[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

                              ----------                              


                      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.
---------------------------------------------------------------------------
    \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 
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
    \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\.
---------------------------------------------------------------------------
    \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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