Commerce Information Technology Solutions Next Generation
Governmentwide Acquisition Contract (14-JUN-06, GAO-06-791R).
Concerns have been raised about the fairness of the "bid down"
approach of the Department of Commerce's Information Technology
Solutions Next Generation (COMMITS NexGen) contract. In response
to these concerns, the fiscal year 2006 Science, the Departments
of State, Justice, and Commerce, and Related Agencies
appropriations conference report requested our review of COMMITS
NexGen. This letter transmits the briefing document we provided
to Congress on May 15, 2006, concerning a variety of issues
related to the COMMITS NexGen contract. Specifically, we provided
information on (1) how the COMMITS NexGen contract is structured
to meet its intended goals, (2) what effect the tier system has
on the task order competition process, and (3) what oversight and
internal control procedures Commerce has implemented to address
the risks of interagency contracting.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-791R
ACCNO: A55532
TITLE: Commerce Information Technology Solutions Next Generation
Governmentwide Acquisition Contract
DATE: 06/14/2006
SUBJECT: Competition
Competitive procurement
Federal procurement
Federal procurement policy
Interagency relations
Internal controls
Procurement evaluation
Procurement practices
Small business contractors
Small business contracts
Eligibility criteria
Dept. of Commerce Information Technology
Solutions Next Generation Program
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GAO-06-791R
United States Government Accountability Office Washington, DC 20548
June 14, 2006
Congressional Committees
Subject: Commerce Information Technology Solutions Next Generation
Governmentwide Acquisition Contract
Concerns have been raised about the fairness of the "bid down" approach of
the Department of Commerce's Information Technology Solutions Next
Generation (COMMITS NexGen) contract. In response to these concerns, the
fiscal year 2006 Science, the Departments of State, Justice, and Commerce,
and Related Agencies appropriations conference report requested our review
of COMMITS NexGen. This letter transmits the briefing document we provided
to your staff on May 15, 2006, concerning a variety of issues related to
the COMMITS NexGen contract. Specifically, we provided information on (1)
how the COMMITS NexGen contract is structured to meet its intended goals,
(2) what effect the tier system has on the task order competition process,
and (3) what oversight and internal control procedures Commerce has
implemented to address the risks of interagency contracting.
The COMMITS NexGen tier structure, which includes a range of sizes of
small business contractors and allows similar size contractors to compete
against each other, is unique among other similar contracts. We found that
many of the 55 COMMITS NexGen contractors have grown significantly or have
been acquired by larger businesses and may no longer meet small business
size standards. In addition, small business accomplishments might be
overstated since specific small business size standards are not identified
for each task order. We also found that a significant portion of the task
orders intended for the smallest contractors were issued to larger,
incumbent contractors. However, because of the way in which the Department
of Commerce has defined incumbency for this contract, an incumbent
contractor may have obtained its initial work through a contracting
vehicle other than COMMITS NexGen. With regard to oversight and internal
controls, the COMMITS NexGen program has established procedures; however,
it is unclear whether some of these controls are in place and others, such
as performance measures, have yet to be established to ensure that the
program is meeting its goals. Program officials said they will begin to
collect specific performance data later this fiscal year. The Small
Business Administration has proposed regulations that would address the
issues we identified with contractors not meeting the small business size
standards; therefore, we are not making any recommendations at this time.
We provided a draft of this briefing to the Department of Commerce for
review and comment. The Department of Commerce Director for Acquisition
Management and
GAO-06-791R COMMITS NexGen
Procurement Executive provided comments via e-mail. He stated that not
assigning industry codes or requiring business size certification for each
task order is a procedure that is used with other interagency contracts,
but they agreed that a rule change could help with fairness in
implementing the contract as intended. Concerning the contractors that may
no longer meet small business size standards because they have grown
significantly, Commerce stated that they will follow the final ruling when
it is issued and made effective by the Small Business Administration;
however, until then, Commerce will continue to require small business size
recertification every three years. With regard to the contractors that
have been acquired, Commerce commented that they are requesting each
company to submit a novation package to determine eligibility to continue
as a COMMITS NexGen contractor.1
We are sending copies of this briefing to interested congressional
committees, the Secretary of Commerce, Director of the Office of
Management and Budget, and the Administrators for General Services and
Small Business. We also will make copies available to others upon request.
In addition, the briefing will be available at no charge on GAO's Web site
at www.gao.gov.
If you or your staff have questions regarding this briefing, please
contact me at (202) 512-4841 or [email protected] . Contact points for our
Office of Congressional Relations and Public Affairs may be found on the
last page of this briefing. GAO staff who contributed to this briefing
were Amelia Shachoy, Assistant Director; Sarah Jane Hise; Russ Reiter; and
Karen Thornton.
Lisa Shames Acting Director Acquisition and Sourcing Management
Enclosure
At the time of a novation or change of name agreement, the Small Business
Administration regulations (Title 13, Code of Federal Regulations, Section
121.404(i)) require contractors to submit a written selfcertification in
order for the agency to count the award or orders issued pursuant to the
contract towards its small business goals.
Page 2 GAO-06-791R COMMITS NexGen
List of Committees
The Honorable Richard C. Shelby Chairman The Honorable Barbara A. Mikulski
Ranking Member Subcommittee on Commerce, Justice, Science
and Related Agencies Committee on Appropriations United States Senate
The Honorable Frank R. Wolf Chairman The Honorable Alan B. Mollohan
Ranking Member Subcommittee on Science, the Department of State,
Justice, and Commerce, and Related Agencies Committee on Appropriations
House of Representatives
Page 3 GAO-06-791R COMMITS NexGen
Commerce Information Technology Solutions Next Generation Governmentwide
Acquisition Contract
Engagement Objectives, Scope, and Methodology
Objectives
o Concerns have been raised about the fairness of the
"bid down" approach of the Department of Commerce's Information Technology Solutions
Next Generation (COMMITS NexGen) contract because it permits incumbent
contractors to compete against smaller firms. In response to these
concerns, the fiscal year 2006 Science, the Departments of State, Justice,
and Commerce, and Related Agencies appropriations conference report
requested our review of the COMMITS NexGen governmentwide acquisition
contract.1 Specifically, we examined:
o how the COMMITS NexGen contract is structured to meet its intended
goals;
o what effect the tier system has on the task order competiton process;
and
o what oversight and internal control procedures Commerce has implemented
to address the risks of interagency contracting.
Scope and Methodology
o To determine how the contract is structured to meet its intended goals,
we:
o reviewed and analyzed the business case documentation specifying the
purpose and goals of the contract;
o met with officials at the Department of Commerce, General Services
Administration (GSA), Small Business Administration (SBA), the Office of
Management and Budget's Office of Federal Procurment Policy (OFPP), and
four small COMMITS NexGen contractors that have been actively submitting
work proposals;
o compared COMMITS NexGen with other small business governmentwide
acquisition contracts;
o met with SBA officials concerning small business regulations affecting
small business size determinations and compared all contractors' current
business size with SBA's small business size standards as well as to the
industry codes used to qualify for the contract; and
H.R. Rep. No. 109-272, p. 165.
o reviewed contractors' current business size information obtained from
Central Contractor Registration (CCR), including the SBA's Dynamic Small
Business database,2 or other publicly available information.
o To determine the effect of the tier system on the task order
competition process, we:
o identified the criteria used to place contractors into their respective
tiers and analyzed data to determine under what industry codes contractors
had performed prior government work; and
o reviewed each of the 19 task orders issued as of April 30, 2006, under
COMMITS NexGen.
* To identify the oversight and internal control procedures that
Commerce has implemented to address the risks of interagency
contracting we:
* o obtained documentation and interviewed officials with regard to
the definition of roles and responsibilities, training, and
guidance on the use of the vehicle and compared this information
with concerns identified in our prior work on interagency
contracting.
o We compared the data from the CCR and Federal Procurement Data System
to other supporting documents to determine data consistency and
reasonableness and found it sufficiently reliable for the purposes of
this report.
o We conducted our work from February 2006 through May 2006 in
accordance with generally accepted government auditing standards.
Central Contractor Registration (CCR) is the primary vendor database for
the federal government. CCR collects, validates, stores, and disseminates
data in support of agency acquisition missions. Both current and potential
federal government vendors are required to register in CCR in order to be
awarded contracts by the federal government. The SBA's Dynamic Small
Business database is generally a self-certifying database. The SBA does
not make any representation as to the accuracy of any of the data
included, other than certifications relating to 8(a) Business Development,
HUBZone or Small Disadvantaged Business status.
Summary
Background
o COMMITS NexGen is a governmentwide acquisition contract (GWAC)
designed to offer information technology services to federal customers
through a pool of highly-qualified small businesses. In January 2005,
Commerce awarded 55 contracts to small businesses grouped into three
tiers based on their size. COMMITS NexGen small business contractors
provide services to federal customers through task orders. The
contract has an $8 billion ceiling over a 10 year performance period.
o COMMITS was originally established in 1999 to allow federal agencies
to compete information technology solutions from a pool of small
businesses. The original COMMITS contract reached its $1.5 billion
ceiling in December 2004. To continue the goals of COMMITS, Commerce
established COMMITS NexGen.
o For COMMITS NexGen, Commerce created three tiers of similar size
businesses to allow them to compete against each other. Contractors
are placed in a tier based on their size as well as the type of
service. The type of service is defined by the North American Industry
Classification System (NAICS). Commerce used 19 different NAICS codes.
The size standards are drawn from SBA, which publishes a table of
small business size standards matched to each of the NAICS codes.3
o As of April 30, 2006, 19 task orders totaling about $419 million had
been issued.
o In 2005, GAO designated management of interagency contracting as a
governmentwide high-risk area. In recent years, federal agencies have
been making a major shift in the way they procure many goods and
services. Rather than spending a great deal of time and resources
contracting for goods and services themselves, they are making greater
use of existing contracts, such as GWACs, already awarded by other
agencies. These contract vehicles offer the benefits of improved
efficiency and timeliness; however, they need to be effectively
managed. If not properly managed, a number of factors can make these
interagency contract vehicles high risk. For example, these vehicles:
o attract rapid growth of taxpayer dollars; o are administered and
used by some agencies that have limited expertise
with this contracting method; and o contribute to a more complex
contracting environment in which accountability has not always been
clearly established.
Findings
o The COMMITS NexGen tier structure is unique among GWACs.
o Many COMMITS NexGen contractors have grown significantly or been
acquired by larger businesses since their small business certification
with COMMITS NexGen and may no longer meet the small business size
standards.
* COMMITS NexGen permits incumbent contractors to compete for task
orders otherwise designated for lower tier competition. Commerce
defines an
* "incumbent" as a firm that is currently the prime contractor for
work that will be continued under a new task order. The prime
contractor may have obtained the initial work through a
contracting vehicle other than COMMITS NexGen.
o Only 30 percent, about $125 million, of the total task order value was
competed among the smallest contractors. A significant portion of this
was placed with larger incumbent contractors.
o Because COMMITS NexGen does not include NAICS codes on individual task
orders the program does not verify that contractors meet a particular
size standard for that work. This may result in overstating small
business contracting accomplishments.
o COMMITS NexGen lacks measures for assessing performance.
Tier Structure Seeks Competition among Similar Size Businesses
o Commerce's goals included:
o having a range of small business size contractors;
o establishing tiers to allow similar size contractors to compete against each
other; and
o supporting the smallest of the small businesses through the tier
structure.
o To accomplish these goals, Commerce used NAICS codes to differentiate
small business sizes as shown in table 1.
Table 1: Qualifying Industry Codes Used to Determine COMMITS NexGen Small
Business Contractor Eligibility
Tier North American Industry Classification System Codes Small business
and Type of Service size standards
One 518112 - Web search portals $6.5 million
519120 - Libraries and archives maximum
519190 - All other information services revenues
541690 - Other scientific and technical consulting
services
541990 - All other professional, scientific and
technical services
517410 - Satellite telecommunications $13.5 million
517510 - Cable and other program distributions maximum
517910 - Other telecommunications revenues
Two 518111 - Internet service providers $23 million
518210 - Data processing, hosting and related maximum
services revenues
541511 - Custom computer programming services
541512 - Computer system design services
541513 - Computer facilities management services
541519 - Computer related services
516110 - Internet publishing and broadcasting 500 maximum
employees
(regardless of
revenue)
Three 517110 - Wired telecommunications carriers 1,500 maximum
517211 - Paging employees
517212 - Cellular and other wireless (regardless of
telecommunications revenue)
517310 - Telecommunications resellers
Source: Commerce (data); GAO (presentation).
Notes: Revenue size standards effective December 2005. Revenue values are
averaged over 3 years. The number of employees is calculated on an
average, 12-month basis. Businesses may not exceed the size standards to
be considered a small business.
o Our review of other small-business GWACs found that the COMMITS NexGen
tier structure is unique. GSA manages a number of GWACs intended for small
businesses. These GWACs are not structured into tiers and require
contractors to meet the specific small business NAICS code(s) for the task
order.
o The 8(a) Streamlined Technology Acquisition Resources for Services
(STARS) and the Historically Underutilized Business Zone (HUBZone) GWACs
are small business set-aside contracts for technology solutions. The GWACs
are structured according to distinct functional areas
5 GAO-06-791R COMMITS NexGen
designated by the NAICS codes. The small business contractors must meet
the small business size standard for the appropriate functional area. Each
task order is then identified for a specific functional area.
o GSA is also in the process of awarding two additional small business
GWACs. The Veterans Technology Services (VETS) GWAC designed to provide
worldwide information technology solutions to federal agencies and Alliant
Small Business, a broadly scoped contract offering a suite of information
technology services. Both of these GWACs use only one qualifying NAICS
code, 541512-computer systems design services, which has a size standard
of $23 million.
Some Businesses Have Grown Substantially
o Some businesses have grown substantially.4 As shown in
table 2, we found 16 (over 27 percent) of the COMMITS NexGen
contractors do not meet the small business size standards
for their current tier, or in some cases, any tier.
Table 2: Contractor Eligibility Based on Current Size Information
Tier Current number of Current size falls Current size does not meet any
contractors in another tier tier size
One 20 5 1
Two 27 3 4
Three 8 0 3
Total 55 8 8
Source: Commerce, CCR, public available information (data); GAO (analysis
and presentation).
o We also found that six small businesses have been acquired or merged
with large contractors, but small business size recertification did
not occur.
o Recent studies by the SBA's Office of the Inspector General, SBA's
Office of Advocacy, and our own review have found that agencies are
counting awards to large firms toward their small business procurement
goals. In May 2003, we reported that large companies are reported as
small businesses on contracts such as GWACs.5 Regulations allow
companies to be considered small over the life of the contract even if
the company has grown into a large business or been acquired by a
large company.
SBA's Recertification Rules
o In April 2003, SBA published a proposed rule requiring contractors that
receive a multiple award contract (such as a GWAC) to certify annually on
the anniversary date of the contract award to continue to be considered a
small
4
For example, a tier one contractor, whose revenues should not exceed $13.5
million, now has projected revenues of $150 million for 2006. A tier three
contractor, who should not have more than 1,500 employees, had over 4,000
employees in 2005.
5
GAO, Contract Management: Reporting of Small Business Contract Awards Does
Not Reflect Current Business Size, GAO-03-704T (Washington, D.C.: May 7,
2003).
business for a specified size standard.6 As of May 2006, this rule has not
been finalized.
o Commerce officials suggested that annual recertification would reduce
COMMITS' effectiveness.
o A small business representative said that allowing large businesses to
qualify as small businesses could deprive small businesses of contract
opportunities.
o SBA issued a final rule amending its small business size
determinations effective December 21, 2004, which requires that at the
time a novation or change-of-name agreement has been executed, the new
entity must submit a written self-certification that it is small.7 If
the acquisition or merger does not result in contract novation or name
change, a business concern need not recertify.
o COMMITS NexGen contractors are required to recertify their small
business size after the initial 3 years and prior to the exercise of
the options to extend the GWAC period for an additional year. We found
that GSA also requires its small business contractors to recertify
prior to exercising any options. However, this time frame can vary
between 2 to 5 years, depending on the contract. Agency officials may
request size recertification for individual task orders.
o We found cases in which contractors may be receiving task orders and
not
Task Orders May Be Issued to Businesses Not Meeting Size Meeting Size
meeting the small business size standards because:
o incumbent contractors are allowed to compete for lower tier work; and
o individual task orders do not identify a specific NAICS
code and the corresponding small business size standard.
Standards
o Incumbent contractors in COMMITS NexGen are permitted to
compete for task orders designated for lower tier competition, even if the
incumbents exceed the size standards for the designated tier of
competition.
o As shown in figure 1, only about 30 percent of the total value of
COMMITS NexGen orders was placed for competition in tiers one and two.
6
68 Fed. Reg. 20350.
7
Figure 1: Dollar Value of Task Orders Meeting Tier Level Criteria
o As shown in figure 2, task orders were issued to incumbent contractors
exceeding the size standards.
Figure 2: Percent of Total Task Orders Won by Higher Tier Incumbent
Not Using NAICS Codes May Result in Overstating Small
Business Accomplishments
o COMMITS NexGen task orders are not assigned NAICS
codes. Not assigning NAICS codes to task orders can
result in orders being issued to businesses not meeting the
specific size standard for that type of service. Because competition
for task orders is based on the total value of the order and not
on the type of service size standard, contractors are
allowed to compete for work with smaller size standards. If won, the
task order is recorded as going to a small business.
o Tier three contractors can compete for any task orders
valued greater than
$40 million. o Tier two contractors can compete for any task orders valued
greater than $5 million. o Task orders with a value of $5 million or less
are reserved for tier one contractors.
o We found evidence that suggests that task orders may be issued to
contractors not meeting the size standards for the category of work.
o SBA recognized that multiple award contracts, including GWACs, have
multiple NAICS codes with different small business size standards. In
April 2003, SBA proposed that contracting officers must assign an
appropriate NAICS code to each order issued under a GWAC to help
ensure that, when applicable, a contractor is a small business.8 As of
May 2006, a final rule had not been issued.
Primary Small Business Size Standard Is $23 Million in Revenue
o We determined that the primary NAICS codes for computer-related
services and software development have a small business size standard
of $23 million.
o We determined that all but one of the 19 task orders (valued at over
$419 million) would most likely have been categorized as computer
related services and software development having a small business size
standard of $23 million.
o Based on public information, we found 31 (over 56 percent) of the 55
contractors currently exceed the $23 million size standards (table 3).
Table 3: COMMITS NexGen Contractors Currently Meeting $23 million Size
Standard
COMMITS contractors Currently meet $23 million Currently exceed $23
by tier NAICS codes million NAICS codes
Tier one (20) 18 2
Tier two (27) 6 21
Tier three (8) 0 8
Total (55) 24 31
Source: Commerce (data); GAO (analysis and presentation).
Effect of Not Using NAICS Codes in Individual Task Orders Overstates Small
Business Accomplishments
o Only five of the task orders have been issued to contractors that
currently meet the $23 million size standard (falling under tiers one
and two).
o Eleven of the task orders were issued to contractors certified as
small businesses under size standards for 500 or 1,500 employees
(falling under tiers two and three).
o 92 percent of the total value of task orders issued went to
contractors currently exceeding the $23 million size standard.
Effectiveness of Internal Controls and Oversight Is Unclear
The COMMITS NexGen ordering guide and business plan include oversight and
internal control procedures to:
o ensure the task is
appropriate for small business, prior to issuance of any
task orders;
o establish a risk management approach to monitor cost,
schedule, and performance measurement throughout the life of this program;
o require
random post-award reviews of task orders;
o place emphasis on ensuring the
fair-opportunity competition is received
and that task order prices are fair and reasonable;
o require agency's
contracting officers to attend training prior to receiving delegation of
procurement authority; o require task orders to include performance
metrics that are modified annually; and o establish a fee structure that
is monitored and assessed on an annual basis to determine whether it is in
alignment with program cost.
o However, it is unclear whether these controls are in place.
o The program office was not able to document the 55 contractors' small
business size certifications and contacted the contractors to obtain these
certifications during our review.
o At the time we completed our review, certifications were not obtained
from nine contractors.
o We identified six contractors that were placed in tiers lower than those
for which they had certified. The program office was not aware that the
six contractors inadvertently certified under incorrect NAICS codes.
However, the program office believes that the contractors were placed in
the correct tiers. Based on our review, the contracting officer has
requested that contractors recertify immediately under the proper NAICS
code.
o In addition, the program has only issued 19 task orders, most within the
past year.
o The program has not developed performance measures to ensure that that
the program is meeting its goals. Appropriate performance measures help
ensure that policies and processes are implemented and have the desired
outcomes. o Program office officials stated that COMMITS NexGen specific
performance data will be collected starting this fiscal year.
(120567)
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