have a DOL issue going on, and then they're going to be looking at these kinds of classification issues.

Declan Leonard

It will sort of spiral. There's not just one thing.

Seth Berenzweig

Oh, it's dropping a pebble in a pond.

Declan Leonard

Yes, yes, yes. And these agencies are going to be cooperating. Yeah.

Joe Young

And we have a question that just came in from the audience. We maybe touched on this a little bit, but I want to make sure I ask it: We're an 8(a) who is a mentor protege relationship with a larger prime, with a JV. Do we have to produce records under the JV agreement?

Declan Leonard

Yeah. So I mean, if you're the protégé, you’re an 8(a), you absolutely still have to produce those. It's not as though, because you're part of this joint venture agreement with a prime that's no longer an 8(a), that that sort of, like, absolves it. No, because that mentor protege relies on the protege status as an 8(a), as a member of the 8(a) program, you do have to provide that information because, again, they want to make sure. They know sometimes these joint venture agreements are used as a way to circumvent the process.

They want to make sure there's all different types of workshare. So, for many of them it's 40%. Is that protege doing 40% of the work? And they want to make sure that that's the case.

Seth Berenzweig

And that could really implicate the large businesses, the mentor proteges, a small large business, everybody really kind of get snared into this because that's reflective of all of the workshare. And then the government will be able to put it back to the regs and see whether or not they call it outside the lines.

Declan Leonard

Yeah, I mean, mentor protege agreements have to be approved by the SBA. And if they find that this was not done properly, whether in its formation or in its implementation, they can just cancel the mentor protégé relationship. And then by definition, the larger non 8(a) is out of work too.

Seth Berenzweig

Exactly.

Joe Young

We've made it very clear here in the early parts of this: This is not an insignificant lift. This is not just an administrative request.

Seth Berenzweig

No. It’s enforcement.

Joe Young

This is enforcement. So, what are the repercussions if you fail to respond in full by Monday? What’s the potential impact?

Seth Berenzweig

From a general standpoint, under the FAR, you have an obligation to operate as a responsive and a responsible contractor. If you don't meet basic deadlines – and obviously you're putting yourself at risk of being in default for those basic qualifications to be able to perform government contracts. Work with that as a backdrop, there are elements of risk with regard to suspension, debarment, things like that,

in the short term. In the long term, if and when you comply and you submit information and it's inconsistent or it raises concerns, then in the long term, it could create issues under the False Claims Act, which also can potentially have very, very significant implications. So, it's important to not only comply, but it's important to align the information and review it with your professional consultants before you submit it.

Because the more that you smooth it out, you don't want to take, different kinds of diamonds, but then just submitted in a paper bag. You want to make sure that it's correctly aligned in order to be able to not have this become a tripwire and become problems down the road.

Joe Young

We did not have our session in December. Probably this may have been our topic if we did, knowing that it came out. You know, I hate to say it's January 15th. It's just the earliest third Thursday we could have.

Declan Leonard

Yeah, right. You can blame us. Joe Young would be the person I’d email.

Joe Young

In any event, I hope that all of our 8(a)s that are potentially on the call that this is something they've been heads down in. But you know, Declan, any advice, between now and Monday? Other things that they should be focused on if this isn't completed and submitted already?

Declan Leonard

Yeah. This is not just a situation where you say, “Hey, send me all the employment agreements. Hey, send me your bank statements and stuff.” You should be reviewing this stuff ahead of time. And I know I said easier said than done here, because you really only have a couple of days before you do, so you still should do it because you really need to know where your weak spots are.

This is not a situation where you're uploading this stuff and then you just go on your merry way. They're going to be looking at this stuff. They're going to be coming back to you asking question after question after question. You better know what went out the door. You better know what was uploaded. I think you mentioned earlier you should file early, because what I'm hearing and what you're seeing is that this computer system… Keep in mind, what did we say? 4,300 8(a)s?

If they all do it on Monday, MLK day, and nobody's working that day, so no one's troubleshooting.

Joe Young

I think I saw online somebody described a system as held together with chicken wire and popsicle sticks. So yeah don’t until Monday.

Seth Berenzweig

I mean it's like trying to shove gushing water through a tiny pipe. It's not even going to work.

Declan Leonard

Yeah. Now, and then the question is, if you're not able to do it on Monday, do you get dinged for that? Don't leave anything blank. There are 13 different categories. Don't leave it blank. If you don't have documents put an explanation in there. And don't put “N/A” either. Put a better answer. Because what you're trying to do is you're trying not to set yourself apart or make yourself an easy target for follow up. You want to be as comprehensive as possible. I'd also say maybe a shameless plug, but I'd also say work with government contract experienced attorneys. Why do I say that? For one, you better be preserving attorney client privilege if you have weaknesses, if you have gaps, if you have what you think are potential liabilities. You need to be able to have frank conversations without those then having to be uploaded and discoverable by the SBA.

Seth Berenzweig

That’s such a great point, and I think that if you want to set up calls with counsel to even get those going. To have questions, it would even be as simple, but as important as copying legal counsel in the email to try to set up the call to enshrouded it with privilege so that you can put things in there and talk about what you want to talk about in a manner that's going to be protected and not going to be subject to disclosure later. I mean, the worst thing that happens is you have to just think about maybe putting together a privileged log. But yeah. Yeah, that's a great point.

Declan Leonard

I know our team has been working with our clients, talking these things through. You can't focus on it enough. I know you're we're coming out of DoGE. We're coming in off shutdowns. Most government contractors just wish they could get back to business as usual and doing good work for the country and everything. But this is yet again, another distraction that takes away from that.

Seth Berenzweig

Exactly.

Joe Young

And with the assumption that we said this is an action that should be assumed, “Hey, I'm making submission. It's like, oh, okay, I check the box.”

Declan Leonard

Yeah.

Joe Young

Let's move on. We hope that everybody is not getting the follow up phone call. But what are the things after Monday that the listeners and the 8(a)s should be doing to prepare for – I won't say the inevitability – but for the reality that that call could be coming.

Seth Berenzweig

So the first thing I would do is I would, within the organization, set up an administrative PoC – an administrative point of contact – to make sure, again, that the companies speaking through one voice. I would let the managers know that if they receive an inquiry, a phone call, a request for additional information, even a subpoena that, of course, they need to let senior management know, but they need to coordinate, through the point of contact. Not because we're trying to impede compliance with the federal investigation, which has its own white collar flavors to it. But the company is entitled to be able to speak through one voice. So, as long as you manage that correctly, I think that having that set up administratively is important. You also want to prepare to the extent that's necessary, putting together a corrective action plan so that you can address things timely. There's going to be good faith mistakes.

And as long as you are prepared and you have your team prepared and deployed to be able to address that and you have a corrective action plan ready, I think that'll be helpful. But frankly, also, even though they may hopefully just be on standby but not have to do anything, tell your CPA firm and tell your law firm. Give them the update. This is where we are. This is what we did. Anoint everything through the attorney client privilege that Declan talked about. But just have the team ready to go because, when things come over the transom, you want to be prepared so that you can respond cleanly and effectively.

Declan Leonard

Think about the SBA's Office of General Counsel getting this information. And, listen, most people, as Seth just said, you're going to have issues. No company operates so perfectly. Everything, dotted i's crossed t's. So, there are going to be issues. I believe the best approach is to show that if there are problems, that you actually care, that you actually want to do better.

And these corrective action plans, if the SBA comes back to you, you can say, “You know what? As part of this process, we actually recognized this. We recognize that there was an issue with one of our workshares. It might have been 38%. We knew we couldn't get it to 40%. Here's what we did. We immediately shifted some employees over, and we got up to 42% because we wanted to overcompensate for that.” Is there a technical violation? Yeah. But I mean, if you're thinking about it and if you're the SBA, which is already short-staffed, I think they're going to move on and say, “You know what? This is a company that cares. They're trying to do the right thing. Not everybody's perfect about it. This is an area where it’s proactiveness versus just kind of like burying your head in the sand. The proactiveness is going to be rewarded.

Seth Berenzweig

And highlighting – well, maybe the word isn't highlighting… But being prepared to address problems and issues because we've represented clients in situations where they have colored a little bit outside the lines, but if you recognize it and you present it immediately with a corrective action plan, and then you just step up and you own it, that goes a really long way when you're dealing with government investigators.

Declan Leonard

Yeah. And I know we just have a few minutes. I was just going to touch on one more thing, which is we see so much merger and acquisition activity going on, M&A activity going on in the government space. And you know, anybody who's ever gone through that, you know that due diligence is a critical component of that.

Let’s just say you're a larger company trying to buy another company. You're going to lift up the hood. You want to know everything. This is just one more factor for companies to take into account, that, “Okay, we might be taking on potential SBA, civil, and/or potentially worse liability.” And so, it's just one more factor that goes into that M&A process.

Seth Berenzweig

And I would tag along that briefly and say that when you are getting… If you're a small business and you want to head into that environment, get your data room set up and ready to go and be able to walk them through and show the potential acquirer in the due diligence process that when they lift up the hood, that everything is sparkly clean because that, at a minimum, could affect price.

Even aside from all the interest rate environment issues that are going on in the M&A space right now.

Joe Young

Yeah. A last question that came in we’ll address: Is every 8(a) getting a notice? And I think you mentioned every 8(a) is supposed to get a notice.

Seth Berenzweig

The short answer is yes. They should have already received it.

Joe Young

If you did not receive it, that doesn't mean you're not obligated.

You might have mistaken it for a holiday card in December.

Seth Berenzweig

With love from the SBA.

Declan Leonard

Happy holidays from the your friends at the SBA.

Joe Young

Cancel holiday plans.

Declan Leonard

But all jokes aside, yeah, you should have gotten one. And I think, Seth, you touched on this before. Just because you might not have seen that come in… I mean, because keep in mind, companies nowadays, a lot of them are operating fully remote, there's not always a headquarters where the mailroom is staffed and stuff.

Seth Berenzweig

That's a great point.

Declan Leonard

Actually, if you go on to SBA's website, there's actually, under frequently asked questions, they say if you didn't get one and you are in the 8(a) program currently, you should have gotten one. Reach out to this contact information and they will figure out where it went, because chances are it went out but went to the wrong person.

Joe Young

And there’s more information on the 8(a) site for people to get everything that was in that notice, to start acting on it without having to get the actual notice.

Declan Leonard

Yes, there is. Absolutely. That's a great point, Joe. And how to upload it and instructions on how to upload it, things of that nature. But yes, there like the model letter with the 13 categories.

Seth Berenzweig

I think the Office of General Counsel at SBA would say whether you got it or not. And this is, I must say, this is very unfair and I don't agree with it, but the Office of General Counsel would say you're on notice. Even if you didn't get a letter, you're on notice. And that's pretty draconian. But unfortunately, I think that's the position they’re going to take.

Seth Berenzweig

Yeah.

Declan Leonard

Yeah, I think it's a real mistake to ignore this and not respond by Monday, even if you do the best you can. Again, try not to leave any blanks. Try to provide explanations for missing information, but I think it's a real mistake to do so. I think you're playing with fire a bit.

Seth Berenzweig

Yes.

Joe Young

Okay. Well, obviously, we really hope that this isn't a surprise to anybody who was on the call today, because it really doesn't leave a lot of time to respond, but, if so, obviously, please, listen to the great advice here from Seth and Declan. Get acting on that. I'm sorry I look distracted. Our great team here is trying to give us, I think, maybe another question.

Seth Berenzweig

Or a point to emphasize.

Mentioning that, we'll also be getting this recording out within a couple of hours and certainly before the Monday deadline. So, if you'd like to circulate it within your organization, if you'd like to go through it and follow up with any questions, this will be available in recorded format. So, you'll be able to pick up and listen to any aspects of this that you'd like to follow up.

Declan Leonard

We're really hoping one of these days when we get in here to talk about good news.

Joe Young

Yeah, we've got to come up with a fun time month.

Declan Leonard

I just want to be able to announce record levels of IDIQs and all kinds of great contracting opportunities.

Joe Young

Something about growth. A growth-focused topic.

Declan Leonard

We’re not always this down.

Seth Berenzweig

Yes. Exactly. Exactly.

Declan Leonard

Okay. And there's one more question then we'll log off: Who should they reach out to? I don't have that contact information right here. But if you go on SBA's website or if you just want to reach out to me, I'll get you that, too. It's DLeonard@BerenzweigLaw.com. It just flows off your tongue. But anyways…

Seth Berenzweig

Declan can give you an extension of the filing deadline. Just kidding!

Declan Leonard

It's like I'm back in high school.

Joe Young

Well, gentlemen, always a pleasure to our listeners. Thanks for being with us again. Hope this was helpful. Yes, we do look forward to hopefully having a more positive topic for us to cover in February. But until then, thank you so much for being with us. And we look forward to seeing you next month. Take care.