[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
HOTLINE TRUTHS: ISSUES RAISED BY RECENT AUDITS OF DEFENSE CONTRACTING
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CONTRACTING AND WORKFORCE
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
FEBRUARY 25, 2016
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 114-046
Available via the GPO Website: www.fdsys.gov
______
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HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
CHRIS GIBSON, New York
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
CARLOS CURBELO, Florida
MIKE BOST, Illinois
CRESENT HARDY, Nevada
NYDIA VELAZQUEZ, New York, Ranking Member
YVETTE CLARK, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRENDA LAWRENCE, Michigan
ALMA ADAMS, North Carolina
SETH MOULTON, Massachusetts
MARK TAKAI, Hawaii
Kevin Fitzpatrick, Staff Director
Emily Murphy, Deputy Staff Director for Policy
Jan Oliver, Deputy Staff Director for Operation
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Richard Hanna............................................... 1
Hon. Mark Takai.................................................. 2
WITNESSES
Mr. Michael Roark, Assistant Inspector General for Contract
Management and Payments, Office of the Inspector General,
Department of Defense, Alexandria, VA.......................... 3
Mr. Chuck Spence, President, Association of Procurement Technical
Assistance Centers, Salt Lake City, UT......................... 5
APPENDIX
Prepared Statements:
Mr. Michael Roark, Assistant Inspector General for Contract
Management and Payments, Office of the Inspector General,
Department of Defense, Alexandria, VA...................... 16
Mr. Chuck Spence, President, Association of Procurement
Technical Assistance Centers, Salt Lake City, UT........... 20
Questions and Answers for the Record:
Question to Mr. Michael Roark from Representative Knight and
Response from Mr. Michael Roark............................ 28
Additional Material for the Record:
None.
HOTLINE TRUTHS: ISSUES RAISED BY RECENT AUDITS OF DEFENSE CONTRACTING
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THURSDAY, FEBRUARY 25, 2016
House of Representatives,
Committee on Small Business,
Subcommittee on Contracting and Workforce,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2360, Rayburn House Office Building. Hon. Richard Hanna
[chairman of the Subcommittee] presiding.
Present: Representatives Hanna, Kelly, and Takai.
Chairman HANNA. Good morning. The hearing will come to
order.
The Small Business Act contains important protections for
small companies that provide services to our men and women in
uniform. Existing law ensures that we have a vibrant community
of small contractors ready to provide innovative and cost-
effective solutions. However, if the statutory provisions of
the Small Business Act are not observed, those benefits are
lost. While this Subcommittee hears many stories of waste,
fraud, and abuse in the small business prime contracting and
subcontracting programs, fear of reprisal from contractors
makes it hard to document and quantify those damages. Today, we
are going to hear or learn about what happens when a hotline
complaint was filed with the Department of Defense Office of
the Inspector General alleging abuse of the small business
prime contracting and subcontracting programs.
While the two audits we will discuss today do not
themselves represent evidence of a widespread problem, they do
document anecdotally what we hear and should not be dismissed
as complaints from unsuccessful offerors. There are real
problems facing small business contractors. The Marine Corps
documented failure to comply with statutory requirements
concerning the approval and oversight of small business and
subcontracting plans has resulted in significant harm to the
small business community. Continue to fail to provide mandatory
oversight of small business subcontracting plans has had real
consequences. It allows bad actors to overpromise and
underdeliver and small business subcontracting opportunities.
It harms complainants responsible for companies as those who
overpromised often receive an advantage when their offers are
evaluated. It hurts small business that we do not receive the
opportunity to compete with other subcontractors. It undermines
the industrial base as there are fewer sources of supply. It
means higher prices, less competition, and less innovation. It
means that our warfighters do not always get the best product
or solution. Finally, a few small business subcontractors
ultimately translate into fewer small business contractors,
less competition, and less innovation.
I hope today's witnesses will be able to help us understand
what has occurred and what is occurring and what it means for
small contractors. I also hope that we can explore this through
the proposal of H.R. 4341, the Defending America's Small
Contractors Act of 2016.
I now yield to Ranking Member Takai for his opening
statement.
Mr. TAKAI. Thank you, Mr. Chairman. Thank you for holding
this hearing today.
Each year the Federal Government spends almost half a
trillion dollars on goods and services for its daily
operations. Recognizing the importance of maintaining a varied
and strong industrial base to support these needs, it has long
been the policy of Congress to ensure the fair proportion of
these purchases, whether they be for prime contracts or
subcontracts, be awarded with small businesses. In some areas,
there has been success in awarding contracts to small firms. In
fiscal year 2014, small primes received over $90 billion,
amounting to almost 25 percent of the contracting dollars. As a
result, the government again met its small business contracting
goal, and based on preliminary reports, it appears this goal
was achieved in fiscal year 2015 as well. However, prime
contracting is only one part of the equation to becoming
successful in the Federal marketplace. For many businesses,
subcontracts are just as vital. These opportunities serve as an
entry point for firms to the Federal marketplace. Subcontracts
are a way for firms to increase their capacity enough to
eventually serve as prime contractors. They also help small
businesses gain valuable insight into what is required when the
Federal Government is your client.
Recognizing the importance of subcontracts, the Small
Business Act requires the SBA to set goals for subcontracting
dollars awarded to small businesses, yet the Committee has seen
the government-wide goal lowered from 36 percent in 2012 and
2013, to just over 34 percent in 2014. Despite the decrease,
the goal is still not being met, with only 33 percent of the
subcontracting dollars awarded to small firms.
But even these numbers are deceiving, as the percentage is
based only on the subcontracting dollars reported, so it is
unfortunately not surprising to see the results of the DOD IG's
audits at the center of our hearing today. Prime contractors
are not reporting their subcontracting dollars, and contracting
officers are not holding these firms accountable for their
subcontracting goals. Even more egregious is the fact that some
primes were awarded contracts without a subcontracting plan at
all. This is simply unacceptable.
I am further concerned that the deficiencies found by the
audits are not limited to these Marine offices. With a
contracting office in Hawaii, I am particularly interested to
hear from the witnesses how widespread these problems are
within the Marine Corps. I am particularly concerned with the
decrease in subcontracts being let to 8(a) companies, both
competitively or direct awards by programming offices
nationwide. We have seen subcontracts that have been
historically let within the 8(a) pool curtained and moved to
another contracting vehicle in which most small businesses do
not qualify.
This Committee has continually heard from firms working
with other agencies that it is becoming increasingly difficult
to find subcontracting opportunities as primes take on more of
the work themselves. Agencies and contracting officers must do
better to ensure that small businesses have access to these
opportunities. We know that subcontracting is an important part
of not only our industrial base but overall economy.
Subcontracts spread the benefits of a Federal contract further
into many communities, creating jobs and increasing economic
development.
It is my hope that this Subcommittee can continue to look
into the decline in subcontracting to determine what can be
done to fix the system, hold prime contractors accountable to
their goals, and open up more Federal opportunities to small
businesses. I thank all of the witnesses for being here today
and I yield back.
Thank you, Mr. Chair.
Chairman HANNA. Thank you.
If other members have opening statements prepared, I ask
they submit them for the record.
Without objection, so ordered.
You know the basics. You have 5 minutes but we will be, you
know, we want to hear what you have to say, so we will be
lenient.
Our first witness today is Mr. Michael Roark, the Assistant
Inspector General for Contracting Management and Payment
Office, Inspector General Department of Defense. Our second
witness is Mr. Chuck Spence, President of the Association of
Procurement Technical Assistance Centers. For your benefit it
is called PTAC. She is a wonder with acronyms. She has acronyms
for acronyms; right?
Anyway, thank you for being here. Mr. Roark, you may begin.
STATEMENTS OF MICHAEL ROARK, ASSISTANT INSPECTOR GENERAL,
CONTRACTING MANAGEMENT AND PAYMENT OFFICE, INSPECTOR GENERAL
DEPARTMENT OF DEFENSE; CHUCK SPENCE, PRESIDENT OF THE
ASSOCIATION OF PROCUREMENT TECHNICAL ASSISTANCE CENTERS
STATEMENT OF MICHAEL ROARK
Mr. ROARK. Good morning, Chairman Hanna, and Ranking Member
Takai, and distinguished members of the Subcommittee. Thank you
for the opportunity to appear before you today to discuss our
two audits of Marine Corps small business contracting.
We initiated the two audits based on a Defense hotline
complaint alleging that the Marine Corps Regional Contracting
Office, National Capital Region, or RCO-NCR, and the Marine
Corps Systems Command, or MCSC, did not ensure that small
businesses were awarded a sufficient number of contracts and
did not hold large prime contractors accountable for meeting
small business subcontracting goals.
Our objectives for the two audits were to determine whether
RCO-NCR and MCSC provided small businesses the opportunity to
be awarded prime contracts and held prime contractors
accountable for meeting small business subcontracting goals.
During the audits, we reviewed a total of 86 contracts valued
at approximately $1.6 billion of the 766 contracts valued at
approximately $3.3 billion that RCO-NCR and MCSC awarded to
other than small businesses in fiscal years 2011, 2012, and
2013.
Overall, we found in the two audits that RCO-NCR and MCSC
generally provided small businesses with the opportunity to
compete for prime contracts. However, contracting officials did
not ensure that prime contractors provided small businesses
adequate subcontracting opportunities.
First, regarding opportunities provided to small businesses
to compete for contracts, RCO-NCR and MCSC generally provided
small businesses with the opportunity to compete for prime
contracts. At RCO-NCR, contracting officials conducted market
research and advertised solicitations for 19 contracts, while
MCSC did the same for 21 contracts that we reviewed. After
sending request for information to identify the companies
capable of providing services and receiving responses from both
large and small businesses, contracting officials and small
business representatives from both RCO-NCR and MCSC determined
whether small businesses demonstrated that they possessed the
knowledge and capabilities to perform the requirement. For 20
RCO-NCR and 16 MCSC contracts we reviewed that were awarded a
sole source, both commands prepared justifications using other
than full and open competition as allowed by the FAR.
Second, I will discuss whether small businesses received
subcontracting opportunities. RCO-NCR and MCSC contracting
officials did not ensure that prime contractors provided small
businesses with adequate subcontracting opportunities.
Specifically, RCO-NCR contracting officials did not ensure that
prime contractors provided small businesses with adequate
subcontracting opportunities for six of the seven contracts we
reviewed. Specifically, RCO-NCR contracting officials awarded
four contracts without requiring a subcontractor contracting
plan, or with a subcontracting plan that did not include small
business subcontracting goals. Two contracts which had a
subcontracting plan with small business goals but contracting
officials did not monitor whether the contractor met the goals.
These problems occurred because RCO-NCR did not have
policies and procedures for evaluating and approving
subcontracting plans or for monitoring contractor compliance
with those plans. MCSC contracting officials did not ensure
that prime contractors provided small businesses with adequate
subcontracting opportunities for 12 of the 19 prime contracts
that we reviewed. Specifically, MCSC contracting officials did
not track compliance with small business subcontracting goals
for four contracts. They did not determine why large businesses
were not meeting their small business subcontracting goals for
two contracts, and they awarded six contracts without
subcontracting plans or the required determination and
approval. In addition, MCSC contracting officials awarded two
prime contracts with commercial subcontracting plans without
verifying whether the plans had been approved by a contracting
officer.
These problems occurred because MCSC did not have adequate
internal guidance for awarding contracts with subcontracting
plans or for administering the subcontracting plans.
Additionally, MCSC did not implement effective internal review
procedures for approving and administering the subcontracting
plans.
On our two reports, we made a total of 13 recommendations
to RCO-NCR and MCSC to address the deficiencies identified
during the audits. Specifically, we made four recommendations
to RCO-NCR and the command has implemented all the
recommendations. We made nine recommendations to MCSC and the
command agreed with each recommendation and is currently in the
process of completing corrective actions.
This concludes my statement, and I would be happy to answer
any questions you may have for me on our two audits.
Chairman HANNA. Thank you.
Mr. Spence?
STATEMENT OF CHUCK SPENCE
Mr. SPENCE. Thank you, Chairman Hanna, Ranking Member
Takai, and distinguished members of the Subcommittee. Thank you
for this opportunity to respond to reports from the DOD's
Office of the Inspector General regarding failures to hold
large prime contractors accountable for meeting small business
subcontracting goals.
I am Chuck Spence. I am the Deputy Director of the Utah
PTAC, and I am the President of the Association of Procurement
Technical Assistance Centers. UPTAC is the professional
organization that represents 98 PTAC programs throughout the
United States. PTACs assist local small businesses at little or
no cost, preparing them to become capable government
contractors. Last year, we helped over 60,000 small businesses
when government contracts and subcontracts at the value of $12
billion, so we are pleased to report that our ROI is pretty
strong.
In addition to helping small businesses secure prime
contractors, PTACs are deeply engaged in subcontracting issues.
Not only do we help small businesses identify subcontracting
opportunities, connect with and market to prime contractors,
and generally become procurement-ready subcontractors, we are
often contacted by primes for assistance with developing
subcontracting plans and locating small business vendors. Every
day we confront with our clients the challenges of the
subcontracting environment.
My testimony today reflects input from some of our most
experienced procurement professionals. We are not at all
surprised by the OIG findings. We suspect that the problems
identified that Mr. Roark mentioned, the lack of adequate
policies, insufficient training for contracting officials, and
failure to monitor compliance are common across Federal
agencies, because the root causes are not unique. These root
causes are an unrealistic overreliance on contracting officers
to protect the interests of small businesses with insufficient
support and resources to do so, in an environment with little
meaningful incentive for contractors to comply with
subcontracting requirements. The consequence is likely a
widespread loss of subcontracting opportunities for our small
businesses.
We applaud Chairman Chabot, Ranking Member Velazquez, and
the House Small Business Committee for the ambitious effort to
address these issues through H.R. 4341. The bill's
comprehensive approach to clarifying the language and
definitions of contracting provisions in the Small Business Act
is much needed.
I would like to comment on a number of provisions of this
legislation that we think are particularly relevant. The
Acquisitions Workforce is enormous, disparate, and often
overworked. It is little wonder that enforcing small business
contracting requirements might be prone to neglect. SBA
Procurement Center representatives and commercial market
representatives play a critical role enabling increased
opportunities for small businesses and we believe that this
Committee is absolutely right to expand and clarify those
responsibilities. Providing PCRs the authority to review any
solicitations for a contract or task order, providing PCRs the
authority to review any solicitations for a contract or task
order, clearly articulating the responsibilities of commercial
market representatives with regard to subcontracting, and
allowing both PCRs and CMRs to delay up to 30 days the
acceptance of subcontracting plans if they fail to provide
maximum opportunities for small businesses are very important
steps and we, the PTAC, enthusiastically support them.
We are concerned, however, about the level of effectiveness
that can reasonably be expected from PCRs and CMRs if their
ranks are not sufficient to do the job. SBA has just 27 CMRs
and 48 PCRs to service the entire country. PCRs and CMRs can
help avoid subcontracting program failures, such as those
discussed in the OIG reports. More importantly, increasing
their presence would raise the visibility of and attention to
subcontracting issues across the board, a fundamental first
step toward increasing opportunities for small businesses.
We encourage you to take whatever action is within your
power to support increasing the size of the PCR and CMR
workforce to maximize their effectiveness government-wide.
Lack of enforcement of subcontracting requirements is a
particular frustration among our small business clients, and we
are pleased that H.R. 4341 adds teeth by making failure to
comply with reporting requirements a material breach to be
reflected in past performance evaluations. Perhaps more
important is the stipulation that the SBA provide examples of
what would constitute failure to make a good faith effort to
comply. We hope that a rigorous test is developed.
On another note, meeting subcontracting goals would be
easier if prime contractors had a meaningful stake in their
achievement. Finding incentives or disincentives that give
primes a clear competitive interest in providing small business
opportunities could help shift the balance.
Finally, I must address H.R. 4341's requirements that the
SBA provide a list of resources for education and assistance on
compliance with contracting regulations. We wholeheartedly
agree that many small contractors need such help, but I would
be remiss if I failed to highlight that this is exactly the
sort of assistance provided every day by 600-plus procurement
professionals in 300 offices in every state in the nation. We
hope that the SBA will feature PTACs prominently in this list.
In conclusion, UPTAC members believe that there is a
tremendous potential for increasing small business contracting
opportunities, and we are very pleased to see the proactive,
comprehensive effort represented in H.R. 4341. Thank you.
Chairman HANNA. Mr. Roark, you mentioned that you had 13
different recommendations, four have been adopted, nine are
being reviewed for potential adoption, I assume. Do you feel
comfortable ticking off those?
Mr. ROARK. Yes. I can start with the first report on RCO-
NCR, which was about 11 months ago now, so we have had a little
bit more of a time period to track the recommendations. In that
report we made four recommendations. Two were on instituting
policies and procedures and those were implemented by RCO-NCR
in August of 2015. So that is completed.
Chairman HANNA. What was the nature of those?
Mr. ROARK. We recommended that they establish policy to
require contracting officers to obtain subcontracting plans
from the contractors when required, and we also, in the second
recommendation, recommended that they establish policy to
require contracting officers to verify that contractors submit
these small business contracting reports in eSRS as required.
So they instituted policy on both of those in August, and we
obtained that and we closed out those recommendations.
Chairman HANNA. Any other, let's see, 11?
Mr. ROARK. Yeah, the third recommendation in the RCO-report
was to increase proficiency and background knowledge for
contracting personnel to understand their FAR 19 requirements,
and command did hold the training class and provided us with
the slides and the roster that that did take place. So we
closed that recommendation.
Our fourth recommendation was to determine whether
contractors--we asked RCO-NCR to determine whether contractors
for two contracts made good faith efforts to meet small
business subcontracting goals in their subcontracting plans,
and if not, determine whether or not liquidated damages could
be imposed against the contractors. And RCO-did conduct that
review. They came back with a response that noted that they
found out through further analysis that the contractors did
submit initial subcontracting plans but they were not made a
part of the contract file. After reviewing the plans, NCR
concluded that both contracts did make a good faith effort to
fulfill their subcontracting goals, so therefore, they will not
collect any liquidated damages. So what I am planning to do as
a follow-up effort to that is just to obtain more information
from the Marine Corps and from NCR to determine the basis for
that decision.
In the second report, Marine Corps Systems Command, we only
issued that report a little over 3 months ago, so there not as
much time has gone by there. We made a total of nine
recommendations. Two of them were regarding transferring files
from one contracting officer to another to make sure that there
is no loss of the files there, and we also recommended that the
command establish a storage location where they can store
contracts for review later if necessary.
One of those suspense dates on the first recommendation was
in December of 2015, and we got an update from the Marine Corps
about a week ago and they said that they will now expect to
complete that in March of 2016. The other one, the second
recommendation on establishing a storage location, the suspense
date for that is January of 2017. So still a ways to go on that
one.
In finding B of the Marine Corps Systems Command Report, we
had a total of seven recommendations. The first two were on,
again, very similar on whether liquidated damages could be
assessed. Those responses from the command are due in April of
2016. We had four recommendations in establishing policies and
procedures very similar to the previous report, and for three
of those four, the suspense dates were in November of 2015;
however, the command notified us that the new suspense date is
now April of 2016.
The final recommendation on training, again, to increase
proficiency for contracting officials with FAR 19 requirements,
their completion date on that was targeted for September of
2016. So that is still a few more months to go before that
suspense date.
Chairman HANNA. Do you have a sense that Mr. Roark is on
the mark on these? I mean, is there a theme there that you
recognize from your work?
Mr. SPENCE. No, I think he is exactly on the mark. I think
what we are most impressed with with 4341 is that this is
finally putting some teeth into the compliance of these
regulations and policies and procedures, so we absolutely
agree.
Chairman HANNA. Thank you.
Mr. Takai?
Mr. TAKAI. Thank you, Mr. Chairman.
Mr. Roark, during the course of the audit, you evaluated
contracts that were not set aside for small businesses and you
found that in many cases there were justifications or market
research supporting the decision not to award to a small
business. Did your office take an in-depth look at these
conclusions to determine their validity, or was it simply a
check to ensure that the right paperwork was in the file?
Mr. ROARK. We did conduct an analysis of the documents that
were in the contract files. We did not just accept the paper
being in the file as being in the file as the final answer. We
did scrutinize it. And so we really looked at three different
areas. We wanted to take a close look at what each command did
for market research to go out and determine what contractors or
how many contractors could potentially fulfill the requirement,
and in both cases we saw that the commands did this primarily
through RFIs or requests for information. So we did analyze
those documentations for each contract that was in the file, or
the respective contract files for those. We also took a look at
advertising, how they advertised the solicitation. We it posted
on FedBizOpps and other websites to make it known to potential,
both large and small contractors so that they were aware of
this procurement? And we saw that they did do that.
Regarding the sole source contracts, we did review the
justifications that were listed in the file to determine
whether or not they did cite a valid FAR exception. We did not
just take the justification at face value; we did scrutinize
it.
Mr. TAKAI. Thank you.
Mr. Spence, prior to award, large prime contractors are
required to submit subcontracting plans for review. If the
contracting officer finds them to be inadequate, they can
actually decide not to award the contract to the business. In
your experience, how often are contracts not awarded due to
inadequate subcontracting plans?
Mr. SPENCE. That is a very difficult question to answer. It
is difficult to quantify it because PTACs, generally speaking,
are not privy to that information. We just do not have access
to the information. However, I would like to provide some
anecdotal information. In my preparations for this hearing I
spoke to a contracting officer of over 30 years. He is no
longer a contracting officer, and he had this to say to answer
your question, Mr. Takai, and I quote, ``If a prime contractor
is performing well, I do not''--meaning the contracting
officer--''I do not want to rock the boat and risk diluting the
workflow with subcontractors.'' That was alarming to me, but he
said that is the reality. He said, ``A better way to encourage
and provide an incentive for prime contractors to be in
compliance with their subcontracting plan and submit an
individual subcontracting report into the electronic
subcontracting reporting system, known as eSRS, is to give them
a poor rating in the PPIRS, the Past Performance Information
Retrieval System, if they are not in compliance with their
subcontracting plan and goals. A poor rating in the PPIRS
system may adversely affect their future proposal scores, and
he felt that was the better way to address that subcontracting
plan issue.''
Okay, thank you.
Mr. TAKAI. Mr. Roark, you found that the contract review
checklist used at the Marine Corps Systems Command did not have
steps included to verify that subcontracting plans, when
required, are approved. Could you conclude whether all offices
use the same checklist or whether they individually determine
if all the required steps in a procurement are made?
Mr. ROARK. So in our two audits we reviewed two contracting
offices, RCO-NCR and MCSC, and we found that each of the
commands used different methods, different checklists, if you
will, so they were not working off the same checklist.
Mr. TAKAI. Okay. Having said that, would a more uniform
system make it easier for contracting officers to comply with
these subcontracting requirements?
Mr. ROARK. I think that having only looked at two
contracting offices, it would be difficult to make that broad
of a conclusion across the entire Marine Corps, across all of
DOD. I think we would need to do more work on that before we
were able to make that conclusion, but I do think you raise an
interesting point that I think we could keep in mind in the
future.
Mr. TAKAI. Okay, thank you. Thank you, Mr. Chair.
Chairman HANNA. Mr. Kelly?
Mr. KELLY. Thank you, Mr. Chairman and ranking member, and
thank you witnesses for being here.
Just going back real quick to Congressman Takai's question,
Mr. Spence made a comment about the PPIR system and using that
to give low ratings to subcontractors in order to keep them
out. And I would like your response to that, please, Mr. Roark.
Mr. ROARK. So the DOD hotline that we received that we
based these two audits on alleged that commands were not
providing adequate opportunities for small businesses to
compete for contracts and that prime contractors were not
providing small businesses with adequate subcontracting
opportunities. We really stuck very tightly to those two items
that were in the hotline, and so we did not review past
performance as part of these two audits. They were not part of
the scope of what we did.
Mr. KELLY. I would just say that that is very disconcerting
that people would play with the ratings of subcontractors and
order, so that is something that I probably would look into
because that is important that we not have people artificially
rating in the system to keep people out. Which kind of brings
me to my next point.
This Committee is focused on making sure that the data in
SBA reports is accurate, and accurate information reporting is
important not only to small businesses that want an opportunity
to contract with the Federal Government, but also plays a role
in the budgetary decisions that this body of Congress makes.
Mr. Roark, I understand that your office found instances of
contracting officials at both the National Capital Region (NCR)
and the Marine Corps Systems Command, miscoding the size of
small business contractors. Were you able to get information on
why these businesses were miscoded, and was it a lack of
training or not having the information to properly code them?
Mr. ROARK. During our two audits we found for RCO-NCR there
were a total of 11 contracts that were miscoded, and for MCSC
it was a total of 43 contracts. So in all, it was 54 contracts
that we were aware of. In each case, these were contracts that
were listed as other than small businesses in the system,
although they were really awarded to small businesses. So it
was pretty consistent results there that we were not putting
the right code in in each of those cases to recognize that
those contracts were awarded to small businesses. When we asked
the question as to why that occurred, we heard a lot of human
errors. In the FPDS, you really have two options to pick from,
either small business or other than small business, and it was
just a matter of human error in selecting the wrong field.
Mr. KELLY. How much of that human error do you--I guess,
how much do you think that is lack of training or lack of the
people who are inputting the data and the people who are out
there determining who gets the contract, how much is just a
lack of training so that they are going out there and doing
this without the proper training to start with?
Mr. ROARK. Well, I think we made recommendations to
increase awareness and proficiency through training. We also
took a two-prong approach to also recommend policy and
procedure issues, so I would probably say it is both of those.
Mr. KELLY. Then just very briefly, Mr. Spence, would you
also weigh in the importance of having accurate information
when they judge our small business, small contractors and their
competiveness, what you have seen and how that affects you?
Mr. SPENCE. Well, obviously, to have accurate information
is critical, and we would hope that with Mr. Roark's
recommendations that the training, additional training that
hopefully the contracting officers, PCRs, and CMRs would
receive because of this audit would be in place and would
correct those types of problems.
Mr. KELLY. I thank both of you witnesses again for being
here, and Mr. Chairman, thank you for having this meeting. And
I yield back.
Chairman HANNA. Mr. Roark, the MCSC's suspense date is
slipping from November-December to March-April. Anything you
want to say about that? I am just curious why that is.
Mr. ROARK. So after a report is issued, we have a follow-up
process that we enter into to ensure that the recommendations
are addressed and that the suspense dates are met. It is a
combination of the audit team who conducts the audit, and we
have follow-up specialists as well. So this is a normal process
that any report goes through, and normally about 6 months after
the final report is issued is when we become a little bit more
aggressive in checking on the progress that has been made over
that 6 month period. However, in this case, we asked the Marine
Corps for an update at about the 3 month mark, and they
provided their response to me on February 20, so just a few
days ago, and four of the nine recommendations their suspense
dates did slide from either November or December of 2015 to
March or April of 2016.
Chairman HANNA. Okay.
Mr. ROARK. But I would say that they did provide narrative
explanations, and it did appear that they were taking action.
It was just an extension.
Chairman HANNA. Of the prime contractors that you
identified that had a problem, were you able to go back in time
and look at previous contracts that they had done to see if
this is somehow systemic among those people that you identified
who have essentially done something wrong? Were you able to go
back? Did you go back?
Mr. ROARK. That was not part of the scope of our audit to
go back and look at what a contractor had done in the past.
Chairman HANNA. It might be helpful though? I mean,
especially with 4341 where you have an opportunity to have, as
you said, some teeth. You know, liquidated damages. Have you
ever assessed and received liquidated damages for any problems
that you know of?
Mr. ROARK. These are the first two reports that I have ever
issued that had liquidated damages in them, and I think it will
be interesting over the next few months to see the response
from the Marine Corps on the documentation that they took into
consideration to make the decision on the RCO-NCR instance, and
then for the recommendations in the Marine Corps Systems
Command Report, their suspense date on those is April of 2016,
so I will be eagerly awaiting their response on this.
Mr. SPENCE. Chairman Hanna, if I may respond to that. When
I spoke to this contracting officer, he made the following
quote. ``In his 30 years as a contracting officer, he has never
seen liquidated damages enforced.'' I think that is one of the
problems we have. We have a compliance tool here, but yet,
because it is very difficult to provide the evidence that they
are not acting in a good faith effort makes it difficult to go
after liquidated damages. And in his experience, he just has
never seen that used. That is a problem.
Chairman HANNA. My encyclopedia over here. 1982 is the last
time.
Mr. SPENCE. Wow, well, okay, that verifies it.
Chairman HANNA. Let me ask you a more nuanced question,
anybody. Mr. Roark, you kind of deal with these people. You
have a sense of a few phone calls you got. It sounds like this
is a very systemic, or potentially the Marine Corps is
relatively small compared to DOD at large, right? So is it a
stretch to extrapolate that this could be, as you indicated, a
huge problem that is just not being, I mean, you were lucky. In
a couple cases you identified, these people who are misquoted
were actually still small businesses, so there was not a real
problem. But how do you feel about that? Anybody?
Mr. ROARK. Well, I think it is difficult, as you said, to
extrapolate results from two reports on two Marine Corps
contracting offices to the larger, the department. I think that
we would have to do more work in that area, more audits to
start to put those multiple data points up there to draw some
of those conclusions. But I do think that that is something
worth considering moving forward.
Chairman HANNA. Mr. Spence?
Mr. SPENCE. I would not throw the baby out with the
bathwater on this. The system is working. Do there need to be
tweaks? Yes. Most importantly as we have mentioned here is that
we need teeth, we need more enforcement, and that is why my
testimony had to do with providing more PCRs and more CMRs.
Apparently, the contracting officers, for whatever reasons, are
not paying as close attention to those subcontracting plans. So
I think if we were able to provide more resources to that, that
would be a huge step forward.
Chairman HANNA. Do you think though it is just a matter of
not regarding it as an important part of the function? I mean,
they are out there to get a job done; right? Put out a request
for proposal, hire a company. And so the aspect of it that
might be for minorities or small business falls to the wayside?
Mr. SPENCE. Contracting officers are, by nature, kind of
risk averse. They make a procurement and they award a contract
and they want to see the work performed. Sometimes their fear
is if we move that down to a subcontracting plan to
subcontractors, that workflow may be interrupted. And because
there is no teeth in the enforcement, they kind of get away
with that. I think if we put some teeth into that enforcement,
give them the incentives, give them the time, give them the
resources to ensure that there is subcontracting plans and that
the goals are being met, I think that would resolve much of the
problem.
Chairman HANNA. The problem is all of this is supposed to
be done in advance.
Mr. SPENCE. That is correct. Yes.
Chairman HANNA. If the job is ongoing and they have not
done their homework or have not done their due diligence, then
almost by definition they put themselves in jeopardy as
contracting officers because it is their fault.
Mr. SPENCE. Yes. I agree. I agree.
Chairman HANNA. Mr. Takai? Thank you.
Mr. TAKAI. Thank you, Mr. Chair.
I wanted to follow up on your questioning. I know that Mr.
Roark, in terms of the IG, it is very difficult to extrapolate
in terms of how pervasive this problem is outside the Marine
Corps. But let me ask you, Mr. Spence, the question is, you
know, there are other branches in the military besides the
Marine Corps. What do you think about the other branches? How
pervasive is this issue?
Mr. SPENCE. Again, it is difficult for me to say because I
am not, you know, I have not audited the reports. That is not
the PTAC role. But again, I would think, and certainly hope,
and I think evidence suggests that for the most part, these
contracts are going forward. We know that small businesses are
getting the subcontracting awards. We just think that with some
tweaks and with some enforcement, more opportunities can be
afforded to those small business subcontractors.
Mr. TAKAI. I agree. The question, I think that was the
question that we were trying to ask.
To both of you, the audits revealed that in a variety of
cases, prime contractors were failing to file their
subcontracting reports. Can either of you tell me, based on
your experience, what in the system allows this and how can we
fix this problem?
Mr. SPENCE. One suggestion I would make with regards to the
use of technology, with the Electronic Subcontracting Reporting
System, maybe we can get a sharp programmer in there to make
some modifications to provide an automated notice of failure to
comply with reporting compliance. Because right now, the
contracting officers, it is their job to acknowledge receipt of
that report that the prime contractor puts in it. But if they
do not check it, then nothing gets done and we do not know
about that. So I am hoping that if we could automate some type
of a notice of failure to comply, that might be very helpful.
But short of that, it is the contracting officer's
responsibility to acknowledge receipt of that report.
Mr. TAKAI. Mr. Roark?
Mr. ROARK. I think that contracting officer involvement is
very important. I think that was the common thread that we
identified in both audits that even though there are system
prompts and so forth to give you notification, being engaged
and verifying that the reports are actually submitted and then
verifying that the reports are actually monitored and reviewed
I think is probably the more important aspect of that.
Mr. TAKAI. Okay, and maybe for both of you, procurement
center representatives (PCRs) and commercial market
representatives (CMRs) are charged with ensuring that small
businesses are afforded subcontracting opportunities. Is there
any evidence that these advocates were involved in the
contracting process at either of these audited offices for Mr.
Roark? For Mr. Spence, any comments as well?
Mr. ROARK. I am not familiar with the titles of the two
positions that you discussed. Are you referring to like small
business office personnel?
Mr. TAKAI. Yes.
Mr. ROARK. Okay.
Mr. TAKAI. PCRs and CMRs.
Mr. ROARK. At both RCO-NCR and MCSC, we did meet with,
interview, and gather information from the small business
office personnel. We did see in both commands that they were
involved, working side by side with the contracting personnel
to review the information that came in from the request for
information from both large and small businesses, and so we did
see that as a positive step, that they were engaged and working
with the contracting officials.
Mr. TAKAI. Okay. Ranking member, as I mentioned, there are
only 27 CMRs, and their job is, one of their main duties is to
look for subcontracting compliance and counsel with small
businesses regarding subcontracting opportunities. If there are
only 27 of them, a lot of work is going to be missed. That is
why it is PTAC's recommendation that that number be increased.
Mr. TAKAI. Okay. And I guess if you can just explain how
does their involvement help in this process?
Mr. SPENCE. Well, again, short of a contracting officer,
and that is their primary responsibility, but because of
perhaps being overworked and understaffed, that might fall to
the CMRs. And again, it is their responsibility, if you look in
their job description, to look for subcontracting
opportunities, to counsel with those subcontractors and to
ensure compliance, and we think if we increased that that would
resolve the problem, or at least in part.
Chairman HANNA. Thank you very much. You are both well
prepared, and I am grateful for your time. I want to thank you,
of course, for being here.
If there are no further questions.
As I have said before, given that hundreds of billions of
dollars in Federal contracts are at stake each year, ensuring
that small businesses have the opportunity to compete for
Federal prime and subcontracts is key. Failure to meet the
mandatory small business subcontracting requirements in prime
contracts speaks volumes to the small business community.
Failure of this nature calls the overall acquisition process
into question. Seeing that agencies are not able to meet
minimum requirements for contract award and administration, it
also makes it clear that Congress needs to pass the reforms
included, as you said, in 4341. I look forward to future
reports from DOD IG, and hope that other agency IGs will also
begin reviewing subcontracting compliance. You are both in a
great position to help this Committee going forward. We do not
need to have a hearing to hear from you. And I would suggest
that if you have an opportunity, Mr. Roark, to really put some
teeth into this. It is amazing that hundreds of billions of
dollars since 1982, and there has been not a single case of
liquidated damages, that is amazing in and of itself. I think
you have an opportunity to help small business. You both do
just by following through with the jobs that you already have.
So if you see something in 4341 that you would like us to alter
or tweak a little bit, I would ask you both to give us a call
and we can amend things.
Go ahead.
Mr. SPENCE. Chairman Hanna, I think in 4341, it calls for
the SBA to--I do not know what the right word is--to develop
some system or procedure to help. When a contracting officer
says that they have made a good faith effort, I think it
stipulates that the SBA, to find some procedure to look at that
and to determine whether or not they really actually have made
a good faith effort. And I think if the SBA can be charged to
do that and hold them accountable, I think that will be very
helpful.
Chairman HANNA. We have some difficulty with that from time
to time. And you had mentioned earlier about electronic
reporting being automatic.
Mr. SPENCE. Yes.
Chairman HANNA. That was in the National Defense
Reauthorization Act of 2013. So there is an example of the
difficulty associated with things. So we will look into that
also.
I ask unanimous consent that members have 5 legislative
days to submit statements and supporting material for the
record.
Without objection, I want to thank you again, so ordered.
This hearing is adjourned.
[Whereupon, at 10:47 a.m., the subcommittee was adjourned.]
A P P E N D I X
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Good morning Chairman Hanna, Ranking Member Takai, and
distinguished members of the Subcommittee. Thank you for the
opportunity to appear before you today to discuss our two
audits of Marine Corps small business contracting.\1\
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\1\ Report No. DODIG-2016-019, ``Small Business Contracting at
Marine Corps Systems Command Needs Improvement,'' November 10, 2015,
and DODIG-015-095, ``Small Business Contracting Practices at Marine
Corps at Regional Contracting Office--National Capital Region Needs
Improvement,'' March 20, 2015.
We initiated the two audits based on a Defense hotline
complaint alleging that the Marine Corps Regional Contracting
Office-National Capital Region (RCO-NCR) and the Marine Corps
Systems Command (MCSC) did not ensure small businesses were
awarded a sufficient number of contracts and did not hold large
prime contractors accountable for meeting small business
---------------------------------------------------------------------------
subcontracting goals.
Background
RCO-NCR is responsible for providing procurement and
contracting support for the acquisition of supplies and
services for the Marine Corps in 13 states, primarily in
support of commands located near Washington, D.C. MCSC is
responsible for providing research, development, and
acquisition of equipment, information systems, training
systems, and weapon systems to satisfy all approved material
requirements of the Marine Corps.
Our objectives for the two audits were to determine whether
RCO-NCR and MCSC provided small businesses the opportunity to
be awarded prime contracts, and held prime contractors
accountable for meeting small business subcontracting goals.
During the audits, we reviewed a total of 86 contracts (valued
at approximately $1.6 billion) of 766 contracts (valued at
approximately $3.3 billion) that RCO-NCR and MCSC awarded to
other than small businesses in Fiscal Years 2011, 2012, and
2013.
Overall, we found that RCO-NCR and MCSC generally provided
small businesses with the opportunity to compete for prime
contracts; however, contracting officials did not ensure that
prime contractors provided small businesses adequate
subcontracting opportunities. We made a total of 13
recommendations to RCO-NCR and MCSC to address the deficiencies
identified during the two audits.
Opportunity Provided to Small Business to Compete for
Contracts
For both audits, we reviewed contracts that were not
awarded to small businesses to determine whether small
businesses were provided the opportunity to compete for those
contracts. RCO-NCR and MCSC generally provided small businesses
with the opportunity to compete for prime contracts. At RCO-
NCR, contracting officials conducted market research and
advertised solicitations for 19 contracts (valued at $239.2
million) while MCSC did the same for 21 contracts (valued at
$1.2 billion). After sending requests for information to
identify companies capable of providing services and receiving
responses for both large and small business, contracting
officials and small business representatives from RCO-NCR and
MCSC determined whether small businesses demonstrated that they
possessed the knowledge and capabilities to perform the
requirement.
When only one responsible source exists, and no other
supplies and services will meet agency requirements, the
Federal Acquisition Regulation (FAR) \2\ permits contracting
without providing full and open competition. RCO-NCR awarded 20
contracts (valued at $14.3 million) and MCSC awarded 16
contracts (valued at $79.4 million) as sole-source contracts to
other than small businesses. For the contracts awarded as sole
source, RCO-NCR and MCSC prepared justification using
exceptions to other than full and open competition allowed by
the FAR.
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\2\ FAR Part 6, ``Competition Requirements,'' Subpart 6.3, ``Other
Than Full and Open Competition,'' 6.302, ``Circumstances Permitting
Other Than Full and Open Competition.''
Ensuring Small Business Receive Subcontracting
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Opportunities
RCO-NCR and MCSC contracting officials did not ensure that
prime contractors provided small businesses adequate
subcontracting opportunities. Specifically, RCO-NCR contracting
officials did not ensure that prime contractors provided small
businesses with adequate subcontracting opportunities for 6
(valued at $848.2 million) of 7 contracts (valued at $871
million) reviewed. Specifically, RCO-NCR contracting officials
awarded:
four contracts, valued at $58.2 million,
either without requiring a subcontracting plan or with
a subcontracting plan that did not include small
business subcontracting goals; and
two contracts, valued at $790 million, which
had subcontracting plans with small business
subcontracting goals, but contracting officials did not
monitor whether the contractor met the goals.
Those problems occurred because RCO-NCR did not have
policies and procedures for evaluating and approving
subcontracting plans or for monitoring contractor compliance
with subcontracting plans. In addition, the RCO-NCR Director
stated that contracting officials did not evaluate and approve
subcontracting plans or hold prime contractors accountable for
meeting small business subcontracting goals because the
contracting office and the Small Business Office at RCO-NCR
were understaffed and overworked.
MCSC contracting officials did not ensure prime contractors
provided small businesses with adequate subcontracting
opportunities for 12 (valued at $222.1 million) of 19 prime
contracts (valued at $1.3 billion) reviewed. Specifically, MCSC
contracting officials:
did not track compliance with small business
subcontracting goals for four contracts with individual
subcontracting plans,
did not determine why large businesses were
not meeting their small business subcontracting goals
on two ongoing contracts with individual subcontracting
plans, and
awarded six contracts without subcontracting
plans or the required determination and approval.
In addition, MCSC contracting officials awarded two prime
contracts, valued at $421.9 million, with commercial
subcontracting plans without verifying whether the plans had
been approved by a contracting officer.
Those problems occurred because MCSC did not have adequate
internal guidance for awarding contracts with subcontracting
plans and for administering subcontracting plans. Additionally,
MCSC did not implement effective internal review procedures for
approving and administering subcontracting plans.
Status of Recommendations
In our two reports, we made 13 recommendations to RCO-NCR
and MCSC to improve small business contracting procedures.
Specifically, we recommended that RCO-NCR provide training to
contracting officers on their responsibilities for evaluating
and administering subcontracting plans, establish policy
requiring contacting officials to obtain adequate
subcontracting plans from prime contractors and verify that
prime contractors submit subcontracting reports to the
Electronic Subcontracting Reporting System, and determine
whether liquidated damages may be recovered on two contracts.
RCO-NCR has fully implemented all recommendations.
We recommended that MCSC determine whether the contractors
for the six specified contracts made a good-faith effort to
meet their subcontracting goals, and if not, whether liquidated
damages may be imposed against the contractor; establish
guidance for contracting officers for reviewing, approving, and
administering subcontracting plans; and train contracting
officials on their responsibilities for evaluating and
administering subcontracting plans. MCSC agreed with each
recommendation, and is in the process of completing corrective
actions.
Conclusion
RCO-NCR and MCSC generally provided small businesses
adequate opportunities to be awarded prime contracts. However,
RCO-NCR and MCSC contracting officials did not ensure that
prime contractors provided small businesses adequate
subcontracting opportunities. We made recommendations to RCO-
NCR and MCSC to improve procedures for administering
subcontracting plans submitted by prime contractors. This
concludes my statement and I would be happy to answer any
questions you may have regarding our two audits.
Testimony of
Chuck Spence, President
Association of Procurement Technical
Assistance Centers (APTAC)
To the U.S. House of Representatives Committee on Small
Business
Subcommittee on Contracting and the Workforce
``Hotline Truths: Issues Raised by Recent Audits of Defense
Contracting''
February 25, 2016
Chairman Hanna, Ranking Member Takai and distinguished
Members of the Subcommittee, thank you for this opportunity to
respond to recent reports from the U.S. Department of Defense's
Office of the Inspector General that found that specific
contracting officials with the Regional Contracting Office--
National Contracting Region (RCO-NCR) and the Marine Corps
System Command (MSCS) did not hold large prime contractors
accountable for meeting small business subcontracting goals. I
am privileged to speak before you on behalf of the Association
of Procurement Technical Assistance Centers and the small
businesses across the country that we serve.
My name is Chuck Spence. I am Deputy Director of the Utah
PTAC and President of the Association of Procurement Technical
Assistance Centers--APTAC--which is the professional
organization of the 98 PTACs nationwide.
As you may know, the Procurement Technical Assistance
Program was created by Congress in 1985 to help small
businesses compete for federal, state and local government
contracts. It is funded and administered through the Defense
Logistics Agency and supported by state or local governments,
educational institutions, and non-profits which must provide a
non-federal funding match of up to 50% to be eligible for a
PTAC Cooperative Agreement award. Our purpose is to assist
local small businesses at little or no cost by preparing them
to become capable government contractors, on the belief that a
broad base of small business suppliers provides the highest
quality and best value to our government agencies and at the
same time creates a strong and vibrant economic base for our
communities. Last year we helped over 57,000 small businesses
win government contracts and subcontracts valued at over $12
billion.\1\
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\1\ Based upon statistics voluntarily reported to APTAC by 83 of
the 98 Procurement Technical Assistance Centers.
In addition to our work helping small business secure prime
contracts, PTACs are deeply engaged with subcontracting issues.
Not only do we help small businesses identify subcontracting
opportunities, connect with and market to prime contractors,
and generally become responsible, ``procurement ready''
subcontractors, we are often contacted by large primes for
assistance with developing subcontracting plans and locating
small business vendors with the specific capabilities needed to
meet their requirements. Every day, we confront with our
clients the challenges of the subcontracting environment. My
testimony today reflects input from some of our most
experienced procurement professionals. I am privileged to share
their insights in the hope they will support your efforts to
improve opportunities for our nation's small business
---------------------------------------------------------------------------
contractors.
We are not surprised by the OIG findings in response to
Defense Hotline allegations. On the contrary, we suspect that
the problems identified--lack of adequate policies for
requiring subcontracting plan submissions and reports,
insufficient training for contracting officials regarding their
responsibilities for evaluating and administering
subcontracting plans, and failure to monitor compliance with
subcontracting plans--are common across all federal agencies,
because the root causes are not unique. From our perspective,
at the heart of not only the circumstances described in the OIG
reports, but agency subcontracting failures generally is an
unrealistic overreliance on contracting officers to protect the
interests of small businesses through faithful enforcement of
FAR Subpart 19.7 with insufficient support and resources to do
so. The consequence is likely a widespread loss of
opportunities for small businesses.
We applaud Chairman Chabot, Ranking Member Velazquez, and
the House Small Business Committee for the ambitious effort to
address these issues through HR. 4341, The Defending America's
Small Contractors Act of 2016. The bill's comprehensive
approach to clarifying the language and definitions of
contracting provisions in the Small Business Act--as well as
promoting greater transparency in goaling and accountability in
execution--is much needed. I'd like to comment on a number of
provisions of this robust legislation that we think are
particularly relevant.
Advocates for Small Businesses
The acquisitions workforce is an enormous, disparate, often
overworked, and continuously shifting body. Their top priority
is the procurement of goods and services to meet agency
requirements in the most cost-effective manner possible so as
to deliver value to the taxpayer. They are increasingly
pressured to more effectively harness innovation and technology
to better serve their end-users, while addressing new
challenges such as cyber-threats. It is little wonder that
understanding and enforcing small business subcontracting
requirements might be prone to neglect--as is evidenced in the
OIG reports.
SBA Procurement Center Representatives (PCRs) and
Commercial Market Representatives (CMRs) play a critical role
enabling increased opportunities for small businesses, and the
Committee is right to expand and clarify their
responsibilities. Providing PCRs the authority to review ``any
solicitation for a contract or task order,'' clearly
articulating the responsibilities of Commercial Market
Representatives with regard to subcontracting, and allowing
both PCRs and CMRs to delay acceptance of subcontracting plans
if they fail to provide maximum practicable opportunities for
small businesses are very important steps in empowering these
officials to advocate on behalf of small businesses, and we
enthusiastically support them.
We are concerned, however, about the level of effectiveness
that can reasonably be expected from PCRs and CMRs if their
ranks are not sufficient to do the job. A review of the SBA's
CMR Directory at https://www.sba.gov/content/cmr-directory and
PCR Directory at https://www.sba.gov/content/pcr-directory
indicates that SBA has just 27 CMRs, 6 PCR Area Directors and
48 PCRs to service the entire country. An SBA Office of
Inspector General Report in FY 2006 found that CMRs monitored
less than half of the 2,200 largest prime contractors \2\. In a
2008 report, the GAO noted that the 59 PCRs on staff at the
time were acknowledged to be not a sufficient number to fulfill
their mission \3\.
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\2\ SBA, Office of the Inspector General, Review of SBA's
Subcontracting Assistance Program, Audit Report No. 7-33 (Washington,
D.C.: Sept. 28, 2007).
\3\ Small Business Administration: Agency Should Assess Resources
Devoted to Contracting and Improve Several Processes in the 8(a)
Program, GAO-09-16 (Nov. 21, 2008).
We believe that the need for these experts/advocates has
grown and become more urgent--and are glad to see the
Committee's support for them in H.R. 4341. But we'd like to
encourage you to also take whatever action is within your power
to support increasing the size of the PCR and CMR workforce to
maximize their effectiveness government-wide. Taking the OIG
Hotline reports as examples: PCRs might have been instrumental
in helping the RCO-NCR and MCSC develop subcontracting policies
and train acquisition staff as called for in the reports.
Active involvement by CMRs might have brought to light and
corrected failures to properly monitor subcontracting plan
compliance before they resulted in Hotline complaints. The work
of these professionals can directly address the deficiencies
---------------------------------------------------------------------------
noted if they are sufficiently staffed.
Post-award Compliance Resources
We particularly note the Bill's requirements that the SBA
make available--to a number of entities including the PTACs--
``a list of resources for small business concerns seeking
education and assistance on compliance with contracting
regulations (including Federal Acquisition Regulations) after
award of a contract or subcontract.'' We agree that supporting
the ability of small firms to perform successfully is essential
to small business contracting programs. While we welcome
attention to the issue, we believe that PTACs are perhaps the
most extensive resource available for just such education and
assistance. With over 600 procurement professionals in 300
offices in every state of the nation, the District of Columbia
and the territories of Puerto Rico and Guam, our charge clearly
includes working with small businesses on post-award compliance
issues, and we do so regularly. Most PTAC counselors have
extensive--and ongoing--FAR training. We hope that the SBA will
feature PTACs prominently on this list of resources, but also
encourage PCRs, CMRs, OSDBU officers and prime contractors to
refer small business contractors to the PTACs, so that we can
help them fully understand the requirements of their contracts
and subcontracts, allowing them to successfully comply. We ask
that the Committee remember that the PTACs can be a valuable
resource in this regard.
Good Faith Compliance
We are pleased to see that fulfilling reporting
requirements is being added to the list of items for which a
prime contractor's failure to comply can be deemed a material
breach reflected in past performance evaluations, and even more
so the stipulation that SBA provide examples of activities that
would be considered a failure to ``make a good faith effort to
comply''. We hope that the SBA will use a fair but rigorous
test; the current standard provides no incentive for primes to
make extra efforts to include small businesses.
Past Performance
The ``Pilot Program to Provide Opportunities for Qualified
Subcontractors to Obtain Past Performance Ratings'' addresses
the critical need for small businesses to compile a record of
experience to be competitive for prime contracts. We are
particularly glad to see that the structure provides for the
contingencies of non-response or disagreement between the
contracting officer, the prime contractor, and the
subcontractor. Our only concern about this provision is whether
the additional administrative responsibilities will be attended
to in a timely manner (as proscribed), particularly given the
shortage of CMRs, whose participat8ion is integral to the
program.
GAO Review of the SBA's Office of Government Contracting
and Business Development
A significant impediment to small business contractors is
the complexity and redundancy of the various small business
certification programs. The current conundrum with regard to
the Woman-owned Small Business program only underscores the
challenges of SBA certification processes from the perspective
of both agency and small business. Small business concerns that
are eligible to participate in more than one program (ie: a
Woman Service-Disabled Veteran-owned small business operating
in a HUBZone), faces overlapping but inconsistent requirements
that can be overwhelming for a small firm. Simplifying and
unifying the certification processes could go a long way toward
bringing more eligible small firms into the government
marketplace. Consequently, we are pleased to see the call for a
Comptroller General study to identify ways in which SBA
contracting programs and operations could operate more
efficiently and consistently. We very much look forward to the
report and would be pleased to provide input if appropriate.
Additional Issues
While not addressed directly in H.R. 4341, there are a few
additional issues that we believe could be helpful in creating
an environment that would support greater participation of
small businesses in government procurement. I offer them here
for your consideration as you contemplate future actions
regarding small business contracting.
Technology
We believe that significant gains can be accomplished by
better harnessing the technology systems associated with
government contracting and subcontracting to automate certain
functions and further increase transparency, especially in
regard to compliance with subcontracting requirements under FAR
19.7. Compliance can only be enforced when failure to comply is
known. The current necessity for busy contracting officers to
proactively and manually monitor subcontracting compliance
creates an administrative burden that may be a major factor in
their failures to do so.
Strategic modification and integration of eSRS, FSRS, and
other contracting data systems could provide to contracting
officers and CMRs automated notices of failures to comply with
eSRS reporting requirements, allowing officials to take
immediate action with the contractor to spur compliance. Such a
notification system could well have remedied--or even
prevented--some of the deficiencies noted in the ``Hotline''
reports. In general, leveraging technology to make it as easy
as possible for officials to enforce subcontracting compliance
is likely to deliver the most effective enforcement.
Careful development of these data systems could also serve
to improve public access to subcontracting data, with
potentially a tremendous impact on small business access to
subcontracting opportunities. Specific suggestions from some of
our PTAC Members are included in Appendix A.
Motivating Prime Contractors
Meeting agency subcontracting goals would be much easier if
prime contractors had a meaningful stake in their achievement.
As noted above, there is currently no real incentive to comply
with subcontracting requirements, and the enforcement of
compliance via the assessment of liquidated damages has proven
ineffective, as no firm has ever been penalized under it.
Finding alternative incentives (or disincentives) to prime
contractor compliance could shift the balance by giving primes
a clear competitive interest in providing and protecting small
business opportunities. One of our PTAC members, Jeff Cuskey of
the Montana PTAC, has put forth some suggestions in this regard
for your consideration. They are included in Appendix B.
Conclusion
APTAC members believe there is a tremendous amount of room
for increasing small business subcontracting opportunities, and
we are happy to see the proactive, comprehensive effort by
Chairman Chabot, Ranking Member Velazquez and the House Small
Business Committee through The Defending America's Small
Contractors Act of 2016. Along with the important changes
outlined in the Bill, we hope that sufficient personnel and
technology resources can be dedicated to effectively execute
these critical programs, and we encourage the exploration of
means to provide large prime contractors a clear interest in
creating more opportunities for small business as well.
Thank you.
APPENDIX A
APTAC Member Suggestions for Technology System Enhancement to
Support Small Business Subcontractors
Provide for subcontracting opportunities to be
posted well in advance of a prime contractor's selection of
teaming partners and proposal or quote deadlines. Generally, a
small business will not have much success becoming a
subcontractor if they wait until the government solicitation is
posted on FEDBIZOPS (FBO.Gov) since the turnaround time for a
prime contractor to submit their proposals or quotes may be
relatively short.
Make subcontracting plan information publicly
available upon prime contract award, which would allow small
business subcontractors themselves, who have arguably the most
powerful interest in effective subcontracting programs, to
participate in policing the compliance of primes.
Modify the ESRS reporting requirements to include
a requirement that prime contractors update their SBA
Subcontracting Directory data whenever any of the required 11
subcontracting plan elements change.
Make ESRS data accessible to the public, turning
the system into a ``Dynamic Subcontract Plan Search (DSCPS)''
database with search functionalities similar to SBA's Small
Business Dynamic Search (DSBS) database. This could replace the
current minimally functional Subcontracting Opportunities
Directory and become the primary searchable data base for
subcontract plans and subcontract plan points of contact. To
enhance search capabilities, FAR 19.704(a)(3) could be revised
to include the principal NAICS, PSC and FSC codes and
associated key words--in addition to the current requirement of
a description--related to the products and/or services to be
subcontracted.
Modify SUB-Net to include: (1) more non-
construction related subcontract opportunities, (2) a means to
further refine search results, (3) a way to filter out or
eliminate advertisement postings and (4) the ability to export
the file to an Excel CSV file to facilitate additional data
sorting.
Improve data fields in the Federal Procurement
Data System (FPDS) to include original solicitation number and
a meaningful description of the items acquired or the purpose
of the contract action/modification. This would allow advanced
searches within FPDS to locate products/services of interest to
the small business.
Appendix B
Suggestions for Alternate Incentives/Disincentives for Prime
Contractors to Maximize Small Business Subcontract
Opportunities
Provided by Jeff Cuskey, Montana PTAC
(1) Provide monetary incentives for awarding subcontracts
to qualified HUBZone or other targeted small business concerns
(i.e., establish a HUBZone Incentive Program that would be
similar to the current DoD Indian Incentive Program).
(2) Provide a price preference to large prime contractors
that meet or exceed their negotiated small business plan goals.
To reduce the administrative burden associated with such a
program, the SBA could be required to issue an annual goaling
report on all large prime contractors that were required to
file subcontracting plans during the report year. Those large
prime contractors that meet or exceeded their subcontract plan
goals for the year would be afforded a ten percent price
preference over large business offerors that did not meet their
subcontract plan goals during the report period. The price
preference could go on indefinitely if the prime continued to
meet or exceed their annual subcontract plan goals in
subsequent years. This approach would not require additional
direct budget outlays, however SBA would most likely need
additional resources to implement the program. The subcontract
plan goaling reports should be posted publicly on SBA's
website.
(3) Include the requirement to perform subcontract plan
goal management and performance assessments in FAR Subpart 44.3
as part of Contractor Purchasing Systems Reviews (CPSRs). The
current language at FAR 44.303(g) requires a review of the
contractor's ``planning, award, and postaward management of
major subcontract programs,'' however this language does not
require the review of a large prime contractor's subcontract
plan management and performance. In addition to adding this
requirement, the Subcommittee should consider requiring the
withdrawal of a large prime contractor's purchasing system
whenever the prime contractor has failed to meet its
subcontract plan goals two years in a row. This ``enforcement''
approach and ``penalty'' provides a potentially feasible and
enforceable alternative to assessing liquidated damages, as it
would not be subject to the current stringent requirement to
prove the contractor failed to act in ``good faith''.
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