Small Business Contracting: Observations from Reviews of	 
Contracting and Advocacy Activities of Federal Agencies 	 
(26-SEP-07, GAO-07-1255T).					 
                                                                 
The federal government's long-standing policy has been to use its
buying power to maximize procurement opportunities for various	 
types of small businesses. GAO initiated work and completed a	 
report in March 2007 under the Comptroller General's authority	 
describing the extent to which small businesses participated in  
contracting opportunities related to Hurricane Katrina. This	 
testimony discusses (1) results from the March 2007 GAO report,  
including the amounts that small and local businesses received	 
directly from federal agencies from contracts related to	 
Hurricane Katrina and the lack of required information in	 
official procurement data systems on subcontracting plans, (2)	 
information from two previous GAO reports regarding the small	 
business advocacy responsibilities of Small Business		 
Administration (SBA) and federal agencies that award contracts,  
and (3) GAO work on SBA's efforts to advocate for small 	 
disadvantaged businesses, and similar efforts by entities within 
selected agencies. In conducting the studies discussed in this	 
testimony, GAO analyzed agency contract data, reviewed federal	 
acquisition regulations, and interviewed agency procurement	 
officials; we also sent a questionnaire to agency officials	 
regarding Office of Small and Disadvantaged Business Utilization 
(OSDBU) reporting relationships; reviewed organizational charts  
and other pertinent information; analyzed relevant laws,	 
legislative history, and court cases; and, updated information on
agency actions on our recommendations.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-1255T					        
    ACCNO:   A76732						        
  TITLE:     Small Business Contracting: Observations from Reviews of 
Contracting and Advocacy Activities of Federal Agencies 	 
     DATE:   09/26/2007 
  SUBJECT:   Contract administration				 
	     Data collection					 
	     Data integrity					 
	     Federal agencies					 
	     Federal procurement				 
	     Federal procurement policy 			 
	     Federal regulations				 
	     Hurricane Katrina					 
	     Procurement planning				 
	     Procurement regulations				 
	     Reporting requirements				 
	     Small business					 
	     Small business contractors 			 
	     Small business contracts				 
	     Strategic planning 				 
	     Subcontracts					 
	     Program goals or objectives			 

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GAO-07-1255T

   

     * [1]Background
     * [2]Agencies Awarded Varied Amounts of Contracting Dollars to Sm

          * [3]Small Businesses Received Varied Amounts of the Contracting
          * [4]Information on Subcontracting Plan Requirements Was Missing

     * [5]Some Agencies May Not Be Maximizing Their Advocacy Roles
     * [6]Ongoing Work to Evaluate SBA and OSDBU Advocacy Efforts
     * [7]Contacts and Acknowledgments
     * [8]GAO's Mission
     * [9]Obtaining Copies of GAO Reports and Testimony

          * [10]Order by Mail or Phone

     * [11]To Report Fraud, Waste, and Abuse in Federal Programs
     * [12]Congressional Relations
     * [13]Public Affairs

Testimony

Before the Subcommittee on Government Management, Organization, and
Procurement; Committee on Oversight and Government Reform; House of
Representatives

United States Government Accountability Office

GAO

For Release on Delivery
Expected at 2:00 p.m. EDT
Wednesday, September 26, 2007

SMALL BUSINESS CONTRACTING

Observations from Reviews of Contracting and Advocacy Activities of
Federal Agencies

Statement of William B. Shear, Director
Financial Markets and Community Investment

GAO-07-1255T

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss our previous and ongoing work
related to contracting opportunities for small businesses. The federal
government's long-standing policy has been to use its buying power--the
billions of dollars it spends through contracting each year--to maximize
procurement opportunities for various types of small businesses. The Small
Business Act creates responsibilities for both the Small Business
Administration (SBA) and the federal agencies that award contracts to
provide various types of small businesses with opportunities to receive
federal contracts and subcontracts. Furthermore, the act sets goals for
participation by specific types of small businesses, including small
disadvantaged businesses. Given the importance of assessing the extent to
which various types of small businesses participate in federal contracts
and subcontracts, even in times of presidentially-declared disasters, as
well as the important roles of both the SBA and federal agencies
concerning small business participation, this is a timely hearing at which
to consider our relevant previous and ongoing work.

My statement today is based primarily on a report we issued in March 2007,
which discussed the amounts that small businesses received through prime
contracts and subcontracts related to Hurricane Katrina; two earlier
reports we issued on federal agencies' responsibilities for advocating for
small and disadvantaged businesses; and work now underway at the request
of this subcommittee dealing with SBA's efforts to advocate that federal
agencies and contractors provide the maximum practicable opportunity for
small disadvantaged businesses to participate in federal contracts.^1
Specifically, I will discuss (1) the amounts that small and local
businesses received directly from federal agencies through contracts
related to Hurricane Katrina and the lack of required information in
official procurement data systems on subcontracting plans, (2) the small
business advocacy responsibilities of SBA and federal agencies that award
contracts and (3) work we are beginning at your request on SBA's and
selected agencies' Offices of Small and Disadvantaged Business Utilization
(OSDBU) efforts to advocate for small disadvantaged businesses.

^1GAO, Hurricane Katrina: Agency Contracting Data Should Be More Complete
Regarding Subcontracting Opportunities for Small Businesses,
[14]GAO-07-205 (Washington, D.C., March 1, 2007); GAO, Small Disadvantaged
Businesses: Most Agency Advocates View Their Roles Similarly,
[15]GAO-04-451 , (Washington, D.C., March 22, 2004); GAO, Small and
Disadvantaged Businesses: Some Agencies' Advocates Do Not Report to the
Required Management Level, [16]GAO-03-863 , (Washington, D.C., Sept. 4,
2003.)

In assessing contracts related to Hurricane Katrina, we analyzed data on
contracts awarded or used by the Departments of Homeland Security (DHS)
and Defense (DOD) (including the U.S. Army Corps of Engineers), and the
General Services Administration (GSA) for Katrina-related projects overall
and specifically for projects in Alabama, Louisiana, and Mississippi from
August 1, 2005, through June 30, 2006.^2 These agencies were responsible
for over 85 percent of the federal funds awarded via contracting when we
began our data analysis. We also identified contracts that were used for
activities related to Hurricane Katrina and that required subcontracting
plans, reviewed federal acquisition regulations, and interviewed agency
procurement officials. We conducted our work under the Comptroller
General's authority to initiate evaluations between March 2006 and
February 2007 in accordance with generally accepted government auditing
standards. To describe the small business advocacy responsibilities of SBA
and federal agencies, we summarized our previous work on small
disadvantaged businesses and updated information on agency responses to
our recommendations. In this previous work, we sent a questionnaire to
agency officials regarding OSDBU reporting relationships, reviewed
organizational charts and other pertinent information, and analyzed
relevant laws, legislative history, and court cases. Our final objective
highlights ongoing work assessing the efforts of SBA and selected OSDBUs
in advocating for small disadvantaged businesses.

In summary:

           o Small businesses received 28 percent of the $11 billion that
           DHS, GSA, DOD, and the Corps awarded directly for Katrina-related
           projects. DHS awarded the highest dollar amount to small
           businesses (about $1.6 billion), and GSA awarded the highest
           percentage of its Katrina-related contracting dollars to small
           businesses (72 percent of about $658 million). Information on
           whether DHS and GSA required subcontracting plans was generally
           not available in the federal government's official procurement
           database for 70 percent or more of the contracting dollars each
           agency awarded for activities related to Hurricane Katrina. This
           database should have contained information on whether the agencies
           required subcontracting plans in these instances. The lack of
           transparency surrounding much of the agencies' subcontracting data
           may lead to unwarranted perceptions about how the federal
           procurement system is working, particularly in terms of the
           government's stated preference for contracting with small
           businesses.

           o SBA has governmentwide responsibilities for advocating that
           federal agencies use small businesses as prime contractors, and
           that prime contractors give small businesses opportunities to
           participate as subcontractors in federal contracts awarded to
           large businesses. To meet its responsibilities, SBA negotiates
           annual procurement goals with each agency and reviews certain
           proposed contracts to encourage them to offer the maximum
           practicable opportunity for small businesses to participate.
           Similarly, each federal agency has an Office of Small and
           Disadvantaged Business Utilization (OSDBU) that plays an advocacy
           role by overseeing the agency's functions and duties related to
           the awarding of contracts and subcontracts to small and
           disadvantaged businesses. To advocate effectively for small and
           disadvantaged businesses, the Small Business Act requires that the
           OSDBU directors be responsible to and report only to agency heads
           (or their deputies) so that the directors have immediate access to
           their agency's top decision-makers. However, in 2003, we reported
           that 11 of the 24 agencies we reviewed did not comply with this
           provision and as of our most recent follow-up work, 9 agencies
           were out of compliance. Because the OSDBU directors at these
           agencies do not have a direct reporting relationship with their
           agencies' head or deputy, the reporting relationships potentially
           limit their role as an advocate for small and disadvantaged
           businesses.

           o In response to a request from the Chairman of this subcommittee
           about the extent to which 8(a) firms are obtaining federal
           contracts, we initiated an evaluation of SBA's efforts to advocate
           for such businesses. This evaluation includes an assessment of the
           actions SBA takes to encourage agencies to meet their prime
           contracting goals for small disadvantaged businesses; the extent
           to which such goals have been met; and SBA's efforts to advocate
           that small disadvantaged businesses have the maximum practicable
           opportunity to participate as subcontractors for prime federal
           contracts. In our evaluation, we also will assess actions by
           selected agency OSDBUs in serving as advocates for 8(a) firms.

^2We reported on the U.S. Army Corps of Engineers (Corps) and the rest of
DOD separately because, of the four supplemental appropriations measures
for Department of Defense activities relating to Hurricane Katrina relief
(Pub. L. Nos. 109-61, 109-62, 109-148, and 109-234), the latter three
specifically directed certain funds to the Corps for its disaster relief
activities.

Background

Federal agencies' contracts with private businesses, whether made in the
normal course of agency operations or specifically related to a natural
disaster declaration, are used to meet certain goals to increase
participation by various types of small businesses. The Small Business
Act, as amended, defines a small business generally as one that is
"independently owned and operated and that is not dominant in its field of
operation."^3 In addition, a business must meet the size standards
published by SBA to be considered "small." The act sets a governmentwide
goal for small business participation of not less than 23 percent of the
total value of all prime contract awards--contracts that are awarded
directly by an agency--for each fiscal year.^4 The Small Business Act sets
annual prime contract dollar goals for participation by specific types of
small businesses: small disadvantaged businesses (5 percent); women-owned
or service-disabled, veteran-owned, (5 and 3 percent, respectively); and
businesses located in historically underutilized business zones (HUBZones,
3 percent).^5

In August 2007, SBA issued its fiscal year 2006 Goaling Report. The
Goaling Report includes data on the extent to which federal agencies met
their goals for awarding contracts to various types of small businesses.
According to this report, federal agencies awarded 22.8 percent of their
prime contracting dollars to small businesses, just short of the 23
percent statutory goal. In addition, while federal agencies collectively
exceeded the goals for awarding prime contracting dollars to small
disadvantaged businesses, they did not meet the goals for awarding prime
contracting dollars to women-owned, HUBZone, or service-disabled
veteran-owned businesses. Of the agencies we reviewed in our March 2007
report, all exceeded their agency-specific goals for awarding prime
contracting dollars to small disadvantaged businesses, a subset of which
are Section 8(a) firms. Generally, in order to be certified under SBA's
8(a) program, a firm must satisfy SBA's applicable size standards, be
owned and controlled by one or more socially and economically
disadvantaged individuals who are citizens of the United States, and
demonstrate potential for success.^6 Black Americans, Hispanic Americans,
Native Americans, and Asian Pacific Americans are presumptively socially
disadvantaged for purposes of eligibility.^7 The personal net worth of an
individual claiming economic disadvantage must be less than $250,000 at
the time of initial eligibility and less than $750,000 thereafter.

^3Public Law 85-536, as amended, 15 U.S.C. S 632(a).

^415 U.S.C. S 644(g).

^5HUBZones are economically distressed metropolitan or nonmetropolitan
areas--that is, areas with low-income levels or high unemployment
rates--and qualified Hubzone small businesses must employ some staff who
live in those zones. See 15 U.S.C. S 632. A small disadvantaged business
is a business that is owned and controlled by socially and economically
disadvantaged individuals, or certain economically disadvantaged groups,
such as Indian Tribes. These owners must have at least a 51 percent stake
in the business. See 15 U.S.C. S 637(a).

The general rules governing procurement are set out in federal procurement
statutes and in the Federal Acquisition Regulation (FAR). Among other
things, these rules require that any business receiving a prime contract
for more than the simplified acquisition threshold^8 must agree to give
small business the "maximum practicable opportunity" to participate in the
contract.^9 Additionally, for contracts (or modifications to contracts)
that (1) are individually expected to exceed $550,000 ($1 million for
construction contracts) and (2) have subcontracting possibilities, the
prime contractor generally must have in place a subcontracting plan.^10
This plan must identify the types of work the prime contractor believes it
is likely to award as subcontracts as well as the percentage of
subcontracting dollars it expects to direct to the specific categories of
small businesses for which the Small Business Act sets specific goals.^11

^6Unless otherwise noted, ownership means having a stake of 51 percent or
more in the business.

^713 C.F.R. SS124.103 and 124.104 (2006). Business owners who are not
members of presumptive socially disadvantaged groups may petition the SBA
to be classified as disadvantaged. To do so, business owners must provide
narrative and supporting documentation that demonstrates social
disadvantage. That evidence must include the following elements: (1)
possession of at least one objective distinguishing feature that has
contributed to the business owners' social disadvantage -- such as race,
ethnic origin, gender, physical handicap, or long-term residence in an
environment that is isolated from mainstream America; (2) personal
experience of a substantial and chronic social disadvantage within
American society; and (3) the negative impact of this disadvantage on the
business owners' entry into or advancement in the business world.

^8FAR section 201.1 defines "simplified acquisition threshold" to mean
$100,000, except when the acquisition of supplies or services is used to
support a contingency operation or facilitate defense against nuclear,
biological, chemical, or radiological attack. In those instances, the term
means $250,000 for contracts to be awarded and performed inside the United
States and $1 million for contracts to be awarded and performed outside
the United States.

^9FAR SS 19.702, 2.101. see, e.g., 15 U.S.C. S 644(g)(1)

^10Id. The dollar threshold was changed to $550,000 on September 28, 2006.
71 Fed. Reg. (Sept. 28, 2006).

When they award contracts, federal agencies collect and store procurement
data in their own internal systems--typically called contract writing
systems. The FAR requires federal agencies to report the information about
procurements directly to the Federal Procurement Data System-Next
Generation (FPDS-NG), GSA's governmentwide contracting database, which
collects, processes, and disseminates official statistical data on all
federal contracting activities of more than $3,000.^12

Congress has enacted several laws designed to foster small business
participation in federal procurement. One of these laws, Public Law
95-507, enacted in 1978, amended section 15 of the Small Business Act (15
U.S.C. S 644) to require that all federal agencies with procurement
authority establish an Office of Small and Disadvantaged Business
Utilization. This office is responsible for helping oversee the agency's
functions and duties related to the awarding of contracts and subcontracts
to small and disadvantaged businesses.

Finally, the Stafford Act sets forth requirements for the federal response
to presidentially declared disasters. It requires federal agencies to give
contracting preferences, to the extent feasible and practicable, to
organizations, firms, and individuals residing or doing business primarily
in the area affected by a major disaster or emergency.^13

^11These and other aspects of the small business subcontracting plan
requirement are set forth at FAR Part 19.7.

^12The FPDS-NG reporting threshold in FAR 4.602(c) was raised from $2,500
to $3,000. 71 Fed. Reg. 57,364 (Sept. 28, 2006). U.S.C. S 644(g).

^1342 U.S.C. S 5150. Our work did not assess agency compliance with
Stafford Act requirements.

Agencies Awarded Varied Amounts of Contracting Dollars to Small Businesses, but
Information on Subcontracting Plans Was Incomplete

Our March 2007 report identified the extent to which DHS, GSA, DOD, and
the Corps awarded contracts directly to small businesses; the extent to
which different types of small businesses received contracts; and the
extent to which small businesses located in Alabama, Mississippi, and
Louisiana received contracts for Katrina-related projects.^14 Our report
also noted that information on small business subcontracting plans was not
consistently available for the four agencies.

Small Businesses Received Varied Amounts of the Contracting Dollars That DHS,
GSA, DOD, and the Corps Awarded

We found that small businesses received 28 percent of the $11 billion that
DHS, GSA, DOD, and the Corps awarded directly for Katrina-related
projects, but the percentages varied among the four agencies (see fig.
1).^15 We assessed the agencies individually and found that DHS had
awarded the highest dollar amount to small businesses--about $1.6 billion
dollars--and that GSA had awarded the highest percentage of its dollars to
small businesses--72 percent of about $658 million.

Figure 1:  Amount and Percentage of Katrina-Related Contract Dollars Awarded
to Businesses by DHS, GSA, DOD, and the Corps

Source:  GAO Analysis of FPDS-NG and DD-350 cata on contracting actions awarded
on from August 1, 2005, to June 30, 2006.

^14 [17]GAO-07-205 .

^15Each of the agencies we reviewed establishes annual goals for small
business participation. Among the agencies, these goals ranged from 23
percent for DOD and DHS to 45 percent for GSA in fiscal years 2005 and
2006.

Among categories of small businesses, small disadvantaged businesses
received 7 percent of the approximately $11 billion that the four agencies
awarded to both large and small businesses. Other categories of small
businesses, including women- and veteran-owned businesses and businesses
located in HUBZones, received from 2 to 4 percent (see fig. 2).
Contracting dollars awarded directly to businesses can be counted in more
than one category, so the dollars awarded to various types of small
businesses are not mutually exclusive.

Figure 2: Dollar Amount of Katrina-Related Prime Contracts Awarded to
Businesses by Socioeconomic Group

Small businesses in Alabama, Mississippi, and Louisiana received 66
percent of the $1.9 billion in Katrina-related contracting dollars awarded
to local businesses by the four agencies we reviewed. Among the three
states, the proportion of Katrina-related contracting dollars awarded to
small businesses was largest in Mississippi (75 percent), followed by
Alabama and Louisiana at 65 percent and 62 percent, respectively, of the
dollars awarded (table 1). In general, these small local businesses
received contracting dollars directly from the four agencies to provide
trailers, administrative and service buildings, restoration activities,
and other supportive services.

Information on Subcontracting Plan Requirements Was Missing or Incomplete

Table 1:  Small Businesses Received the Majority of Contracting Dollars
Awarded Directly to Local Businesses

In two respects, key information on small business subcontracting plans
was not consistently available in official procurement data systems for
the four agencies. First, primarily with respect to DHS and GSA contract
actions, the official procurement data system had no information at all on
whether the agencies required subcontracting plans for 70 percent or more
of their contracting funds. This database should have contained
information on whether the agencies required subcontracting plans in these
instances. For DOD and the Corps, their system lacked information on
whether they required subcontracting plans for one percent of their
contracting funds. Table 2 shows the total amounts each agency awarded to
large businesses for contracts valued over $500,000 (column 2) and the
extent to which no information was available in the official procurement
data system on whether the agencies required subcontracting plans for
those contracts (column 6).

Table 2:  Subcontracting Plan Requirements by Dollar Amount Awarded

Second, the procurement data systems showed that the agencies had
determined that subcontracting plans were not required for contracts
representing 12 to 77 percent of the dollars they awarded to large
businesses for Katrina-related projects. Agencies are required to document
their reasons for these determinations. However, information on the four
agencies' reasons for not requiring these plans, which should have been
readily available, was incomplete.

Overall, procurement officials from the four agencies were able to explain
some of the missing or incomplete information on subcontracting plans by,
for example, identifying data entry errors or providing evidence of the
agencies' reasons for not requiring the plans. For example, DHS officials
determined that $545 million of the DHS contracting funds the procurement
data system showed as not requiring a plan had been miscoded and should
have been entered in the procurement system under a different category
that listed the contracts as having "no subcontracting possibilities." In
another instance, GSA officials did not require a subcontracting plan for
a $26 million contract for ice because they believed that the urgency of
the situation required buying and shipping the ice faster than normal
procedures would allow. Nonetheless, at the time we issued our report
contracting dollars remained for each agency with incomplete
subcontracting plan information that agency officials had not been able to
explain. These amounts ranged from $3.3 million for DOD (excluding the
Corps) to $861 million for DHS.

In our report, we concluded there was little doubt that Hurricane Katrina
posed challenges to the agencies, which had to award contracts quickly
while still following government procurement rules, especially those
regarding subcontracting plans. Certain choices, such as documenting
compliance with these requirements at a later date (something GSA and DOD
officials indicated was the case), might have been understandable.
Nonetheless, more than a year after the hurricane, we reported that a
substantial amount of information about the four agencies' subcontracting
requirements remained incomplete. Conclusively demonstrating compliance
with the rules about subcontracting plans is important for reasons beyond
just documentation. First, in requiring these plans agencies commit prime
contractors to specific goals for providing opportunities to small
businesses. Second, the agencies have tools--incentives as well as
sanctions--that they can use to ensure that the contractors engage in good
faith efforts to meet their small business subcontracting goals. In doing
so, the agencies ensure compliance with federal procurement regulations
and help guarantee that small businesses have all of the practical
opportunities to participate in federal contracts that they are supposed
to have. Because so much key information about subcontracting plans was
incomplete in federal procurement data systems and, at the conclusion of
our review, remained unresolved, we cannot tell the extent to which the
agencies are complying with the regulations. Furthermore, the lack of
transparency surrounding much of the agencies' subcontracting
data--missing information on plans when contracts appear to meet the
criteria for having them--may lead to unwarranted perceptions about how
the federal procurement system is working, particularly in terms of the
government's stated preference for contracting with small businesses.

To ensure compliance with federal contracting regulations and more
transparently disclose the availability of subcontracting opportunities
for small businesses, we recommended that the Secretaries of Homeland
Security and Defense and the Administrator of General Services issue
guidance reinforcing, among other things, the necessity for documenting in
publicly available sources the agencies' contracting decisions,
particularly in instances when the agencies decided not to require
subcontracting plans. Moreover, we recommended that the agencies consider
asking their respective Inspectors General to conduct a review to ensure
that this guidance and related requirements were being followed.

The agencies generally agreed with our recommendations, and GSA has
already implemented them. Specifically, in March 2007, GSA issued guidance
to its contracting officers reminding them of the importance both of the
subcontracting plan requirements and of documenting key decisions
affecting acquisitions, including any decisions impacting subcontracting
plan requirements. In addition, GSA will include a review of compliance
with subcontracting plan requirements in its annual internal procurement
management reviews. DOD and DHS officials have stated that they are
working on implementing these recommendations. For example, Corps
officials indicated they are developing a new training module on the
requirements regarding subcontracting plans and plan to deliver this to
its contracting officers.

Some Agencies May Not Be Maximizing Their Advocacy Roles

SBA has governmentwide responsibilities for advocating that federal
agencies use small businesses as prime contractors, and that prime
contractors give small businesses opportunities to participate as
subcontractors in federal contracts awarded to large businesses. To meet
its responsibilities, SBA negotiates annual procurement goals with federal
executive agencies to achieve the 23 percent governmentwide goal for
contract dollars awarded directly by federal agencies. In addition, SBA is
responsible for assigning Procurement Center Representatives (PCRs) to
major contracting offices to implement small business policies and
programs. Responsibilities of PCRs include reviewing proposed acquisitions
and recommending various types of small business sources; recommending
contracting methods to increase small business prime contracting
opportunities; conducting reviews of the contracting office to ensure
compliance with small business policies; and working to ensure that small
business participation is maximized through subcontracting opportunities.

Each federal agency that has procurement authority is required to have an
OSDBU. The OSDBU is responsible for helping to oversee the agency's
functions and duties related to the awarding of contracts and subcontracts
to small and disadvantaged businesses. For example, the office must report
annually on the extent to which small businesses are receiving their fair
share of federal procurements, including contract opportunities under
programs administered under the Small Business Act.^16 The Small Business
Act requires that OSDBU directors be responsible to and report only to
agency heads or their deputy. By providing immediate access to top
decision-makers, Congress intended to enhance the directors' ability to
advocate effectively for small and disadvantaged businesses. However, in
2003 we reported that 11 of the 24 federal agencies we reviewed were not
in compliance with this provision.^17 As of our most recent follow-up
work, nine of the agencies reviewed were out of compliance (the
Departments of Agriculture, Commerce, Education, Health and Human
Services, Justice, State, the Interior, and the Treasury; and the Social
Security Administration). The Environmental Protection Agency has
complied, and the Federal Emergency Management Agency has been subsumed
into the Department of Homeland Security, which has an OSDBU with a
director reporting to the highest agency levels.

^16 13 C.F.R. S 125.3(e).

Most of the agencies that provided comments on this work disagreed with
our conclusion that the reporting relationships did not comply with this
provision of the Small Business Act.^18 However, none of the legal
arguments that the agencies raised caused us to revise our conclusions or
recommendations. For example, the Departments of Agriculture and Treasury
had delegated OSDBU responsibilities to lower level officials and argued
in their comments to us that because the Small Business Act does not
explicitly prohibit such a delegation, their reporting relationships
complied with this provision. However, we noted that the lack of an
express prohibition on such a delegation does not necessarily mean that it
is thereby permitted and cited case history supporting our belief that the
delegation of authority may be withheld by implication, which we believe
this section of the Small Business Act does. Because the OSDBU directors
at agencies that do not comply with this provision of the Act do not have
a direct reporting relationship with their agencies' head or deputy, the
reporting relationships potentially limit their role as effective
advocates for small and disadvantaged businesses.

Ongoing Work to Evaluate SBA and OSDBU Advocacy Efforts

At your request, we have ongoing work evaluating the efforts of SBA and,
to some extent, OSDBUs within federal agencies, to advocate on behalf of
small disadvantaged businesses and those in SBA's 8(a) business
development program. As you are aware, both SBA and agencies' OSDBUs play
important roles in advocating federal contracting opportunities for small
disadvantaged businesses and 8(a) firms. SBA certifies the firms'
eligibility for one or both designations and, as I noted earlier, has a
governmentwide advocacy role for all types of small businesses, and OSDBUs
advocate for contracting opportunities within each agency by, for example,
reviewing proposed contracts and making recommendations to contracting
officials about those they believe could be awarded to a small business,
including disadvantaged businesses.

^17 [18]GAO-03-863 .

^18Specifically, section 15(k)(3) of the Small Business Act.

The Small Business Act authorizes SBA's 8(a) Business Development Program
as one of the federal government's vehicles to help small disadvantaged
businesses compete in and access the federal procurement market. To be
eligible for the program, a firm must, among other things, meet SBA's
applicable size standards for small businesses and be owned and controlled
by one or more socially and economically disadvantaged individuals who are
U.S. citizens who demonstrate the potential for success. Firms receiving
8(a) certification are eligible for contracts that federal agencies set
aside for them. To qualify for SDB certification, a firm must be owned or
controlled by one or more socially and economically disadvantaged
individuals or a designated community development organization. Section
8(a) firms automatically qualify as SDBs, but other firms may apply for
SDB-only certification.

Mr. Chairman, you recently wrote to us expressing concern about whether
SBA was taking an appropriate, proactive approach to advocate that small
disadvantaged businesses--those in SBA's 8(a) and SDB programs--have
access to federal government contracts. As you know, procurement
decisions--who gets each federal contract--ultimately rest with the
agencies' contracting offices, not with their OSDBUs and not with SBA.
Neither SBA nor the OSDBUs can force contracting officials to give a
contract to a small business. However, as language in the Small Business
Act suggests, they do have an important role to play in advocating that
small businesses have the "maximum practicable opportunity" to
participate. Consequently, our evaluation will focus on the advocacy role
that SBA and OSDBUs play regarding these opportunities for small
businesses. Specifically, it will include assessment of the actions SBA
takes to encourage that prime contracting goals for small disadvantaged
businesses are met; the extent to which such goals have been met; whether
federal agencies are having difficulty awarding contracts to 8(a) firms;
and SBA's efforts to advocate that small disadvantaged businesses have the
maximum practicable opportunity to participate as subcontractors for prime
federal contracts. In our evaluation, we also plan to assess actions by
selected agency OSDBUs in serving as advocates for 8(a) firms.

Our evaluations of contracting in the aftermath of Hurricane Katrina and
agency OSDBUs provide useful perspectives as we move forward in our
examination of the important advocacy roles undertaken by SBA and the
OSDBUs. When we complete the design phase of this work, we will reach
agreement with you on our reporting objectives and the anticipated
issuance date. Mr. Chairman, this concludes my prepared statement. I would
be happy to answer any questions at this time.

Contacts and Acknowledgments

For further information on this testimony, please contact William B. Shear
at (202) 512-8678 or [email protected]. Individuals making key contributions
to this testimony included Bill MacBlane, Assistant Director; Emily
Chalmers; Nancy Eibeck; Julia Kennon; Tarek Mahmassani; Lisa Moore; Paul
Thompson; Myra Watts-Butler; and Bill Woods.

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Highlights of [26]GAO-07-1255T , a testimony before the Subcommittee on
Government Management, Organization, and Procurement; Committee on
Oversight and Government Reform; House of Representatives

September 26, 2007

SMALL BUSINESS CONTRACTING

Observations from Reviews of Contracting and Advocacy Activities of
Federal Agencies

The federal government's long-standing policy has been to use its buying
power to maximize procurement opportunities for various types of small
businesses.

GAO initiated work and completed a report in March 2007 under the
Comptroller General's authority describing the extent to which small
businesses participated in contracting opportunities related to Hurricane
Katrina. This testimony discusses (1) results from the March 2007 GAO
report, including the amounts that small and local businesses received
directly from federal agencies from contracts related to Hurricane Katrina
and the lack of required information in official procurement data systems
on subcontracting plans, (2) information from two previous GAO reports
regarding the small business advocacy responsibilities of SBA and federal
agencies that award contracts, and (3) GAO work on SBA's efforts to
advocate for small disadvantaged businesses, and similar efforts by
entities within selected agencies.

In conducting the studies discussed in this testimony, GAO analyzed agency
contract data, reviewed federal acquisition regulations, and interviewed
agency procurement officials; we also sent a questionnaire to agency
officials regarding OSDBU reporting relationships; reviewed organizational
charts and other pertinent information; analyzed relevant laws,
legislative history, and court cases; and, updated information on agency
actions on our recommendations.

Small businesses received 28 percent of the $11 billion in contracts that
DHS, GSA, DOD, and the Corps awarded directly for Katrina-related
projects. Information on whether DHS and GSA required subcontracting plans
was generally not available in the federal government's official
procurement database for 70 percent or more of the contracting dollars
each agency awarded for activities related to Hurricane Katrina. This
database should have contained information on whether or not the agencies
required subcontracting plans in these instances. The lack of transparency
surrounding much of the agencies' subcontracting data may lead to
unwarranted perceptions about how the federal procurement system is
working, particularly in terms of the government's stated preference for
contracting with small businesses. GAO recommended in its March 2007
report that DHS, GSA, and DOD take steps designed to ensure compliance
with federal contracting regulations and more transparently disclose the
extent to which subcontracting opportunities are available to small
businesses. These agencies generally agreed with GAO's recommendations.
GSA has implemented them while DOD and DHS indicate they are in the
process of doing so.

SBA has governmentwide responsibilities for advocating that federal
agencies use small businesses as prime contractors for federal contracts
and set goals for and encourage the use of small businesses as
subcontractors to large businesses receiving federal contracts. Similarly,
within each federal agency there is an Office of Small and Disadvantaged
Business Utilization (OSDBU) that plays an advocacy role by overseeing the
agency's duties related to contracts and subcontracts with small and
disadvantaged businesses. The Small Business Act requires that the OSDBU
director be responsible to and report only to agency heads or their
deputies. In 2003, GAO reported that 11 of 24 agencies reviewed did not
comply with this provision. While most of the agencies disagreed with our
conclusion, none of the legal arguments that they raised changed GAO's
recommendations. Because the OSDBU directors at these agencies do not have
a direct reporting relationship with their agencies' heads or deputies,
the reporting relationships potentially limit their role as effective
advocates for small and disadvantaged businesses.

GAO is presently evaluating SBA's and agency OSDBUs' advocacy efforts.
This evaluation includes an assessment of the actions SBA takes to
advocate that small disadvantaged businesses receive opportunities to
participate as subcontractors under federal prime contracts and encourage
that prime contracting goals for these businesses are met. Also, the
evaluation addresses selected OSDBUs' actions to advocate for certain
small business firms.

References

Visible links
  14. http://www.gao.gov/cgi-bin/getrpt?GAO-07-205
  15. http://www.gao.gov/cgi-bin/getrpt?GAO-04-451
  16. http://www.gao.gov/cgi-bin/getrpt?GAO-03-863
  17. http://www.gao.gov/cgi-bin/getrpt?GAO-07-205
  18. http://www.gao.gov/cgi-bin/getrpt?GAO-03-863
  19. http://www.gao.gov/
  20. http://www.gao.gov/
  21. http://www.gao.gov/fraudnet/fraudnet.htm
  22. mailto:[email protected]
  23. mailto:[email protected]
  24. mailto:[email protected]
  25. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1255T
  26. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1255T
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