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On July 20, 1979, Secretarial Order No. 3041 was issued, establishing Interior's Office of Small and Disadvantaged Business Utilization. The attached Secretarial Order is submitted for the record. On that same date, I was appointed Acting Director of the newly established office. On November 29, my name was submitted to the Office of Personnel Management to fill the permanent position. I report directly to the Under Secretary, as indicated on the attached departmental organizational chart, which is submitted for the record.

The secretarial order which delineated the overall functions of the OSDBU, as required by law, has recently been superseded by Departmental Manual Issuance No. 11 DM-8.1, dated November 6, 1979. The departmental manual includes the detailed description of the organizational structure, functions, and responsibilities of the OSDBU, which currently comprises a Division of Small Business Utilization and a Division of Disadvantaged Business Utilization. Since fiscal year 1977, the Department of the Interior has made significant strides in this area-particularly in the increased participation of minority businesses in our procurement programs. The percentage of small business awards to total procurements has traditionally ranged at or slightly under 40 percent. This figure is clearly indicative of our commitment to the small business community. We are anticipating an increased fiscal year 1980 small business goal.

Obviously, much of our increase in small business awards over the last 2 years has been due to the large increases in awards to small minority businesses. Interior's awards to small minority nonnative American firms increased more than fivefold in 2 yearsfrom $16 million in fiscal year 1977 to approximately $92 million in fiscal year 1979. During that same period, reported subcontract awards to small minority nonnative American firms increased from $45,000 to $7 million.

I would like now to address the matter of the Interior's compliance with and impact of section 211 of Public Law 95-507 on our small and disadvantaged business subcontracting programs.

Prior to the signing of Public Law 95-507 in October 1978, the Department of the Interior recognized the need to establish a strong and viable subcontracting program. The primary focus of our earlier efforts was to substantially increase the subcontracting participation of minority business enterprises. As a direct result of several internal and external reports, studies, and surveys, it became abundantly clear to the Department that there was a serious underutilization of minority enterprises in the area of subcontracting. The Department found this to be especially true in the construction industry, which historically has captured from 30 to 40 percent of the Department's total annual procurement budget. The Department's response to this inequity was to develop and issue a strong and aggressive set of regulations which prescribed policies, procedures, and contract clauses designed specifically to increase the subcontracting participation of minority business enterprises in the Department's procurement activities. The Department published these regulations as a temporary rule in the Federal Register on September 15, 1978. The attached copy of the Interior's MBE September 15, 1978, regulations is submitted for the

record. The Department's MBE subcontracting requirements in those regulations differed significantly from those that were to be later implemented as a result of Public Law 95-507, on May 24, 1979.

The earlier rules, in effect, required a notice to all prime contractors-both large and small businesses-desiring to do business with the Department of the Interior, of the need to submit an MBE subcontracting plan for all formally advertised and negotiated contracts in excess of $250,000, and all architect-engineer contracts in excess of $100,000. A mandatory contract clause and approved subcontracting plan was required for all contracts that exceeded these dollar thresholds. The clause required that in a formally advertised procurement, the low responsible, responsive bidder submit a detailed plan for establishing and conducting a minority business enterprise subcontracting program. The rule also provided the contracting officer with the discretion to use the clause in those contracts estimated to be below the stated dollar thresholds, provided the contracting officer had predetermined evidence of the existence of substantial subcontracting opportunities. Another highly significant aspect of the rule was the requirement that contracting officers determine a percentage goal of the total for all subcontracts to be awarded to minority business enterprises. The Department's construction procurements, the Department determined that the MBE percentage goal for construction contracts should be at least 20 percent, except in those cases where known circumstances and market conditions would make such a percentage goal unfeasible. Mr. Chairman, I have attempted to outline for you in summary fashion the major features of an MBE subcontracting program introduced by the Department prior to the passage of Public Law 95-507. The Department strongly believed that this program would have significantly increased the participation of small minority business enterprises in its procurement and construction programs and, at the same time, would have been in concert with the President's stated goal of tripling Federal procurements for minority business enterprises by the end of fiscal year 1979.

Mr. LAFALCE. Would you please try, Miss Spann, to conclude within the next 2 minutes?

Ms. SPANN. In attempting to implement the OFPP policy notice of April 20 which sets forth those requirements promulgated by section 211 of Public Law 95-507, some of our major procuring activities have experienced a number of problems and difficulties, such as the lack of proper guidance on what constitutes an acceptable subcontracting plan. This problem will be corrected by a recently proposed OFPP rule providing additional instructions to contracting officers. Some of our contracting officers have also complained that their lack of authority to subject the contracting plans to competitive evaluations in negotiated contracts seriously impairs their ability to bargain effectively. Another problem area that we believe seriously diminishes the ability of our procurement managers to effectively implement section 211 of the bill is that presently under the provisions of the bill, formally advertised contracts can actually be awarded to a prime contractor with a totally inadequate and unacceptable plan, leaving the contracting officer with absolutely no leverage or sanctions except to report the inad

equate plan to the Director, Office of Small and Disadvantaged Business Utilization.

Presently, we are taking aggressive steps to implement section 211 of the bill. We have issued notices to all of our procuring activities strongly encouraging their use of the incentive provisions included in the bill. At the request of OFPP, we are establishing a pilot program for incentive subcontracting with some of our major buying activities. The attached memorandum titled, "Use of Incentive Clause Authorized by Public Law 95-507" is submitted for the record. We are currently drafting suggested language to be issued to our procurement activities so as to enable them to strongly encourage the use of disadvantaged business subcontractors by small business concerns and also on contracts estimated to be below the dollar thresholds cited in section 211.

Mr. Chairman, we would like for you and the committee to understand that the Department of the Interior fully intends to comply with Public Law 95-507, including the subcontracting requirements. We maintain that this law is the most positive piece of small business legislation that has come out of Congress to date. We believe that its national impact is still to be felt. Certainly, we want to make it clear that the positive aspects of Public Law 95507 far outweigh any negative concerns we may have expressed here today.

In closing, let me say that we at the Interior have come a long way in disadvantaged business contracting since fiscal year 1977. We intend to go farther still, and we see the subcontracting program as a vital part of our continuing efforts.

I will be happy to now answer any questions you or the committee may have.

Mr. LAFALCE. Thank you, Ms. Spann.

Now we will hear Mr. Clinkscales of the Department of Health, Education, and Welfare, which according to the information I have has, as of the date of their testimony, had 99 contracts without the plan, zero contracts with the plan, which takes the record, and 85 solicitations without notice, and zero solicitations with notice. Mr. Clinkscales.

[Mr. Clinkscales' prepared statement follows:]

PREPARED STATEMENT OF MR. CLINKSCALES

Mr. Chairman and Members of the Subcommittee on General Oversight and

Minority Enterprise:

I am Richard Clinkscales, Director of the Office of Small and Disadvantaged is

Business Utilization; joining me are Mr. Edward Rhodes, Deputy Assistant Secretary for Grants and Procurement and Mr. Jerry Rega, Chief of the Contracts-Branch-for the Office of Human Development Services? I am pleased to appear today in response to your invitation to Secretary Harris to discuss the implementation of the procurement provisions of P.L. 95-507 within the Department of Health, Education, and Welfare. We in the Department feel that this legislation is most significant and will have a profound impact on the Federal government's small and minority business programs. This is a very complex and difficult law to implement and, for these reasons, we have been extremely careful with its implementation.

In response to your questions relative to our efforts to implement Section 211, we have followed the instructions and guidance provided by the Office of Federal Procurement Policy and the General Services Administration. The Office of Federal Procurement Policy published regulations for implementing Section 211 on April 20, 1979. Our review

of these regulations determined that they lacked adequate guidelines for operating contracting offices. They were vague on procedures for establishing subcontracting goals, and the use of the incentive clause, as well as rational for the establishment of a scale for fees to be awarded under incentive clauses. We feared that the absence of uniform guidelines would create considerable confusion within the Federal prime contracting community. We made our concerns known to Office of Federal Procurement Policy during the public comment period. However, very few as you Know,

changes were made and all agencies were instructed by the General Services Administration to implement these regulations effective May 22, 1979.

On June 14, 1979, we instructed all departmental contracting offices to implement these regulations immediately. However, a reasonable amount of time was required by our contracting offices to rewrite and print contract clauses and develop procedural guidelines for their staffs prior to the implementation of these regulations.

The Office of Federal Procurement Policy subsequently determined that it was necessary to develop additional guidelines to assure consistent and uniform implementation of the regulations throughout the government. I represented the Department on the interagency task force that was established by the Office of Federal Procurement Policy in early September to develop such additional guidance. The recommendations of the task force, which in my opinion, effectively clarified the original regulations,

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