[Senate Report 107-294]
[From the U.S. Government Publishing Office]
Calendar No. 624
107th Congress Report
SENATE
2d Session 107-294
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COMBINED 8(a) AND HUBZONE PRIORITY PREFERENCE ACT
_______
October 1, 2002.--Ordered to be printed
_______
Mr. Kerry, from the Committee on Small Business and Entrepreneurship,
submitted the following
R E P O R T
[To accompany S. 1994]
The Committee on Small Business and Entrepreneurship, to
which was referred the bill, S. 1994, to establish a priority
preference among certain small business concerns for purposes
of Federal contracts, and for other purposes, having considered
the same, reports favorably thereon with amendments and
recommends that the bill (as amended) do pass.
On July 24, 2002, the Small Business and Entrepreneurship
Committee considered S. 1994, the ``Combined 8(a) and HUBZone
Priority Preference Act.'' The Committee adopted by unanimous
voice vote an amendment offered by the Ranking Republican,
Senator Christopher S. Bond and the Chairman, Senator John F.
Kerry. As amended, S. 1994 would provide certain benefits to
small business concerns with both 8(a) Business Development
(BD) Program and Historically Underutilized Business Zone
Program (HUBZone) certifications (8(a) HUBZone small business
concern) under restricted competition contracts within each
program; establish a price evaluation preference for the
purposes of bidding on Federal procurement contracts under full
and open competition for 8(a) HUBZone small business concerns;
and raise the sole-source threshold for all 8(a) BD and HUBZone
small business concerns to $4 million on goods and services
contracts and $6 million for manufacturing contracts, an
increase of $1 million for each category. Having considered S.
1994, as amended, the Committee reports favorably thereon
without further amendment and recommends that the bill do pass.
I. Introduction
On June 24, 1997, legislation was introduced by then
Chairman of the Committee on Small Business, Senator
Christopher S. Bond, to establish a preference program for
small business concerns based on their geographic location. The
legislation, S. 208, the ``HUBZone Act of 1997,'' provided for
Federal contracting opportunities for small businesses located
in historically underutilized business zones (HUBZones).
On June 26, 1997 the HUBZone Act was approved by the
Committee with an amendment in the nature of a substitute
designed to protect the 8(a) Business Development (BD) Program
by removing the priority granted the HUBZone Program under the
legislation and replacing it with language to establish parity
between the 8(a) BD and the HUBZone programs. The HUBZone Act
was subsequently included in the Small Business Reauthorization
Act of 1997 without further amendment and was signed by
President Clinton on December 12, 1997.
On June 11, 1998, the SBA published a final rule in the
Federal Register (63 Federal Register 31896-916) to create Part
126 implementing the HUBZone program. One of the difficult
issues involved in the rulemaking was the relationship between
the HUBZone program and the 8(a) program. Under the 1998
regulations, if the small business concern is certified in both
programs, it moves to the front of the line in getting
government contracts.
On January 28, 2002, the SBA published a proposal in the
Federal Register to amend its HUBZone regulations. Among the
proposal's considerable changes to the HUBZone program and its
relationship to the 8(a) BD program, the SBA proposed
eliminating the ``first priority'' status granted to HUBZone
8(a) firms. In doing so, the SBA cited an opinion from the SBA
General Counsel the agency does not have the statutory
authority to grant a special priority to HUBZone 8(a) firms.\1\
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\1\ Letter dated August 17, 2001, from Robert Gangwere, Acting
General Counsel, Small Business Administration, to Senator Bond.
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The SBA's decision to eliminate the super-priority came at
a difficult time for 8(a) BD firms. As demonstrated at the June
19, 2002, Committee roundtable titled, ``Are Government
Purchasing Policies Hurting Small Business?'' 8(a) BD firms are
currently experiencing a percentage decline in Federal
procurement contract awards, which climbed to 20 percent
between Fiscal Years 1998 and 2001.\2\
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\2\ Based on data reported by the Federal Procurement Data Center.
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The cause of this decline has its roots in the new
procurement environment created by the reforms in the mid-
1990s, such as passage of the Federal Acquisition Streamlining
Act [P.L. 103-335] and the Federal Acquisition Reform Act [P.L.
104-106], in the regulatory changes to procurement programs in
response to the United States Supreme Court decision, Adarand
Inc. v. Pena, in the reductions in the acquisition workforce
and a procurement culture that favors expediency, and short-
term cost savings over small business participation. Because
negative trends hit socially and economically disadvantaged
firms first and hardest, these small businesses have borne a
disproportionate share of the percentage decline in Federal
contract dollars being awarded to small businesses in general.
The HUBZone program has also suffered from the lack of
procurement personnel, as well as the current procurement
culture of expediency. For example, although the government-
wide procurement goal for qualified HUBZone small business
concerns was set at 2 percent for FY 2001, the Federal
government only achieved 0.72 percent, costing these firms
nearly $3 billion in lost contracts.
The Committee believes S. 1994 will re-establish and
improve the benefits available to dual-certified small business
concerns under the original HUBZone regulations, as well as
assist all 8(a) BD and HUBZone small business concerns by
raising the sole-source thresholds, thus creating more
contracting opportunities for these firms.
II. Legislative History
S. 1994, the ``Combined 8(a) and HUBZone Priority
Preference Act,'' was introduced by Senators John F. Kerry and
Christopher S. Bond on March 6, 2002. The Committee held a
roundtable on June 19, 2002 titled, ``Are Government Purchasing
Policies Hurting Small Business?'' During the roundtable, S.
1994 was a topic of discussion.
Small business advocates that participated in the
roundtable supported the re-establishment of a super-priority,
known as a ``priority preference,'' as envisioned in S. 1994,
and supported the increase in the sole-source thresholds by $1
million for goods and services contracts and manufacturing
contracts. However, concerns were raised about the
legislation's price evaluation preference of 20 percent under
full and open competition for firms with a dual 8(a) Business
Development (BD) Program and Historically Underutilized
Business Zone (HUBZone) Program certification (8(a) HUBZone
small business concerns). Additionally, concerns were raised
about the meaning on the word ``comparable'' when used as a
determining factor in awarding bids to 8(a) HUBZone small
business concerns under restricted competition within the 8(a)
BD and HUBZone Programs.
During consideration of S. 1994, the Committee adopted, by
voice vote, an amendment proposed by Senators Bond and Kerry to
make changes to the types of benefits available to 8(a) HUBZone
small business concerns under restricted competition, as well
as to clarify the benefits to these firms for contracts under
full and open competition. The amendment also included a
provision to clarify when a publicly held small business
concern may participate in the HUBZone program.
The amendment was the result of a compromise agreement
reached between the Committee's Chairman and Ranking Republican
and reflects suggestions raised at the June 19, 2002, Committee
roundtable.
III. Analysis of S. 1994, the ``Combined 8(a) and HUBZone Priority
Preference Act,'' as Amended
PURPOSE
The primary purpose of the ``Combined 8(a) and HUBZone
Priority Preference Act,'' as amended, is to clarify the status
of a small business that is certified in both the HUBZone and
8(a) contracting programs. This amendment will provide
statutory authority for a ``superpreference'' for firms that
are certified for both HUBZones and 8(a). This
``superpreference'' will be afforded to combined HUBZone 8(a)
small businesses if their bids are comparable to other firms
that are only eligible for one program. The word ``comparable''
has been difficult to define, and the amendment replaces this
``comparable'' language with more standard, more understandable
language about best value contracts.
S. 1994 also establishes a price evaluation preference for
the purposes of bidding on Federal procurement contracts under
full and open competition for small business concerns that have
received both 8(a) Business Development (BD) Program and
Historically Underutilized Business Zone (HUBZone Program)
certification. The bill also raises the sole-source threshold
for goods and services contracts, as well as manufacturing
contracts by $1 million. Finally, the legislation would clarify
non-citizen ownership of a HUBZone small business concern and
would limit non-citizen ownership of up to fifteen percent
(15%) of the outstanding shares of a HUBZone small business
concern that is publicly traded.
ESTABLISHMENT OF PRIORITY PREFERENCE
Effect on best value contracting
The Committee-adopted amendment provides that best value
contracts would be considered with a separate evaluation factor
to recognize bidders participating in both the HUBZone and 8(a)
programs. The amendment would replace all the existing set-
aside and full-and-open preferences with a best value approach.
Best value contracts consider both price and ``non-price''
factors; giving preference to a firm for its participation in
both programs (a HUBZone 8(a) dual status firm) is clearly a
``non-price'' factor. The Committee believes that implementing
this concept in a best value approach makes the most sense. The
amendment awards such bidders extra points when their bids are
evaluated on ``non-price'' factors such as the competitiveness
of its delivery schedules, quality of the goods or services,
and technical support, etc.
Effect on price evaluation preference
As amended, S. 1994 will provide to an 8(a) HUBZone small
business concern a price-evaluation preference for contracts
under full and open competition. In competition against a small
business concern, the price evaluation preference would be 10
percent. In competition against a large business, the price
evaluation preference would be 12 percent. For example, if a
large business were to bid $100 on a contract and would be the
winning bidder, an 8(a) HUBZone small business concern would be
awarded the contract with any bid up to $112, if the award were
based solely on price. If a small business bid $100 on a
contract, an 8(a) HUBZone small business concern would be
awarded the contract with any bid up to $110, if the award were
based solely on price.
The legislation specifically excludes the 8(a) BD small
business concern's 10 percent price evaluation preference
stemming from its status as a small disadvantaged business
(SDB) concern from being combined with the price evaluation
preference for an 8(a) HUBZone small business concern.
NON-CITIZEN OWNERSHIP
As enacted in 1997, the HUBZone program has encountered
issues relating to the statutory requirement that a HUBZone
firm be 100% owned and controlled by U.S. citizens. This means
that potential applicants for HUBZone certification need to be
flesh and blood citizens, either by birth or naturalized. This
requirement also raises an issue about potential HUBZone firms
with stock that is publicly traded. Because stock may be
exchanged at any moment, the management of such a firm cannot
certify to the SBA that all its stock is owned and controlled
by U.S. citizens.
After consulting with the Securities and Exchange
Commission and other interested parties, it was concluded that
a HUBZone firm could be certified and maintain its
certification so long as non-citizens did not control more than
fifteen percent (15%) of the outstanding shares of a HUBZone
small business concern that is publicly traded.
SOLE-SOURCE THRESHOLD INCREASE
The cap on the value of a contract that may be awarded to
an 8(a)BD or a HUBZone firm under sole-source authority
(without competition) is raised by $1 million under the
legislation, for both goods and services contracts and
manufacturing contracts. The sole-source thresholds for each
program would be $4 million for goods and services contracts
and $6 million for manufacturing contracts.
IV. Committee Vote
In compliance with rule XXVI(7)(b) of the Standing Rules of
the Senate, the following votes were recorded on July 24, 2002.
A motion by Senator Kerry to adopt an amendment by Senators
Bond and Kerry concerning an agreement on the legislation
passed by unanimous voice vote. A motion by Senator Kerry to
adopt S. 1994, the ``Combined 8(a) and HUBZone Priority
Preference Act,'' as amended, was approved by a 19-0 recorded
vote, with the following Senators voting in the affirmative:
Kerry, Bond, Levin, Harkin, Lieberman, Wellstone, Cleland,
Landrieu, Edwards, Cantwell, Carnahan, Burns, Bennett, Snowe,
Enzi, Fitzgerald, Crapo, Allen and Ensign.
V. Evaluation of Regulatory Impact
In compliance with rule XXVI(11)(b) of the Standing Rules
of the Senate, it is the opinion of the Committee that no
significant additional regulatory impact will be incurred in
carrying out the provisions of this legislation. There will be
no additional impact on the personal privacy of companies or
individuals who make use of the services provided.
VI. Cost Estimate
In compliance with rule XXVI(11)(a)(1) of the Standing
Rules of the Senate, the Committee estimates the cost of the
legislation will be equal to the amounts indicated by the
Congressional Budget Office in the following letter.
U.S. Congress,
Congressional Budget Office,
Washington, DC, September 11, 2002.
Hon. John F. Kerry,
Chairman, Committee on Small Business and Entrepreneurship, U.S.
Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 1994, the Combined
8(a) and HUBZone Priority Preference Act.
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.
S. 1994--Combined 8(a) and HUBZone Priority Preference Act
S. 1994 would establish new criteria for evaluating bids on
certain federal procurement contracts. CBO estimates that
implementing S. 194 would cost about $1 million a year, subject
to the availability of appropriated funds. The bill would not
affect direct spending or receipts, so pay-as-you-go procedures
would not apply. S. 1994 contains no intergovernmental or
private-sector mandates as defined in the Unfunded Mandates
Reform Act and would not affect the budgets of state, local, or
tribal governments.
Under this bill, certain contracts would be deemed less
expensive than others when being evaluated for price. For
contracts subject to full and open competition, the bill would
establish a price preference of up to 12 percent for firms that
are dually certified under the Small Business Administration's
(SBA's) 8(a) Business Development program and Historically
Underutilized Business Zone (HUBZone) program. For contracts
restricted to small businesses, firms that are dually certified
would be given a price preference over comparable bids from
firms that are only certified under the 8(a) program or the
HUBZone program.
Based on information from SBA and the Office of Federal
Procurement Policy (OFPP), CBO estimates that adding these new
evaluation criteria would increase administrative costs about
$1 million annually, assuming the availability of appropriated
funds. Price preferences could increase federal costs if it
resulted in the award of higher-cost contracts, but based on
information from SBA and OFPP, we expect that such effects
would be insignificant.
The CBO staff contact for this estimate is Matthew
Pickford. This estimate was approved by Peter H. Fontaine,
Deputy Assistant Director for Budget Analysis.
VII. Section-by-Section Analysis, S. 1994, as Amended
Section 1. Short title
This Act is titled the ``Combined 8(a) and HUBZone Priority
Preference Act.''
Section 2
This section amends Section 3(p) of the Small Business Act
to add paragraphs 9-13 defining the terms ``best value
contract,'' ``best value factor relative importance,''
``contracting officer'' and ``8(a) HUBZone Small Business
Concern.''
Section 3
(a) Amends Section 8(a)(1)(D) of the Small Business Act to
provide a price evaluation preference of ten percent (10%) to
an 8(a) HUBZone small business concern in a competition for a
best value contract with one or more 8(a) small business
concerns.
(b) Amends Section 31(b)(2)(B) of the Small Business Act to
provide a price evaluation preference of ten percent (10%) to
an 8(a) HUBZone small business concern in a competition for a
best value contract with one or more HUBZone small business
concerns.
(c) Amends Section 31(b)(3) of the Small Business Act to
insert subparagraph (D), establishing a twelve percent (12%)
price evaluation preference for 8(a) HUBZone small business
concerns in a full and open competition, unless the otherwise
lowest and response offer is from a small business concern, and
the price evaluation preference will be ten percent (10%).
Section 4
Amends Section 3(p) of the Small Business Act to modify the
requirement in existing law that requires a HUBZone small
business concern to be owned by one or more U.S. citizens. The
change would permit limited non-citizen ownership so long as it
does not exceed fifteen percent (15%) of the beneficial
ownership of the outstanding shares of the small business
concern. This change affects those small business concerns that
are required to file reports with the Securities and Exchange
Commission.
Section 5
(a) Amends Section 8(a)(1)(D)(i)(II) of the Small Business
Act to increase the sole-source threshold by $1 million for
8(a) small business concerns for both goods and services
contracts and manufacturing contracts.
(b) Amends Section 31(b)(2)(A)(ii) of the Small Business
Act to increase the sole-source threshold by $1 million for
qualified HUBZone small business concerns for both goods and
services contracts and manufacturing contracts.
VIII. Changes in Existing Law
In the opinion of the Committee, it is necessary to
dispense with the requirement of rule XXVI (12) of the Standing
Rules of the Senate in order to expedite the business of the
Senate.