[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]


      HOTLINE TRUTHS II: AUDIT REVEALS INCONSISTENCIES IN DEFENSE 
                             SUBCONTRACTING

=======================================================================

                                HEARING

                               BEFORE THE
                               
               SUBCOMMITTEE ON CONTRACTING AND WORKFORCE

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                              MAY 17, 2018

                               __________

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            Small Business Committee Document Number 115-073
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman
                            STEVE KING, Iowa
                      BLAINE LUETKEMEYER, Missouri
                          DAVE BRAT, Virginia
             AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                        STEVE KNIGHT, California
                        TRENT KELLY, Mississippi
                             ROD BLUM, Iowa
                         JAMES COMER, Kentucky
                 JENNIFFER GONZALEZ-COLON, Puerto Rico
                    BRIAN FITZPATRICK, Pennsylvania
                         ROGER MARSHALL, Kansas
                      RALPH NORMAN, South Carolina
                           JOHN CURTIS, Utah
               NYDIA VELAZQUEZ, New York, Ranking Member
                       DWIGHT EVANS, Pennsylvania
                       STEPHANIE MURPHY, Florida
                        AL LAWSON, JR., Florida
                         YVETTE CLARK, New York
                          JUDY CHU, California
                       ALMA ADAMS, North Carolina
                      ADRIANO ESPAILLAT, New York
                        BRAD SCHNEIDER, Illinois
                                 VACANT

               Kevin Fitzpatrick, Majority Staff Director
      Jan Oliver, Majority Deputy Staff Director and Chief Counsel
                     Adam Minehardt, Staff Director
                            
                            
                            C O N T E N T S


                           OPENING STATEMENTS

                                                                   Page
Hon. Steve Knight................................................     1
Hon. Stephanie Murphy............................................     2

                               WITNESSES

Mr. Michael J. Roark, Assistant Inspector General, Readiness and 
  Global Operations, Office of Inspector General, Department of 
  Defense, Alexandria, VA........................................     4
Mr. Tommy L. Marks, Director, Army Office of Small Business 
  Programs, Office of the Secretary of the Army, Washington, DC..     6
Ms. Tiffany S. Scroggs, President, Association of Procurement 
  Technical Assistance Centers, Lacey, WA........................     7

                                APPENDIX

Prepared Statements:
    Mr. Michael J. Roark, Assistant Inspector General, Readiness 
      and Global Operations, Office of Inspector General, 
      Department of Defense, Alexandria, VA......................    16
    Mr. Tommy L. Marks, Director, Army Office of Small Business 
      Programs, Office of the Secretary of the Army, Washington, 
      DC.........................................................    22
    Ms. Tiffany S. Scroggs, President, Association of Procurement 
      Technical Assistance Centers, Lacey, WA....................    28
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    DOD IG Audit Report..........................................    34

 
                   HOTLINE TRUTHS II: AUDIT REVEALS 
               INCONSISTENCIES IN DEFENSE SUBCONTRACTING

                              ----------                              


                         THURSDAY, MAY 17, 2018

                  House of Representatives,
               Committee on Small Business,
         Subcommittee on Contracting and Workforce,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:03 a.m., in 
Room 2360, Rayburn House Office Building, Hon. Steve Knight 
[chairman of the Subcommittee] presiding.
    Present: Representatives Chabot, Knight, Evans, Murphy, and 
Lawson.
    Chairman KNIGHT. Good morning. The hearing will come to 
order. We have a vibrant Committee here, and we are going to 
get going. Stephanie and I rule this place. But we will have 
some folks kind of come in and out. Here we go, and we are very 
excited about this hearing.
    So, with that, I will give you a little bit of how this 
works, and then I will get into my statement and get Mrs. 
Murphy and her statement, and we will kind of get this thing 
rolling really quickly.
    I will do it a little backwards this time. The rules are: 
We go down the row, and you have 5 minutes to have your opening 
statement. You will see the lights. They will come on, and they 
will be green for 4 minutes and yellow for a minute. When it 
goes red, just try and wrap it up at some point. And then we 
will kind of move quickly.
    Okay. Well, Congress has long established the need to 
maximize opportunities for small business. I believe a vibrant 
small business community is essential to our national security. 
Many of these businesses serve our country by working with the 
DOD to provide necessary goods and services to our men and 
women in uniform. One purpose of the Small Business Act is to 
ensure that we maintain a strong industrial base of small 
contractors ready to provide cost-effective solutions and 
cutting-edge innovation.
    Therefore, it is important that no part of the Small 
Business Act is ignored or undermined. Statutory provisions 
that are not observed can threaten the crucial benefits small 
businesses provide to our military.
    The Subcommittee is grateful to the DOD Office of the 
Inspector General, or the DODIG, for its work in continuing to 
investigate the mismanagement of small business subcontracting 
requirements. These reports provide documented proof of agency 
practices that are detrimentally impacting small 
subcontractors.
    Turning to the report at hand, the DODIG investigated small 
business subcontracting at two Army Contracting Command, or 
ACC, locations. The IG's report issued on March 19, 2018, found 
that the ACC has inconsistently complied with statutory 
requirements requiring the administration of subcontracting 
plans. This failure resulted in denial of $915 million in small 
business subcontracting opportunities.
    Putting this number in context, the IG investigated 50 
contracts for this report. Extrapolate that across the entire 
Army procurement system and the damage to small business could 
be devastating. Furthermore, the IG found that the ACC may have 
missed opportunities to recoup liquidated damages potentially 
owed to the Federal Government and taxpayers up to $82.3 
million.
    Perhaps most telling is the IG's finding that administering 
subcontracting plans is not a high priority at the ACC. This 
translates to less competition, higher prices, and could rob 
our warfighters of the newest innovation and best solutions 
that so often come from small businesses and startups.
    I understand this devastating report is merely a snapshot 
of one isolated piece of our defense contracting network, but I 
do hope that this conversation today will spur others to 
action. I can tell you, in my office, we work very, very 
closely with aerospace, with DOD, with subcontracting, and one 
of the biggest issues that we have is small subcontractors kind 
of getting into the system or being able to work in the system. 
We also know that small businesses are very agile, and 
especially with the DOD, if there is an issue with a system 
that our warfighters have and there is a way that we can 
correct that quickly, we want to.
    And I will leave with just this one story. I was out with a 
company just recently, and they were showing me their latest in 
robots that went out for bomb disposal. And they let me play 
with it. And they gave me the controller, and it was an Xbox 
controller. And I said: Is this really the controller?
    And they said: No, but this works better. So we bought it 
for $29.99, and this is what we use.
    Now, obviously, that is probably not as good as the 
original controller or it doesn't hold up that well, but it did 
kind of get me thinking of how we can be agile and how we can 
move quickly, and if the warfighter or someone on the ground, 
whether it be a ground-pounder or someone in the air or at sea, 
is saying something, that we have got to be able to move 
quickly so that we can do those types of things.
    So, with that I will now yield to Mrs. Murphy for her 
opening statement.
    Mrs. MURPHY. Thank you, Mr. Chairman, and also thank you 
for holding this important hearing.
    You know, small businesses continue to look for new 
opportunities to expand their ventures, especially by competing 
for contracts in the federal procurement marketplace. In fact, 
in fiscal year 2017, the Federal Government was involved in 
contracting actions worth over $508 billion, making it one of 
the largest buyers of goods and services in the world.
    Prime contracts are generally viewed as the most lucrative 
way for small businesses to participate in this marketplace. 
However, as contract bundling has become more prevalent, 
subcontracts have become more of a common entry point for small 
businesses to work with the Federal Government. Therefore, it 
is really critical that we ensure there is a level playing 
field for small firms as they pursue subcontracts.
    During today's hearing, we will discuss the Department of 
Defense Inspector General's recent audit of two Army 
Contracting Command Centers, one in Redstone, Alabama, and the 
other one is Warren, Michigan.
    I share Chairman Knight's concerns that the audit findings 
are troubling. The audit concluded that the preparation and 
enforcement of subcontracting plans must be improved to ensure 
that small businesses are not losing out on subcontracting 
opportunities that could be critical to strengthening their 
bottom line and supporting many jobs.
    Subcontracting plans serve as an important accountability 
mechanism, ensuring that prime contractors make a good-faith 
effort to provide opportunities to small businesses. So it was 
really disappointing to learn that contracting officials at 
ACC-Redstone and ACC-Warren did not make certain that prime 
contractors provided small businesses with adequate 
subcontracting opportunities for 23 contracts valued at nearly 
$915 million or nearly half of the contracts that the inspector 
general had examined.
    In these cases, it seemed like there was a lack of 
knowledgeable contracting personnel and proper transition 
protocols, both of which are basic functions of a contracting 
office. With more than 22 million contracting actions each 
year, every Federal agency should make proper review of 
subcontracting plans a top priority. I think this is 
particularly important in the case of the Department of 
Defense, which oversees the vast majority of government 
contracts.
    The audit also revealed that contracting officers at these 
ACCs lacked the proper training to successfully administer 
subcontracting plans. Furthermore, the IG's audit found that 
the ACC-Redstone and ACC-Warren may have neglected to follow up 
on reports showing that contractors were not meeting all of 
their small business goals.
    Overall, small businesses seem to have been an 
afterthought, rather than a primary focus for these contracting 
offices. You know, I think encouraging more small business 
participation in the federal marketplace remains a priority for 
this Committee, and subcontracting will continue to be a vital 
path for small businesses to obtain government contracts.
    So, today, we have an opportunity to examine what went 
wrong at these ACCs and how we can implement solutions to 
increase access to subcontracting opportunities for small 
businesses. I thank the witnesses for being here and look 
forward to your testimony as we delve into the audit findings 
and its recommendations.
    Thank you, and I yield back.
    Chairman KNIGHT. Thank you very much. Okay. We will go to 
introductions. I would like to formally introduce our 
witnesses. Our first witness is Mr. Michael Roark, the 
Assistant Inspector General for Readiness and Global Operations 
at the DOD. He has served with the Department of Defense Office 
of Inspector General since June of 2000 in various staff and 
leadership positions. Mr. Roark testified before the 
Subcommittee previously in 2016 on a similar audit undertaken 
by the inspector general.
    And we welcome you back today.
    Our second witness is Mr. Tommy Marks, Director of Army 
Office of Small Business Programs. In this position, Mr. Marks 
serves as the Army's lead on small business policies, goals, 
and procedures, and represents the Army in interagency 
communications with the Small Business Administration and other 
Federal agencies.
    And we welcome you here today, Mr. Marks.
    Our last witness is Ms. Tiffany Scroggs. Ms. Scroggs is the 
newly appointed President of the Association of Procurement 
Technical Assistance Centers--that is a mouthful--having 
previously served as the Regional Director and Vice President. 
Ms. Scroggs is also the Program Manager of the Washington State 
Procurement Technical Assistance Center and has been a member 
of the Washington PTAC since 2007 when she joined as a 
procurement counselor. We welcome you, Ms. Scroggs, today.
    Okay. Now we have the rules of the lights, and we are ready 
to go.
    So, Mr. Roark, you are now recognized for 5 minutes for 
your opening comments.

 STATEMENTS OF MICHAEL J. ROARK, ASSISTANT INSPECTOR GENERAL, 
 READINESS AND GLOBAL OPERATIONS, OFFICE OF INSPECTOR GENERAL, 
 DEPARTMENT OF DEFENSE, ALEXANDRIA, VIRGINIA; TOMMY L. MARKS, 
DIRECTOR, ARMY OFFICE OF SMALL BUSINESS PROGRAMS, OFFICE OF THE 
    SECRETARY OF THE ARMY, WASHINGTON, D.C.; AND TIFFANY S. 
   SCROGGS, PRESIDENT, ASSOCIATION OF PROCUREMENT TECHNICAL 
             ASSISTANCE CENTERS, LACEY, WASHINGTON.

                 STATEMENT OF MICHAEL J. ROARK

    Mr. ROARK. Good morning, Chairman Knight and Ranking Member 
Murphy and distinguished members of the Subcommittee. Thank you 
for the opportunity to appear before you today to discuss our 
March 2018 audit report of Army small business contracting.
    During the audit, we visited two Army Contracting Command, 
or ACC, contracting centers, ACC-Redstone and ACC-Warren. Our 
audit objective was to determine whether ACC-Redstone and ACC-
Warren contracting officials took appropriate actions to ensure 
that prime contractors met their small business subcontracting 
goals. We reviewed a sample of 50 contracts valued at 
approximately $1.6 billion of 216 contracts valued at 
approximately $7.6 billion that ACC-Redstone and ACC-Warren 
awarded to other than small businesses with estimated 
completion dates in fiscal years 2015 and 2016.
    Overall, ACC-Redstone and ACC-Warren generally provided 
small businesses with the opportunity to compete for prime 
contracts. However, contracting officials did not ensure that 
prime contractors provided small businesses with adequate 
subcontracting opportunities.
    Specifically, ACC-Redstone and ACC-Warren contracting 
officials ensured that prime contractors provided small 
businesses with adequate subcontracting opportunities for 27 of 
the 50 contracts we reviewed. However, contracting officials 
did not ensure that prime contractors provided small businesses 
with adequate subcontracting opportunities for 23 contracts 
valued at approximately $915 million of 50 contracts we 
reviewed valued at $1.6 billion. Specifically, ACC-Redstone and 
ACC-Warren contracting officials awarded six contracts without 
a subcontracting plan or a determination that no subcontracting 
possibilities existed; did not monitor prime contractors' 
compliance with individual subcontracting plans for 11 
contracts; did not determine why prime contractors with 
individual subcontracting plans did not meet their small 
business subcontracting goals for five contracts; and accepted 
an individual subcontracting report for one contract which may 
have misreported subcontracting goals.
    Each of these items is required by the Federal Acquisition 
Regulation, or FAR, subpart 19.7. These problems occurred due 
to three primary causes.
    First, ACC-Redstone and ACC-Warren contracting officials 
stated that some contracting personnel did not understand 
subcontracting plan requirements. For example, ACC-Redstone did 
not provide adequate training or procedures for administering 
subcontracting plans.
    Second, ACC-Redstone and ACC-Warren contracting officials 
noted that administering subcontracting plans was often not a 
high priority.
    Third, guidance at both commands did not address the 
transfer of subcontracting plan administration duties as 
required by the FAR when a contract is assigned to a new 
contracting officer.
    We made a total of eight recommendations to ACC-Redstone 
and ACC-Warren and the Deputy Assistant Secretary of the Army 
for Procurement to improve small business contracting 
procedures. Specifically, we made two recommendations to ACC-
Redstone, and the command agreed with each recommendation and 
is in the process of taking corrective actions.
    In addition, we made three recommendations to ACC-Warren, 
which command officials agreed with. During the audit, 
officials at ACC-Warren took corrective actions, and we closed 
two of those recommendations. ACC-Warren is now in the process 
of completing corrective actions on one other recommendation.
    Finally, we made three recommendations to the Deputy 
Assistant Secretary of the Army for Procurement. The Army 
agreed with each of these recommendations and is in the process 
of taking corrective actions.
    As a result, small businesses may not have received 
subcontract work that prime contractors for Army contracts were 
required by the FAR to make a good-faith effort to provide. 
Contracting officials did not consistently obtain 
subcontracting reports or follow up on reports that showed that 
contractors were not meeting their small business goals.
    Therefore, ACC-Redstone and ACC-Warren may have missed 
opportunities to recoup liquidated damages up of up to $82.3 
million. This concludes my statement, and I would be happy to 
answer any questions you may have for me.
    Chairman KNIGHT. Thank you, Mr. Roark.
    And I would like to welcome to our Committee the Chairman 
of the full Committee, Chairman Chabot. Thank you very much.
    Okay. And we will move forward to Mr. Marks. You now have 5 
minutes for your opening statement.

                  STATEMENT OF TOMMY L. MARKS

    Mr. MARKS. Good morning, Chairman Knight, Ranking Member 
Murphy, and distinguished members of the Subcommittee. I am 
Tommy Marks, the Director of the Army Small Business Programs. 
I first want to apologize for missing the Subcommittee's 
suspense to provide a written statement, which was delivered 
yesterday. I misinterpreted the instructions.
    Secondly, thank you for this opportunity to testify before 
you today. I am an Army veteran and a member of the senior 
executive service of the Army. I have served as a Director 
since April 2015. Prior to that, I served as the Army's 
Executive Director for service contracts policy in the Army's 
Logistics Civil Augmentation Program, known to our soldiers as 
LOGCAP. I entered my 40th year of service to our Nation in 
January 2018 serving as a soldier, government contractor, and 
civil servant, with over half of that time working logistics 
contracting in the small business community.
    From April 2017 to January 2018, the Department of Defense 
inspector general conducted a performance audit of contracts 
for small business subcontracting at the two Army Contracting 
Commands located in Redstone in Huntsville, Alabama, and in 
Warren, Michigan for the Warren Contracting Center. The 
inspector general determined that the inconsistencies exist 
with actions of contracting officials taken ensuring that prime 
contractors met their small business subcontracting goals. The 
Army concurs with all the findings and recommendations.
    Recommendation No. 3 addresses the responsibilities of the 
Office of Small Business in coordination with the Deputy 
Assistant Secretary of the Army for Procurement to train 
contracting and small business officials on subcontracting in 
accordance with the Federal Acquisition Regulation part 19.7, 
to provide the Army Federal Acquisition Regulation supplement 
subpart 5119.7, to incorporate guidance on administering and 
transferring responsibility of subcontracting responsibility to 
between contracting officials, and to issue a policy alert 
notifying contracting and small business officials when the 
revision is completed.
    We have started a training as of December 2017. To date, we 
trained 193 personnel, and we are coordinating with our 
commands to complete a training schedule for the remainder of 
fiscal year 2018. The revision is currently in staffing, which 
should be completed in about 60 days, and the training will 
also--the guidance will go out 1 June. I owe back to Mr. Roark 
that in writing, which will close out--hopefully will close out 
the recommendation.
    Finally, I want the Subcommittee to know that the Army is a 
staunch supporter of small businesses, which is an enabler for 
Army readiness and a key component to our industrial base.
    Chairman Knight, I also want to share that my first 
invitation by Congress came from your district, California 25, 
a small business forum with a local PTAC, a Procurement 
Technical Assistance Center, and the Chamber of Commerce of 
Santa Clarita in August of 2017.
    Thank you again for the opportunity to testify, and I look 
forward to your questions.
    Chairman KNIGHT. Thank you very much.
    And, now, Ms. Scroggs, you have 5 minutes for your opening.

                STATEMENT OF TIFFANY S. SCROGGS

    Ms. SCROGGS. Chairman Knight, Ranking Member Murphy, and 
distinguished members of the Subcommittee, as well as Chairman 
Chabot, thank you for the opportunity to testify today. My name 
is Tiffany Scroggs. I am the program manager of the Washington 
State Procurement Technical Assistance Center and president of 
the Association of Procurement Technical Assistance Centers, 
known as APTAC. We are the professional organization of the 95 
PTACs nationwide.
    As you may know, the PTAC program was created by Congress 
in 1985 to help small businesses compete for Federal, State, 
and Local contracts and subcontracts. We are funded in part 
through a cooperative agreement with the Defense Logistics 
Agency. Last year, PTACs helped over 48,000 small businesses 
win and fulfill government contracts and subcontracts valued at 
over $20 billion.
    PTACs are deeply engaged with subcontracting issues. Not 
only do we help small businesses identify subcontracting 
opportunities, we are often contacted by large primes for 
assistance in developing their subcontracting plans and 
locating small businesses that can satisfy their unique 
requirements. My testimony today reflects input from some of 
the most experienced procurement professionals across the 
country. I am privileged to share their insights and hope that 
they will support your efforts to improve opportunities for our 
Nation's small business contractors.
    We find that small businesses bring to the marketplace 
innovation, agility, and additional competition that results in 
better products and services at lower cost. This enhances our 
Nation's supply chain.
    Furthermore, limited access to subcontracts reduces the 
number and capability of small business contractors that can 
qualify to enter the acquisition pipeline. As you know, 
subcontracting is the most realistic entry point for many small 
businesses seeking to supply to the government.
    Congress and units of government can affirm that a robust 
small business participation in the supply chain is a priority 
by focusing on four elements: education, oversight, 
transparency, and incentives. Each of these are explored in 
detail in my written testimony, and today I will share insights 
for a few. I will conclude my remarks with additional 
information as to how PTACs across the country can assist in 
the effort.
    First, education, ensuring that not only agency acquisition 
staff but prime contractors understand the regulations with 
regard to subcontracting goals, plans, and reporting. This will 
go a long way toward remedying situations such as those 
identified in the IG's report.
    Related to oversight and internal controls, we believe that 
a primary factor in agency subcontracting failures is generally 
an unrealistic overreliance on under resourced contracting 
officers to faithfully enforce FAR subpart 19.7.
    I have listed several suggested remedies in my written 
testimony, and among them is to increase the number of SBA 
procurement center representatives and commercial market 
representatives.
    On the topic of transparency, one of the biggest barriers 
to small business access to subcontracts is lack of information 
about the opportunities. Unlike agency solicitations, which are 
posted on fbo.gov, there is no centralized listing for 
subcontracting opportunities or a mechanism for identifying 
connecting with potential buyers. Suggestions include 
establishing a public platform similar to FBO where 
subcontracting opportunities can be posted. While SBA's subnet 
could theoretically be used for these purposes, currently it 
lacks critical amounts of usage and is difficult to navigate.
    Transparency is not only a powerful motivator for 
compliance, but it expands the ability of other interested 
parties to help support enforcement. Amongst the suggestions is 
to make subcontracting plan information publicly available upon 
award to allow small business contractors to participate in 
policing the compliance of prime contractors.
    However you choose to implement enhancements to the 
subcontracting plan compliance please remember this, PTACs play 
an important role in supporting subcontracting. We train small 
businesses to be procurement ready, and we regularly work with 
prime contractors who come to us for help with small business 
outreach and subcontract plan development. Despite our active 
involvement with small businesses, far too few prime 
contractors work with PTACs, and PTACs are hampered by the same 
lack of transparency that limit our small business clients.
    The value of PTACs as an essential bridge between small 
business contractors and DOD was highlighted this year earlier 
in a report of the advisory panel on streamlining and codifying 
acquisition regulations known as the section 809 panel. The 809 
panel identified PTAC program as the only DOD-wide program to 
conduct outreach to bring small businesses into the defense 
market. The report recommended a number of provisions that 
would expand our capacity resulting in our ability to further 
support a prime contracts effort to connect with small 
businesses.
    Thank you again for the opportunity to testify and for your 
support of the PTAC program nationwide. I hope that our input 
today has been helpful, and we stand ready to help the 
Committee any way that we can.
    Chairman KNIGHT. Okay. Very good. And we will go through a 
round of questions and see how this works out. I appreciate the 
witnesses coming in today and testifying so I will kind of go 
through a couple questions and kind of go down the row.
    Mr. Roark, give me an idea of the most impactful 
recommendations you made and how best we can address the 
deficiencies.
    Mr. ROARK. In our Army report, which we issued in March of 
2018, we made a total of eight recommendations. They are really 
broken down into three categories. The first category was 
determining whether liquidated damages were appropriate, and so 
we made a series of five recommendations to ACC-Redstone and 
ACC-Warren, and those really had two categories: first, working 
with contractors to make sure that the individual 
subcontracting reports were in the system so that contracting 
officers could make a determination about whether they met 
their good faith efforts, and so we had three recommendations, 
one for Redstone and two for ACC-Warren on that category.
    Chairman KNIGHT. And I don't mean to cut you off, Mr. 
Roark, and I understand from your testimony, but how are we 
going to track this? How are we going to track that it has been 
done? It seems like the Army is very, very willing to accept 
these and to move forward and kind of correct the deficiencies, 
but how are we going to track these to make sure this happens?
    Mr. ROARK. Well, all reports that we issue go into a 
follow-up process where we follow up on the recommendations to 
make sure that they were implemented. And so, in two of the 
cases, the Army ACC-Warren actually made corrective actions on 
the recommendations during our audit, and we were able to 
verify that they carried out on those actions.
    For the other recommendations, other than the liquidated 
damages recommendations, we also had two on policies and 
procedures to the Army level and one on training, as Mr. Marks 
stated in his opening statement. And in those cases, the Army 
agreed, and we continue to follow up with each of the 
organizations over the next few months to ensure that those 
recommendations were implemented, and so we will continue to 
gather documentation and conduct interviews as necessary to 
verify that that was done.
    Chairman KNIGHT. Okay. And, you know, this is a little bit 
off, but this is two places that we did the audit. Do we 
believe that there is a systemic problem, or do we believe that 
this is something that might be in other services? Or can you 
make that determination by your audit?
    Mr. ROARK. So this audit on the Army that we just issued 
about 2 months ago was really the fifth that we have done in 
the last 3 years since 2015. So, over that time, we have done 
five different audits: two on the Marine Corps, one on the Air 
Force, and one on the Army, and then there was also another 
report that was more or less like a follow-up audit.
    So I think that, from those five reports, you know, we have 
identified trends, and for example, the consistent challenges 
that contracting officials face is monitoring prime 
contractors' compliance with individual subcontracting plans 
and determining why prime contractors with individual 
subcontracting plans did not meet their small business 
subcontracting goals.
    Chairman KNIGHT. Okay. And, Mr. Marks, give me an idea of 
what the priorities of the Army, is subcontracting a high 
priority? Is review of subcontracting in the small business, 
how it kind of works in with prime contractors, is this a high 
priority?
    Mr. MARKS. Sir, I would tell you that we haven't done what 
we needed to do, but going forward, it is definitely going to 
be a priority. We focus on, as the Ranking Member stated in her 
statement, the prime contract side of the house we do very 
well. We do do subcontracts. We put in our acquisition 
strategies language as we build in those requirements about 
subcontracting, so it is a matter, from my standpoint, a matter 
of enforcement and compliance.
    Chairman KNIGHT. Okay. And I appreciate you in your 
statement of saying that you are very willing and you have 
already started to implement some of these new procedures to 
correct these actions, and it seems like, from Mr. Roark's 
statement, that that is in the works and that is already 
happening. Some of these have already happened during the 
audit, so that is a good thing. Sometimes we get folks that 
come in here, and they just adamantly kind of keep pushing back 
and pushing back, and that is really not what you want to hear 
when you get an audit that shows deficiencies. You really want 
to hear a willingness to come forward and correct or else there 
will probably be another audit.
    Mr. MARKS. Yes, sir. I totally agree with you. And based on 
what the Ranking Member said, it is basic contracting, really. 
I mean, it is a part of what any contracting officer should be 
doing. They love to award contracts. I mean, that is kind of 
the thrill, but the work really is in contract administration, 
and that is what this is about.
    Chairman KNIGHT. And understand that we look--in this 
Committee, we look at the subcontracting, we look at the small 
business aspect because, as I said, they are very agile. They 
are very able to do things that maybe the primes can't or maybe 
the primes don't want to do just because it would cost them too 
much; it would be kind of outside their bandwidth at the time 
or something like that. So the small business can be able to go 
in there and look at that problem, fix that problem and move 
forward, and that is why it is so important, especially with 
the DOD, especially with the way that we have these large, 
ultra large contracts, and, you know, nobody really builds an 
airplane on their own anymore or builds a ship on their own. 
They have thousands of small contracting companies that help 
them. And so that is why we are always very, very adamant about 
making sure that that is a high priority and making sure that 
we know that and we want everyone to know that. Okay. And I am 
going to move to Mrs. Murphy for her first round of questions.
    Mrs. MURPHY. Great. Thank you, Mr. Chairman.
    Mr. Roark, your audit found that DOD may have missed 
opportunities to recoup liquidated damages of up to $82.3 
million. That is staggering. Why do you believe that the 
contracting officials neglected to follow up on reports that 
prime contractors were not making good faith efforts to comply 
with subcontracting goals when there was the potential to 
recoup that amount of money?
    Mr. ROARK. So, in our report, we wrote several 
recommendations about why, you know, to correct some of those 
deficiencies, but, you know, I think that some of the factors 
that we talked about earlier are the case, as Mr. Marks said 
that, you know, the focus is often times on awarding contracts 
and not so much on the administration side of it. And so, you 
know, we feel that there is a training and a guidance piece 
that could correct that issue.
    Also, we observed a lot of high turnover among contracting 
officials, and so then what happens in that case is, you know, 
an original contracting officer may have awarded the contract, 
but it passes off to a second or a third contracting officer. 
And so sometimes there is not good transition from one 
contracting officer to another, which, again, we think goes 
back to a training and a guidance solution there.
    And there is also a few other system issues with Federal 
Procurement Data System that could be improved, but I think 
that the transferring files from one to another and the----
    Mrs. MURPHY. So let me just ask----
    Mr. ROARK.--follow-through is kind of the two major parts.
    Mrs. MURPHY. Just as a follow-up, if that is the primary 
role of these contracting officers, you know, approving, 
administering, why isn't this training already happening? Can 
you talk about what training they currently go through, and how 
do we make that fix?
    Mr. ROARK. So, in our report, we tackled that exact issue. 
We took a look at the training that they were getting and 
take--we also took a look at some of the guidance that they 
were receiving and what we found was that often times the 
training that they were receiving would, you know, kind of 
briefly get into some of these issues, but it didn't really 
cover it in a sufficient detail to really, you know, cover some 
of the intricacies that are included in FAR 19.7.
    Also, on the guidance side, oftentimes when you look at the 
guidance, it would refer to a specific issue just briefly, but 
it really didn't provide very detailed information to the 
contracting officer to use at a practical level to kind of 
determine what they should do in certain cases.
    Mrs. MURPHY. Okay. Thank you.
    And, Ms. Scroggs, first, let me just thank APTAC's help 
with our successful effort to get an amendment to last year's 
NDAA to provide PTACs with the clear authority to assist small 
businesses in getting SBIR and STTR contracts. I really 
appreciated that.
    Ms. SCROGGS. Thank you. We are excited about that. Thank 
you.
    Mrs. MURPHY. So my question is large prime contractors are 
required to submit subcontracting plans for review prior to 
receiving an award. If the contracting officer finds them to be 
inadequate, he or she can decide to pull the contract. In 
practice, however, how often are contracts not awarded due to 
inadequate subcontracting plans?
    Ms. SCROGGS. That is data that I don't have. I can tell you 
that we get instances where the prime contractor will call us 
and say, ``The Army told me to call you,'' or, most recently, 
it was, ``I am in final negotiations on this Navy effort, and 
the Navy told me to call you so that we can demonstrate good-
faith effort,'' and so it was a thin relation to your 
individual subcontracting plan. And a lot of times it is just 
potentially the prime is not set up to handle the reporting. 
They don't understand the FAR clause, and so they read the 
clause for the first time, and they are like, oh, man, this is 
going to require some internal assistance. And so we brainstorm 
with them kind of what we see as best practices. We train them 
on the subpart 19.7 and help them fully understand it.
    But in my limited experience, they always pass after we 
work with them, and they are sincere about working with us.
    Mrs. MURPHY. Great. Thank you.
    And I am just about out of time, so I will yield back, Mr. 
Chairman.
    Chairman KNIGHT. Okay. Thank you very much.
    Mr. Evans, you are up for your opening comments.
    Mr. EVANS. Thank you, Mr. Chairman.
    I would like to ask this question to the panel. If 
possible, can you speak to the experience of minority- and 
women-owned firms in dealing with subcontracting plans and if 
they face any unique challenges when navigating this complex 
process?
    Ms. SCROGGS. Yes. The PTAC has a strong ethic and mandate 
to do specific outreach to diverse firms, including women, 
minority, veterans, and HUBZone firms, and we take that very 
seriously. One thing that we really wanted to make clear was 
that maximizing access to subcontracting opportunities is not 
the same as maximizing the dollars awarded, although that would 
be a result. We see that simply increasing the awards to the 
same set of businesses, which is kind of what happens now, it 
won't deliver the benefits that we are describing here today. 
We would like to see a prioritization of creating an open and 
vibrant opportunity so that the firms from many diverse 
backgrounds can have a true opportunity to get into the supply 
chain maybe for the first time or have an opportunity to 
compete where previously they did not.
    So the prime contractors kind of fit into three categories, 
those that take the goals very seriously and see the benefit 
behind them; those that kind of do it because they are required 
to, and they might have limited capacity to take it more 
seriously than we would like them to see; and then the third 
group who simply doesn't care and maybe does it as an 
afterthought when they realize they haven't complied with their 
reporting.
    But those firms, the minority firms, the women-owned firms, 
the veteran-owned firms, certainly there is opportunity with 
the goaling to get their foot in the door, to put forth a good 
capability statement, and to kind of connect with the primes 
that way. So, in that sense, the goals work, and the firms that 
are able to perform are usually able to make the case if there 
is a competitive opportunity in which to bid.
    Mr. MARKS. Sir, what we do is we track, you know, the four 
socioeconomic categories for the women-owned businesses, but we 
do not track it broken down to that level.
    Mr. EVANS. Okay.
    Mr. ROARK. For our audit, we, on the Army, we focused on 
small businesses as a whole, and we didn't break it down into 
any further subcategories.
    Mr. EVANS. Okay.
    Ms. Scroggs, go back to you. Can you think of any examples 
of success for women or minority contractors, and if so, why 
the experience of that--particularly firms--were different?
    Ms. SCROGGS. Repeat it again. Why the firms were 
successful?
    Mr. EVANS. Yes. Can you think of any examples of success 
for women or minority contractors, and if so, why the 
experience of that particular firm was different?
    Ms. SCROGGS. Certainly we have many, many examples of firms 
in the 8(a) program, the Small Business Development Program 
that the SBA monitors. We have firms that are in that program 
that see great benefit, and I am working with one firm now that 
is likely to graduate a few months early as a result of 
exceeding the size standard for their industry code, which is 
kind of the whole purpose of the program.
    And so the benefits to that, of course, are really strong 
in terms of prime contracts, but the prime contractors also 
take the small business--the disadvantaged business goal pretty 
seriously as well, and they were able to gain appropriate past 
performance through the 8(a) program that made them more 
competitive with the other primes. So, you know, the 8(a) 
program is--I would put a feather in that cap as a success 
program certainly helping firms compete.
    Mr. EVANS. Thank you, Mr. Chairman.
    I yield back the balance of my time.
    Chairman KNIGHT. Thank you very much.
    Mr. Lawson, you are up for your questions.
    Mr. LAWSON. Thanks, Mr. Chairman and Ranking Member. One of 
the questions I had Mr. Evans asked, and so that took care of 
it. And I thought it was quite interesting the way you all 
responded.
    As I travel across this country and come in contact with 
small businesses all the time about subcontracting, one of the 
things they express a great deal is the anxiety that they have 
as subcontractors. When you talk to the prime, the prime blames 
it on the Federal Government, the paperwork, the requirements, 
and everything else that you can think of. So, in your opinion, 
what is the number of challenges that small businesses are 
facing when they are participating as a subcontractor with 
opportunities when they have all this anxiety? And just for the 
panel, and I don't know whether you all see a lot of this, but 
when we are out in the field, this is what they speak to all 
the time. I had a small business roundtable in Jacksonville 
about 3 or 4 weeks ago, and this was brought up a great deal. 
And so I don't know how you get to the bottom line of it, and 
maybe some of you all can shed some light on it.
    Mr. MARKS. Sir, I would tell you that I have not heard it 
to the level that you have heard. We get inquiries to our 
office. I take capability briefs. I have open line to talk to 
contractors about--small business contractors about any issue 
that they may have so that we can help solve that. They don't 
have any data on what those anxieties are, but typically, in 
the pay arena, we get those complaints, and if we get those, we 
run those to ground because we know that if the prime--when we 
are paying the prime, they are supposed to do due diligence and 
pay their subcontractors. And those are some of the issues that 
sometimes come up, and we will hold the primes accountable.
    Mr. LAWSON. Okay. And if I may, do you think some of the 
anxiety expressed because the relationship with the prime, 
those anxieties are there because they lose the contract or the 
prime contract will go with someone else? And the reason why I 
ask that question is it appears that they don't have the 
bonding capacity to compete as a prime, and so they rely very 
heavily on the prime in order to do these contracts, but the 
anxiety level comes from the fact that they might even feel 
they do a better job than the prime, you know. And so what I am 
trying to say, from your experience, do you ever come in 
contact with any of that where the subs are much more 
successful than the primes, but they have to rely on the primes 
because the way this is set up in defense spending?
    Mr. MARKS. I will tell you that that is probably a true 
statement. I mean, we do--in the service arena--service 
contracts arena, when you look at contracts that are awarded, a 
number of teams that are put together really with like prime 
and small businesses to do the work. A lot of times a small 
business, as you stated, don't have--they don't have the 
capacity to compete on their own in order to win the contracts. 
So I will tell you a number of them that I talked to, they 
would prefer to subcontract versus being a prime contractor 
because of our red tape, as they say, you know, a lot of stuff 
to do business with the Department of Defense, with the Federal 
Government, period, so.
    Mr. LAWSON. And before my time runs out, Mr. Roark, what 
can you all do to try to help alleviate those kinds of 
concerns?
    Mr. ROARK. I think that, you know, one of the benefits that 
has come out of our series of audits has been taking a look 
across the services to determine whether prime contractors are 
being held accountable for living up to their subcontractor 
goals that they said that they would do at the time of award. 
And I think that it is important to review whether contracting 
officers and contracting officials are actually following up on 
that throughout the contract to see if they are actually 
meeting the goals that they said that they would. So I think 
that, looking across the services, to ensure that the primes 
are being held accountable and that contracting officials are 
reviewing their progress is important.
    Mr. LAWSON. Okay. Thank you.
    Mr. Chairman, could I have one more shot at it?
    Chairman KNIGHT. Yes.
    Mr. LAWSON. How often do you all evaluate the prime 
contractors? Is it done on a yearly basis? A quarterly basis? 
How often is it done? Can anybody speak to that? And if I am 
not clear, what I mean is, how are they performing in 
conjunction with their subcontractors?
    Mr. MARKS. So I think, as the audit showed, we are not 
doing what we should be doing. When we establish those 
subcontracting goals with a prime contractor and they put that 
on the table, and what we are not doing well today is really 
compliance because we have already got the verbiage in our 
regulations.
    You have talked about liquidated damages. You are supposed 
to develop that before the contract award. The two of us know 
what that is, and as this audit shows, that is not being done. 
So, until we really enforce, and I think we have the tools, it 
is holding folks accountable, and you have got to do the 
enforcement and hold them accountable.
    Mr. LAWSON. Okay.
    Mr. Chairman, I yield back.
    Chairman KNIGHT. Thank you. And just a couple follow-ups.
    Ms. Scroggs, have you noticed any difference in military 
versus civilian agency adherence to Small Business Act 
subcontracting requirements?
    Ms. SCROGGS. No. We find that the IG's findings related to 
the Army are consistent across all agencies, regardless of 
military or civilian.
    Chairman KNIGHT. So, you know, obviously, that is a problem 
for us. We are very much about subcontracting small business 
being able to work in the system, to be able to do some of 
those things in the system that we just don't see primes 
stepping up and doing or primes not wanting to do. So I know I 
have repeated myself a couple times on this, but it is pretty 
important.
    So, Mr. Marks and Mr. Roark, we are going to ask one thing 
of you. In the next 4 to 6 months, we want a follow-up to this 
Committee on how things are going from the adherence of the 
recommendations and, Mr. Marks, on what you are doing to make 
these deficiencies not there anymore, how you are correcting 
them, what is going on, what is the new policies, the new 
procedures. And I am a very kind of put a point on it. That is 
November 17, is 6 months. If you come back earlier, you get 
credit in the Committee. There you go. So we would like to have 
that, and we would like to have a good relationship with the 
Committee that we are working on the things that we think are 
very important, we think that the community thinks are very 
important. And that is how it happens with a good working 
relationship. So, if we can commit to that, then we are good to 
go.
    Are there any further questions from the Committee? Okay. I 
think we have done our work, and this Committee--let's see. I 
always end before I am supposed to say what I am saying. Okay. 
I ask unanimous consent that members have 5 legislative days to 
submit statements and supporting materials for the record.
    Without objection, so ordered. And this hearing is now 
adjourned.
    [Whereupon, at 10:51 a.m., the Subcommittee was adjourned.]
                            
                            
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