[House Report 110-400]
[From the U.S. Government Publishing Office]
110th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 110-400
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SMALL BUSINESS CONTRACTING PROGRAM IMPROVEMENTS ACT
_______
October 22, 2007.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Ms. Velazquez, from the Committee on Small Business, submitted the
following
R E P O R T
[To accompany H.R. 3867]
[Including cost estimate of the Congressional Budget Office]
The Committee on Small Business, to whom was referred the
bill (H.R. 3867) to update and expand the procurement programs
of the Small Business Administration, and for other purposes,
having considered the same, report favorably thereon without
amendment and recommend that the bill do pass.
CONTENTS
Page
I. Purpose of the Bill and Summary..................................2
II. Background and Need for Legislation..............................3
III. Hearings........................................................11
IV. Committee Consideration.........................................14
V. Committee Votes.................................................14
VI. Section-by-Section Analysis of H.R. 3867........................17
VII. Congressional Budget Office Cost Estimate.......................22
VIII.Committee Estimate of Costs.....................................24
IX. Oversight Findings..............................................24
X. Statement of Constitutional Authority...........................24
XI. Compliance With Public Law 104-4................................25
XII. Congressional Accountability Act................................25
XIII.Federal Advisory Committee Statement............................25
XIV. Statement of No Earmarks........................................25
XV. Performance Goals and Objectives................................25
XVI. Changes in Existing Law Made by the Bill, as Reported...........25
I. Purpose and Summary
The purpose of H.R. 3867, the Small Business Contracting
Program Improvements Act (The Act) is to encourage
participation by qualified small businesses, particularly
veteran owned businesses, in the appropriate contracting
programs offered under the supervision of the Small Business
Administration. The Act amends key sections of the Small
Business Act\1\ to assist small business participation, prevent
fraud and bring consistency to the operation of the main
contract assistance programs.
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\1\The Small Business Act, P.L. 85-536 (as amended), 15
U.S.C.Sec. 631 et. seq.
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The Small Business Administration was preceded by federal
agencies developed during wartime to help small businesses
adjust to and compete for federal contracts. The predecessors
to the Small Business Administration (SBA) can be traced back
to World War II and efforts to ensure that small businesses
contributed to the maintenance of a robust defense industrial
base. The foundation of the agency in government procurement is
reflected in the Small Business Act's dictate that small
business concerns receive a ``fair proportion of the total
purchases and contracts for the Government in each industry
category * * * .''\2\ Despite this clear mandate in existence
for more than 50 years, small businesses in certain key groups,
including those owned by service-disabled veterans, women
entrepreneurs and certain socially disadvantaged businesses'
owners have not received their fair share of federal government
contracts. In addition, certain programs that are offered by
the SBA have grown so complex and removed from SBA oversight
that they have become susceptible to misuse to a significant
degree, by unqualified businesses. Although there are many
reasons for these failures, H.R. 3867 adopts a measured
approach to addressing some of the underlying problems. The
Committee intends to dramatically improve on the capability of
small businesses to earn their fair share of federal government
contracts within the letter and spirit of the Small Business
Act's goals.
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\2\Sec. 15(a) of the Small Business Act 15 U.S.C. Sec. 644(a).
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The bill rectifies significant contracting problems in two
main areas: strengthening and modernizing these programs and
setting standards to protect the integrity and consistency in
the application of contract assistance programs so they will be
used as Congress intended. Title I expands procurement
opportunities for service-disabled veteran-owned businesses; a
group that currently receives only a small fraction of their
contracting goal. Further, it creates penalties for
misrepresentation of a service-disabled veteran owned business
classification and adopts a roadmap for providing information,
advice and training to service-disabled veterans as prescribed
by President.\3\ Finally, contracting officers who under
current law must set aside certain contracts for HUBZones,
would now have discretion to award such contracts to be used
for service-disable veteran-owned businesses. Title II provides
that the Administrator perform the necessary checks on
applicants for participation in the various contracting
assistance programs to ensure their business integrity and
qualifications. This is already required by most programs but
this establishes uniformity in all of the small business
contracting programs. Title III sets out requirements for the
SBA to implement the Women's Procurement Program immediately.
Title IV strengthens the HUBZone program by verifying that
small businesses receiving contracts under its authority are
qualified. Finally Title V modernizes the 8(a) program to
update and revise the qualification requirements, extend and
realign the program term for participation and ensure that
contracts issued under the authority of 8(a) go only to 8(a)
qualified companies.
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\3\Executive Order 13360 regarding Service Disable Veterans, The
White House, October 20, 2004.
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The Committee does not expect that these changes will
alleviate all the problems associated with small business
access to federal government contracts. Nevertheless, this bill
eliminates some of the more egregious barriers to small
business participation in a measured and balanced way. These
barriers have been preventing some deserving businesses from
achieving the goal of full participation and a fair share of
federal contracts as set forth in the Small Business Act. This
bill will help direct federal contracts to qualified small
businesses furthering Congresses goals.
II. Background and Need for Legislation
In 2006, the federal government spent over $417 billion on
goods and services in 8.3 million separate contracting actions.
There is no reason to believe that the federal marketplace will
not continue to grow at a record pace. Small businesses won
approximately $80 billion in contracts which is about 21.5
percent of the remaining prime contracts. The opportunity for
free and predominantly fair competition for those contracts is
an immensely important benefit for small businesses.
Congress acknowledged the value of small business
participation in federal contracting and has established
federal policies to promote that objective for over 60 years.
During World War II it was found to be in our national interest
to ensure a strong and diverse industrial base. In Section 2 of
the Small Business Act\4\ procurement goals are established as
follows: ``it is the declared policy of the Congress that the
Government should aid, counsel, assist and protect * * * the
interests of small business concerns in order to preserve free
competitive enterprise and to insure that a fair proportion of
the total purchases and contracts or subcontracts for property
and services for the Government * * * be placed with small
business enterprises.'' Without competition, industrial
concentration occurs and the government's purchasing options
are dramatically reduced.
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\4\15 U.S.C. Sec. 631(a).
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Through a series of laws and procurement requirements
Congress established a benchmark to give small businesses every
opportunity to compete fairly for the award of federal
contracts. The foundation for these efforts is the Small
Business Act, passed in 1953, which has been steadily amended
to adapt to meet the demands of the marketplace, to support
important social and technological goals, and to conform to an
increasingly sophisticated procurement system. Unfortunately,
in recent years, as the number of contracts grew and
competition for lucrative federal contracts intensified, the
process became still more complex. To a certain extent, it has
undermined the ability of small firms to compete for contracts.
FEDERAL CONTRACTING AND BARRIERS FOR SMALL BUSINESS PARTICIPATION
Since 2000, the U.S. government's buying has expanded by
nearly 60 percent. The federal-wide goal is currently 23
percent but SBA establishes individual agency goals that they
then aggregate to obtain the overall 23 percent goal. In many
cases, small businesses can handily fulfill the basic
requirements of federal contracts and beat their competition;
in fact, lower overhead, nimbler production and structural
efficiencies often mean they can rise to provide services or
products at the best price. While small firms often succeed in
the private market, the structure of federal contracting
creates institutional barriers that prevent smaller firms from
participating. As such, competition is not always
straightforward in the federal marketplace.
The primary public policy rationale for small business
contracting programs is the positive economic benefits they
provide, as well as assisting small businesses overcome the
complexities of the system. The economic benefits of these
programs can be seen in two primary areas--market competition
and local economic development. First, programs that are
designed to increase and diversify small contractors with the
intent of expanding the federal supplier base. This leads to
increased competition, which results in higher quality, greater
product variety, and lower prices. Second, these contracting
initiatives lower barriers to entry in a wide range of markets
for small businesses. This provides greater market access for
small firms' goods and services. From an economic perspective,
such access is critical to generating positive macroeconomic
benefits, including higher job creation, wage growth, and
greater income distribution.
Of the government contracting dollars that are awarded
through competition, nearly three-quarters are awarded through
``full and open competition.'' Through this mechanism, small
businesses compete directly with large corporations.
Unfortunately, all but the most successful small firms are ill-
equipped to go head-to-head with a much bigger company who can
overcome the complexities of federal contracting.
As a result, the Small Business Act allows agencies to
limit competition--or to ``set aside'' contracts for bidding
only by small firms. Almost half of all contracting dollars
awarded to small businesses use small business set-asides. If
this mechanism did not exist, small firms, which account for
50% of our gross domestic product, would receive only 11
percent of all government contracting dollars.
While these programs have assisted many small firms, there
is need for improvement. Even in those cases where the law
requires that certain contracts be set aside for competition
between capable small businesses, there are often barriers for
smaller firms. In some cases, firms representing themselves as
qualified to compete for a set-aside do not meet participation
eligibility requirement. In other cases, a small bidder wins an
award and turns it over to a much larger subcontractor or
joint-venturer; in effect a backdoor award to a large bidder.
This undermines the goal of these programs.
Most of the SBA's procurement initiatives are based on the
theory that restricting competition to certain segments of the
small business community is acceptable as long as two or more
firms are expected to bid on a particular contract. In the same
way that small firms have difficulty competing directly against
large businesses, certain sectors of small businesses have
unique challenges in competing against their more successful
counterparts. Using set-asides, each category of small firms
bids for contracts against other similarly situated businesses.
Federal contracting assistance programs
The SBA is charged with administering a number of
procurement initiatives targeting various sectors of the small
business community. These programs have historically been
effective in increasing the likelihood that small firms are
able to obtain federal contracts.
Service Disabled Veteran Procurement Program
This initiative was created in 2003 to increase contracting
opportunities for companies owned by service-disabled veterans,
given that agencies were unable to accomplish the three percent
procurement goal established as part of the Veterans
Entrepreneurship and Small Business Development Act of 1999.\5\
It was implemented within 6 months thereafter. Agencies are
allowed to limit competition for a contract among service-
disabled veteran-owned businesses. If there are not at least
two qualified businesses to compete for the contract, an agency
is able to enter into a contract with a service-disabled
veteran-owned business without competition from other
companies, thereby increasing the likelihood that these
companies will access government contracts.
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\5\As revised, in the Veteran's Benefits Act of 2003 PL 108-183,
Section 308.
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Despite these initiatives, small firms owned by service-
disabled veterans (SDVBs) continue to lag well behind the 3
percent goal that was enacted in 1999. In large part, this is
due to the limited authority agencies have to enter into sole
source contracts with SDVBs. In fiscal year 2006, these
businesses received less than 1 percent of federal government
contracting dollars. SDVBs are the only business category which
allows companies who falsely represent their status as SDVBs to
avoid penalty. Finally, it is clear that the SBA has not
fulfilled its obligations under Executive Order 13360 dated
October 21, 2004 that orders all agencies to assist Service
disabled veteran-owned small businesses in obtaining government
contract and subcontract opportunities.
HUBZone program
This program's purpose is to provide community development
for low-income and high unemployment areas through the award of
federal contracting dollars to businesses that are located in
these areas and employ local residents. The program allows
federal contract preferences for firms that locate their
primary business operations in a designated HUBZone. Further,
35 percent of the company's employees must reside in a HUBZone
area. HUBZone companies must be certified as such by the SBA.
HUBZone companies can get price credits; have competition
limited to only HUBZone firms, and the availability of sole
source contracts.
As the HUBZone program has matured, questions have been
raised about whether the program is accomplishing its goals and
whether it has been subject to fraud and abuse. Two SBA
Inspector General reports have uncovered problems with assuring
that firms were properly certified in the program and have
remained eligible for future awards. The first report found
that SBA did not have the internal controls to guarantee that
only certified firms participated.\6\ The second report issued
by the SBA IG found that 80 percent of the companies in the
program were not eligible three years after they were
approved.\7\ Small business witnesses expressed concern about
how this could happen, the impact this has on small business
contracts and what SBA intends to do to rectify the problem.
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\6\Audit Report of the Eligibility of 15 HUBZone Companies and a
Review of the HUBZone Empowerment Contracting Program's Internal
Controls; Inspector General, Small Business Administration, Audit
Report #3-05, January 22, 2003. The IG's report stated that ``(w)e also
found that the Office of HUBZone Empowerment's internal controls were
inadequate to ensure that only eligible firms are certified and remain
certified. Therefore, there is little assurance that the program will
provide increased employment, investment and economic development for
depressed areas. Since ineligible companies could receive HUBZone
contracts, the program is also vulnerable to contracting fraud.''
\7\HUBZone Program Examination and Recertification Processes;
Inspector General, Small Business Administration Report #6-2--May 23,
2006.
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Another concern about the program has been the parameters
of a ``low-income'' area for the purposes of the HUBZone
program designation. In an analysis of these areas, it appears
the designation of HUBZone has been applied to some relatively
affluent communities. Additionally, in a sampling by the
Committee of 132 HUBZone contract awards, the Committee found
that 4 of the contracts went to large companies, one contract
was to a non-profit and 40 percent of the rest went to
companies that had never been certified as a HUBZone company,
as required under the statutes. The analysis revealed that
federal agencies were not checking the accuracy of bidders
claims to be HUBZone qualified to the detriment of deserving
HUBZone participants. All these issues have led the Committee
to take a stronger look at the rules surrounding HUBZones and
the legislation reflects these concerns.
Women's Federal Procurement Program
This program was created to correct the imbalance in the
number of women-owned businesses nationally when compared to
their presence in the federal marketplace. The Women's
Procurement Program was enacted as part of the Equity In
Contracting For Women Act\8\ in 2000 but it has yet to be
implemented by the SBA. It was to allow for restricted
competition for federal contracts by women-owned businesses in
federal contract involving work within industry sectors needed
by the federal government that have historically underutilized
them.
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\8\Equity in Contracting for Women Act, PL 106-554.
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The first requirement for this program was a study to
determine what industries are underutilized by women-owned
businesses. After a failed attempt to bring forth a meaningful
study in 2001, and a court order directing SBA to get moving on
implementing the program, the SBA entered into a contract in
2006 to complete the study and results were released in April
2007. The Rand Study\9\ had mixed results. Briefly, they found
that if the number of contracts awarded was the criteria,
women-owned businesses looked under-represented in a number of
categories; however, if the dollar value of the contracts was
used as a measure, the underutilization was less clear. Since
that time, the SBA has promised to promulgate regulations to
implement the program but no proposals have been forthcoming.
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\9\The Utilization of Women-Owned Small Business in Federal
Contracting; Rand Corporation, April 2007.
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Both the House and Senate have called repeatedly for the
SBA to move to implement the program anyway. Women business
owners, whose representatives have gone to court numerous times
to compel the SBA to move forward with the program, believe
they have missed contracting opportunities worth billions of
dollars. They testified that SBA's actions have thwarted the
statutory procurement goal that five percent of contracting
dollars go to women entrepreneurs which was established in
1994. They are concerned that the program passed by Congress
for their benefit is being stalled to death.
8(a) program
This program is the primary way that minority-owned
businesses enter the federal marketplace. Established in the
late 1960s, the 8(a) program was designed to promote individual
minority entrepreneurship through federal contracts awards. Its
purpose was to expand economic opportunities for minority
individuals and to correct imbalances in the number of minority
individuals compared to the number of minority entrepreneurs.
Throughout its history, the program has developed more than
20,000 companies that have received in excess of $100 billion
in federal contracts.
Due to changes in federal procurement policy and agency
neglect, there have been no significant updates to the 8(a)
program since 1988. As a result, the program is seen by many
federal agencies as an antiquated contracting option. Over the
past six years, SBA has requested significant reductions in
funding, staffing and technical assistance for participant
businesses, which has resulted in the 8(a) program moving away
from its goal of providing business development to minority
entrepreneurs. Particularly out of date is the net worth
limitation that prohibits owners of 8(a) companies from having
a net worth of over $250,000. This nearly 20 year old ceiling
severely inhibits the ability of the owner to raise capital or
even purchase necessary equipment. Though it may seem adequate
when contemplating the wealth of a private citizen, the fact is
that business owners require more access to capital than others
to be able to maintain and grow their businesses. Witnesses as
well as SBA officials recognized that the net worth threshold
had not been adjusted adequately to reflect the current dollar
values of running a business.
Another concern has been the significant reduction in the
proportion of eligible 8(a) companies that actually receive
contracts. In FY 2006, only seven percent of companies that
were participating in the 8(a) program during that year
received a contract. This compares to thirty-one percent, seven
years earlier. Contracts have also become exceedingly
concentrated among the top contract recipients. In FY 2006, the
top 10 companies (measured in terms of contract volume)
received more than 40 percent of the contract dollars awarded
to companies in the program. Compare that to FY 1999, when the
top 10 recipients of 8(a) contract dollars received only 13
percent of the contract dollars.
Certain other problems were mentioned during the
Committee's review of this important program. The 8(a) program
is subject to a nine year time limit--divided between a five
year developmental phase and a four year transitional phase.
This has reinforced the focus of the program on transitioning
companies out, rather than on the goal of business development.
In 1995, a two-year moratorium was imposed on the ability of
agencies to limit competition for contracts to only minority
entrepreneurs, but was never lifted. This has resulted in
minority entrepreneurs being the only segment of the small
business community--comprised of women entrepreneurs, service-
disabled veteran businesses, and small firms located in low
income or high unemployment areas--without a limited
competition option available to them. In December of 2004,
legislation was enacted to allow companies that were approved
into the 8(a) program--because of its rigorous application
process--to be deemed eligible for other federally-funded
programs for small disadvantaged businesses without having to
reapply. To this date, the implementation of this provision has
been inconsistent at best. All of these flaws, particularly in
combination, have tended to make the 8(a) program far less
effective than it once was.
General contracting assistance policy concerns
Size determination rules can exclude small businesses
SBA utilizes ``size standards'' to determine whether a
business entity is small and thus, eligible for government
programs and preferences reserved for ``small business''
concerns. In establishing size, SBA will determine if the
business is affiliated with another company. SBA uses five
balancing tests in determining if companies are affiliated.\10\
SBA's regulations provide that restraints imposed on a
franchisee relating to standardized quality, advertising,
accounting format and other similar provisions, generally will
not be considered in determining affiliation provided that the
franchisee has the right to profit from its efforts and bears
the risk of loss commensurate with ownership. Affiliation may
arise, however, through other means, such as common ownership,
common management or excessive restrictions upon the sale of
the franchise interest. See 13 CFR 121.103 (i).
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\10\The five factors historically considered for affiliation are
(1) whether the franchise owner bears the entire risk of financial loss
from its business operations; (2) the ability of the franchise owner to
retain the majority of the profits from its business; (3) whether the
franchise owner maintains day-to-day control over its operations; (4)
whether the franchise owner must provide significant amounts of
financing without any recourse for indebtedness repayment to the
franchisor; and (5) whether any commonality in ownership or management
exists between the franchise owner and the franchisor. See 13 C.F.R.
121.103.
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The Garvin Enterprises case, No. SIZ-4544 (April 4, 2003),
involved a temporary employment agency operating under a
franchise agreement, where the franchisor finances and
processes the payroll of the temporary workers (not the
employees of the franchisee) and invoices and collects customer
accounts receivable in order to ensure payment to the temporary
workers. In this case the SBA decided that the franchisee and
franchisor are affiliated, thus disqualifying the independent
franchisee from eligibility for small business programs. SBA
also acknowledged in the case that ``this type of arrangement
is customary for many firms in the temporary employment
industry * * *. This is a policy question, and thus beyond this
Office's jurisdiction.''
The temporary staffing industry has experienced problems
with agencies not paying, or underpaying, those who they place
as temporary workers. As a result, franchisors in the industry
have adopted a practice of handling the administrative
responsibilities and advancing the payment of salaries and
withholding the taxes for temporary employees for franchisees.
Franchisees that satisfy all of the criteria that qualify
them as independent small businesses should not be penalized
simply because the franchisor has assumed responsibility for
the administration and financing of the payroll and associated
costs for the temporary employees to assure that the temporary
employees are properly paid and that all withholding and other
tax requirements are met.
H.R. 3867, Legislation addresses significant contract assistance
problems
Most of the SBA's procurement programs have not been
updated since their creation. For some initiatives, it has been
nearly 20 years. During that time, the federal government has
changed the way it buys, relegating many of these initiatives
to second tier options for contracting officers. The Small
Business Contracting Programs Improvements Act (H.R. 3867)
addresses problems that have surfaced in these programs and
modernizes provisions that are out of date.
H.R. 3867 removes the barriers that have prevented agencies
from entering into contracts without competition to service-
disabled veteran-owned small businesses, placing these
businesses at the highest priority for small business
contracting. It will also provide penalties if a company
falsely represents itself as service-disabled veteran-owned.
The measure directs SBA to implement and carry out certain
obligations that were assigned to it by Executive Order 13360,
codifying portions of that order into the Small Business Act.
These responsibilities include providing information to service
disabled veteran-owned businesses on contracting, advising
agencies on how to expand procurements from service disabled
veterans, and making assistance available to them on contract
law and procedures. As a result of these provisions, the
Committee expects to see an immediate and substantial increase
in contracting opportunities for companies owned by service-
disabled veterans.
Contracting fraud reduces the effectiveness of the SBA's
contracting programs. It is important that bad actors are
weeded out so that the programs can reach their intended
beneficiaries. Participating in an SBA procurement program
should be a privilege not a right. These contract assistance
programs provide preferences over and above those received by
other small businesses and are designed to level the playing
field for a number of segments of the small business community
that have historically been left behind. Given this, company
owners should be of the highest integrity.
Unfortunately, the agency has not implemented safeguards
for any of the contracting programs. This raises substantial
concern that owners found to be ineligible because of character
issues for one SBA program, could participate in others that do
not have the same integrity restrictions. The bill ensures that
prior to the award of a contract, the agency will have verified
business integrity of participants.
The Committee believes that the contract assistance
programs should be operated consistently and predictably. As it
is now, each program is administered inconsistently by the SBA.
For example, some of the programs have goals, others do not.
All of the initiatives should have both prime and
subcontracting goals. Subcontracting can be an effective
alternative for small companies seeking to participate in the
$410 billion federal marketplace. The bill requires each SBA
procurement program to have both a prime contracting and a
subcontracting goal.
Three of the programs have a sole source contracting
option. Each is subject to dollar limitations, above which,
competition is required. However, the limitations which apply
to all initiatives have not been modified since 1988 with the
exception of a small increase in October of 2006. The
legislation provides an inflationary adjustment to the sole
source threshold to $5.1 million for contracts other than
manufacturing for all SBA procurement programs. For
manufacturing, the legislation comports the statute with the
SBA's regulatory increase from October of 2006 to $5.5 million.
Over this limit, contracts will require competition among each
program's participants.
H.R. 3867 ensures the implementation of the women's
procurement program. It sets forth parameters the SBA must use
to evaluate the under-representation of women entrepreneurs in
federal contracting. This provision will implement the program
upon enactment and sets out how the SBA should run the program.
Companies receiving contracts awarded through the women's
procurement program will be subject to eligibility protests by
other small businesses that would otherwise have been eligible
to receive the contract but for the contract being awarded
using this program.
The Act requires the SBA to perform on-site verifications
of a HUBZone company's eligibility prior to the award of the
company's second contract obtained with a HUBZone preference.
This is designed to ensure that those HUBZones who are meeting
the requirements of the programs will no longer have to compete
with businesses fraudulently participating in the programs. The
bill also limits the award of construction contracts with
benefits provided by the program if the contract is more than
150 miles from the principal office HUBZone. Companies
receiving contracts awarded through the HUBZone program will be
subject to eligibility protests by other small businesses that
would otherwise have been eligible to receive the contract but
for the contract being awarded to a HUBZone program
participant. This will maximize the intent of the program in
achieving local economic development.
H.R. 3867 will modernize the 8(a) program in several ways.
It will address the 8(a) net worth limitation raising it to
$550,000 and raise the personal net worth provisions once a
small business is in the program allowing for growth. This is
an inflationary adjustment to update the program to meet
current business operations. It will also encourage growth
among these businesses. It will also add one year to the 8(a)
program time, and divide the program into a six year
developmental phase and a four year transitional phase. This
program also allows for small businesses concerns who are not
8(a) participants to protest section 8(a) awards. This
integrity measure will further the goal of eliminating fraud
and abuse.
The problem of the treatment of franchises in the temporary
employee industry is resolved by recognizing that the industry
practice of franchisors financing the payroll of the temporary
workers which protects the temporary workers from being
underpaid. The Committee believes that such industry practice
should not be given any probative weight in applying the
traditional affiliation factors for business size
determinations.
H.R. 3867, the Small Business Contracting Program
Improvements Act continues the Committee's work on
reauthorizing programs administered by the U.S. Small Business
Administration. The Act takes several steps to modify and
update the SBA's procurement programs and to reduce contracting
fraud. Tens of thousands of small firms rely on these programs
to provide entree to the federal marketplace. Given that each
of the contract assistance programs is currently experiencing
higher rates of participation than ever, it is crucial that
these initiatives are structured to provide these companies
with the maximum opportunity to receive benefits.
III. Hearings
During the 110th Congress the Committee has held a number
of hearings which touched on various aspects of the SBA's
contracting assistance programs and three hearings to address
this subject directly.
On March 21, 2007 the Subcommittee on Contracting and
Technology held a hearing on the Implementation of the Women's
Procurement Program and Federal Government Efforts in
Contracting with Women-Owned Businesses. The first panel of
federal agency witnesses included the Honorable Jovita
Carranza, the Deputy Administrator for the Small Business
Administration; Dr. Frank Spampinato, Chief Acquisition Officer
for the Department of Energy; Mr. Larry Warder, Chief Financial
Officer for the Department of Education; and, Thomas Luedtke,
Assistant Administrator for Procurement at the National
Aeronautic and Space Administration. All reviewed the status of
their agencies efforts to meet their goals with regard to
contracting with women-owned businesses and individual
successes within their programs. They went over their reports
and data related to their accomplishments and their plans to
support and include women-owned businesses in contract efforts
in the future. Under questioning, Deputy Carranza went through
the current status of the implementation of the Women's
Procurement Program. The report had been completed and
regulations were being prepared. Other agency representatives
explained why they had fallen short of their women-owned
business contracting goals.
During the second panel on March 21, 2007, Ms. Margot
Dorfman the CEO of the U.S. Women's Chamber of Commerce
reviewed the history of women-owned business ``goaling'' and
the Women's Federal Procurement Program. Her group had filed
suit in federal court to force SBA to implement the program and
prevailed with the Court declaring that the SBA ``had
sabotaged, whether intentional or not, the implementation of a
procurement program * * *.'' She testified that Congress should
step in and demand the immediate implementation of the program
and that each year of delay costs women-owned businesses
billions of dollars in contract award opportunities. Ms.
Christina Lomasney, the President and CEO of Isotron
Corporation, explained that her company performs research for
the federal government under a contract with the Department of
Defense. Isotron has performed well and other women-owned
businesses could perform well if they were more fully utilized.
She urged more programs that could benefit women-owned high
tech businesses such as SBIR, Mentor-Protege and the
implementation of the Women's Federal Procurement Program. The
next witness, Ms. Karyl Smith of Iowa Valley Appraisal has done
work with the U.S. Department of Agriculture but believes there
are many other federal agencies that should be trying harder to
use women-owned businesses like hers. Federal Emergency
Management Agency, Homeland Security and Housing and the
Department of Housing and Urban Development all have massive
appraisal duties and are all not meeting their goals. The final
business owner to testify was Ms. Sheryl Mendenhall-Roberts,
CEO of CCS Holdings, a company that is a third party
administrator for worker's compensation claims and risk
management services. They are capable of saving the country
millions in unnecessary and mistaken payments of claims that
could be negotiated or eliminated with some professional
review. She believes small business programs, including the
Women's Federal Procurement Program would force agencies to
look harder for these kinds of money saving services that are
well-used in the private sector.
On September 19, 2007 the Committee on Small Business held
a hearing on The Effectiveness of the SBA's Contracting
Programs and the Challenges They Face. The Honorable Jovita
Carranza, the Deputy Administrator of the SBA reviewed the
administration's plans for the future of these programs as well
as facts and data on the program's accomplishments. SBA
indicated they supported the programs but acknowledged some
difficulty in ensuring that the programs were delivered to
appropriate parties, a problem that had been reported from a
number of sources including the General Accountability Office
and the SBA Inspector General. Also, she was unable to specify
a date when the Women's Procurement Program would finally be
implemented now seven years after passage. The Deputy pointed
out that they were working on regulations. This program allows
contracting officers to steer contracts to women business
owners in industry sectors where they were being underutilized
in federal contracts.
The non-government witnesses appearing at the September 19,
2007 hearing included Mr. Harry Alford on behalf of the
National Black Chamber of Commerce who testified strongly in
favor of modernizing the 8(a) program, updating its net-worth
provisions and extending the term. Mr. Ronald F. Chamrin
appeared for the American Legion and urged the committee to
take action to increase the participation in contract
assistance programs by service-disabled, veteran owned firms.
Ms. Margot Dorfman, of the U.S. Women's Chamber of Commerce
addressed the administration's failure thus far, after seven
years and in spite of specific orders from the U.S. District
Court, to implement the Women's Procurement program. She urged
Congress to act to make sure such delays did not continue. Mr.
Ron Newlan speaking for the HUBZone Contractors National
Council pointed out the success of the HUBZone in providing
contracts and employment in low income HUBZone areas when it
was used appropriately. His concern was that the program had
been poorly implemented and underutilized by federal
contracting agencies which resulted in lost opportunities for
businesses and low-income communities. He asked the Committee
to remind federal agencies to use the HUBZones more and
acknowledged that fraud should not be allowed in the program.
Mr. P.J. Goel, President, Goel Services, Inc., Washington, D.C.
testified on behalf of the Associated General Contractors and
pointed out that SBA and the participating federal agencies no
longer have the funds for proper oversight and management of
contracting assistance programs. AGC would like to see some of
the programs consolidated and their requirements be consistent.
Finally Dr. Trevor Brown, Assistant Professor, John Glenn
School of Public Affairs, The Ohio State University felt that
government contracting was becoming burdensome and unwieldy. He
was concerned that the Congress not lose focus of the ultimate
goal to purchase goods and services at the lowest possible
price. Any new legislation should search for ways to achieve
Congress's goals with the least imposition on federal agencies
trying to do their job. Complexity, in his view, has become the
biggest barrier to small business participation in contract
assistance programs.
On October 4, 2007 the full Committee held a legislative
hearing on the Committee draft of the Small Business
Contracting Programs Improvement Act which had been circulated
for discussion. The hearing was attended by the Honorable
Steven Preston, the Administrator for the Small Business
Administration. Mr. Preston expressed the Administration's
concerns over a number of portions of the bill. He pointed out
that SBA was introducing in the near future a regulation that
would reduce fraud in the HUBZone program by requiring strong
review of HUBZone status recipients. They also oppose on-site
inspections of HUBZone recipients because of costs and
logistics. Likewise SBA believes the 150 mile construction
limit for a HUBzone company is overly restrictive. SBA is
trying to improve the processes that eliminate backlogs that
exist in the 8(a) program. The agency says it plans to hold
other participating agencies accountable to meeting SBA
regulations on 8(a) contracts. SBA does not see that the
$250,000 net worth requirement has been a barrier to entry to
the 8(a) program. Also testifying was Mr. Joseph Sharpe on
behalf of the American Legion who supported the legislation to
establish a firm set-aside for service-disabled veteran-owned
businesses and veteran-owned businesses. He also requested that
more help be given to those groups and suggested that the
Committee move to codify the Executive Order 13360. They would
ultimately like to see the program for service-disabled
veteran-owned businesses have parity with the 8(a) preferences.
On a follow-up panel of small business organizations, Ms.
Margot Dorfman representing the U.S. Women's Chamber of
Commerce supported the quick implementation of the Women's
Procurement Program and the increased attention to the
utilization of the 8(a) program. Ms. Dorfman also wanted action
taken to ensure integrity of the participants in the contract
assistance programs to ensure that all businesses that won
awards were qualified and worthy of performing contracts for
the government. Finally she asked that the Committee keep in
mind the current technical difficulty and cost in bidding and
participating in federal contracting. Mr. Todd McCracken, the
Executive Director of the National Small Business Association,
urged stronger enforcement against fraud and more attention to
the complexity in participating in small business programs.
NSBA feels that both are significant barriers to full small
business participation. Mr. Steven Denlinger, U.S. Hispanic
Chamber of Commerce, discussed the problems that have arisen
since the SBA delegated their authority in contracting under
the 8(a) program in 1993. He also pointed out that anything
that slows the 8(a) contracting process will divert contracting
officers away from the program and thus takes contracts away
from small and disadvantaged businesses. The Hispanic Chamber
asks the Committee to consider this if it adds requirements to
the programs that are to be done by either small businesses or
contract officers. He also felt that special incentives in the
program that benefit Alaska Native Corporation contracts were
hurting the 8(a) program. Finally Ms. Angela Styles of the law
firm of Crowell & Moring, but also a former director of the
Office of Federal Procurement Policy of the Office of
Management and Budget, felt that part of the problems with
fraud were caused by the complexity of the system. It is hard
to comply with and hard to check. The Committee should consider
things that make the systems easier for small businesses, not
harder. She shared the view that complexity in itself is a
significant barrier to entry for some businesses who might
otherwise be successful contractors.
IV. Committee Consideration
The Committee on Small Business met in open session on
October 18, 2007 to consider H.R. 3867 and any amendments.
V. Committee Votes
The bill, H.R. 3867, the Small Business Contracting Program
Improvement Act was marked up by the Committee on Small
Business on October 18, 2007 at 10 a.m. An amendment was
offered by Representative Akin to strike Section 501 but was
withdrawn by unanimous consent. An amendment was offered by Mr.
Bartlett to strike Section 101(b) but it was defeated on a
rollcall vote of 8 yea and 16 nay at 11:15 a.m. An amendment
was offered by Mr. Bartlett to strike Section 201 but the
amendment was withdrawn by unanimous consent. An amendment was
offered by Mr. Bartlett to strike Section 502 but was withdrawn
by unanimous consent. No further amendments were offered. The
Committee on Small Business adopted and ordered H.R. 3867
reported to the House of Representatives by a recorded vote of
21 yeas and 4 nays at 11:27 a.m.
VI. Section-by-Section Analysis of the Small Business Contracting
Programs Improvement Act--H.R. 3867
Title I. Ensuring Government Contract Opportunities for Small
Businesses Owned and Controlled by Service-Disabled Veterans
Section 101. Expanding procurement opportunities
This provision will require agencies to enter into
contracts with service-disabled veteran-owned companies without
first requiring that agencies ensure that only one company can
perform a contract. The provision also ensures that the
procurement program for service-disabled veteran-owned small
businesses has parity with the 8(a) program. The provision
gives discretion to contracting officers whether or not to set
aside contracts where two HUBZones qualified companies could
compete for the contract. This is intended to open up more
contracts for service-disabled, veteran-owned companies that
are qualified to perform the contract. This section will
provide an immediate, substantial and measurable increase in
both the number and dollar amount of contracts awarded to
companies owned and controlled by service-disabled veterans.
Section 102. Penalties for misrepresentation
This section provides for the assessment of civil penalties
against any company that falsely represents itself as a
service-disabled veteran-owned company for the purpose of
obtaining federal contracts. The Committee believes that the
SBA must ensure that businesses that misrepresent their status
as small, small disadvantaged, women-owned, 8(a), or service-
disabled veteran-owned are held accountable for these false
statements. This protects certified participants in the
programs from having to compete against businesses unfairly
being awarded contracts. In particular, the Committee believes
that false representation in the Central Contractor Registry
(CCR) fulfills the requirement in Section 16(d) that a company
is misrepresenting its status in order to obtain a prime
contract.
Section 103. Implementation of Executive Order 13360
This provision requires the SBA to comply with the
requirements set forth in the President's Executive Order 13360
dated October 20, 2004. Under this Order, the Administrator of
the SBA is required to designate an appropriate entity within
the SBA to provide service-disabled veteran-owned companies
(SDVBs) with information and assistance concerning
participation in federal contracting; advise and assist other
agencies in their strategies to expand procurement
opportunities for SDVBs; and make training assistance on
federal contract law, procedures and practices available to
SDVBs.
Title 2. Protecting Taxpayers and Ensuring Program Consistency
Section 201. Requiring business integrity of small business concerns
This provision prevents a company from receiving benefits
under these contracting programs if the business owner has been
shown not to have integrity. This codifies that SBA shall have
a greater role in ensuring this integrity. If an applicant is
found to lack character, the application shall be rejected.
If a business is found to lack character as a result of
these investigations, the Committee intends that the SBA make
proper notification to agencies awarding contracts. The
Committee further intends that investigations regarding
business integrity under this section shall be conducted in the
same manner as indicated in SOP 80 05 3 or successor agency
procedures.
Improving the integrity of these contracting programs
serves the interest of program participants. It eliminates
those businesses that are unfairly participating in the
programs at a minimal cost to those businesses properly in the
program.
Section 202. Establishment of goals
This provision ensures that each agency is subject to a
goal for contracting with small firms participating in all of
SBA's contracting programs. The Committee intends that the goal
for companies participating in the 8(a) program shall be, at a
minimum, 70 percent of the separate goal for small
disadvantaged businesses.
Section 203. Small business concern subcontracting policy
This section sets forth the policy that while prime
contracts awarded by an agency to a small business are
important, it is equally important for small firms in SBA's
procurement programs to participate as subcontractors on large
projects.
Section 204. Increased size of available contracts
This provision provides an inflationary adjustment to the
limitation on contracts--other than for manufacturing--awarded
without competition to $5.1 million. Over this amount,
competition will be required. The section also comports the
statutory limitation for manufacturing contracts of $5.5
million to the existing SBA regulation.
Title 3. Expanding opportunities for women entrepreneurs
Section 301. Implement the women's procurement program
This provision will allow agencies to limit competition for
federal contracts only to women business owners, in industries
that have been closed to them. It also provides parameters for
requiring the SBA to evaluate industry under-representation to
ensure that the program will be implemented upon the
legislation's enactment. In order to be eligible for restricted
competition contracts, women entrepreneurs must be economically
disadvantaged. The Administrator will have the authority to
waive this requirement in industries that are substantially
under-represented by women-owned businesses. This section also
allows small businesses who would otherwise be able to receive
a contract but for the fact that the contract was placed in the
Women's Procurement Program, to protest the eligibility of a
particular company as woman-owned.
The Committee intends that the following industries be
deemed as under-represented by women-owned businesses for the
purpose of this section. The Committee does not intend any
further finding by an agency or department head that the agency
has overtly or inadvertently discriminated against women
entrepreneurs. Rather, the Committee intends that, upon
enactment, agencies act immediately at their discretion to
enter into contracts with women-owned businesses in these
industries.
------------------------------------------------------------------------
2-Digit (NAICS) Code Industry
------------------------------------------------------------------------
11..................................... Forestry.
21..................................... Mining.
22..................................... Utilities.
23..................................... Construction.
31..................................... Manufacturing.
32..................................... Manufacturing.
33..................................... Manufacturing.
42..................................... Wholesale Trade.
44..................................... Retail Trade.
45..................................... Retail Trade.
48..................................... Transportation.
49..................................... Transportation.
51..................................... Information.
52..................................... Finance and Insurance.
53..................................... Real Estate and Rental and
Leasing.
54..................................... Professional, Scientific and
Technical Services.
56..................................... Administrative and Support,
Waste Management and
Remediation Services.
61..................................... Educational Services.
62..................................... Health Care and Social
Assistance.
71..................................... Arts, Entertainment and
Recreation.
72..................................... Accommodation and Food
Services.
81..................................... Other Services.
------------------------------------------------------------------------
Title 4. Strengthening Community Development
Section 401. On-site verification
This section will require an on-site inspection by the SBA
of HUBZone-approved companies prior to the award of their
second contract obtained with a HUBZone contracting preference.
It also requires the SBA, within 90 days of enactment, to
develop procedures to ensure that HUBZone companies notify the
SBA prior to their award of a HUBZone contract subject to an
inspection. The SBA will have 30 days to review the eligibility
of the company for the award. If the company is found not to be
eligible, the contract will be terminated. This section does
not require multiple on-site inspections of a company, nor does
it require a review prior to every HUBZone contract award. This
provision will address the long-standing concerns of fraud in
the HUBZone program expressed by the SBA's Inspector General.
The Committee intends that the SBA conduct an investigation
of the principal office of a HUBZone small business concern
prior to the award of the second contract received by that
concern as a direct result of an award under Section 31 of the
Act. If a company has previously received a contract award
prior to enactment of this language, the Committee intends that
the next contract received after enactment is treated as the
second contract for the purpose of this section. The Committee
further intends that this section does not require multiple on-
site inspections of a company, nor does it require a review
prior to every HUBZone contract award. The Committee intends
that the Administrator act expeditiously to develop standards
through which HUBZone small business concerns can notify the
Administrator of pending awards. The Committee also intends
that on-site investigations occur within 30 days of the award
of a contract under section 31 of the Small Business Act. If a
company is found not to be eligible as a HUBZone small business
concern, the Committee intends that the contract is terminated
and that the company is assessed penalties under section 16(d)
of the Small Business Act. The Committee intends that the
Administrator place a high priority on ensuring this provision
is administered as intended.
Section 402. Limitation on construction contracts
This section will limit the award of construction contracts
with the HUBZone preference if the work will be performed in
excess of 150 miles of the primary office location of the
HUBZone-approved company. This will ensure that HUBZone
benefits are provided to the local economy.
Section 403. Allowing small business concerns that are not HUBZone
program participants to protest HUBZone awards
This provision allows small businesses who would otherwise
have been able to receive a contract but for the fact that the
contract was placed in the HUBZone program, to protest the
eligibility of a particular HUBZone company to receive the
award.
The Committee intends this provision to allow small
business concerns in similar industries to be able to protest
to the SBA the eligibility of a company to receive a contract
under section 31 of the Small Business Act. The Committee does
not intend this provision to allow small business concerns to
protest the discretion or authority of an agency to enter into
contracts under the authority provided by Section 31 of the
Act.
Title 5. Modernizing the 8(a) Program
Section 501. Modernizing the section 8(a) program net worth limitations
This section provides for an inflationary adjustment in the
net worth limitations to 8(a) program participants. At the time
of program entry a company owner will be required to have a
personal net worth less than $550,000--subtracting equity in
the owner's primary residence and in their business. Once a
company has been approved into the program, the net worth
limitation will no longer apply. The Committee intends that
this provision modify not only the net worth limitations in
place for the SBA's 8(a) program, but also for programs that
rely on this definition including the SBA's Small Disadvantaged
Business certification program and the Department of
Transportation's Disadvantaged Business Enterprise program. The
Committee also intends that the $550,000 personal net worth
limitation only apply to the 8(a) program and not to any
program that already has a personal net worth limitation that
exceeds $550,000.
The Committee also intends that the current personal net
worth ceiling for the 8(a) program be lifted once a company is
approved into the 8(a) program. The Committee further intends
that personal net worth ceilings in place for the SBA's Small
Disadvantaged Business certification program and the Department
of Transportation's Disadvantaged Business Enterprise program
are lifted once a company is approved into these programs.
These changes will promote growth and expansion for program
participants. It removes the current disincentive to expand.
Section 502. Extension of the section 8(a) program term
The provision extends the amount of time a company may
participate in the 8(a) program term by one year. This
adjustment was made to reflect the current trend that shows
small businesses are not able to participate in the first few
years they enter the program. The program will also be divided
into a 6-year developmental phase and a 4 year transitional
phase.
Section 503. Report on implementation
This provision will require the SBA to annually report to
Congress on progress towards implementing Section 155 of
Division K of P.L. 108-447. This section allows participants in
the SBA's 8(a) program eligibility for other federally funded
programs for small disadvantaged businesses without having to
reapply.
Section 504. Allowing small business concerns that are not section 8(a)
program participants to protest section 8(a) awards
This provision allows small businesses who would otherwise
have been able to receive a contract but for the fact that the
contract was placed in the 8(a) program, to protest the
eligibility of a particular 8(a) company to receive the award.
The Committee intends this provision to allow small
business concerns in similar industries to be able to protest
to the SBA the eligibility of a company to receive a contract
under Section 8(a) of the Small Business Act. The Committee
does not intend this provision to allow small business concerns
to protest the discretion or authority of an agency to enter
into contracts under the authority provided by Section 8(a) of
the Act. This provision is designed to further the integrity of
the 8(a) program.
Title 6. Other Matters
Section 601. Affiliation for certain franchises
Section 601 of the bill provides that in determining
whether a franchisee is affiliated with a franchiser in the
temporary employee services industry, the SBA will not consider
whether or not the franchisor finances the payroll of the
temporary staffing personnel (including billing, collecting,
and remitting client fees), nor the tax status of the temporary
staffing personnel. The Committee intends that the SBA continue
to apply its historically-considered affiliation factors in
determining whether a business is affiliated with another
business or the franchisor in the temporary staffing industry.
However, the Committee acknowledges the industry practice of
franchisors financing the payroll of the temporary workers
which protects the temporary workers from being underpaid. The
Committee believes that such industry practice should not be
given any probative weight in applying the traditional
affiliation factors.
VII. Congressional Budget Office Cost Estimate
U.S. Congress,
Congressional Budget Office,
Washington, DC, October 22, 2007.
Hon. Nydia M. Velazquez,
Chairwoman, Committee on Small Business,
House of Representatives, Washington, DC.
Dear Madam Chairwoman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 3867, the Small
Business Contracting Program Improvements Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susan Willie.
Sincerely,
Robert A. Sunshine
(For Peter R. Orszag, Director).
Enclosure.
H.R. 3867--Small Business Contracting Program Improvements Act
Summary: H.R. 3867 would make several changes to programs
administered by the Small Business Administration (SBA) that
help small businesses compete for government contracts. The
bill would expand contracting opportunities for certain
veterans and increase the size limits on federal contracts that
would be eligible for small business preferences.
In addition, H.R. 3867 would require background checks for
participants in several contracting-preference programs,
require SBA personnel to visit contractors participating in its
HUBZone program, and expand the population of businesses that
can protest the award to certain contracts. The bill also would
impose penalties on small businesses that misrepresent the
owner's status as a veteran disabled through military service.
Based on information from SBA, CBO estimates that
implementing H.R. 3867 would cost $11 million in 2008 and $72
million over the 2008-2012 period, subject to the availability
of appropriated funds. Enacting H.R. 3867 would increase civil
penalties and thus could affect revenues, but CBO estimates
that such effects would not be significant. Enacting the bill
would not affect direct spending.
H.R. 3867 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.
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 3867 is shown in the following table.
The costs of this legislation fall within budget function 370
(commerce and housing credit).
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
--------------------------------------------
2008 2009 2010 2011 2012
----------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Background Checks:
Estimated Authorization Level.................................. 1 1 1 1 1
Estimated Outlays.............................................. 1 1 1 1 1
Study on Representation of Women:
Estimated Authorization Level.................................. 0 0 0 0 1
Estimated Outlays.............................................. 0 0 0 0 1
On-Site Verification:
Estimated Authorization Level.................................. 13 13 13 14 14
Estimated Outlays.............................................. 10 12 13 13 14
Award Protests:
Estimated Authorization Level.................................. 1 1 1 1 1
Estimated Outlays.............................................. 0 1 1 1 1
Total:
Estimated Authorization Level.............................. 15 15 15 16 17
Estimated Outlays.......................................... 11 14 15 15 17
----------------------------------------------------------------------------------------------------------------
Basis of estimate: For this estimate, CBO assumes that the
bill will be enacted early in fiscal year 2008 and that the
necessary funds would be appropriated in that and each
subsequent fiscal year.
Spending subject to appropriation
Under current law, SBA's 8(a) program offers business
development and technical assistance as well as small business
preferences for federal contracting and procurement. The
HUBZone program provides federal contracting and procurement
preferences to small businesses operating in historically
underutilized business zones (HUB zones). H.R. 3867 would make
changes to those programs as well as others that assist small
businesses in competing for contracts with federal agencies.
Subject to appropriation of the necessary amounts, CBO
estimates that implementing H.R. 3867 would cost $11 million in
2008 and $72 million over the 2008-2012 period.
Background Checks. Section 201 of the bill would require
SBA to perform background checks on owners of small businesses
who apply to the 8(a) program and on participants in the
HUBZone program that would be entering into a second federal
contract. Based on information from SBA, CBO estimates that
about 300 8(a) applicants and about 1,300 HUBZone applicants
would be subject to this provision each year. The bill also
would require SBA to perform background checks on a random
sample of small-business owners participating in contracting-
preference programs who are women or veterans disabled in
military service. CBO estimates that implementing this
provision would cost about $1 million in 2008 and $5 million
over the 2008-2012 period, subject to appropriation of the
necessary amounts.
Study on Representation of Women in Federal Contracting.
Section 301 would require SBA to conduct a study every five
years to identify industries in which women-owned small
businesses are under-represented in federal contracting. Based
on information from SBA, CBO estimates that implementing this
provision would cost $1 million over the 2008-2012 period.
On-Site Verification. Section 401 would require SBA to
perform an on-site inspection to determine whether a HUBZone
participant is, in fact, qualified to participate in the
program. Such inspections would occur only when a HUBZone
participant notifies SBA that it is to be awarded a second
contract under the program. Based on information from SBA, CBO
estimates that approximately 5,000 on-site visits would be
performed each year. Subject to appropriation of the necessary
amounts, CBO estimates that implementing this provision would
cost about $10 million in 2008 and $62 million over the 2008-
2012 period.
Award Protests. The bill would expand the parties eligible
to protest the award of government contracts to participants in
the 8(a) and HUBZone programs as well as programs that give
preference to small businesses owned by women. Under current
law, only parties with a direct stake in the outcome of the
protest are eligible to lodge a protest. The bill would allow
any small business to challenge the eligibility of a program
participant to receive a contract award. Based on information
from SBA, CBO expects that SBA would need four additional full-
time equivalent investigators to handle the additional
protests. We estimate that implementing this provision would
cost $4 million over the 2008-2012 period.
Revenues
Section 102 could result in the collection of additional
civil penalties, which are recorded on the budget as revenues,
from small businesses that misrepresent the owner's status as a
veteran disabled through military service. CBO estimates that
any additional revenues would not be significant because of the
relatively small number of cases likely to be affected.
Intergovernmental and private-sector impact: H.R. 3867
contains no intergovernmental or private-sector mandates as
defined in UMRA and would not affect the budgets of state,
local, or tribal governments.
Estimate prepared by: Federal Costs: Susan Willie; Impact
on State, Local, and Tribal Governments: Elizabeth Cove; Impact
on the Private Sector: MarDestinee Perez.
Estimate approved by: Theresa Gullo, Deputy Assistant
Director for Budget Analysis.
VIII. Committee Estimate of Costs
Clause 3(d)(2) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison by the
Committee of the costs that would be incurred in carrying out
H.R. 1867. However, clause 3(d)(3)(B) of that rule provides
that this requirement does not apply when the Committee has
included in its report a timely submitted cost estimate of the
bill prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act.
IX. Oversight Findings
In accordance with clause (2)(b)(1) of rule X of the Rules
of the House of Representatives, the oversight findings and
recommendations of the Committee on Small Business with respect
to the subject matter contained in H.R. 3867 are incorporated
into the descriptive portions of this report.
X. Statement of Constitutional Authority
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds the authority for
this legislation in Article I, Section 8, clause 18, of the
Constitution of the United States.
XI. Compliance With Public Law 104-4
H.R. 3867 contains no unfunded mandates.
XII. Congressional Accountability Act
H.R. 3867 does not relate to the terms and conditions of
employment or access to public services or accommodations with
the meaning of section 102(b)(3) of P.L. 104-1.
XIII. Federal Advisory Committee Statement
H.R. 3867 does not establish or authorize the establishment
of any new advisory committees.
XIV. Statement of No Earmarks
Pursuant to clause 9 of Rule XXI, H.R. 3867 does not
contain any congressional earmarks, limited tax benefits, or
limited tariff benefits as defined in clause 9(d), 9(e), or
9(f) of rule XXI.
XV. Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee establishes the
following performance related goals and objectives for this
legislation:
H.R. 3867 includes a number of provisions designed to
update and to improve the Small Business Administration's
contracting assistance programs including the Disabled Veterans
Contracting Program, the HUBZone Program, the Women's
Procurement Program, and the 8(a) program.
XVI. 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 (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
SMALL BUSINESS ACT
* * * * * * *
Sec. 3. (a)(1) * * *
* * * * * * *
(5) Special rule relating to franchises in the temporary
employee services industry.--In determining whether a
franchisee is affiliated with a franchisor in the temporary
employee services industry, the Administrator shall--
(A) disregard--
(i) whether the franchisor finances the payroll of
the temporary staffing personnel (including billing,
collecting, and remitting client fees); and
(ii) whether the temporary staffing personnel are
treated as employees or independent contractors of the
franchisor for tax or other purposes; and
(B) consider the processing of payroll and billing by a
franchisor as customary and common practice in the temporary
employee services industry that does not provide probative
weight.
* * * * * * *
Sec. 8. (a)(1) It shall be the duty of the Administration and
it is hereby empowered, whenever it determines such action is
necessary or appropriate--
(A) * * *
* * * * * * *
(D)(i) A contract opportunity offered for award pursuant to
this subsection shall be awarded on the basis of competition
restricted to eligible Program Participants if--
(I) * * *
(II) the anticipated award price of the contract (including
options) will exceed [$5,000,000] $5,500,000 in the case of a
contract opportunity assigned a standard industrial
classification code for manufacturing and [$3,000,000]
$5,100,000 (including options) in the case of all other
contract opportunities.
* * * * * * *
(22) Rules similar to the rules of paragraphs (5) and (6) of
subsection (m) shall apply for purposes of this subsection.
* * * * * * *
(d)(1) [It is the policy of the United States that small
business concerns, small business concerns owned and controlled
by veterans, small business concerns owned and controlled by
service-disabled veterans, qualified HUBZone small business
concerns, small business concerns owned and controlled by
socially and economically disadvantaged individuals, and small
business concerns owned and controlled by women, shall have the
maximum practicable opportunity to participate in the
performance of contracts let by any Federal agency, including
contracts and subcontracts for subsystems, assemblies,
components, and related services for major systems.] It is the
policy of the United States that small business concerns, small
business concerns owned and controlled by veterans, small
business concerns owned and controlled by service-disabled
veterans, qualifying HUBZone small business concerns, small
business concerns owned and controlled by socially and
economically disadvantaged individuals, small business concerns
participating in the program established by section 8(a), and
small business concerns owned and controlled by women, shall
have the maximum practicable opportunity to participate in the
performance contracts let by any Federal agency, including
contracts and subcontracts for subsystems, assemblies,
components, and related services for major systems. It is
further the policy of the United States that its prime
contractors establish procedures to ensure the timely payment
of amounts due pursuant to the terms of their subcontracts with
small business concerns, small business concerns owned and
controlled by veterans, small business concerns owned and
controlled by service-disabled veterans, qualified HUBZone
small business concerns, small business concerns owned and
controlled by socially and economically disadvantaged
individuals, and small business concerns owned and controlled
by women.
* * * * * * *
(m) Procurement Program for Women-Owned Small Business
Concerns.--
[(1) Definitions.--In this subsection, the following
definitions apply:
[(A) Contracting officer.--The term
``contracting officer'' has the meaning given
such term in section 27(f)(5) of the Office of
Federal Procurement Policy Act (41 U.S.C.
423(f)(5)).
[(B) Small business concern owned and
controlled by women.--The term ``small business
concern owned and controlled by women'' has the
meaning given such term in section 3(n), except
that ownership shall be determined without
regard to any community property law.
[(2) Authority to restrict competition.--In
accordance with this subsection, a contracting officer
may restrict competition for any contract for the
procurement of goods or services by the Federal
Government to small business concerns owned and
controlled by women, if--
[(A) each of the concerns is not less than 51
percent owned by one or more women who are
economically disadvantaged (and such ownership
is determined without regard to any community
property law);
[(B) the contracting officer has a reasonable
expectation that two or more small business
concerns owned and controlled by women will
submit offers for the contract;
[(C) the contract is for the procurement of
goods or services with respect to an industry
identified by the Administrator pursuant to
paragraph (3);
[(D) the anticipated award price of the
contract (including options) does not exceed--
[(i) $5,000,000, in the case of a
contract assigned an industrial
classification code for manufacturing;
or
[(ii) $3,000,000, in the case of all
other contracts;
[(E) in the estimation of the contracting
officer, the contract award can be made at a
fair and reasonable price; and
[(F) each of the concerns--
[(i) is certified by a Federal
agency, a State government, or a
national certifying entity approved by
the Administrator, as a small business
concern owned and controlled by women;
or
[(ii) certifies to the contracting
officer that it is a small business
concern owned and controlled by women
and provides adequate documentation, in
accordance with standards established
by the Administration, to support such
certification.
[(3) Waiver.--With respect to a small business
concern owned and controlled by women, the
Administrator may waive subparagraph (2)(A) if the
Administrator determines that the concern is in an
industry in which small business concerns owned and
controlled by women are substantially underrepresented.
[(4) Identification of industries.--The Administrator
shall conduct a study to identify industries in which
small business concerns owned and controlled by women
are underrepresented with respect to Federal
procurement contracting.]
(1) Definition.--In this subsection, the term ``small
business concern owned and controlled by women'' has
the meaning given such term in section 3(n), except
that ownership shall be determined without regard to
any community property law.
(2) Authority to restrict competition.--
(A) In general.--In accordance with this
subsection, a contracting officer may restrict
competition for any contract for the
procurement of goods or services by the Federal
Government to small business concerns owned and
controlled by women, if--
(i) each of the concerns is not less
than 51 percent owned by 1 or more
women who are economically
disadvantaged (and such ownership is
determined without regard to any
community property law);
(ii) the contracting officer has a
reasonable expectation that 2 or more
small business concerns owned and
controlled by women will submit offers
for the contract;
(iii) the contract is for the
procurement of goods or services with
respect to an industry identified
pursuant to paragraph (4);
(iv) in the estimation of the
contracting officer, the contract award
can be made at a fair and reasonable
price; and
(v) each concern is certified in a
manner described in subparagraph (B).
(B) Acceptance of certification.--For
purposes of subparagraph (A)(v), a contracting
officer is required to accept a small business
concern's certification as a small business
concern owned and controlled by women when such
certification is made by--
(i) a Federal agency or a State or
local government;
(ii) a national certifying entity
approved by the Administrator; or
(iii) the small business concern,
when such concern certifies to the
contracting officer that it is a small
business concern owned and controlled
by women and provides adequate
documentation in accordance with
standards established by the
Administrator to support such
certification.
(3) Waiver.--With respect to a small business concern
owned and controlled by women, the Administrator may
waive paragraph (2)(A)(i) if--
(A) such concern is in an industry identified
pursuant to paragraph (4); and
(B) the Administrator determines that such
concern is in an industry in which small
business concerns owned and controlled by women
are substantially under-represented in Federal
contracting.
(4) Identification of industries.--
(A) In general.--Not less often than every
five years, the Administrator shall conduct a
study to identify, for purposes of paragraphs
(2)(A)(iii) and (3)(A), industries in which
small business concerns owned and controlled by
women are under-represented in Federal
contracting. The parameters for the study shall
be as follows:
(i) For purposes of this paragraph,
the Administrator shall identify an
industry if, and only if, the share of
Federal contracts awarded to small
business concerns owned and controlled
by women in such industry is small
relative to the prevalence of business
concerns owned and controlled by women
in the pool of business concerns in
such industry that have at least one
employee.
(ii) The study shall measure
utilization and availability by--
(I) using the two best
available data sources;
(II) including only business
concerns that have at least one
employee; and
(III) measuring only Federal
contracts awarded for amounts
over $25,000.
(iii) The study shall include four
sets of disparity measurement tables to
compute disparity ratios. The four sets
are--
(I) all business concerns in
the United States relative to
the number of Federal contracts
awarded to small business
concerns owned and controlled
by women;
(II) small business concerns
owned and controlled by women
that have demonstrated an
interest in or that have
secured Federal contracts
relative to the number of
Federal contracts awarded to
small business concerns owned
and controlled by women;
(III) all business concerns
in the United States relative
to the dollar amounts of
Federal contracts awarded to
small business concerns owned
and controlled by women; and
(IV) small business concerns
owned and controlled by women
that have demonstrated an
interest in or that have
secured government contracts
relative to the dollar amounts
of Federal contracts awarded.
(B) Determination by head of department or
agency.--Until such time as the Administrator
completes the identification of industries
required by subparagraph (A), the determination
as to whether an industry is one in which small
business concerns owned and controlled by women
are under-represented in Federal contracting
shall be made by the head of the department or
agency for which the contract is to be
performed.
(C) Deadline.--Not later than 90 days after
the date of the enactment of this subparagraph,
the Administrator shall--
(i) ensure the completion of the
first study required by subparagraph
(A);
(ii) approve national certifying
entities for the purposes of paragraph
(2)(B)(ii);
(iii) establish procedures required
by paragraph (5)(A); and
(iv) establish standards described in
paragraph (2)(B)(iii).
(5) Enforcement; penalties.--
(A) Verification of eligibility.--In carrying
out this subsection, the Administrator shall
establish procedures relating to--
(i) the filing, investigation, and
disposition by the Administration of
any challenge to the eligibility of a
small business concern to receive
assistance under this subsection
(including a challenge, filed by an
interested party, relating to the
veracity of a certification made or
information provided to the
Administration by a small business
concern under paragraph [(2)(F)]
(2)(B)); and
(ii) verification by the
Administrator of the accuracy of any
certification made or information
provided to the Administration by a
small business concern under paragraph
[(2)(F)] (2)(B).
(B) Examinations.--The procedures established
under subparagraph (A) may provide for program
examinations (including random program
examinations) by the Administrator of any small
business concern making a certification or
providing information to the Administrator
under paragraph [(2)(F)] (2)(B).
* * * * * * *
(D) Protests by small business concerns.--For
purposes of this paragraph, the term
``interested party'' shall include any small
business concern.
* * * * * * *
Sec. 15. (a) * * *
* * * * * * *
(g)(1) [The President shall annually establish Government-
wide goals for procurement contracts awarded to small business
concerns, small business concerns owned and controlled by
service disabled veterans, qualified HUBZone small business
concerns, small business concerns owned and controlled by
socially and economically disadvantaged individuals, and small
business concerns owned and controlled by women.] The President
shall annually establish Government-wide goals for procurement
contracts awarded to small business concerns, small business
concerns owned and controlled by service-disabled veterans,
qualified HUBZone small business concerns, small business
concerns owned and controlled by socially and economically
disadvantaged individuals, small business concerns
participating in the program established by section 8(a), and
small business concerns owned and controlled by women. The
Government-wide goal for participation by small business
concerns shall be established at not less than 23 percent of
the total value of all prime contract awards for each fiscal
year. The Government-wide goal for participation by small
business concerns owned and controlled by service-disabled
veterans shall be established at not less than 3 percent of the
total value of all prime contract and subcontract awards for
each fiscal year. The Governmentwide goal for participation by
qualified HUBZone small business concerns shall be established
at not less than 1 percent of the total value of all prime
contract awards for fiscal year 1999, not less than 1.5 percent
of the total value of all prime contract awards for fiscal year
2000, not less than 2 percent of the total value of all prime
contract awards for fiscal year 2001, not less than 2.5 percent
of the total value of all prime contract awards for fiscal year
2002, and not less than 3 percent of the total value of all
prime contract awards for fiscal year 2003 and each fiscal year
thereafter. The Government-wide goal for participation by small
business concerns owned and controlled by socially and
economically disadvantaged individuals shall be established at
not less than 5 percent of the total value of all prime
contract and subcontract awards for each fiscal year. The
Government-wide goal for participation by small business
concerns owned and controlled by women shall be established at
not less than 5 percent of the total value of all prime
contract and subcontract awards for each fiscal year.
Notwithstanding the Government-wide goal, each agency shall
have an annual goal that presents, for that agency, the maximum
practicable opportunity for small business concerns, small
business concerns owned and controlled by service-disabled
veterans, qualified HUBZone small business concerns, small
business concerns owned and controlled by socially and
economically disadvantaged individuals, and small business
concerns owned and controlled by women to participate in the
performance of contracts let by such agency. The Administration
and the Administrator of the Office of Federal Procurement
Policy shall, when exercising their authority pursuant to
paragraph (2), insure that the cumulative annual prime contract
goals for all agencies meet or exceed the annual Government-
wide prime contract goal established by the President pursuant
to this paragraph.
* * * * * * *
(3) Each agency shall, in consultation with the
Administrator, establish goals for the usage, as prime
contractors, of small business concerns that participate in the
program under section 8(a).
(h)(1) * * *
* * * * * * *
(4) Each prime contractor shall, in consultation with the
Administrator, establish goals for the usage, as
subcontractors, of small business concerns that participate in
the program under section 8(a).
* * * * * * *
Sec. 16. (a) * * *
* * * * * * *
(d)(1) Whoever misrepresents the status of any concern or
person as a ``small business concern'', a ``qualified HUBZone
small business concern'', a ``small business concern owned and
controlled by socially and economically disadvantaged
individuals'', a ``small business concern owned and controlled
by service-disabled veterans'', or a ``small business concern
owned and controlled by women'', in order to obtain for oneself
or another any--
(A) * * *
* * * * * * *
SEC. 31. HUBZONE PROGRAM.
(a) * * *
(b) Eligible Contracts.--
(1) * * *
(2) Authority of contracting officer.--
Notwithstanding any other provision of law--
(A) a contracting officer may award sole
source contracts under this section to any
qualified HUBZone small business concern, if--
(i) * * *
(ii) the anticipated award price of
the contract (including options) will
not exceed--
(I) [$5,000,000] $5,500,000,
in the case of a contract
opportunity assigned a standard
industrial classification code
for manufacturing; or
(II) [$3,000,000] $5,100,000,
in the case of all other
contract opportunities; and
* * * * * * *
(B) a contract opportunity [shall] may be
awarded pursuant to this section on the basis
of competition restricted to qualified HUBZone
small business concerns if the contracting
officer has a reasonable expectation that not
less than 2 qualified HUBZone small business
concerns will submit offers and that the award
can be made at a fair market price; and
* * * * * * *
(5) On-site verification of status.--
(A) Verification.--When a small business
concern that has previously been awarded a
contract under paragraph (2)(A) or (2)(B) is to
be awarded a second contract under paragraph
(2)(A) or (2)(B), the Administrator shall
perform an on-site inspection to determine
whether such small business concern is a
qualified HUBZone small business concern. This
paragraph does not require such an inspection
before the award of a third or subsequent
contract. This paragraph does not prevent a
second contract from being awarded before such
inspection is completed.
(B) Notification by small business concern.--
The Administrator shall require a small
business concern to notify the Administrator,
prior to being awarded a second contract under
paragraph (2)(A) or (2)(B), of such business
concern's attempt to be awarded a second
contract under paragraph (2)(A) or (2)(B). Not
later than 90 days after the date of the
enactment of this subparagraph, the
Administrator shall establish procedures to
implement this subparagraph.
(6) Limit hubzone program construction contracts in
or near a hubzone.--A small business concern may not
obtain a construction contract by reason of the HUBZone
program unless the construction project is located in
or near the HUBZone in which the small business concern
has its principal place of business. The Administrator
shall prescribe standards for determining when a
project is located ``near'' a HUBZone for purposes of
this paragraph, except that under no circumstances can
a project located more than 150 miles from a HUBZone be
located ``near'' that HUBZone.
(c) Enforcement; Penalties.--
(1) * * *
* * * * * * *
(5) Protests by small business concerns.--For
purposes of this subsection, the term ``interested
party'' shall include any small business concern.
* * * * * * *
SEC. 36. PROCUREMENT PROGRAM FOR SMALL BUSINESS CONCERNS OWNED AND
CONTROLLED BY SERVICE-DISABLED VETERANS.
(a) Sole Source Contracts.--In accordance with this section,
a contracting officer [may] shall award a sole source contract
to any small business concern owned and controlled by service-
disabled veterans if--
(1) such concern is determined to be a responsible
contractor with respect to performance of such contract
opportunity [and the contracting officer does not have
a reasonable expectation that 2 or more small business
concerns owned and controlled by service-disabled
veterans will submit offers for the contracting
opportunity];
(2) the anticipated award price of the contract
(including options) will not exceed--
(A) [$5,000,000] $5,500,000, in the case of a
contract opportunity assigned a standard
industrial classification code for
manufacturing; or
(B) [$3,000,000] $5,100,000, in the case of
any other contract opportunity; and
* * * * * * *
(f) Implementation of Executive Order 13360.--The
Administrator shall--
(1) provide small business concerns owned and
controlled by service-disabled veterans with
information and assistance concerning participation in
Federal contracting;
(2) advise and assist other agencies in their
strategies to expand procurement opportunities for such
concerns; and
(3) make training assistance on Federal contract law,
procedures, and practices available to such concerns.
* * * * * * *
SEC. 38. REQUIRING BUSINESS INTEGRITY OF SMALL BUSINESS CONCERNS.
(a) Section 8(a) Program Background Check.--No applicant may
be approved for participation in the section 8(a) program
unless the Administrator first performs a background check on
the applicant and determines that the applicant does not lack
business integrity.
(b) Hubzone Program Background Check.--No award of a second
contract under the authority of section 31(b)(2)(A) or
31(b)(2)(B) may be made unless the Administrator first performs
a background check on the applicant and determines that the
applicant does not lack business integrity.
(c) Random Background Check.--The Administrator shall have
random background checks performed on owners and officers of
small business concerns that have been awarded a contract under
section 8(m), 36(a), or 36(b) to determine whether such owners
and officers lacks business integrity.
----------
SECTION 155 OF THE SMALL BUSINESS REAUTHORIZATION AND MANUFACTURING
ASSISTANCE ACT OF 2004
SEC. 155. PARTICIPATION IN FEDERALLY FUNDED PROJECTS.
Any small business concern that is certified, or otherwise
meets the criteria for participation in any program under
section 8(a) of the Small Business Act (15 U.S.C. 637(a)),
shall not be required by any State, or political subdivision
thereof, to meet additional criteria or certification,
unrelated to the capability to provide the requested products
or services, in order to participate as a small disadvantaged
business in any program or project that is funded, in whole or
in part, by the Federal Government. Annually, concurrent with
the submission of the Small Business Administration's budget
request to the Congress, the Administrator shall submit to the
Committee on Small Business and Entrepreneurship of the Senate
and the Committee on Small Business of the House of
Representatives a report detailing progress the Administrator
has made towards the implementation of this section.