Senate Report 111-343 - SMALL BUSINESS CONTRACTING REVITALIZATION ACT OF 2010

[Senate Report 111-343]
[From the U.S. Government Publishing Office]

Calendar No. 635
111th Congress Report
SENATE
2d Session 111-343

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SMALL BUSINESS CONTRACTING REVITALIZATION ACT OF 2010

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September 29, 2010.--Ordered to be printed

_______

Ms. Landrieu, from the Committee on Small Business and
Entrepreneurship, submitted the following

R E P O R T

[To accompany S. 2989]

On March 4, 2010, the Senate Committee on Small Business
and Entrepreneurship unanimously reported the Small Business
Contracting Revitalization Act of 2010 (S. 2989), a bill to
provide for the updating of small business contracting
statutes, and for other purposes. Having considered S. 2989,
the Committee reports favorably thereon with a manager's
amendment and recommends that the bill, as amended, do pass.

I. INTRODUCTION

The Small Business Contracting Revitalization Act of 2010
(S. 2989) is a bill to update the contracting provisions
pertaining to small business procurement. In addition to making
significant improvements to the Small Business Administration's
procurement programs, the bill also authorizes several new
oversight and pilot program initiatives. This bipartisan bill
was introduced as an original bill by Chair Mary L. Landrieu on
February 4, 2010, with Ranking Member Olympia J. Snowe as an
original cosponsor. During markup of the bill on March 4, 2010,
the Committee adopted, by a unanimous voice vote, a substitute
amendment offered by Senator Landrieu. The bill was
subsequently adopted, as amended, by a unanimous voice vote.
The Small Business Contracting Revitalization Act of 2010
seeks to revitalize and renew small business procurement law to
better assist the small business community, and to meet the
changing needs of the 21st century entrepreneur. Since the
beginning of the 111th Congress, the Committee has held a
series of hearings and meetings to analyze the Small Business
Administration's (SBA) programs and services pertaining to
federal contracting, including the SBA's prime, subcontracting,
8(a), women-owned, Historically Underutilized Business Zone
(HUBZone), service-disabled veterans, and Small Disadvantaged
Business programs, in anticipation of introducing new
legislation that builds on the Agency's success of helping
small businesses create jobs and drive America's economy.
Stakeholders of these programs provided important insights and
recommendations to the Committee. S. 2989 aims to address many
of the recommendations in Federal contracting, but does not
address the SBA's socioeconomic programs.
On September 22, 2009, the Committee held a roundtable
titled ``Small Business Contracting: Ensuring Opportunities for
America's Small Business.'' The roundtable focused on the
challenges that small business owners face when attempting to
contract with the Federal government, including those faced by
small businesses attempting to subcontract with large primes.
The Committee took note that lack of privity, or legal
relationship between the Federal government and subcontractors,
is often cited as the primary reason why the government lacks
the authority to protect subcontractors. Consequently, the
General Services Administration's (GSA) Deputy Chief
Acquisition Officer, David Drabkin, testified during the
roundtable that the Federal government avoids becoming involved
in the relationship between prime and subcontractors.
During the roundtable, the Committee also heard testimony
stating that more communication between subcontractors and
prime contractors may help protect subcontractors. The
Committee believes that innovative ways to protect
subcontractors are needed. As such, S. 2989 seeks to address
this issue by establishing several new protections for
subcontractors. Finally, the Committee also heard testimony
about the negative impact that bundling has on the availability
of contracting opportunities for small businesses.
Furthermore, the Committee held hearings on the same
subject during the 110th Congress. On July 18, 2007, the
Committee held a hearing entitled, ``Increasing Government
Accountability and Ensuring Fairness in Small Business
Contracting.'' The hearing focused on barriers to success for
small businesses, such as complicated regulations, contract
bundling, size standards with loopholes for businesses that are
other than small, a lack of protections for subcontractors, and
a GSA schedule that is difficult to navigate.
The Committee heard from a panel of Administration
witnesses and a panel of small business owners about the need
for updating federal procurement laws. One of the top concerns
of small business owners was the lack of opportunities for
small businesses caused by the federal government's growing
reliance on contract bundling. The Committee also heard from a
number of small businesses about the lack of well-trained small
business contracting professionals in the Federal government.
The Committee believes that added protections are necessary to
expand opportunities for small businesses as both prime and
subcontractors.

II. DESCRIPTION OF BILL

Title I--Contract Bundling

Contract bundling is the consolidation of contracts in a
manner that unduly restricts competition, and was originally
prohibited under the Competition in Contracting Act (CICA) of
1984. The Small Business Reauthorization Act of 1997
supplemented CICA by defining the bundling of contract
requirements as the consolidation of two or more procurement
requirements for goods or services previously provided or
performed (or suitable for performance) under separate, smaller
contracts, into a solicitation of offers for a single contract
that is likely to be unsuitable for award to a small business
concern. The requirement that at least a portion of the
contract be previously performed by small firms allows Federal
agencies to avoid bundling review by declaring large
consolidations to be new work. The statute allows the Agency to
bundle its requirements if the Agency has performed sufficient
market research and has justified the bundled action on a cost
saving basis.
Generally, a bundled procurement will be found necessary
and justified if an agency will derive measurable substantial
benefits as a result of consolidating the requirements into one
large contract. If the requirement involves ``Substantial
bundling'' and the contract value exceeds specified
thresholds--for example, $2 million for most agencies, $5
million for the GSA, National Aeronautics and Space
Administration (NASA), and Department of Energy (DOE), and $7
million for the Department of Defense (DoD)--the contracting
agency must conduct an internal analysis of the contract,
submit a contract to SBA Procurement Center Representatives for
review, and take actions to maximize small business
participation as subcontractors at various tiers under the
contract.
Bundling or consolidation of Federal contracts tends to
deprive small firms of business opportunities with the Federal
government. The size of a contract, geographic spread of
performance, or multiplicity of requirements can prevent small
firms from capitalizing on their competitive advantages,
including attention to customer service, superior rates of
innovation, and lower administrative costs. According to the
Office of Federal Procurement Policy (OFPP), small businesses
lose more than $30 dollars for every $100 awarded on a bundled
contract.\1\ As a result, contract bundling drastically reduces
the Federal government's supplier base, particularly the
defense industrial base. According to the SBA Office of
Advocacy, during the time period that contract bundling began
to increase, the number of small business contractors receiving
new contract awards dropped more than 50 percent, from 26,506
in FY 1991 to 11,651 in FY 2000.\2\
---------------------------------------------------------------------------
\1\Contract Bundling a Strategy for Increasing Federal Contracting
Opportunities for Small Business October 2002 (Executive Office of the
President Office of Management and Budget Office of Federal Procurement
Policy).
\2\Id.
---------------------------------------------------------------------------
In Report No. 105-62 on the 1997 SBA Reauthorization Act,
this Committee stated,

Often, bundling results in contracts of a size or
geographic dispersion that small businesses cannot
compete for or obtain. As a result, the government can
experience a dramatic reduction in the number of
offerors. This practice, intended to reduce short term
administrative costs, can result in a monopolistic
environment with a few large businesses controlling the
market supply.

Clearly, the fiscal case for reduction in consolidated
contracts is strong. For example, the SBA's Breakout
Procurement Center Representatives Program--which breaks up
large contracts for competition--has saved the Federal
government approximately $2.5 billion since 1985.
In October 2002, the Office of Management and Budget's
(OMB) Office of Federal Procurement Policy announced a 9-point
initiative to reduce contract bundling by: (1) ensuring
accountability of senior agency management for improving
contracting opportunities for small businesses; (2) ensuring
timely and accurate reporting of contract bundling information
through the President's Management Council; (3) requiring
contract bundling reviews for task and delivery orders under
multiple award contract vehicles; (4) requiring agency review
of proposed acquisitions above specified ``substantial
bundling'' thresholds for unnecessary and unjustified contract
bundling; (5) requiring identification of alternative
acquisition strategies for the proposed bundling of contracts
above specified thresholds and written justification when
alternatives involving less bundling are not used; (6)
mitigating the effects of contract bundling by strengthening
compliance with subcontracting plans; (7) mitigating the
effects of contract bundling by facilitating the development of
small business teams and joint ventures; (8) identifying best
practices that maximize small business opportunities; and (9)
dedicating agency Office of Small Disadvantaged Business
Utilization (OSDBUs) to the President's Small Business Agenda.
Reviews by the Government Accountability Office (GAO) and
the SBA Inspector General (IG) found that many Federal agencies
are confused about the statutory definition of bundling.
According to GAO report 04-454, Impact of Strategy to Mitigate
Effects of Contract Bundling on Small Business is Uncertain,
agencies claim to be confused by the legal definition of
bundling, and officials at two of the four agencies contacted
did not know they were mandated to report all potential
bundling. Additionally, the SBA IG's Audit of the Contract
Bundling Program, No. 5-20, found that agencies and the SBA
disagree on the definition of bundling. The SBA failed to
review more than 80 percent of contracts designated as bundled.
According to the IG's report, this failure resulted in almost
$400 million of potential lost opportunities for small
businesses. Testimony during the July 18, 2007, hearing
entitled ``Increasing Accountability and Ensuring Fairness in
Federal Contracting'' indicated that Federal agencies do not
practice unbundling of government contracts.
The Committee believes there is an urgent need for Federal
agencies to follow SBA's guidance on bundling and to close the
loopholes that lead to contract bundling. The Committee
believes that the recommendations of the GAO and the SBA IG on
contract bundling must be fully implemented. Specifically,
better data on incidents and impact of bundling must be
collected.
To mitigate the harmful practices posed by contract
bundling and consolidation, through this bill, the Committee
requires that each agency solicit bids from small business
joint ventures and teams on each solicitation above the
substantial bundling threshold. Further, the bill requires each
agency to report on its efforts to reduce bundling. In
addition, this bill requires agencies to post their anti-
bundling policies on their websites, as well as a list of all
bundled contracts and the rationale for bundling.
The Committee believes that Procurement Center
Representatives (PCRs) and Commercial Market Representatives
(CMRs) can and should be more effective in breaking up bundled
contracts. This bill requires a study of the effectiveness of
SBA PCRs and CMRs.
Further, this bill requires that the head of each Federal
department or agency ensures that the decisions made by that
department or agency regarding consolidation of contract
requirements are made with a view towards providing small
businesses with appropriate opportunities to participate as
prime contractors and subcontractors.
The SBA's PCRs monitor Federal agency procurement activity
to ensure that (1) appropriate steps are taken to provide
contract awards to small businesses, (2) agencies meet their
small business contracting goals, and (3) proposed contracts
that could involve consolidated procurement requirements are
identified and resolved. PCR responsibilities include:
reviewing proposed acquisitions and recommending alternative
procurement strategies; identifying qualified small business
sources; conducting reviews of small business programs at
Federal contracting agencies to ensure compliance with small
business policies; counseling small businesses; and sponsoring
and participating in small business conferences and training.
Unfortunately, the number of PCRs has shrunk dramatically
in the last 15 years, and the Committee believes that the
failure to maintain sufficient levels of PCRs has diminished
the SBA's ability to carry out its statutory mandate. Reports
prepared by the GAO disclose that the SBA is struggling to
accomplish its mission and lacks the assurances that PCRs are
reviewing proposed acquisition strategies to identify barriers
to small business participation. The GAO also found that the
number of PCR-recommended small business set-asides has
declined by more than half in the last ten years.
More important than not, the Committee recognizes that
acquisition is a technical discipline that requires knowledge
and experience to manage effectively. Therefore, tasking these
responsibilities to other SBA employees as a part-time function
will not address insufficient staffing levels and is not
acceptable. The Committee believes that locating PCRs in the
field and involving them in local buying activities improves
the ability of these individuals to effectively advocate and
assist small businesses with the procurement process.
The Committee believes that preventing contract
consolidation is an appropriate way to expand opportunities for
small businesses. The justification for consolidation of
contracts has historically been that such consolidations reduce
personnel and administrative costs. However, the Committee
heard testimony to the contrary from Mr. Bill Miera in its May
22, 2007 hearing on minority entrepreneurship. Mr. Miera
testified that overhead costs associated with contract
consolidation far outweigh any potential cost saving benefits
claimed by consolidation proponents. Therefore, this
legislation establishes that a contract consolidation is not
considered to be justified and necessary based solely on
administrative and personnel costs savings.
The Committee believes that small businesses will benefit
from ``teaming'' together to bid on larger federal contracts.
Many small businesses have been shut out of federal contracting
because they do not have the capacity to perform all facets of
a contract. At present, it is difficult for a number of small
businesses to band together to complete a large project and
meet the requirement that a small business perform at least 51
percent of the work. This bill contains provisions designed to
improve contracting opportunities for small businesses by
allowing Federal agencies to aggregate the portion of a
contract performed by separate small businesses in determining
whether the performance of the contract is in compliance with
federal regulations.
The Committee further believes that providing technical
assistance and resources for small businesses interested in
teaming and forming joint ventures will encourage more such
business ventures. Accordingly, this bill establishes a Small
Business Teaming Center Pilot Program for the purpose of
expanding technical assistance opportunities for small
businesses, as well as for expanding the pool of vendors with
the capacity to compete for bundled contracts.

Title II--Subcontracting Integrity

According to the SBA's Yearly Official Subcontracting
Reports, small businesses receive more than $45 billion in
Federal subcontracts each year. Unfortunately, Committee
oversight revealed that subcontracting practices have been
plagued with overstatements. According to GAO Report 05-459,
numerous large contractors have overstated their small business
subcontracting achievements--by as much as $30 million per
contract, per year--at one Federal agency alone. The Committee
strongly believes that greater compliance and oversight must be
implemented government-wide to the fullest extent possible.
In order to prevent misrepresentations in subcontracting,
the bill provides that compliance by Federal prime contractors
with small business subcontracting plans shall be evaluated as
a percentage of obligated prime contract dollars, and also as,
a percentage of subcontracts awarded, as recommended by the
GAO.
In addition to implementing GAO recommendations, the
Committee largely re-adopted small business subcontracting
provisions which were passed unanimously by the Senate in the
108th, 109th and 110th Congresses. Small businesses testified
before the Committee this Congress and during the 108th, 109th
and 110th Congresses that prime contractors baited them by
using them to create competitive subcontracting plans, helping
the prime contractor win a contract, only to have the prime
contractor switch and not follow through with its
subcontracting plan commitments once the contract was awarded.
As a result, the Committee believes more aggressive action is
needed to increase the small business subcontracting share of
Federal prime contracts. Therefore, the bill makes several
changes to the Small Business Act intended to hold prime
contractors responsible for the validity of subcontracting data
and impose penalties for false certifications of past
compliance with small business subcontracting.
To prevent prime contractors from taking advantage of small
business subcontractors through bait-and-switch fraud, the bill
requires large prime contractors to certify that they will use
small business subcontractors in the amount and quality used in
preparing their winning bid or proposal, unless such firms no
longer are in business or can no longer meet the quality,
quantity or delivery date. The Committee expects that Federal
agencies will use all appropriate legal and contractual
remedies to deter, punish, and recover the proceeds of such
fraud.

Title III--Acquisition Process

The bill improves small business participation in the
acquisition process. The bill also authorizes small business
set-asides in multiple award multi-agency contracting vehicles
in order to correct the very mixed record of small business
participation in such contracts. These contract types were
intended to reduce the administrative costs of contracting by
reducing both the number of businesses and the types of terms
and conditions which had to be completed for each task or
delivery order. Under such contracts, the government negotiates
an up-front agreement on future price discounts and delivery
terms, but no actual work is performed or paid for until task
and delivery orders are issued. In many instances, small
businesses have had trouble securing business through the
multiple-award contract system. For example, within the GSA
Federal Supply Schedules (FSS or Schedules), small businesses
represented about 80.8 percent of Schedule holders, but only
37.33 percent of Schedule sales dollars in FY 2007.
The Small Business Act and the Federal Acquisition
Regulation require Federal agencies to set contracts aside for
small businesses if there is a reasonable expectation that two
or more small businesses would submit bids at reasonable
prices. However, these general set-aside requirements have been
interpreted not to apply to multiple-award contracts. The bill,
by authorizing small business set-asides in multiple-award
contracts, provides clear direction to contracting officers.
The Committee believes that accountability of procurement
personnel is essential to increasing the number of contracts
that go to small businesses. This bill adds the meeting of
small business procurement goals as a performance evaluation
for key procurement personnel within the federal government.
Finally, the Committee believes that it is time to end the
Small Business Competitiveness Demonstration Program.
Accordingly, this legislation repeals this program.

Title IV--Small Business Size and Status Integrity

In fiscal year 2007, the SBA announced that the Federal
government missed its 23 percent contracting goal by .992
percent. These numbers were even worse the next fiscal year. In
fiscal year 2008, the SBA reported that the Federal Government
missed its goal by 1.51 percent. Further, reports from the GAO
and the SBA Office of Advocacy, along with independent analysis
presented to the Committee, indicate that these numbers are
probably much worse due to many large corporations self
classifying as small businesses for contracting purposes.
Hearings before the Committee established that fraud,
regulatory loopholes and delays, and poor training in small
business laws and regulations contribute to the problem.
Recently, the SBA IG and the Department of Justice achieved a
$1 million settlement with a large corporation that advertised
itself as a small business for 10 years. However, prosecutions
of companies that misrepresent their small business size and
status have been rare.
Under current law, the government has difficulty proving
loss when the fraud was in the inducement to receive a contract
and not in performance of the contract. The SBA IG testified
that such cases still involve both the societal loss and the
programmatic loss to the Federal government. To solve this
problem, the bill creates an irrefutable statutory presumption
that small business size or status fraud constitutes a loss to
the government of contracting dollars diverted to large firms
on a dollar-for-dollar basis. The Committee intends that this
presumption shall be applied in all manner of criminal, civil,
administrative, contractual, common law, or other actions,
which the United States government may take to redress such
fraud and misrepresentation.
In CMS Information Services, Inc. (2002), the GAO confirmed
that Federal agencies may properly require certification of
small business size during the submission of quotations for
procurements reserved for small business concerns. Similar to
Federal Supply Schedules at issue in the CMS case, S. 2989
requires certification of small business status at the time
businesses submit their quotations on task orders on
interagency or government-wide multiple award contracts. The
SBA reached a similar conclusion in Size Appeal of SETA
Corporation and Federal Emergency Management Agency, SBA No.
SIZ-4477 (2002). The Committee realizes that unforeseen
situations may arise and intends for the SBA to fully exercise
its discretion.
With regard to task orders on interagency multiple-award
contracts, the Committee intends for the SBA, in consultation
with relevant Federal agencies, to develop policies on
appropriate certification requirements that would take into
account and balance the varying features of such contracts, the
impact of potential ramp-offs on small business contracting
opportunities at the affected agencies, and the need for
integrity and adequate disclosure of the actual small business
participation. With regard to multiple-award contracts used for
intra-agency purposes only, the Committee similarly expects the
SBA to exercise its discretion.
The Committee expects that the SBA's discretion will be
consistent with the existing legal principle that company size
is determined at the time of award based on the company's
initial offer. Additionally, the SBA should ensure that
reporting on small business participation shall accurately
reflect all cases where a contract previously awarded to a
small business concern or a small business concern itself has
been negated to an entity other than a small business concern
through merger, acquisition, divestiture, or otherwise.
The SBA IG testified before the Committee in the 109th
Congress that annual certification of small business size or
status is the most effective measure of ensuring integrity of
small business contracts.
The Committee agrees with this view. The bill provides for
annual certifications of small business size and status and
that small business size or status shall be determined, as part
of a company's responsibility, at the time of the award of a
task order.
The Committee has heard from many small businesses that
Federal officials often lack training in small business laws
and regulations. The bill directs development of such training
courses, and also mandates a policy on prosecutions of small
business size and status fraud.
The Committee has heard testimony that the current size
standards are in dire need of a comprehensive update. With the
increase in large federal contract requirements, small
businesses are being squeezed out of the federal marketplace.
One way to increase small business viability is to allow small
businesses to increase their capacity by increasing small
business size standards. The Committee believes that a
reasonable increase in small business size standards is
warranted in order to allow small businesses to compete in the
current federal marketplace.
Under current procurement rules, a contracting officer
designates a primary industry category for each contract, and
the bidding firm must qualify as a small business under the
size standard for that industry category to be given the
contract as a small business. Examples of SBA general size
standards include the following:
(1) Manufacturing: maximum number of employees may
range from 500 to 1500, depending on the type of
product manufactured;
(2) Wholesaling: maximum number of employees may
range from 100 to 500 depending on the particular
product being provided;
(3) Services: annual receipts may not exceed $2.5 to
$21.5 million, depending on the particular service
being provided;
(4) Retailing: annual receipts may not exceed $5.0 to
$21.0 million, depending on the particular product
being provided;
(5) General and heavy construction: general
construction annual receipts may not exceed $13.5 to
$17 million, depending on the type of construction;
(6) Special trade construction: annual receipts may
not exceed $7 million;
(7) Agriculture: annual receipts may not exceed $0.5
to $9.0 million, depending on the agricultural product;
and
(8) Small innovative companies participating in the
Small Business Innovation Research and the Small
Business Technology Transfer Programs: maximum number
of employees may not exceed 500, including affiliates.
The Committee also believes that a comprehensive review of
mentor-protege programs is appropriate and provides for that
review as a part of this bill.

III. COMMITTEE VOTE

In compliance with rule XXVI(7)(b) of the Standing Rules of
the Senate, the following votes were recorded on March 4, 2010.
A motion by Chair Landrieu to adopt a manger's package in
the nature of a substitute, was approved by a unanimous voice
vote.
A second motion by the Chair, to adopt the Small Business
Contracting Revitalization Act of 2010, to improve the Small
Business Act and for other purposes, as amended by the
manager's amendment, was also approved by a unanimous vote.

IV. COST ESTIMATE

In compliance with rule XXVI(11)(a)(1) of the Standing
Rules of the Senate, the Committee estimates the cost of the
legislation will be equal to the amounts discussed in the
following letter from the Congressional Budget Office.

June 1, 2010.
Hon. Mary L. Landrieu,
Chair, Committee on Small Business and Entrepreneurship,
U.S. Senate, Washington, DC.
Dear Madam Chair: The Congressional Budget Office has
prepared the enclosed revised cost estimate for S. 2989, the
Small Business Contracting Revitalization Act of 2010, which
supersedes an earlier estimate for S. 2989 that was transmitted
on March 25, 2010. This revised estimate corrects an error in
total estimated authorization levels; CBO's estimate of
expenditures (budget outlays) from implementing the legislation
remains unchanged.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susan Willie.
Sincerely,
Douglas W. Elmendorf.
Enclosure.

S. 2989--Small Business Contracting Revitalization Act of 2010

Summary: S. 2989 would amend laws that encourage federal
agencies to award contracts for goods and services to small
businesses. In particular, the bill would make changes to the
practice of contract consolidation (combining two or more
contracts into a single agreement) and to federal policies that
relate to contract set-asides for small businesses. The bill
also would authorize a grant program to encourage teams of
small businesses to bid on government contracts.
Based on information from the Small Business Administration
(SBA) and other agencies with large procurement budgets, CBO
estimates that implementing S. 2989 would cost $422 million
over the 2011-2015 period, assuming appropriation of the
necessary amounts.
The bill could also affect direct spending by agencies not
funded through annual appropriations, such as the Tennessee
Valley Authority and the Bonneville Power Administration;
therefore, pay-as-you-go procedures would apply. CBO estimates,
however, that any net increase in annual spending by those
agencies would not be significant. Enacting the legislation
would not affect revenues.
S. 2989 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would not affect the budgets of state, local, or tribal
governments.
Estimated cost to the Federal Government: The estimated
budgetary impact of S. 2989 is shown in the following table.
The costs of this legislation fall within budget function 370
(commerce and housing credit) and all other budget functions
that include spending to procure goods and services.

----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
--------------------------------------------------
2011 2012 2013 2014 2015 2011-2015
----------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Administration of Governmentwide Procurement:
Estimated Authorization Level............................ 50 75 90 100 110 425
Estimated Outlays........................................ 30 60 90 100 110 390
Grants to Develop Small Business Teams:
Authorization Level...................................... 5 5 5 5 5 25
Estimated Outlays........................................ 3 4 4 5 5 21
SBA Administrative Costs:
Estimated Authorization Level............................ 3 3 3 1 1 11
Estimated Outlays........................................ 2 3 3 1 1 10
Reports:
Estimated Authorization Level............................ 1 0 0 * 0 1
Estimated Outlays........................................ 1 0 0 * 0 1
Total Changes:
Estimated Authorization Level............................ 59 83 98 106 116 462
Estimated Outlays........................................ 36 67 97 106 116 422
----------------------------------------------------------------------------------------------------------------
Note.--* = less than $500,000.

Basis of estimate: For this estimate, CBO assumes that the
bill will be enacted near the end of fiscal year 2010 that the
necessary amounts will be appropriated each year, and that
spending will follow historical patterns for procurement
activities. CBO estimates that implementing S. 2989 would cost
$422 million over the 2011-2015 period.

Administration of governmentwide procurement

S. 2989 is aimed at expanding the access of small
businesses to federal contracts, in part by regulating contract
bundling and contract consolidation (the practice of combining
two or more contracts into a large single agreement). Under the
bill, federal agencies would have to justify the use of
consolidated contracts by evaluating whether such contracts are
necessary and analyzing the effect on small businesses. In
addition, the legislation would change federal regulations
related to contract set-asides for small businesses. The
legislation also would increase responsibilities for contract
oversight as well as training requirements for federal agencies
to help them meet goals for increasing procurement contracts
with small businesses.
The federal government purchases about $500 billion worth
of goods and services each year, from office supplies to parts
for aircraft carriers. CBO estimates that over 30,000 federal
employees are responsible for administering the procurement of
goods and services for the government at a cost of about $3
billion annually. Based on information from SBA, the General
Services Administration, and agencies with the most procurement
spending, CBO expects that agencies would incur additional
discretionary costs to comply with the bill's requirements to
justify consolidated contracts, increase the number of
contracts set aside for small businesses, and to identify small
business concerns that are able to provide desired goods and
services.
Based on the current costs to administer contracts and the
size and characteristics of those contracts, and assuming
appropriation of the estimated amounts, CBO estimates that
complying with administrative requirements in S. 2989 would
cost federal agencies an average of about $80 million annually
over the next five years--less than 3 percent of the amount CBO
estimates is currently spent each year to administer the
government's procurement efforts.

Grants to develop small business teams

S. 2989 would establish a pilot program to assemble teams
of small businesses that could compete for larger procurement
contracts. The bill would require SBA to create a Center for
Small Business Teaming and authorize the appropriation of $5
million annually to make grants to eligible entities that would
assemble the small-business teams. Based on information from
SBA, CBO estimates that implementing this provision would cost
$21 million over the 2011-2015 period, assuming appropriation
of the specified amounts.

SBA administrative costs

Based on information from SBA, CBO estimates that the
agency would incur costs to meet additional administrative
requirements that arise from changes made by the bill,
including establishing the Center for Small Business Teaming
and developing an electronic process to monitor procurement
activities. CBO estimates that those additional costs would
total about $10 million over the 2011-2015 period, assuming
appropriation of the necessary amounts. Those costs include
salaries and benefits for five full-time staff to operate the
center.

Reports

Finally, the bill would require a number of reports to the
Congress from SBA, the Government Accountability Office (GAO),
and federal agencies with procurement and contracting
activities. GAO would be required to report on the usefulness
of SBA's mentor-protege program and the results of a study of
an SBA program to monitor procurement activities. Based on
information from SBA and the costs of similar reports, CBO
estimates that implementing the reporting provisions of S. 2989
would cost $1 million over the 2011-2015 period.

Governmentwide procurement

CBO expects that agencies would continue to encourage the
use of small businesses to procure goods and services and would
seek to meet the goals for such contracts as set out in the
legislation. CBO expects that agencies also would continue to
purchase goods and services at the lowest price available and
that the goals for small business contracting would be met to
the extent that doing so would not significantly increase
procurement costs. Thus, we estimate that implementing the bill
would not result in a significant change in acquisition costs.
Pay-As-You-Go Consideration: The Statutory Pay-As-You-Go
Act of 2010 establishes budget reporting and enforcement
procedures for legislation affecting direct spending or
revenues. S. 2989 could affect direct spending by agencies not
funded through annual appropriations, such as the Tennessee
Valley Authority and the Bonneville Power Administration;
therefore, pay-as-you-go procedures would apply. CBO estimates,
however, that any net increase in annual spending by those
agencies would not be significant and enacting the legislation
would not affect revenues. The net budgetary changes that are
subject to pay-as-you-go procedures are shown in the following
table.

CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR S. 2989, THE SMALL BUSINESS CONTRACTING REVITALIZATION ACT OF 2010, AS ORDERED REPORTED BY THE SENATE
COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP ON MARCH 4, 2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
--------------------------------------------------------------------------------------------------
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010-2015 2010-2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE OR DECREASE (-) IN THE DEFICIT
Statutory Pay-As-You-Go Impact....................... 0 0 0 0 0 0 0 0 0 0 0 0 0
--------------------------------------------------------------------------------------------------------------------------------------------------------

Intergovernmental and private-sector impact: S. 2989
contains no intergovernmental or private-sector mandates as
defined in UMRA and would not affect the budgets of state,
local, or tribal governments.
Previous CBO estimate: On March 25, 2010, CBO transmitted a
cost estimate for S. 2989, the Small Business Contracting
Revitalization Act of 2010. That estimate incorrectly presented
total estimated authorization levels for the bill; those
amounts are corrected in this estimate. CBO's estimate of total
expenditures (budget outlays) from implementing the legislation
remains unchanged from the earlier estimate.
Estimate prepared by: Federal Costs: Susan Willie and
Matthew Pickford; Impact on State, Local, and Tribal
Governments: Elizabeth Cove Delisle; Impact on the Private
Sector: Samuel Wice.
Estimate approved by: Theresa Gullo, Deputy Assistant
Director for Budget Analysis.

V. EVALUATION OF REGULATORY IMPACT

In compliance with rule XXVI(11)(b) of the Standing Rules
of the Senate, it is the opinion of the Committee that no
significant additional regulatory impact will be incurred in
carrying out the provisions of this legislation. There will be
no additional impact on the personal privacy of companies or
individuals who utilize the services provided.

VI. SECTION-BY-SECTION ANALYSIS

Section 1. Short title

Section 2. Table of contents

Section 3. Definitions

TITLE I--CONTRACT BUNDLING

Sec. 101. Leadership and oversight

This provision requires each agency to solicit bids from
small business joint ventures and teams on each solicitation
above the substantial bundling threshold. Further, the
provision requires each agency to report on its efforts to
reduce bundling.
In addition, the provision requires agencies to post their
anti-bundling policies on their websites as well as a list of
all bundled contracts and the rationale for bundling. Last, the
provision requires a study of the effectiveness of SBA
Procurement Center Representatives (PCRs) and Commercial Market
Representatives (CMRs).

Sec. 102. Consolidation of contract requirements

This section requires that the head of each Federal
department or agency ensures that the decisions made by that
department or agency regarding consolidation of contract
requirements are made with a view to providing small businesses
with appropriate opportunities to participate as prime
contractors and subcontractors.

Sec. 103. Small business teams pilot program

This section creates a Center for Small Business Teaming.
The purpose of the Center is to provide technical assistance
through competitive grants with well-established national small
business organizations to small businesses that want to team or
joint venture. The goal is to allow more small businesses to
compete for bundled contracts as teams or joint ventures.

TITLE II--SUBCONTRACTING INTEGRITY

Sec. 201. GAO recommendations on subcontracting misrepresentations

This section is designed to prevent misrepresentations in
subcontracting by implementing government-wide the Comptroller
General's recommendations on subcontracting integrity.
Specifically, compliance of Federal prime contractors with
small business subcontracting plans shall be evaluated as a
percentage of obligated prime contract dollars, and also a
percentage of subcontracts awarded. Further, not later than 180
days from the date of enactment of this Act, the head of each
Federal agency shall issue a policy on small business
subcontracting compliance.

Sec. 202. Small business subcontracting improvements

This section requires prime contractors to acquire
articles, equipment, supplies, services, or materials, or
obtain the performance of construction work from small business
concerns in the amount and quality used in preparing the bid or
proposal, unless such small business concerns are no longer in
business or can no longer meet the quality, quantity, or
delivery date.

TITLE III--ACQUISITION PROCESS

Sec. 301. Reservation of prime contract awards for small businesses

This provision requires that within 180 days of enactment,
each agency head establish contracting criteria for their
agency that: (1) sets aside part of multiple awards contracts
for small businesses; (2) sets aside multiple awards contracts
for subcategories of small businesses; and (3) reserve one or
more contracts for small businesses and subcategories of small
businesses for multiple full and open awards.

Sec. 302. Micro-purchase guidelines

Within 180 days, the director of the Office of Management
and Budget shall issue guidelines for the use of purchase cards
to measure the participation of small business in government
micro purchases. These guidelines shall be consistent with
existing national policy on small business participation in
micro purchase credit purchases.

Sec. 303. Agency accountability

This provision requires the senior personnel of each agency
to communicate to the agency's subordinates the importance of
meeting small business goals. Further, this provision requires
that each program manager and procurement professional have as
a significant factor in their annual evaluation whether they
have met their obligation to utilize small businesses.

Sec. 304. Payment of subcontractors

This provision requires prime contractors to notify the
contracting officer whenever they reduce payment to a
subcontractor or where they are more than 90 days delinquent
paying subcontractors where the prime contractor has been paid
for the covered service by the federal agency or where the
prime contractor has submitted a request for payment to the
federal agency. Additionally, a contracting officer shall
consider failure to pay subcontractors in a timely manner when
evaluating past performance of the subject contractor. Further,
a contracting officer may require a contractor with a history
of untimely payments to enter into a funds control agreement
for the purposes of paying subcontractors in a timely manner.

Sec. 305 Repeal of small business competitiveness demonstration program

This provision repeals the small business competitiveness
demonstration program.

TITLE IV--SMALL BUSINESS SIZE AND STATUS INTEGRITY

Sec. 401. Policy and presumptions

The provision contains an irrefutable presumption of a
dollar-for-dollar loss to the United States in every contract,
subcontract, cooperative agreement, cooperative R & D
agreement, or grant reserved for small business concerns which
is obtained by misrepresentation of small business size or
status. The provision also establishes that submissions of bids
or proposals on contracts, agreements, or grants reserved for
small business, or registrations in Federal databases to be
considered as a small business concern, constitutes an
affirmative certification of small business size or status.
Finally, the provision requires that every contract or grant
solicitation contain a place for certification of small
business size or status by a high-level corporate official of
the contractor. The provision allows the SBA Administrator to
issue ``safe harbor'' regulations to protect contractors from
liability for unintentional errors and technical glitches.

Sec. 402. Annual certification

This provision requires annual certification of small
business size or status on the SBA's CCR database or any
successor database. The provision also clarified the timing of
determination of small business size and status. Specifically,
small business size or status shall be determined at the time
of award of a Federal contract, subcontract, or other funding
instrument. For interagency multiple-award contracts, small
business size and status will be determined at the time of the
award of the contract and also at the time of the award of each
task or delivery order reserved for a small business.

Sec. 403. Training for contracting and enforcement personnel

This provision directs the SBA, together with other
agencies, to develop training on small business size standards.
The provision also directs the SBA IG and heads of other
agencies to issue a policy on prosecutions of size standards or
status fraud.

Sec. 404. Updated size standards

This section requires the SBA to conduct a detailed review
of the size standards for small businesses not later than one
year after enactment, and if the SBA deems it appropriate, the
provision directs the SBA to publish revised size standards.
This section also requires the SBA to make public the factors
evaluated and criteria used in its size standard review.

Sec. 405. Study and report on the mentor-protege program

This provision requires GAO to study the effectiveness of
the mentor-protege program. The GAO is required to evaluate
whether the program has been an effective tool for protege
development and not a tool whereby mentors qualify themselves
for small business contracts with little or no benefit to the
protege firm.