MEMORANDUM TO HEADS OF DEPARTMENTS AND ESTABLISHMENTS SUBJECT: Implementation of Public Law 95-507 Public Law 95-507, amendments to the Small Business Act and the Small Business Investment Act of 1958, was enacted October 24, 1978. Section 211 of the Act establishes a program for small and small socially and economically disadvantaged subcontractors under Federal prime contracts of $500,000 or more ($1,000,000 for construction). Office of Federal Procurement Policy regulations implementing section 211 were published on April 20, 1979, and agency implementing regulations were published in the Federal Procurement Regulations (FPR) and the Defense Acquisition Regulation (DAR) on July 2, 1979, and July 27, 1979, respectively. By letter dated October 19, 1979, in response to a Congressional inquiry,' the Comptroller General stated his opinion that contracts of the requisite size awarded after the issuance of the FPR and DAR implementing regulations should have contained the section 211 subcontracting program provisions. He also stated his opinion that those contracts required to contain the subcontracting provisions, but awarded without those provisions, were "legally deficient." We believe that, although the implementing regulations technically were effective on July 2 and July 27, a reasonable time is required for their distribution and implementation through the system. However, it seems that in some cases the time for implementation has exceeded reasonable bounds. We understand that at the present time there are a substantial number of contracts and contract solicitations that should, but do not, contain required subcontracting provisions. We recognize that Public Law 95-507 is a complex and difficult law to implement, and for that reason it merits special attention in each agency to assist contracting officers to comply with implementing regulations. Accordingly, I request each agency to review its contracts and contract solicitations issued since the FPR and DAR implementing regulations were published, and: (1) amend all outstanding solicitations that should, but do not contain the subcontracting provisions, to include those provisions; and (2) where feasible, modify all contracts awarded that should, but do not, contain the subcontracting provisions, where modification to include the subcontracting provisions would lead to a greater utilization of small and small disadvantaged subcontractors. So that we may evaluate the extent of non-compliance with the implementing regulations, and seek ways to avoid such problems in the future, I also request that each agency provide this Office by January 15, 1980, a report of (1) the number and dollar amount of contracts and solicitations requiring the subcontracting provisions that were issued without the provisions; and (2) the number and dollar amount of those subsequently modified to include the provisions. Should you have any questions about this matter, contact Thomas F. Williamson, Associate Administrator for Acquisition Law, on 395-3455. James D. Currie Mr. ADDABBO. Thank you, Mr. Chairman. Mr. LAFALCE. Thank you very much for your testimony. I would now like to call upon Congressman Parren Mitchell, who was one of the chief coauthors of Public Law 95-507, who chairs the Task Force on Minority Enterprise of this subcommittee, and who is also chairman of the Subcommitee on Banking which, I understand, is going into hearing shortly, this morning. OPENING STATEMENT OF HON. PARREN J. MITCHELL, A REP. RESENTATIVE IN CONGRESS FROM THE STATE OF MARY LAND Mr. MITCHELL. Thank you, Mr. Chairman. I am glad you understand my situation. The hearing I am to chair this morning on domestic monetary policy was originally scheduled for 9:30, but because of the gravity of the situation which this subcommittee confronts, I rescheduled it until 10 o'clock. Therefore, I, unfortunately, will not be able to attend this entire hearing. For that reason I want to take a little bit of time in terms of my opening statement. Mr. Chairman, I thank you for providing me this opportunity to present my statement. As we discussed, I am scheduled to chair another subcommittee hearing at 9:30 this morning. However, because of the gravity of the matter before this body, my hearing has been rescheduled to commence at 10 a.m. Unfortunately, this con flict will not allow me to participate for the full duration of this hearing on Public Law 95-507. Notwithstanding my physical absence, my spiritual and moral support shall remain within this room. Mr. Chairman, I extend to you my complete support in this oversight hearing. Of equal significance, I commend you for the vigor and quickness exhibited in bringing these agencies before us. In early spring of 1979, the Task Force on Minority Enterprise, of which I chair and which is a part of this subcommittee, conducted hearings on agency compliance with Public Law 95-507. At that time, I stated that quite often there exists a considerable gap between the law and its implementation. Many of the agencies present today also testified at the earlier hearings. Their statements, which are now public record, conveyed support and intent to implement Public Law 95-507 to its fullest. Evidence and oral reports I have in my presence clearly demonstrate that the gap between the law and implementation has not narrowed. In fact, Mr. Chairman, some evidence strongly infers a flagrant lack of compliance with Public Law 95-507. I must remind these agencies' representatives that they are neither judge nor jury. This law is law of the land, and is to be implemented as written, not as some agency employees think it should be. I am personally committed to this law and I will be in the vanguard calling for the removal of those recalcitrant agency employees who fail to implement Public Law 95-507. In this regard, Mr. Chairman, I would briefly like to address four areas of noncompliance that deeply concern me. Because of a time restraint I will not be able to individually question each witness. Therefore, my statement which follows will include questions that should be answered at the appropriate time, for the record. I. AGENCY LACK OF TOTAL COMPLIANCE (A) HUD: As of this date, this agency has not appointed a director to head the Office of Small and Disadvantaged Business Utilization. I find it appalling that this agency has not taken steps to comply with Public Law 95-507. Mr. Chairman, this is not only an insult to this subcommittee and to Congress but to the American public. While I recognize that this agency has not been invited to testify, the Comptroller General's Office and OFPP are present. To representatives from these agencies: What action have you initiated to correct this flagrant violation? The HUD representatives are not here. Therefore, I will be sending this question as a direct piece of correspondence to the Secretary. Let me look at HEW. (B) HEW: While HUD is in total violation of Public Law 95-507, HEW is operating under a veil of compliance but in reality is in noncompliance. In this regard, I am deeply disturbed by a letter of November 5, 1979, from HEW to Congressman Addabbo, but which was shared with me. This letter states, "HEW anticipate implementing section 211 guidelines by January 1, 1980." What is your legal authority for delaying the implementation of this? Who authorized this and what was the date of such authorization? On May 22, 1979, you received instructions from GSA to implement the OFPP regulations. You did not comply with this until June 14, 1979. What was your reason for this delay? Who authorized this delay? What action is being taken to cure defective contracts which do not have subcontracting plans? Let me deal with just two agencies which have done at least some good things in terms of compliance. I want to talk about the Department of Transportation. II. AGENCY COOPERATION WITH PUBLIC LAW 95-507 (A) DOT: I find it extremely difficult to understand how some agencies can move swiftly and progressively to implement this monumental law, while others, as listed above, vigorously search for delaying techniques. In this regard, I would like to recognize the efforts of DOT to mesh positive components of the 4R Act with Public Law 95-507. I believe this agency is sincere in promoting minority business enterprises. However, DOT has not done all that can be done. For example, it has over $100 million contracts without section 211 plans. This cannot be tolerated. (B) DOI: Similar to DOT, DOI is moving forward with its effort to implement Public Law 95-507. It is my understanding that this agency has already issued an order to modify contracts that are without section 211 plans. I think that is good. Let me deal briefly with the nonadvocacy role of the SBA. I went through an experience recently which indicates the kind of bureaucratic arrogance which leads to violation of law. I called over to SBA making inquiries about a case. I finally got to a person in the agency, not the Administrator or Deputy but another person. I said what is your decision in this case? He stated what his decision was and I said, is your decision irrevocable? And this person said yes, it is, insofar as anything is irrevocable in government. The point is under the law he did not have the right to make an irrevocable decision or a final decision. That final decision rests with Mr. Clement, not with the other gentleman with whom I talked. I am disturbed that the SBA has not done the job we are seeking. They ought to be the ones bringing these violations to the attention of the Congress and using their powers as advocates to do something about it. My time is so short I will not talk about OFPP. I have many, many questions and to all the agencies represented here, you shall receive correspondence from me with specific questions. I want specific answers and I want them within 10 days of receipt of my letter. There is a growing uneasiness that these agencies are not moving swiftly to comply voluntarily with Public Law 95-507. There is legal redress against agency noncompliance. Some of you will recall several years ago I filed suit against the then President of the United States, Mr. Nixon, and I filed suit against other agencies of the Government. I state to you without equivocation, it is my personal intent to file suit against these agencies which deliberately and flagrantly fail to proceed under the law. I am going to take a new approach for the rest of the 96th Congress; that is to ferret out and clearly identify and nail down the hard facts on any agency employee who deliberately intends to circumvent the law. I will make it my responsibility to handle these on a case-by-case basis under the civil service regulations holding where there is malfeasance or misfeasance that is sufficient justification to release a person from his position. I see some of you in the room smiling because you feel you are locked in place and can continue to defy the law. I will tell you, if you continue to defy the law you will not have much reason to smile based on the actions this Member intends to institute. I am sorry that I have expressed my anger as strongly as I have. However, agency defiance of law can no more be condoned than can individual defiance of law, and it is time for this Congress which holds the pursestrings and makes the law, it is time for this Congress and this committee and subcommittee to make agencies comply or withhold funds from them until they do comply. Thank you very much. Mr. LAFALCE. Thank you, Mr. Mitchell. Mr. Carter? OPENING STATEMENT OF HON. TIM LEE CARTER, A REPRE- Mr. CARTER. I strongly support implementing of section 211 of Public Law 95-507, and I support the gentleman from Maryland's position. I, too, regret that some of our agencies show bureaucratic arrogance; and I join with the gentleman in attempting to remedy that. However, there is a serious problem I want to touch on which affects every small businessman in this country from the Atlantic to the Pacific and all over, and that is the high interest rate which you are now forced to pay. Direct loans, of which we have over $219 million, are lent at a rate of 8.25 percent, I believe. The large amount of guaranteed participating loans is $3.2 billion at the present time. Much to my unpleasant surprise it is lent at a rate of one-half above the prime, which is now 151⁄2 percent at most banks. One bank is 154. If a small business can make that much money, it is impossible to do it. If we want to break every small businessman in the country, let the rate stay where it is. If we want to break every small farmer in the country, let that rate stay at that figure. That is what it is going to do. I have seen real estate transactions stop dead in their tracks, and most of you have seen that. I certainly want to see something done about it, and really as Wright Patman once said, the interest rate is determined by the Federal Reserve; whatever their exchange rate is, that determines the rate asked. I trust that somebody will give the word to the director of the Federal Reserve Board that he is bringing on not a recession but more likely a depression in this country. I would like to see that rate brought down. I think the present policy is fraught with grave danger. Thank you, Mr. Chairman. |