[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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