[House Report 107-432]
[From the U.S. Government Publishing Office]



107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     107-432

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



 
               SMALL BUSINESS OPPORTUNITY ENHANCEMENT ACT
                                OF 2001

                                _______
                                

  May 2, 2002.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

   Mr. Manzullo, from the Committee on Small Business, submitted the 
                               following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                        [To accompany H.R. 2867]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Small Business, to whom was referred the 
bill (H.R. 2867) to amend the Small Business Act to require the 
Administrator to submit certain disagreements to the Director 
of the Office of Management and Budget for resolution, and to 
establish a minimum period for the solicitation of offers for a 
bundled contract, having considered the same, report favorably 
thereon without amendment and recommend that the bill do pass.

                         Purpose of Legislation

    The purpose of this legislation is to amend the Small 
Business Act to require the Administrator of the Small Business 
Administration to submit certain disagreements involving small 
business concerns to the Director of the Office of Management 
and Budget for resolution, and to establish a minimum period of 
sixty days for small businesses to respond to a solicitation 
for offers with respect to a bundled contract.

                  Background and Need for Legislation

    The vital nature of the small business community to the 
economy can be statistically validated. Small businesses 
account for more than 50 percent of the Gross Domestic Product 
and have proved more innovative than big businesses. In times 
of economic decline, small businesses have been job-creators 
and have led the economy out of economic hard times.
    Many of the large technology and computer companies that 
have made this Nation a world leader in science and technology 
started as two or three person firms. One of the fastest 
growing sectors of our economy is small business concerns owned 
and controlled by women and by socially and economically 
disadvantaged individuals.
    The federal procurement system has historically been a 
prolific and competitive source of growth for small businesses. 
This is understandable since the federal government is the 
largest buyer of goods and services in the world, with $200 
billion in purchases for fiscal year 2000.
    Unfortunately, in the rush to streamline the federal 
procurement system, the importance of small business concerns 
to the federal marketplace has been neglected. In recent years, 
federal agencies have combined requirements, previously 
provided by small businesses, into enormous, mega-contracts, 
that only large corporations can bid on as prime contractors.
    The result of resorting to mega-contracts has been a less 
competitive marketplace and a steady decline in the number of 
prime contracts going to small businesses. In his speech of 
March 19, 2002, to the Women's Entrepreneurship in the 21st 
Century Summit, the President emphasized that ``government 
contracting must be open and more fair to small businesses.'' 
However, he pointed out that the use by federal agencies of 
mega-contracts was the major hurdle impeding small business 
from realizing the President's goal of ``more ownership in more 
communities all across America.'' In this respect the President 
stated:

          But you know as well as I do that there are some 
        large hurdles for small businesses. One is that--and 
        the main one is--that agencies sometimes, many times, 
        only let huge contracts with massive requirements, and 
        they tend to go to the same group of large corporate 
        bidders. * * * [T]he term of art in Washington is 
        called bundling. It effectively excludes small 
        businesses. And we need to do something about it.

    The President has assigned to the head of the Office of 
Management and Budget the task of reviewing the federal 
procurement process and the responsibility of finding ways ``to 
encourage entrepreneurial growth, the capacity for our 
government to stimulate small business ownership in all 
communities across America.'' Specifically, the President 
stated:

          And so one of the things we're going to do is we're 
        going to examine the federal government's contracting 
        policies; to make sure the process is open; to make 
        sure the process helps to achieve a noble objective, 
        which is more ownership in our country. And wherever 
        possible, we're going to insist we break down large 
        federal contracts so that small business owners have 
        got a fair shot at federal contracting.

    H.R. 2867 is bipartisan legislation, in line with the 
President's Small Business Plan, and assigns to the Office of 
Management and Budget the ultimate responsibility of 
determining whether a mega-contract is fair to small businesses 
and is in the best interests of the Nation. It also provides 
more time for small businesses to respond to a bundled 
contract, an essential element to forming teams of small 
business who will have an opportunity to compete.
    This legislation is necessary to restore needed competition 
to the federal marketplace and to reduce use by federal 
agencies of mega-contracts which the President has identified 
as the major hurdle to restoring openness and fairness to small 
business in the federal marketplace.

                         Summary of Legislation

    The present provisions of the Small Business Act permit the 
Administrator of the Small Business Administration to appeal to 
the Secretary or head of the appropriate department or agency 
when a proposed acquisition (usually a mega-contract) will 
render small business prime contract participation unlikely and 
efforts to resolve the issues involved have failed at a lower 
level.
    Instead of appealing to the head of the procurement agency 
or department, the legislation requires the Administrator of 
the Small Business Administration to appeal to the Director of 
the Office of Management and Budget, who must render a timely 
decision. The Director may delegate his decisional 
responsibilities, but only to a subordinate official within the 
Office of Management and Budget appointed by the President, 
with the advice and consent of the Senate.
    Requiring an appeal to the Director of the Office of 
Management and Budget is both logical and fair. The present 
provisions of the Small Business Act make the department or 
agency head the final arbiter. This is hardly a fair approach 
since there is a natural tendency for a department or agency 
head to rubber stamp the decision of subordinate officials.
    A required appeal to the Director of the Office of 
Management and Budget restores fairness to the process and 
ensures that decisions will have some degree of continuity, 
rather than being on an agency-by-agency basis. Further, it 
provides the President with the opportunity to resolve, at the 
highest level the problem of mega-contracts, and to provide a 
basis for realizing his objective of more ownership for all 
America.
    In addition, the legislation gives small businesses more 
time, i.e., a minimum of sixty days to respond and bid on a 
procurement that is admittedly bundled. Current law gives small 
businesses only 30 days to respond. The 60-day response period 
that this legislation would provide is the minimum time to 
permit small business to join with other small business to 
compete for a contract that one small business could not alone 
perform.

                            Committee Action

    The Committee has held recent hearings concerning the 
procurement practices of the federal government. On May 2, 
2001, the Committee held a hearing entitled: ``Black Beret 
Procurement; Business as Usual at the Pentagon.'' On June 20, 
2001, the Committee held a hearing entitled: ``Procurement 
Policies of the Pentagon with respect to Small Businesses and 
the New Administration.'' The Committee held three additional 
hearings with respect to federal procurement issues. The first 
in Santa Fe, New Mexico, on August 27, 2001, was entitled: 
``Small Business Views on Federal Procurement and other 
Programs.'' The second the same day in Albuquerque, New Mexico, 
was entitled: ``Challenges that Small, Disadvantaged, and 
Minority Business Owners Face in the Federal Procurement 
Arena.'' The third hearing was on September 6, 2001, and was 
entitled: ``Procurement Policies of the Department of Defense 
with Regard to Small Businesses--Finding Solutions to Problems 
that Exist.''
    H.R. 2867 was introduced by Nydia M. Velazquez (D-NY), 
Ranking Democratic Member of the Committee on Small Business, 
on September 6, 2001, and was referred to the Committee on 
Small Business. On April 17, 2002, the Committee on Small 
Business met to consider the bill. There were no amendments. 
The bill was ordered favorably reported by voice vote.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the recorded 
votes on the motion to report legislation. There was no 
recorded vote taken in connection with ordering H.R. 2867 
reported.

                      Committee Oversight Findings

    With respect to the requirements of clause 3(c)(1) of rule 
XIII of the Rules of the House of Representatives, the 
Committee's oversight findings are reflected in this report.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    With respect to the requirements of clause 3(c)(2) of rule 
XIII of the Rules of the House of Representatives, and section 
308(a) of the Congressional Budget Act of 1974, the Committee 
references the report of the Congressional Budget Office 
included below.

         Statement of General Performance Goals and Objectives

    With respect to the requirements of clause 3(c)(4) of rule 
XIII of the Rules of the House of Representatives, the 
performance goals and objectives of this legislation are to: 
(a) stimulate growth of small business and to increase 
ownership throughout the Nation; (b) break down large federal 
procurements so that the small business community has a fair 
chance to win and perform them; and, (c) empower small 
businesses to go after mega-contracts by permitting at least 
sixty days for small business to respond to procurements that 
are identified as bundled.

           Statement of Congressional Budget Office Estimate

    With respect to the requirements of clause 3(c)(3) of rule 
XIII of the rules of the House of Representatives and section 
402 of the Congressional Budget Act of 1974, the Committee has 
received the cost estimate for H.R. 2867 from the Director of 
the Congressional Budget Office as follows:

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, April 29, 2002.
Hon. Donald Manzullo,
Chairman, Committee on Small Business,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2867, the Small 
Business Opportunity Enhancement Act of 2001.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Matthew 
Pickford.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 2867--Small Business Opportunity Enhancement Act of 2001

    H.R. 2867 would amend the Small Business Act to require the 
Small Business Administration (SBA) to report contracting 
disputes between itself and other federal agencies to the 
Office of Management and Budget (OMB) for resolution. Such 
disputes are currently resolved by each contracting agency. In 
addition, the bill also would increase the solicitation period 
for bundled contracts (multiple contracts combined into a 
single procurement contract) from 30 days to at least 60 days.
    CBO estimates that implementing H.R. 2867 would cost less 
than $500,000 a year, subject to the availability of 
appropriated funds. There is no comprehensive information 
concerning the annual number of contract disputes involving SBA 
and other federal agencies, but CBO does not expect that the 
requirements of this bill would lead to significant increased 
costs for the OMB. In addition, CBO expects the new minimum 60-
day solicitation period for bundled contracts would have no 
significant cost. Because the bill would not affect direct 
spending or receipts, pay-as-you-go procedures would not apply.
    H.R. 2867 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect state, local, or tribal governments.
    The CBO staff contact for this estimate is Matthew 
Pickford. This estimate was approved by Peter H. Fontaine, 
Deputy Assistant Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                        Preemption Clarification

    Section 423 of the Congressional Budget Act of 1994 
requires the report of any committee on a bill or joint 
resolution to include a statement of the extent to which the 
bill, or joint resolution is intended to preempt state, local, 
or tribal law. This bill involves federal agency transactions 
under federal law, and does not preempt any state, local, or 
tribal law.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional authority for this legislation is provided in 
Article I, section 8 of the Constitution of the United States, 
which grants to Congress the power to enact this bill.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    The short title is the ``Small Business Opportunity 
Enhancement Act of 2001.''

Section 2. Submission of certain disagreements to the Director of the 
        Office of Management and Budget

    The section would amend the Small Business Act to require 
the Administrator of the Small Business Administration to 
submit a dispute to the Director of the Office of Management 
and Budget where the Administrator and the contracting 
procurement department or agency are unable to agree and the 
Administrator believes the procurement, as proposed, will 
render small business prime contract participation unlikely.
    The Director of the Office of Management and Budget must 
make a decision with respect to a disagreement within 10 days 
after receiving the matter. The Director may not delegate his 
responsibilities with respect to making a decision, except to a 
subordinate official nominated by the President, and confirmed 
by and with the advice and consent of the Senate.

Section 3. Minimum period for solicitation of offers for a bundled 
        contract

    The section would amend the Small Business Act to require 
that small businesses be permitted no less than sixty days, 
beginning on the date the solicitation is issued, to respond to 
a solicitation for offers with respect to a contract that is 
bundled.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italic and existing law in which no change is 
proposed is shown in roman):

                  SECTION 15 OF THE SMALL BUSINESS ACT

    Sec. 15. (a) * * *

           *       *       *       *       *       *       *

    (e) Procurement Strategies; Contract Bundling.--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Minimum solicitation period.--In the case of a 
        solicitation of offers for a bundled contract that is 
        issued by the head of an agency, small business 
        concerns shall be allowed to submit offers for a period 
        of not less than 60 days beginning on the date the 
        solicitation is issued.

           *       *       *       *       *       *       *


                            ADDITIONAL VIEWS

    Democratic Members of the Committee on Small Business have 
focused significant legislative energy on ensuring that small 
businesses are fully empowered to participate in the federal 
marketplace. Although small businesses account for well over 95 
percent of businesses nationwide, small businesses receive less 
than their fair share of federal contract dollars, despite 
goals put in place by Congress to encourage small business 
participation.
    Further, as highlighted in reports issued by the Democratic 
Members of the Committee on Small Business in July 2000 and 
September 2001, the number of contracts awarded to small 
businesses has decreased over the past several years, while the 
dollar amount of contracts is increasing. In short, the 
contracts are getting larger, and there are fewer opportunities 
for small businesses.
    This legislation attempts to increase small business 
participation in the federal marketplace. First, the bill 
enhances the Small Business Administration's (SBA's) ability to 
negotiate with Federal agencies, prior to the issuance of draft 
or final solicitation for bid, to break up large contracts into 
smaller pieces. Secondly, the bill provides additional time to 
small businesses that bid on contracts meeting the definition 
of ``bundling'' as outlined in Section 3 of the Small Business 
Act.
    Currently, the SBA has limited authority to recommend that 
agencies split large contracts into smaller pieces to increase 
small business participation as prime contractors. Under the 
current statute, the SBA has the authority to appeal a 
procurement strategy back to the agency that developed the 
original strategy. The implementing regulations have set in 
place two-phased appeal process. The SBA's first appeal is to 
the head of the contracting activity. The second appeal is to 
the Secretary--(or equivalent) level of the agency. The SBA's 
appeal authority occurs prior to the issuance of the draft or 
final solicitation for bids by the agency, as part of the 
development of a procurement strategy for a solicitation issued 
by the agency for a proposed acquisition.
    This legislation enhances the SBA's stature by giving the 
authority to the SBA to appeal the agency's final decision to 
the Office of Management and Budget (OMB). It is the intention 
of the author of this legislation, Ms. Velazquez, that the 
current two-phased agency appeal process shall remain in place, 
with the appeal to the Office of Management and Budget (OMB) 
being the appeal of last resort. If the SBA is satisfied, 
through either negotiations with procurement or lower level 
appeals, that they have negotiated a procurement strategy 
ensuring opportunities for small businesses to compete as prime 
contractors on the proposed acquisition, the SBA is not 
required to appeal to OMB. It is the goal of the author that 
all appeals of agency acquisition strategies by the SBA shall 
occur prior to the issuance of a draft or final solicitation 
for bids by the agency. The author wants it clarified that 
agencies not issue draft or final solicitations prior to the 
completion of negotiations with the SBA, or until SBA's final 
appeal to OMB is exhausted, on the procurement strategy for any 
proposed acquisition.
    This provision is further intended to ensure that the SBA 
look at ways to not only increase federal contract dollars to 
small businesses, but to also to increase the number of prime 
contracting opportunities for small businesses.
    The legislation also allows small businesses 60 days to bid 
on bundled contracts. Historically, agencies have only allowed 
30 days for businesses to bid on federal contracts. When it 
comes to bundled contracts, by definition, they are too large 
for a small business to perform on its own. Small businesses 
can only perform on bundled contracts as prime contractors, if 
they ``team'' with other businesses.
    Through regulation, the SBA has ensured that affiliation 
rules do not apply to small businesses bidding as teams. As 
long as each business is small, according to SBA's size 
standards, the ``team'' may be considered small. However, the 
SBA had not assisted small businesses in identifying potential 
team members, other than through its PRO-Net database.
    In order to ``team,'' small businesses must identify 
qualified team members, decide which team member is going to 
perform what function, formalize the team through a potential 
joint venture or subcontracting arrangement, and put together a 
price. It is simply not reasonable for most small businesses to 
accomplish this in 30 days--the standard bid period for federal 
contracts.
    Therefore, this legislation provides additional time for 
small businesses. The author of the legislation, Ms. Velazquez, 
wants it clarified that there is no intention in this bill to 
provide 60 days for the submission of bids on all bundled 
contracts. Rather, only those small businesses that have 
expressed interest may received an additional 30 days. 
Expressions of interest by small businesses, for this purpose, 
must be to the agency contracting officer and must be in 
writing. It is the author's intention that large businesses 
submitting bids after the initial 30-day bid period, shall not 
be considered timely.
    No discussion of the SBA's role in the federal procurement 
process would be complete without including the SBA's 
Procurement Center Representatives (PCRs). These individuals 
are the ``front line'' with respect to ensuring that small 
business have full access of the federal marketplace. The PCRs 
are the SBA employees charged with negotiating procurement 
strategies, that are inclusive of small business with federal 
agencies. The PCR initiates the first appeal to the head of the 
contracting activity when negotiations are unsuccessful.
    The SBA continues to disregard the importance of this 
employee function. Rather than providing adequate personnel to 
protect the interests of small businesses in the federal 
marketplace, the SBA consistently fails to fill vacant position 
in a timely manner, and request adequate funding for these 
individuals to perform their jobs. PCRs cannot effectively 
advocate for small businesses from behind a desk. These 
employees must have the ability to visit agencies on a 
consistent basis to ensure that the PCR is aware of the 
agency's procurement activities and able to identify contracts 
for small business participation.
    In order to conserve costs, the SBA has housed several PCRs 
at agency offices. Although this can result in increased access 
by PCRs to agency procurements, there remains a question as to 
whether this can disrupt the arm's length negotiations between 
the agency and the PCR that are most effective for small 
businesses.
    Democrats remain skeptical about the SBA's cost cutting 
measures intended to make PCRs more effective, including 
increased use of electronic commerce. Democratic Members of the 
Committee have been vigilant over the past several years on the 
issue of prime contracting opportunities for small businesses 
in the federal marketplace. As a result, Committee Democrats 
recognize the important role that PCRs play in ensuring 
adequate small business participation. The effectiveness of the 
role of the PCRs diminishes in proportion to the lack of 
resources the SBA provides to this important function.
    To conclude, issues of federal procurement and the 
inclusion of small businesses in the multi-billion dollar 
federal marketplace have been a priority with Democrats on the 
Committee. Reports issued by the Democrats have shown that 
small businesses, and especially minority- and women-owned 
small businesses, still do not receive that fair share of 
federal prime contracts. The reports also showed that mega 
contracts are, in large part, the primary issues affecting 
small businesses in federal procurement. After nearly five 
years of statutory protections afforded small businesses by the 
Small Business Reauthorization Act of 1997, it is clear that 
more can be done. The time has come to close the loopholes and 
allow small businesses the equity that they deserve in the 
Federal marketplace.
                                                Nydia M. Velazquez.

                                
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