DOE Contracting: Improved Program Management Could Help Achieve  
Small Business Goal (07-APR-06, GAO-06-501).			 
                                                                 
Federal policy requires that small businesses receive the maximum
practicable opportunity for providing goods and services to	 
federal agencies through prime contracts--direct contracts	 
between the government and a contractor. The Department of Energy
(DOE) buys more than $20 billion in goods and services annually. 
GAO was asked to (1) discuss DOE's key efforts to increase small 
business prime contracting opportunities and (2) identify the	 
management challenges DOE faces in improving its small business  
prime contracting performance. In addition to these objectives	 
GAO is providing information on the management of small business 
programs by other federal agencies that either share certain	 
characteristics with DOE's largest program offices or that have  
components that share certain characteristics with these offices.
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-501 					        
    ACCNO:   A51297						        
  TITLE:     DOE Contracting: Improved Program Management Could Help  
Achieve Small Business Goal					 
     DATE:   04/07/2006 
  SUBJECT:   Contract administration				 
	     Federal procurement policy 			 
	     Performance management				 
	     Prime contracts					 
	     Program evaluation 				 
	     Program management 				 
	     Small business					 
	     Small business contractors 			 
	     Government contracts				 
	     Performance measures				 

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GAO-06-501

     

     * Results in Brief
     * Background
     * DOE Efforts to Increase Contracts with Small Businesses Have Had
       Partial Success
          * Key Efforts to Increase Small Business Contracts Focused on
            Expanding Contracting Opportunities, Finding More Qualified Small
            Businesses, and Improving Program Management and Oversight
     * Despite Increasing Its Contracting with Small Businesses, DOE Prime
       Contracting Achievement Continues to Fall Short of Its Annual Goal
     * Two Key Management Challenges Hinder DOE's Efforts to Further Improve
       Its Small Business Contracting Performance
     * DOE Has Not Effectively Detailed How It Will Achieve Its Small
       Business Prime Contracting Goal
     * DOE Does Not Use Performance Information to Evaluate and Improve
       Program Performance
     * Other Federal Agencies Use Formal Program Evaluation to Guide Changes
       in Their Small Business Programs
     * Conclusions
     * Recommendations for Executive Action
     * Agency Comments and Our Evaluation
     * Appendix I: Objectives, Scope, and Methodology
     * Appendix II: Comments from the Department of Energy
     * Appendix III: GAO Contact and Staff Acknowledgments
     * PDF6-Ordering Information.pdf
          * Order by Mail or Phone

Report to the Committee on Small Business and Entrepreneurship, U.S.
Senate

United States Government Accountability Office

GAO

April 2006

DOE CONTRACTING

Improved Program Management Could Help Achieve Small Business Goal

GAO-06-501

Contents

Letter 1

Results in Brief 5
Background 8
DOE Efforts to Increase Contracts with Small Businesses Have Had Partial
Success 9
Two Key Management Challenges Hinder DOE's Efforts to Further Improve Its
Small Business Contracting Performance 16
Other Federal Agencies Use Formal Program Evaluation to Guide Changes in
Their Small Business Programs 21
Conclusions 25
Recommendations for Executive Action 26
Agency Comments and Our Evaluation 26
Appendix I Objectives, Scope, and Methodology 28
Appendix II Comments from the Department of Energy 33
Appendix III GAO Contact and Staff Acknowledgments 36

Tables

Table 1: Major Office of Environmental Management Procurements That
Redirect Work Traditionally Performed by Large Businesses with Facility
Management Contracts to Small Business Prime Contracts 10
Table 2: DOE's Small Business Prime Contracting Goals and Achievements,
Fiscal Years 2001 through 2005 14
Table 3: Practices of High-Performing Organizations Compared with DOE
Small Business Program Practices 17
Table 4: Comparison of DOE, Department of Defense, Health and Human
Services, and National Aeronautics and Space Administration Small Business
Prime Contracting Performance, Fiscal Year 2004 31

Abbreviations

DOE Department of Energy FPDS-NG Federal Procurement Data System-Next
Generation NASA National Aeronautics and Space Administration NNSA
National Nuclear Security Administration SBA Small Business Administration

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separately.

United States Government Accountability Office

Washington, DC 20548

April 7, 2006

The Honorable Olympia J. Snowe Chair The Honorable John F. Kerry Ranking
Member Committee on Small Business and Entrepreneurship United States
Senate

The federal government spends nearly $300 billion annually to obtain goods
and services ranging from military aircraft to office supplies, from
nuclear waste storage to grounds keeping. While most of these purchases
are through contracts with large businesses, the federal government's
policy is to contract with small businesses to the maximum extent
feasible.1 Among other things, directing federal funds to small businesses
can increase competition and contribute to the economic well-being of the
nation.2 The Small Business Act, as amended by the Small Business
Reauthorization Act of 1997 requires that the federal government, as a
whole, award at least 23 percent of federal prime contracting dollars to
small businesses annually.3 The Small Business Administration, which
oversees the federal small business program, negotiates an appropriate
individual prime contracting goal with each federal agency,4 including the
Department of Energy (DOE). The specific percentage goal varies from
agency to agency, depending upon agency program missions, procurement
requirements, and past procurement history. Both the Federal Acquisition
Regulation and DOE-specific acquisition regulations govern the
administration of the department's procurements. In addition, DOE has
issued internal guidance in the form of acquisition letters, secretarial
memoranda, and other communications to outline additional small business
requirements. Broadly, these requirements direct procurement officials to
contract with small businesses unless specific and limited circumstances
prevent doing so. For example, an exemption from small business prime
contracting requirements is allowed if capable small businesses cannot be
found to perform the needed work at a fair price.

1The Small Business Administration (SBA) defines small businesses as
enterprises that (1) are independently owned and operated; (2) are not
dominant in their field of operation; and (3) meet SBA-defined criteria
for company size and sales volume, which vary depending on industry type.
SBA uses the term "other than small business" for all entities that are
not small businesses. For the purposes of this report, a large business
fits the SBA definition of "other than small business."

2See, e.g., 15 U.S.C. S: 631(a) (declaration of policy set out in the
Small Business Act).

315 U.S.C. S: 644(g). Prime contracts are direct contracts between the
government and a contractor.

4Certain categories of procurements are excluded from this requirement.
These include federal agencies that fund contracts primarily with funds
from agency-generated sources (e.g., the U.S. Postal Service) and
contracts not under the Federal Acquisition Regulation (e.g., the Federal
Aviation Administration).

DOE is the largest civilian contracting agency in the federal government,
with procurements of approximately $22.8 billion for fiscal year 2005, or
more than 90 percent of its annual budget. DOE relies primarily on
"facility management contractors"-traditionally large businesses and
universities-to manage operations at sites across the country. These
contractors maintain the nation's nuclear weapons stockpile, clean up
radioactive and hazardous wastes, and conduct complex scientific research,
among other activities. According to DOE, in fiscal year 2005, the
department paid 87 percent of its procurement dollars to 43 facility
management contracts. Given the broad scope and complexity of the work
conducted, many of these contracts are for hundreds of millions of dollars
annually, with four contracts exceeding $1 billion annually. The remaining
13 percent of DOE's procurement dollars were awarded through contracts
with nonfacility management contractors, many of them small businesses,
for things like legal services and facility design and construction
activities.

The administration of DOE's small business program spans several different
organizational units. DOE's Office of Small and Disadvantaged Business
Utilization (referred to in this report as DOE's Small Business Office) is
responsible for establishing small business policy and implementing the
department's small business program, including engaging in small business
outreach and business development activities and encouraging the
department to meet its small business contracting goal. DOE's Office of
Procurement and Assistance Management and the Office of Acquisition and
Supply Management of the National Nuclear Security Administration (NNSA)
set overall procurement policy and are responsible for ensuring that these
policies are followed by procurement officials and contracting officers
throughout the department. In addition, these offices coordinate with
DOE's Small Business Office in setting small business policy. The NNSA and
DOE program offices such as the Office of Science and the Office of
Environmental Management determine their procurement needs and identify
small business contracting opportunities.5 Small business contacts in each
program office support the small business activities within their
respective organizational units.

In 1999, a change in federal procurement policy affected how DOE set its
annual small business prime contracting goal and measured its achievement.
Prior to the change, federal policy allowed DOE to include the small
business subcontracts of its large facility management contractors when
developing its goal and calculating its small business prime contracting
achievement.6 This prior policy, which applied only to DOE, reflected a
view that the facility management contractors were acting as surrogates
for the department and, therefore, the subcontracts were equivalent to DOE
prime contracts. In 1999, the Office of Federal Procurement Policy changed
the policy so that DOE could not include the subcontracts issued by
facility management contractors when developing small business prime
contracting goals or when calculating actual achievements.7 Given this
decision, DOE's small business prime contracting goal was adjusted
downward from 18 percent in 1999 to 5 percent in 2000. DOE's fiscal year
2006 goal for small business prime contracting is 5.5 percent of its total
contracting dollars.

In 2004, we testified that DOE had and would continue to have difficulty
meeting its near-term and long-term small business prime contracting goals
but was taking steps to improve results, including enhancing its small
business outreach efforts and assessing facility management contracts up
for renewal to identify work that might be redirected to small
businesses.8 For this report, you asked us to (1) provide an update on
DOE's key efforts to increase small business prime contracting
opportunities and the results of these efforts to date and (2) identify
the management challenges DOE faces in improving its small business prime
contracting performance. In addition to these two objectives, at your
request, we are providing information on the management of small business
programs by other federal agencies that either share certain
characteristics with DOE's largest program offices or that have components
that share certain characteristics with these offices.

5NNSA is a separately organized agency within DOE with its own procurement
organization and program offices. For purposes of this report, NNSA is
referred to as a "program office," as are DOE's Office of Environmental
Management, Office of Science, and other program-based organizational
elements.

6A subcontract is any contract entered into by a prime contractor or
subcontractor to provide supplies and/or services in support of a prime
contract or subcontract.

7The Office of Federal Procurement Policy within the Office of Management
and Budget issues policy letters and is responsible for resolving any
disagreements between the Small Business Administration and federal
agencies on small business prime contracting goals.

8GAO, Department of Energy: Achieving Small Business Prime Contracting
Goals Involves Both Potential Benefits and Risks, GAO-04-738T (Washington,
D.C.: May 18, 2004).

To evaluate DOE's key small business efforts and their results to date, we
reviewed federal regulations, DOE guidance and management directives
concerning small business prime contracting, departmentwide and
program-specific small business plans, and budget documents. We reviewed
DOE contract data from the Federal Procurement Data System, the federal
government's repository of information regarding the nature and value of
contract awards, as well as from a DOE-specific procurement database. In
addition, we reviewed the activities of the DOE Small Business Office and
the small business prime contracting activities at NNSA and DOE's Offices
of Environmental Management and of Science, which collectively account for
the bulk of DOE's prime contracting. In conducting these reviews, we
interviewed DOE small business, procurement, and program officials.

To identify the management challenges DOE faces in improving its small
business prime contracting performance, we compared the management
practices of DOE's small business program with established management
principles. We interviewed DOE small business and procurement officials
and reviewed program guidance, management directives, and program
performance plans to determine the current practices supporting the DOE
small business program. We compared and contrasted these practices with
general management principles embodied in the Government Performance and
Results Act of 1993 and literature regarding effective management
practices at federal agencies.

In addition, to illustrate some of the ways in which other federal
agencies approach the management of their small business programs, we
obtained information on the practices of the small business offices at
three other agencies that either share certain characteristics with DOE or
that have agency components that share certain characteristics with DOE:
the National Aeronautics and Space Administration (NASA), the Department
of the Army (U.S. Army Corps of Engineers), and the Department of Health
and Human Services (Centers for Disease Control and Prevention). Although
DOE is unique in relying on facility management contractors to accomplish
much of its mission, the chosen comparison agencies or agency components
are similar enough to DOE to provide useful insight within the context of
their small business programs. We selected these three agencies because
each has annual procurement activity on a scale as large, or larger, than
the three DOE program offices examined in this study, and each agency has
consistently been able to award a larger proportion of its procurement
dollars to small businesses than has DOE. Additionally, like DOE, these
agencies or their components that we visited must consider public safety
and national security concerns to execute sound procurement decisions.
Finally, these agencies or their relevant components have missions that
share similarities with those of the DOE program offices we examined. For
instance, both the U.S. Army Corps of Engineers and DOE's Office of
Environmental Management have environmental cleanup as a key component of
their mission. Basic scientific research is central to the missions of
both the Department of Health and Human Services' Centers for Disease
Control and Prevention and DOE's Office of Science. NASA, like DOE,
employs large firms to carry out facility management contracts, although
to a much lesser extent.9 We interviewed small business, contracting, and
procurement officials and staff from these agencies, and reviewed program
planning and guidance documentation. We conducted our work between
February 2005 and March 2006 in accordance with generally accepted
government auditing standards.

                                Results in Brief

DOE has increased the total prime contracting dollars awarded to small
businesses since 2001 through three key efforts, although the department
still fell short of its goal in most years. First, DOE increased the
procurement opportunities available to small businesses. Specifically, DOE
identified larger procurements that could be split and partially
redirected from existing facility management contracts to small
businesses. DOE also set aside for small businesses many nonfacility
management contracts that were either new or up for renewal. These
nonfacility management contracts, however, represent a declining share of
total DOE procurements. Second, DOE expanded small business development
and outreach activities. For example, DOE revamped its mentor-protege
program-which pairs an established contractor with a less-experienced
small business protege-and participation increased from 5 pairs in 2002 to
48 pairs in 2005, although just one of the proteges has been awarded a
prime contract to date. Third, DOE strengthened management and oversight
of its small business program. For example, in 2002 DOE began to track, on
a quarterly basis, the proportion of total procurement dollars awarded by
each program office to small businesses. Collectively, these improvement
efforts increased awards to small business from about $589 million in 2001
to about $948 million in 2005. However, they have not been sufficient to
enable DOE to consistently meet its small business prime contracting
goals. Since 2001, DOE has fallen short of its goal by at least $120
million every year except 2003, when it exceeded its goal by $84 million.
In 2005, it appears that DOE missed its small business prime contracting
goal of 5.5 percent of total procurement dollars by about $300 million,
although its estimated achievement of 4.15 percent would represent its
second highest performance since 2001. The three program offices we
reviewed-Office of Environmental Management, Office of Science, and
NNSA-are responsible for the vast majority of DOE's large facility
management contracts and control over 90 percent of DOE's procurement
dollars. However, in large part because of their reliance on facility
management contracts, these program offices account for less than half of
the nearly $1 billion in small business procurements that DOE made in
fiscal year 2005.

9GAO has previously reported on aspects of NASA's small business prime
contracting performance. See GAO, Federal Procurement: Trends and
Challenges in Contracting with Women-Owned Small Businesses, GAO-01-346
(Washington, D.C.: Feb. 16, 2001).

DOE faces two key management challenges to improving its small business
program practices. Addressing these challenges would bring DOE's small
business program more in line with practices of high-performing
organizations and with principles contained in the Government Performance
and Results Act. The key management challenges are as follows:

           o  Although DOE establishes an annual small business prime
           contracting goal, the department has not defined concrete steps
           that will enable it to achieve this goal. DOE has identified a
           number of activities in its small business strategic plan that it
           believes will contribute toward achieving its goal, such as
           conducting the mentor-protege program and maintaining a
           procurement forecast. However, it has not defined what it
           specifically expects to accomplish from each activity or
           established a way to measure if these activities are indeed
           advancing DOE toward its goal. For example, for the mentor-protege
           program, the department has not identified the number or value of
           small business prime contracts it expects to result from the
           program.
           o  DOE does not use performance information to evaluate and
           improve program performance. The department does collect some
           performance data, but it does not collect sufficient information
           to allow it to effectively assess its small business program
           efforts, identify problems, and implement changes that could
           further increase small business prime contracting over time. For
           example, DOE does not collect data on the specific reasons that
           nonfacility management contracts may not have been awarded to
           small businesses, even though department policy requires that all
           such new contracts be reserved for small businesses to the extent
           possible.

           Although the manner in which federal agencies with similar
           missions or with organizational components similar in mission to
           DOE carry out their small business programs is comparable in
           several ways to DOE's practices, there are important differences.
           Specifically, the agencies differed substantially from DOE in
           their efforts to evaluate their small business programs for
           effectiveness, to identify performance problems, and to implement
           a program of corrective action to further strengthen small
           business performance over the long-term. For example, Department
           of the Army guidance requires that detailed performance reviews of
           the U.S. Army Corps of Engineers and other component offices'
           small business programs be completed once every 3 years.
           Improvement plans are required to address any deficiencies.
           Similarly, Health and Human Services provides for comprehensive
           evaluations of the small business program at the Centers for
           Disease Control and Prevention, and NASA evaluates the small
           business activities at the agency's procurement centers. We did
           not evaluate the effectiveness of these agencies' small business
           practices. However, over time, these agencies awarded a greater
           share of their procurement dollars to small businesses than DOE.

           We are recommending that DOE take a more systematic approach to
           managing its small business program to include the following:
           defining the concrete steps DOE will take to achieve further
           progress toward its annual goal; collecting relevant performance
           information to better gauge the effectiveness of its efforts; and
           using performance information to support program improvements, as
           needed.

           DOE generally concurred with our findings and recommendations, but
           expressed concern that, in comparing DOE to other federal
           agencies, we did not fully appreciate the department's management
           and operating contract business model. The report does recognize
           that the use of large facility management contractors to perform
           much of DOE's work has constrained the department's ability to
           contract with small businesses. The report also recognizes that
           other federal agencies do not face a similar constraint. We
           believe the comparisons we made between DOE and other agencies are
           appropriate because we compared key management practices of each
           agency's small business program, which are not dependent on the
           particular business model used to accomplish the agency's mission.
           DOE's written comments are reprinted in appendix II.

           DOE has more than 50 major sites in 35 states where the department
           carries out its varied missions, including developing,
           maintaining, and securing the nation's nuclear weapons capability,
           cleaning up the nuclear and hazardous wastes resulting from
           long-term weapons production, and conducting basic energy and
           scientific research and development. This work is overseen
           primarily by DOE's largest program offices-the NNSA, the Office of
           Environmental Management, and the Office of Science-and is
           primarily carried out though facility management contracts. DOE
           has a workforce of 16,000 federal employees; the department relies
           on the more than 100,000 employees of its contractors to manage
           its facilities and achieve its missions.

           DOE's contracts with small businesses occur in several different
           ways. First, small businesses receive direct contracts from a
           portion of DOE's procurement outlays that are not awarded as
           facility management contracts. Second, small businesses may
           compete for and receive facility management contracts.
           Historically, small businesses have not performed these contracts,
           though in a few cases small businesses have won such contracts
           after DOE identified ways to limit the contract's scope of work.
           Third, small businesses receive subcontracts from DOE's prime
           contractors. In 2004, approximately 17.5 percent of facility
           management contract dollars went to small businesses as
           subcontracts. Subcontracts, however, do not count toward achieving
           DOE's small business prime contracting goal.

           Advocacy responsibilities for small business contracting rest
           primarily with a small business office-usually called the Office
           of Small and Disadvantaged Business Utilization-at each
           executive-branch agency. In general, officials in these small
           business offices are responsible for negotiating an annual small
           business prime contracting goal with the Small Business
           Administration (SBA), establishing each agency's small business
           policy and guidance, coordinating agencies' small business
           outreach efforts, and monitoring small business performance with
           respect to the goal. Within DOE, the department's Office of
           Procurement and Assistance Management and NNSA's Office of
           Acquisition and Supply Management also play important supporting
           roles in promoting small business prime contracting. These offices
           establish overall department procurement policy and prepare more
           specific guidance to reflect contracting requirements consistent
           with federal acquisition regulations. These procurement offices
           also maintain data on DOE's prime contracts, including annual
           obligations to small businesses, and work with the Small Business
           Office staff to monitor small business performance and implement
           small business policies. DOE's program offices are responsible for
           identifying small business prime contracting opportunities and
           providing contracting oversight. The SBA calculates DOE's annual
           small business prime contracting achievement using data from the
           Federal Procurement Data System-Next Generation, a governmentwide
           procurement database that is administered by the General Services
           Administration.

           DOE's efforts to increase its prime contracts with small
           businesses have increased the department's total expenditures on
           small business prime contracts since 2001. However, the increases
           were not sufficient to achieve the department's small business
           prime contracting goal in 4 of the past 5 years.

           DOE's approach to increasing its prime contracting with small
           businesses focused on three main areas: (1) identifying more
           contracting opportunities for small businesses, (2) expanding
           small business development and outreach activities to create a
           larger pool of qualified small businesses, and (3) improving
           program management and oversight.

           DOE's effort to increase the opportunities for small businesses to
           win contracts with the department included restructuring or
           "breaking out" portions of projects historically conducted by the
           department's facility management contractors and redirecting that
           work to small businesses, modifying procurement strategies to
           expand opportunities for small businesses, and continuing to
           emphasize the award of nonfacility management contracts to small
           businesses.

           To redirect portions of projects traditionally performed under
           facility management contracts, DOE's Office of Environmental
           Management identified nine such projects that it believed could be
           reserved for competition among small businesses as prime
           contracts. These prime contracts, summarized in table 1, are
           collectively worth about $745 million, and many involve multiyear
           environmental cleanup, construction, and facility operations
           activities that are essential to the mission of this office. As of
           September 2005, the Office of Environmental Management had
           successfully awarded seven of these contracts and obligated about
           $266 million.10 In December 2005, this office awarded an eighth
           small business contract, the second at Paducah, Kentucky. In
           December 2005, the Office of Environmental Management cancelled
           the ninth contract, which involved the Fast Flux Test Facility
           procurement at Hanford, Washington, due to budgetary constraints
           and the need to focus resources on more important projects.

                                   Background

DOE Efforts to Increase Contracts with Small Businesses Have Had Partial Success

Key Efforts to Increase Small Business Contracts Focused on Expanding
Contracting Opportunities, Finding More Qualified Small Businesses, and
Improving Program Management and Oversight

  Identifying More Contracting Opportunities for Small Businesses

Table 1: Major Office of Environmental Management Procurements That
Redirect Work Traditionally Performed by Large Businesses with Facility
Management Contracts to Small Business Prime Contracts

Source: DOE.

aAs of September 30, 2005.

bDOE awarded this contract in December 2005.

10Although the total award value of these contracts is about $745 million,
the SBA uses annual obligations in its measure of DOE's small business
achievements. Award value often spans multiple years over the life of a
contract.

cDOE made an initial award of this contract in 2004 for $235 million.
However, the award was protested and DOE withdrew the solicitation. The
procurement was subsequently cancelled in December 2005.

In comparison with the Office of Environmental Management, NNSA and the
Office of Science identified relatively fewer procurements that could be
redirected from their facility management laboratory contracts and set
aside for small businesses. NNSA and Office of Science procurement
officials said that redirecting work from facility management contracts to
small businesses was not a priority in their programs because removing
mission-related work from the contractors managing the laboratories could
diminish the department's ability to ensure the work at these laboratories
is effectively accomplished. However, these officials were trying to
identify mission-related work that could be moved from facility management
contracts to small business contracts when a compelling "business case"
could be made for doing so. For example, in 2004 NNSA awarded a contract
to a small business for design, construction, and integration services for
radiation sensors. These services were previously provided under the
Sandia National Laboratories facility management contract. This award has
an overall value of $80 million, of which $71.5 million had been obligated
through the end of fiscal year 2005. In addition, NNSA and the Office of
Science recently collaborated with the Office of Environmental Management
to develop a small business information technology contract to provide
services at the three DOE facilities in Oak Ridge, Tennessee. DOE plans to
award this approximately $130 million contract in fiscal year 2006. These
information technology services are currently being performed by three
large businesses as subcontractors to the facility management contractors
at the Oak Ridge sites. Science is also considering breaking out select
small business subcontracts from the Thomas Jefferson National Accelerator
Facility contract and awarding these as prime contracts.

To further expand opportunities for small businesses, DOE also modified
procurement strategies. Its two efforts in this area were led by the
Office of Environmental Management and NNSA. These two efforts were as
follows:

           o  In 2004, the Office of Environmental Management established
           "indefinite delivery/indefinite quantity" contracts in which it
           preapproved 8 large and 14 small businesses to provide services on
           environmental cleanup and deactivation, demolition, and removal of
           facilities on an as-needed basis. These contracts authorize a
           maximum of $800 million in total contract task orders through
           2009. Through fiscal year 2005, almost $24 million in task orders
           had been issued, all of which went to small businesses. Officials
           cited a variety of possible reasons for the limited use of this
           contract mechanism so far, including contract officers'
           unfamiliarity with implementation procedures and security issues
           surrounding administration of the contracts.
           o  An NNSA initiative-known as the "tri-lab initiative"-involved
           combining procurements common to the Sandia, Lawrence Livermore,
           and Los Alamos national laboratories, such as facility security,
           maintenance services and computer hardware, and purchasing of
           goods and services from small business suppliers. According to
           NNSA, most of the targeted procurements were for support services,
           such as temporary staff, rather than direct mission laboratory
           work. The three laboratories initially estimated that as much as
           $187 million in procurements could be redirected to small
           businesses in fiscal year 2005, with a goal of $300 million by
           2007. However, before NNSA could fully take advantage of any
           potential benefits, the initiative was canceled. According to NNSA
           officials, the cancellation was primarily due to congressional
           concerns regarding the potential impact on the department's
           ability to ensure that the laboratories' projects are effectively
           accomplished, as well as concerns that some small businesses could
           lose existing laboratory subcontracts if NNSA awarded the work as
           new prime contracts through the tri-lab initiative.

           Finally, DOE's efforts to expand contracting opportunities
           included continuing to emphasize the importance of directing
           nonfacility management contracts to small businesses. DOE
           procurement officials said that nonfacility management contracts
           issued by the department are reserved for small businesses
           whenever possible. Exceptions would involve situations in which
           only a large business supplier was available, such as for
           utilities. Between fiscal years 2001 and 2004, the percentage of
           these contracts awarded to small businesses increased from 48.7
           percent (753 out of 1,546 contracts) to 53.0 percent (831 out of
           1,569 contracts). In fiscal year 2004, small businesses received
           61 percent ($282 million) of the total dollars spent on these new
           nonfacility management contracts.

           DOE has attempted to increase its use of small businesses by
           increasing the pool of small businesses willing and able to
           provide goods and services to the department. This effort has
           involved a variety of business development and outreach
           activities, including establishing a small business advisory team
           with participation by small businesses, pairing large and small
           businesses as mentors and proteges to assist in developing small
           businesses' capabilities, and periodically hosting small business
           conferences to discuss upcoming contracting opportunities and to
           help small businesses understand the intricacies of the federal
           procurement process. DOE contends that many of these activities
           will help to expand both prime contracts and subcontracts with
           small businesses.

           The extent to which these efforts contribute to DOE's small
           business prime contracting achievements is generally unclear. For
           example, regarding the pairing of small and large businesses in
           DOE's mentor-protege program, since 2002 the number of business
           pairs has increased from 5 to 48, but only one participating small
           business has subsequently received a prime contract from DOE.
           Similarly, while attendance at DOE's annual small business
           conference has increased since 2004, and the feedback DOE collects
           from participants is generally positive, DOE does not know the
           extent to which the conferences have led to small businesses
           receiving prime contracts.

           In addition to these DOE-wide efforts managed by the Small
           Business Office, the Offices of Environmental Management and
           Science, as well as NNSA also pursue small business development
           and outreach activities, including attending small business
           conferences, managing a mentor-protege program, and providing
           other training support for small businesses. For example, NNSA
           conducts biweekly outreach to small businesses by inviting
           interested small businesses to meet with NNSA procurement
           officials to discuss their capabilities and learn of upcoming
           procurement opportunities. NNSA has held 318 of these sessions
           between March 2002 and January 2006. Nine small businesses
           attending one or more of the sessions have obtained 25 DOE prime
           contracts worth about $66 million. Also, Sandia National
           Laboratory, which primarily conducts work for NNSA, runs its own
           mentor-protege program that intends to build the long-term
           capacity of small businesses.

           To strengthen DOE's management and oversight of its small business
           program, the Small Business Office took the following main
           actions:

           o  In 2002, it began quarterly reviews of the prime contracting
           achievements of each program office. These reviews are intended to
           track the department's progress toward meeting its overall small
           business goal and to communicate results to program office
           officials and the Secretary of Energy.
           o  In 2004, it attempted to improve coordination among the
           department's small business, procurement, and program offices by
           establishing the Advance Planning Acquisition Team. The team
           includes officials from these DOE offices and intends to
           collectively review upcoming procurements, identify potential
           small business contracting opportunities, and exchange information
           on promising practices for improving DOE's small business
           achievements.
           o  In 2004, it began to review all contracts over $3 million not
           reserved for small businesses to determine if small business
           opportunities had been adequately considered.

           The department, however, does not collect data that indicate the
           extent to which these efforts have directly or indirectly affected
           DOE's small business prime contracting achievement. Therefore, the
           impact of these efforts is unclear.

           Despite DOE's efforts to strengthen its small business program,
           the department has not achieved its small business prime
           contracting goal in 4 of the past 5 years. Table 2 shows that
           DOE's procurement dollars awarded to small businesses as prime
           contracts increased steadily during the 5-year period, and the
           amount nearly doubled between fiscal years 2001 and 2005.11
           However, except for fiscal year 2003, DOE failed to meet its
           annual small business prime contracting goal, falling short by
           more than $120 million each year.

           Table 2: DOE's Small Business Prime Contracting Goals and
           Achievements, Fiscal Years 2001 through 2005

           Sources: GAO analysis of Fiscal Year 2001-2004 Small Business
           Administration Goaling Achievement reports; 2005 data from Federal
           Procurement Data System - Next Generation.

           Notes: The fiscal year 2005 Federal Procurement Data System - Next
           Generation data are preliminary, as of the issuance of this
           report, and provide only an initial estimate of the department's
           fiscal year 2005 performance. The final Small Business
           Administration Goaling Achievement report for FY05 is yet to be
           published. GAO has previously questioned the reliability, accuracy
           and completeness of the Federal Procurement Data System and the
           data of its predecessor system. However, we determined that the
           federal data system's small business contracting data, which are
           used by the Small Business Administration to assess the prime
           contracting achievement of each federal agency, were sufficiently
           reliable for purposes of this report. See appendix I for further
           information on how we determined data reliability. Percentages are
           of procurement dollars, and all dollars are constant fiscal year
           2005.

           To some degree, DOE's small business prime contracting
           achievements have been limited because the department's small
           business prime contracting achievements occurred primarily from
           procurements that were directed to nonfacility management
           contracts, which have been a declining portion of DOE's overall
           procurement outlays. Between fiscal years 2001 and 2005, more than
           98 percent of the approximately $4 billion DOE obligated to prime
           contracts with small businesses went to nonfacility management
           contracts. Only since fiscal year 2005 did DOE direct facility
           management contracts to small businesses-$41.8 million for
           infrastructure and remediation activities at Portsmouth and $6.4
           million for infrastructure activities at Paducah. At the time of
           our review, DOE had obligated $2.7 million to the Paducah
           remediation facility management contract, which was awarded in
           December 2005. During this time period, DOE's facility management
           contracts were taking an ever-increasing share of total
           procurement dollars. In 2001, DOE obligated about $14.8 billion to
           its facility management contracts, which was about 80 percent of
           total procurements that year. In 2005, DOE obligated $19.8 billion
           to its facility management contracts, which was about 87 percent
           of the department's total procurement outlays.

           In analyzing DOE's inability to meet its small business prime
           contracting achievement goal, it is also worth noting that the
           program offices we reviewed-the Offices of Environmental
           Management, and Science, and NNSA-accounted for slightly less than
           half of the approximately $948 million in small business prime
           contracting achievements in fiscal year 2005 despite having
           responsibility for almost 90 percent of DOE's total procurement
           dollars. According to preliminary data from DOE's Small Business
           Office, in 2005 the Office of Environmental Management directed
           about $198 million, or 2.9 percent of its procurement dollars to
           small businesses; NNSA directed $237 million, or 2.6 percent; and
           the Office of Science directed about $30 million, or 1.1
           percent.12 In contrast, more than half of DOE's fiscal year 2005
           contracting with small businesses originated from the DOE offices
           that are collectively responsible for only 10 percent of the
           department's total procurement dollars. These offices include, for
           example, the Office of Fossil Energy and Office of Energy
           Efficiency and Renewable Energy. These smaller program offices
           within DOE directed about $469 million, or 21 percent, of their
           procurement dollars to small business prime contracts, slightly
           more than the combined small business prime contracts at the
           Offices of Environmental Management, and Science and NNSA.
           However, DOE's other program offices are responsible for
           substantially fewer multimillion dollar facility management
           contracts than the Offices of Environmental Management, and
           Science and NNSA.

           DOE faces two management challenges in further improving its small
           business prime contracting performance. First, although DOE
           negotiates an annual small business prime contracting goal, it has
           not identified concrete steps-referred to as program
           objectives-that are expected to contribute in a specific
           measurable way to achieving its goal. Second, it does not use
           performance information to evaluate and improve program
           performance. Both types of practices are commonly associated with
           high-performing organizations and are consistent with principles
           contained in the Government Performance and Results Act. More
           specific information on these model practices and DOE's
           comparative practices can be found in table 3.

  Expanding Small Business Development and Outreach Activities

  Improving Program Management and Oversight

Despite Increasing Its Contracting with Small Businesses, DOE Prime Contracting
Achievement Continues to Fall Short of Its Annual Goal

11Unless otherwise specified, all dollar values in the remainder of this
section are reported as constant 2005 dollars.

Two Key Management Challenges Hinder DOE's Efforts to Further Improve Its Small
                        Business Contracting Performance

12The Federal Procurement Data System does not report achievement data by
DOE program office. The achievements by program office reported here are
estimated from DOE's internal data system, and totaled $934 million in
September 2005, the most recent data available. This total differs
slightly from the $947.6 million in small business achievements calculated
by the federal data system.

Table 3: Practices of High-Performing Organizations Compared with DOE
Small Business Program Practices

Sources: GAO analysis of guidance published by the Governmental Accounting
Standards Board, the National Academy of Public Administration, the IBM
Center for the Business of Government, and prior GAO reports regarding
effective managing for results practices.

DOE Has Not Effectively Detailed How It Will Achieve Its Small Business Prime
Contracting Goal

Although DOE negotiates a small business prime contracting goal each
year-5.5 percent in fiscal year 2005-DOE has not specified the concrete
steps the department will take to achieve its small business prime
contracting goal or how progress toward that goal can be measured. In a
literature review of the practices of high-performing organizations, we
found that such organizations often define specific program objectives
indicating how the organization intends to achieve its goals. These
objectives are measurable and are focused on the specific results an
organization wishes to achieve. Well-defined objectives help an
organization gauge its progress in achieving its programmatic goal.

While DOE's small business strategic plan identifies a number of
activities-which the department refers to as "objectives"- that the
department believes will contribute toward achieving its goal, these
objectives do not lay out what it specifically expects to accomplish from
each activity or establish a way to measure if these activities are indeed
advancing it toward its goal. Among the "objectives" the department has
identified are maintaining a procurement forecast, conducting a small
business breakout study of facility management contracts, and conducting a
mentor-protege program. DOE has not indicated how these actions are
intended to contribute to achieving its small business prime contracting
goal, and thus how the success of these actions should be measured. For
example, for the mentor-protege program, the department has not laid out
the number or value of small business prime contracts it expects to result
from the program.

In addition, the department has not established program objectives for
those key departmental efforts holding the greatest promise to increase
the department's small business prime contracting. For example, DOE
currently sets aside prime contracts for small businesses from two
categories of procurements: nonfacility management contracts and facility
management contracts. Yet, the department has not specified the extent to
which each of these types of procurements should contribute towards
achievement of DOE's small business prime contracting goal or how the
success of DOE's efforts to set aside small business contracts in these
areas might be assessed. For example, 61 percent of obligations to new
nonfacility management contracts went to small businesses in 2004.
However, only 28 percent of the total obligations for nonfacility
management contracts went to small businesses. Whether or not DOE has been
successful in reserving such contracts for small businesses and whether
the department's efforts should be further improved are unclear. Defining
an appropriate objective regarding the small business awards for
nonfacility management contracts could increase DOE's understanding of its
efforts in this area and provide a much clearer means of assessing its
progress.

Similarly, the department has not established an objective for the extent
to which DOE might create small business opportunities from facility
management contracts. As discussed earlier, the proportion of procurements
associated with facility management contracts has been increasing.
Generally, the department has begun to recognize that to further increase
its small business prime contracting performance over the long term, it
may be necessary to increase the small business opportunities redirected
from facility management contracts. Furthermore, Congress recently
required DOE to study the feasibility of changes to facility management
contracts so that additional small business prime contracting
opportunities might be provided.13 To date, the Office of Environmental
Management has led the department's effort in redirecting such contracts
to small businesses by setting aside a number of small business
opportunities culled from facility management contracts. Other program
offices have done so to a lesser degree or have plans to do so in the
future but have not yet awarded those contracts. As DOE continues to
consider what small business opportunities it is reasonably able to draw
from facility management contracts, establishing a program objective would
encourage the department to maximize these opportunities.

DOE Does Not Use Performance Information to Evaluate and Improve Program
Performance

DOE does not systematically analyze the performance of its small business
program to determine the effectiveness of specific activities or policies
in advancing its goal, although the department does collect some
performance information. DOE's main effort to collect and analyze
performance information consists of tracking the proportion of total
procurement dollars going to small businesses as prime and subcontracts at
both the agencywide level and the program office level. The prime
contracting data are tracked quarterly. Additionally, the Small Business
Office collects information on a few of its small business development and
support activities, such as attendance at and participants' views on the
quality of small business conferences. Also, DOE's procurement office
collects and tracks aggregate data on the extent to which facility
management and nonfacility management contracts have been awarded to small
businesses and whether such contracts involve multiyear agreements.14

13Section 6022 of the 2005 Emergency Supplemental Appropriations Act for
Defense, the Global War on Terror, and Tsunami Relief (Pub. L. No. 109-13)
requires the SBA administrator, the Chief Counsel for Advocacy of the
Small Business Administration, the chairman of the Defense Nuclear
Facilities Safety Board, the Secretary of Energy, and the NNSA
administrator to jointly conduct a study regarding the feasibility of
possible changes to management and operating contracts (referred to as
facility management contracts in this report) and other management
contracts within DOE to encourage new opportunities for small businesses
to increase their role as prime contractors. In conducting the study, they
are required to jointly consider the need for sound management practices
at facilities managed by prime contractors, safety, security, and
necessary oversight of facilities, and the resources required to implement
findings of the study. According to SBA officials, at the time of our
review, the study was still under way, and a report date had not been
determined.

DOE does not, however, collect sufficient information to provide the
department with insight on whether or how specific policies or processes
should be changed to further increase small business prime contracting.
For example, as noted earlier, DOE's policy is to set aside for small
businesses all new nonfacility management contracts to the extent
possible; in fiscal year 2004, about half of all new nonfacility
management contracts were awarded to small businesses and half were not.
However, the department does not require procurement staff to report the
reasons that contracts have not been awarded to small businesses. The
Federal Procurement Data System allows agencies to report several reasons
for nonawards that include the following: no known small business source;
a small business was solicited but did not make an offer; and a known
small business source existed, but no offer was solicited. Such
information might help DOE assess if staff are having difficulty
identifying small businesses capable of performing DOE contracts, if small
businesses are having problems preparing offers, or if time constraints
are limiting staff efforts to solicit offers from small businesses, for
example. A senior procurement analyst with DOE's Office of Procurement and
Assistance Management said the department does not collect this type of
information because it has not viewed it as useful. However,
high-performing organizations regularly collect and analyze performance
data to develop information on the effectiveness of their
efforts-determining whether or not these efforts are achieving the desired
results.

In addition, many high-performing organizations also conduct periodic
program reviews or audits to identify systemic problems and determine what
adjustments to policy or practice should be made to improve performance
over the long run. While the department does conduct some limited
assessments of the small business efforts carried out by the individual
program offices, these assessments do not routinely result in documented
plans for improved long-term performance. For example, DOE's procurement
office requires program offices to periodically review compliance with
overall federal acquisition regulations, including specific requirements
regarding small business prime contracting. But according to the manager
of this effort, these limited compliance reviews have not identified
problems with any program office's small business practices that have
required corrective action. In addition, DOE's Small Business Office
conducts an informal assessment of a program office's efforts to meet its
small business prime contracting goal when that office does not achieve
its goal. However, the Small Business Office officials said they tend to
focus on near-term obstacles that the program office faces in awarding
small business contracts rather than on systematically evaluating the
program office's management of its small business prime contracting
efforts. Problems identified often include such things as bid protests and
delayed appropriations that impede the award of anticipated small business
contracts. Similarly, any planned corrective action tends to focus on a
program office's ability to identify additional contracting opportunities
for small businesses in the near-term, rather than on programmatic changes
that might improve performance over the long-term. Furthermore, because
the assessment is informal, it is not documented, leaving the Small
Business Office without a written plan that can be used to hold a program
office accountable for achieving results. Thus, when the department's
three largest program offices appeared unable to meet their small business
prime contracting goals in fiscal year 2005-leaving DOE short of its 5.5
percent small business goal-the department had little information to fully
account for the shortfall or systematically determine a course of possible
corrective action to make program improvements.

14DOE's procurement office also has a balanced scorecard program intended
to assess the efficiency and effectiveness of the department's overall
procurement program. The balanced scorecard is a conceptual framework
intended to translate an organization's vision and goals into a set of
performance indicators that measure progress toward these goals. Through
the balanced scorecard, an organization monitors both its current
performance and its efforts to improve processes. The balanced scorecard
does not, however, include a specific effort to assess the effectiveness
of the small business program.

 Other Federal Agencies Use Formal Program Evaluation to Guide Changes in Their
                            Small Business Programs

The small business management practices employed by federal agencies
having a mission or agency component with a mission similar to DOE's
provide examples of strategies for small business program evaluation and
continuous improvement. Unlike at DOE, each agency is required to use
performance information gained from periodic program reviews to help
identify and direct program improvement efforts. We did not assess the
specific small business practices employed by these agencies to determine
if they were effective or the impact these practices may have had upon
their small business prime contracting.15 However, over time, these
agencies and the components we visited have awarded a greater share of
their procurement dollars to small businesses and more often met their
prime contracting goals than has DOE.16

15For further information on our work at these federal agencies, including
the limitations of the data and information we obtained, please refer to
appendix I.

In general, the small business programs at the three agencies we visited
carry out activities similar to those conducted by DOE. As with all
federal agencies, procurements are subject to the requirements of the
Small Business Act and the Federal Acquisition Regulation, which together
require small business contracting procedures and set-asides meant to
ensure small businesses are afforded maximum practicable opportunities for
federal prime contracts. As such, each small business office has a role in
articulating and establishing agency small business contracting policy, as
well as conducting small business outreach and development activities. As
at DOE, these agencies, their components that we visited, or both, also
promote the use of small businesses among agency contracting and
procurement staff, train agency staff on federal and agency small business
contracting requirements, maintain databases of potential small business
vendors, and track and report small business accomplishments, periodically
reporting results to senior agency officials.

In contrast to DOE, however, NASA, the Department of the Army, and the
Department of Health and Human Services use formal program evaluation to
guide programmatic changes. In conjunction with the Office of Procurement,
the NASA small business office performs a comprehensive review of NASA's
procurement offices on a rotating three-year basis. 17 The purpose of the
audit is to ensure that the small business program is being appropriately
implemented and to bring to management's attention issues that hinder
progress toward agency goals. This review also examines how well the small
business goals are being met, what the major impediments to small business
utilization are, and what steps can be taken to improve small business
usage within the procurement center. A recent review of NASA's Kennedy
Space Center found that occasionally small business specialists found it
difficult to balance their procurement and small business work duties and
recommended some organizational changes that would help staff surmount
such difficulties. Another recent review of the Goddard Space Flight
Center identified a strained relationship between the SBA's procurement
center representative, who assesses NASA procurements for small business
opportunities, and procurement center staff. The review recommended
mediation from the Small Business Administration regional office to
improve that relationship. In addition, the Goddard review also included a
recommendation to further reinforce the importance of small businesses to
NASA by having newly-hired staff and some others participate in an
internal training course sponsored by the NASA small business office.
According to NASA small business officials, this course is intended to
show that the use of innovative and technically competent small businesses
make business sense for NASA, regardless of the particular small business
contracting goal, and can contribute substantially to the agency's ability
to achieve its scientific mission. The Director of NASA's small business
office said that one of the main functions of his office staff is ensuring
that program and procurement officials throughout the agency understand
the business and mission benefits of contracting with small businesses.

16Because these goals are negotiated at the parent organization level, the
Department of the Army does not directly negotiate a goal with the SBA.
However, Army and the U.S. Army Corps of Engineers both have consistently
exceeded the goal negotiated between SBA and the Department of Defense,
its parent department.

17This NASA review is called the "Procurement Management Survey Report."

Similarly, the Department of the Army is subject to an annual small
business program review by the Department of Defense (DOD) small business
office, in which the Army must be evaluated on a number of factors that
are both qualitative and quantitative, such as whether the organization
has been able to meet its internal prime contracting goal, whether its
performance has improved over the prior year, and the quality of
organization's small business improvement plan. If DOD officials are
unsatisfied with the performance rating earned by the Army, the head of
the organization may be required to implement a performance improvement
plan, which must be reviewed with senior department officials in the
Office of the Under Secretary for Acquisition, Technology, and Logistics.
Army officials said they believe that elevating these concerns to a higher
department level helps ensure problems are corrected. In addition, the
Army is required to outline a minimum of three program improvement
initiatives it intends to pursue during the year. These initiatives must
include implementation milestones and criteria for assessing whether the
initiatives have been successful. For example, in 2004, the Army
identified an initiative to establish the policies and procedures of the
Army-managed mentor-protege program. This initiative ultimately led to a
number of policy changes, an independent Army mentor-protege program, and
a workshop to help small businesses understand how to develop a formal
mentor-protege agreement with a DOD prime contractor.

Although the Army requires its subordinate organizations to report small
business prime contracting progress annually, which is substantially less
often than such performance is tracked at DOE, the Army evaluates the
small business program performance of each subordinate Army organization,
including the U.S. Army Corps of Engineers, by conducting comprehensive
performance audits at least once every 3 years. These comprehensive audits
of Army small business programs are intended to generate a program
improvement plan to address any deficiencies identified during the audit.
Deficiencies that require corrective action must be reported to the
Secretary of the Army. Army officials said they believe that yearly
performance reviews and a periodic comprehensive evaluation together help
ensure that needed programmatic changes are implemented.

The Department of Health and Human Services also employs program
evaluations with the aim of producing small business program improvements.
Health and Human Services is in the initial stage of using the agencywide
balanced scorecard, an evaluation framework Health and Human Services uses
to assess its performance in a number of diverse areas, to periodically
evaluate its small business program. Part of this effort includes
surveying a wide range of small business program stakeholders-agency
employees, customers, and vendors-to determine both the quality and
quantity of services provided not only by Health and Human Services' small
business office, but also by the small business specialists assigned to
operational divisions, such as the Centers for Disease Control and
Prevention.18 To determine the effectiveness of the agency's small
business program, these surveys target questions for the different
stakeholders. For instance, employees of the operational divisions are
asked how well small business specialists are supporting their procurement
efforts, whether they understand small business contracting requirements,
and how much the small business specialists are involved in advanced
acquisition planning, among other things. The agency also surveys
potential small business contractors on the quality of support they
receive from small business specialists, in particular whether staff has
sufficiently explained how to do business with Health and Human Services,
whether they have been adequately informed of contracting opportunities,
and whether they have received help resolving problems with solicitation
issues. Health and Human Services intends to aggregate results and provide
a descriptive statistical analysis, using the data to drive the small
business program's continuous improvement efforts. For example, the
results are intended to help determine if additional program oversight,
such as program audits or on-site monitoring, is necessary. Health and
Human Services intends for this evaluation to be conducted once every 2
years. Each operational division, including the Centers for Disease
Control, must subsequently prepare a summary report that identifies needed
changes, a plan to address any performance areas requiring improvement,
and target dates for completing improvements. This report must be
submitted to Health and Human Services' management and appropriate agency
stakeholders.

18According to the director of Health and Human Services' s small business
office, these activities are the result of departmental small business
policies and are required not only of the Centers for Disease Control, but
of other operational divisions as well.

                                  Conclusions

DOE has made progress since 2001 not only in increasing the total dollars
it awards to small businesses, but also in increasing the share of its
procurement dollars awarded to such businesses. Nonetheless, it has been
able to achieve its annual small business prime contracting goal just once
in the last 5 years. DOE's performance as well as its future potential in
this area is clearly constrained by the department's traditional reliance
on a limited group of large firms and universities to manage high-cost
projects in which public safety and national security are important
concerns. Moreover, the share of the department's procurement dollars
going to such projects is increasing, whereas the share going to projects
more commonly performed by small businesses is declining. These
circumstances create hurdles for DOE that other federal agencies do not
face.

In spite of these circumstances, DOE has made substantial efforts to
improve its small business prime contracting performance. However, the
department has not accompanied these efforts with a clear understanding of
how they affect prime contracting performance, which efforts are working
well and which are not, and what changes might be made to improve the
effectiveness of these efforts. If DOE can combine its small business
improvement efforts with a clear strategy for achieving its annual goal,
with performance information that indicates its efforts are effective, and
with program evaluations that help to identify problems and lead the
department to address them, DOE can more credibly demonstrate that-even if
it continues to fall short of its prime contracting goal--it has done all
it possibly can to give small businesses the maximum practicable
opportunity to contract with the department.

                      Recommendations for Executive Action

To improve DOE's management of its small business prime contracting
program and to help ensure that small businesses receive the maximum
practicable opportunity for DOE prime contracts, we recommend the
Secretary of Energy direct the Office of Small and Disadvantaged Business
Utilization, the Office of Procurement and Assistance Management, and the
NNSA Office of Acquisition and Supply Management to jointly establish a
systematic, organized, and disciplined approach to achieving the
department's small business goal. Such an approach should include the
following three steps:

           o  Define small business program objectives that collectively
           identify the steps or approach DOE intends to take to reach its
           annual prime contracting goal. These objectives should focus on
           the specific results the department intends to achieve, should
           clearly contribute directly to DOE's prime contracting
           performance, and should be measurable so that progress can be
           determined.
           o  Identify, collect, and analyze performance information that
           will allow the department to determine whether the small business
           program activities it carries out are achieving the desired
           results.
           o  Periodically conduct a comprehensive evaluation of the
           department's and program offices' small business programs to
           determine if changes are needed and use these assessments to guide
           improvement efforts.

           We provided a draft of this report to the Department of Energy for
           review and comment. In written comments, the Director of the
           Office of Small and Disadvantaged Business Utilization stated that
           DOE concurred with findings and recommendations and was taking
           steps to further improve its small business efforts. For example,
           DOE stated it would take further steps to identify the approach it
           will take to reach its annual prime contracting goal, to better
           assess the effectiveness of its existing small business efforts
           and identify areas of improvement, and conduct periodic
           evaluations of the department's small business programs. However,
           DOE expressed concern that we did not fully appreciate the
           department's management and operating contract business model,
           especially in making comparisons to the small business programs at
           other federal agencies. The report does recognize that the use of
           large facility management contractors to perform much of DOE's
           work has constrained the department's ability to contract with
           small businesses. The report also recognizes that other federal
           agencies do not face a similar constraint. We believe the
           comparisons we made between DOE and other agencies are appropriate
           because we compared key management practices of each agency's
           small business program, which are not dependent on the particular
           business model used to accomplish the agency's mission.
           Furthermore, in selecting the three federal agencies to contrast
           with DOE's small business program, our intent was to provide
           information on specific small business practices that differed
           somewhat from DOE's own practices and that might provide examples
           for DOE as it continues its improvement efforts. DOE also provided
           technical comments on the draft report, which we incorporated as
           appropriate.

           We are sending copies of this report to the Secretary of Energy
           and the Administrator of the NNSA. We will also make copies
           available to others upon request. This report will be available at
           no charge on the GAO Web site at http://www.gao.gov.

           If you or your staff have any questions about this report, please
           contact me at (202) 512-3841 or [email protected]. Contact points
           for our Offices of Congressional Relations and Public Affairs may
           be found on the last page of this report. Staff who made key
           contributions to this report are listed in appendix III.

           Gene Aloise Director, Natural Resources and Environment

           Our objectives were to (1) provide an update on the Department of
           Energy's (DOE) key efforts to increase small business prime
           contracting opportunities and the results of these efforts to date
           and (2) identify the management challenges DOE faces in improving
           its small business prime contracting performance. In addition to
           these objectives, we are providing information on the management
           of small business programs by other federal agencies that either
           share certain characteristics with DOE's largest program offices
           or that have components that share certain characteristics with
           these offices.

           To conduct our work, we interviewed DOE headquarters and program
           office officials,as well as representatives from the Small
           Business Administration (SBA), and collected and analyzed data
           from federal and DOE procurement databases. We also interviewed
           officials from the small business offices at the Department of
           Defense, the Department of the Army, the Department of Health and
           Human Services, and the National Aeronautics and Space
           Administration (NASA).

           To gain an understanding of DOE's key small business management
           efforts and results to date, we obtained and reviewed DOE policy
           guidance and management directives concerning small business prime
           contracting, including internal memoranda, small business and
           procurement guidance, agencywide and program-specific small
           business plans, budget documents, and other related documents. To
           further gain an understanding of the DOE Small Business Office and
           Office of Procurement and Assistance Management roles and
           responsibilities with regard to small business prime contracting,
           we reviewed the Federal Acquisition Regulation, as well as the
           DOE-specific supplement to these regulations. We also interviewed
           DOE officials in the Small Business Office and small business
           officials from the department's program offices, as well as
           officials in the Office of Procurement and Assistance Management
           and their counterparts at the National Nuclear Security
           Administration (NNSA). We also interviewed officials at SBA to
           learn about federal small business policy, how small business
           goals are established with the federal agencies, how they ensure
           the federal government meets these goals, and what role they have
           in overseeing small business activities nationwide.

           To determine DOE's small business prime contracting achievement
           for fiscal years 2001 through 2004, we reviewed SBA's federal
           goals report. To determine DOE's small business prime contracting
           achievement for fiscal year 2005, and to determine expenditures to
           date toward specific contracts, we relied on the Federal
           Procurement Data System-Next Generation (FPDS-NG),1 the federal
           government's repository of information regarding the nature and
           value of federal procurement actions. This database contains
           detailed information on government contract actions over $25,000
           and summary data for procurements of less than $25,000. We have
           previously issued reports critical of the reliability, accuracy,
           and completeness of FPDS-NG data and the data of its predecessor
           system2 and remain concerned about some aspects of the data
           system. However, based on the following measures, we determined
           that the data of interest were sufficiently reliable for the
           purposes of this report. We interviewed DOE officials and
           officials from the General Services Administration, the agency
           responsible for the FPDS-NG system, to determine the steps taken
           to ensure accuracy and completeness of procurement data in
           FPDS-NG. In addition to FPDS-NG, we also used data taken from a
           DOE-specific procurement database, called the Procurement and
           Assistance Data System and maintained by DOE's Office of
           Procurement and Assistance Management, to determine fiscal year
           2005 prime contracting achievements for DOE's largest program
           offices: the Office of Environmental Management, the Office of
           Science, and NNSA. As appropriate, we converted dollar values to
           constant 2005 dollars using Gross Domestic Product price indices
           from the Bureau of Economic Analysis.

           To identify the main challenges DOE faces in improving its small
           business prime contracting performance, we reviewed the management
           practices of DOE's small business program and compared these
           against established management principles identified in select
           literature from leading organizations on effective management
           practices at federal agencies. For example, we reviewed guidance
           published by the Governmental Accounting Standards Board, the
           National Academy of Public Administration, and the IBM Center for
           the Business of Government, regarding effective management
           practices. We also reviewed prior GAO reports concerning managing
           for results, as well as the Government Performance and Results Act
           of 1993. We also reviewed program guidance, management directives,
           including DOE internal guidance entitled Managing Critical
           Management Improvement Initiatives, and program performance plans
           to determine the current practices supporting the DOE small
           business program. To gain a further understanding of DOE's small
           business management efforts, we also interviewed DOE Small
           Business Office officials and staff, and DOE Procurement Office
           officials.

           To provide information on how other federal agencies address small
           business program management challenges, we obtained information on
           the practices of the small business offices of three other
           agencies that either share certain characteristics with DOE or
           have component organizations that share characteristics with DOE:
           the National Aeronautics and Space Administration, the Department
           of the Army (U.S. Army Corps of Engineers), and the Department of
           Health and Human Services (Centers for Disease Control and
           Prevention). We selected these agencies because each has annual
           procurement activity on a scale as large as or larger than the
           three DOE offices examined in this study and each agency has been
           able to award a larger share of its procurement dollars to small
           business than has DOE. Additionally, like DOE, these agencies must
           consider public safety and national security concerns to execute
           sound procurement decisions. See table 4 for a comparison of each
           agency's 2004 total procurements and small business prime
           contracting achievement information. Finally, these agencies were
           chosen to reflect the complexity of the varied missions at DOE.
           Both the U.S. Army Corps of Engineers and DOE's Office of
           Environmental Management have environmental cleanup as a key
           component of their missions; scientific research conducted by the
           Centers for Disease Control and Prevention is similar in scope and
           complexity to that conducted by DOE's Office of Science; and both
           the NNSA and NASA have highly technical and complex missions.

                       Agency Comments and Our Evaluation

Appendix I: Objectives, Scope, and Methodology Appendix I: Objectives,
Scope, and Methodology

1For a discussion of this system, see: GAO, Improvements Needed to the
Federal Procurement Data System-Next Generation, GAO-05-960R (Washington,
D.C.: Sept. 27, 2005).

2See GAO, Contract Management: Reporting of Small Business Contract Awards
Does Not Reflect Current Business Size, GAO-03-740T (Washington, D.C.: May
7, 2003) and GAO, Reliability of Federal Procurement Data, GAO-04-295R
(Washington, D.C.: Dec. 30, 2003).

Table 4: Comparison of DOE, Department of Defense, Health and Human
Services, and National Aeronautics and Space Administration Small Business
Prime Contracting Performance, Fiscal Year 2004

Sources: GAO analysis of procurement and contracting data provided by
federal agencies reviewed and SBA 2004 goaling report.

aSBA only reports data for the totality of agency procurements. The data
for the Department of the Army (U.S Army Corps of Engineers), and the
Centers for Disease Control and Prevention were provided by department
officials.

To provide information on the small business program management and
oversight at these agencies, we obtained and reviewed documentation of
agency-specific procurement regulations, small business and procurement
policy guidance, management memoranda, small business strategic plans,
budget documents, and other related documentation. In addition, we
interviewed cognizant officials at each agency concerning this
information. We did not assess the specific small business practices of
these agencies to determine if they were effective. Instead, we obtained
information on small business program activities to identify practices
that somewhat differed from DOE's practices and that could serve as
examples DOE might want to consider as it further seeks to improve its
prime contracting performance. Although the examples we highlight in this
report are consistent with established management principles, we did not
determine if these practices, as implemented by the federal agencies we
visited, have had a direct impact on their small business prime
contracting.

The Department of Defense maintains a small business office for each major
component of the agency, and the operations of each are overseen by the
Department of Defense's small business office. Therefore, we interviewed
small business officials in the small business offices at the Department
of Defense, the Department of the Army, and the U.S. Army Corps of
Engineers. The Department of Health and Human Services, in contrast, has a
central agencywide small business office that is supported by a small
business specialist in each of its 11 operating divisions, such as Centers
for Disease Control and Prevention. Therefore, we interviewed small
business officials from the department's small business office, as well as
the small business specialist and procurement officials at the Centers for
Disease Control. NASA's small business office is similarly centralized, so
we conducted interviews with officials from this office only.

We conducted our work between February 2005 and March 2006 in accordance
with generally accepted government auditing standards.

Appendix II: Comments from the Department of Energy Appendix II: Comments
from the Department of Energy

Appendix III: GAOA Appendix III: GAO Contact and Staff Acknowledgments

                                  GAO Contact

Gene Aloise (202) 512-3841

                             Staff Acknowledgments

In addition to the individual named above, William R. Swick, Assistant
Director; Doreen Feldman; Kevin Jackson; Carolyn Kirby; Michael L. Krafve;
Harry Medina; Dominic Nadarski; Cynthia Norris; John W. Stambaugh; Stan
Stenersen; and Virginia Vanderlinde made key contributions to this report.

(360534)

www.gao.gov/cgi-bin/getrpt? GAO-06-501 .

To view the full product, including the scope

and methodology, click on the link above.

For more information, contact Gene Aloise at (202) 512-3841 or
[email protected].

Highlights of GAO-06-501 , a report to Committee on Small Business and
Entrepreneurship, U.S. Senate

April 2006

DOE CONTRACTING

Improved Program Management Could Help Achieve Small Business Goal

Federal policy requires that small businesses receive the maximum
practicable opportunity for providing goods and services to federal
agencies through prime contracts-direct contracts between the government
and a contractor. The Department of Energy (DOE) buys more than $20
billion in goods and services annually. GAO was asked to (1) discuss DOE's
key efforts to increase small business prime contracting opportunities and
(2) identify the management challenges DOE faces in improving its small
business prime contracting performance. In addition to these objectives
GAO is providing information on the management of small business programs
by other federal agencies that either share certain characteristics with
DOE's largest program offices or that have components that share certain
characteristics with these offices.

What GAO Recommends

GAO recommends that DOE define the concrete steps it will take to achieve
further progress toward its annual goal, collect relevant performance
information to better gauge the effectiveness of its efforts, and use
performance information to support program improvements as needed.

In commenting on this report, DOE concurred with the findings and
recommendations and described steps it will take to further improve its
small business efforts.

Key DOE efforts to increase small business prime contracting have included
identifying more contracting opportunities for small businesses, expanding
small business development and outreach activities, and increasing program
management and oversight. The department has had some success in
redirecting to small businesses portions of contracts to manage large DOE
facilities, as well as in securing additional small business prime
contracting opportunities from the department's other contracts. As a
result, the total dollars awarded annually as prime contracts to small
businesses have increased, and the share of procurement dollars awarded to
small business in 2005 was DOE's second highest ever. Despite these gains,
however, DOE was unable to meet its small business prime contracting goal
in 4 of the past 5 years (see table below).

DOE faces two key management challenges to improving its small business
program. Addressing these challenges will bring DOE's small business
program more in line with the practices associated with high-performing
organizations and with principles contained in the Government Performance
and Results Act. Specifically, DOE has not defined the concrete steps
necessary to enable it to achieve its prime contracting goal and does not
collect sufficient information to effectively assess its small business
program efforts, identify problems, and implement changes that could
further increase small business prime contracting.

Other federal agencies with missions or agency components with missions
similar to DOE periodically comprehensively evaluate their programs to
determine effectiveness, identify problems and make changes intended to
improve performance. GAO obtained information from the following three
agencies: the National Aeronautics and Space Administration, the
Department of the Army (U.S. Army Corps of Engineers), and the Department
of Health and Human Services (Centers for Disease Control and Prevention).

Source: GAO analysis of DOE data.

Note: Data are adjusted for inflation and expressed in 2005 constant
dollars.

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