CONTENTS Page 1 Cantley, Wilbert E., Director, Office of Small and Disadvantaged Business Utilization, Department of Transportation; accompanied by Roger Mar- tino, Office of Installation and Logistics .... Church, Dale W., Deputy Under Secretary of Defense, Research and Engineering (Acquisition Policy) and Director, Office of Small and Disad- vantaged Business Utilization, Office of the Secretary of Defense; accom- panied by Harold J. Margulis, Director, Office of Small and Disadvantaged Business Utilization, Department of the Army; Donald E. Rellins, Director, Office of Small and Disadvantaged Business Utiliza- tion, Department of the Air Force; Morris Questal, Director, Office of Small and Disadvantaged Business Utilization, Department of the Navy; and Charles T. Patterson, Director, Office of Small and Disadvantaged Business Utilization, Defense Logistics Agency Clinkscales, Richard, Director, Office of Small and Disadvantaged Business Utilization, Department of Health, Education, and Welfare; accompanied by Edward Rhodes, Deputy Assistant Secretary for Grants and Procure- Cook, Clyde C., Director, Supply Services, Veterans' Administration .......... Currie, James D., Acting Administrator, Office of Federal Procurement Policy, OMB; accompanied by Thomas F. Williamson, Associate Adminis- trator for Acquisition Law....... Kulik, Bernard, Associated Administrator, Procurement Assistance, SBA; accompanied by William A. Clement, Jr., Associate Administrator, Mi- nority Small Business/Capital Ownership Development....... McBride, Gerald, Associate Administrator, Acquisition Policy, General Services Administration; accompanied by Bill Madison........ Spann, Charlotte B., Director, Office of Small and Disadvantaged Business Utilization, Department of the Interior; accompanied by Robert Saldivar, Chief, Division of Procurement and Grants, and Justin Patterson Additional material supplied for the hearing record-Continued Cantey, Wilbert, Director, Office of Small and Disadvantaged Business Church, Dale, Director, Office of Small and Disadvantaged Business Utili- zation, Office of the Secretary of Defense: Defense acquisition circular 76-19 receipt dates by activity Clement, William A., Jr., Associate Administrator for Minority Small Business and Capital Ownership Development: Prepared statement and Clinkscales, Richard, Director, Office of Small and Disadvantaged Business Utilization, Department of Health, Education, and Welfare: Prepared Cook, Clyde C., Director, Supply Services, Veterans' Administration: Pre- Currie, James D., Acting Administrator, Office of Federal Procurement Policy, Office of Management and Budget: Prepared statement............... Kulik, Bernard, Associated Administrator for Procurement Assistance, Small Business Administration: Prepared statement LaFalce, Hon. John J., chairman, Subcommittee on General Oversight and Memorandum from Robert F. Trimble, Director, Contracts and Sys- tems Acquisition, re DAC 76-19 subcontracting clauses.... Letter from Milton J. Socolar, Comptroller General of the United Page 295 Margulis, Harold J., Director, Office of Small and Disadvantaged Business Utilization, Department of the Army: Prepared statement... McBride, Gerald, Associate Administrator, Acquisition Policy, General Legal opinion re section 211 of Public Law 95-507............... Patterson, Charles T., Staff Director, Small and Disadvantaged Business 165 Questal, Morris, Director, Small and Disadvantaged Business Utilization, 158 130 93 247 207 IMPLEMENTATION OF SUBCONTRACTING (Part 1) TUESDAY, DECEMBER 4, 1979 HOUSE OF REPRESENTATIVES, AND MINORITY ENTERPRISE OF THE The subcommittee met, pursuant to notice, at 9 a.m., in room 2359A, Rayburn House Office Building, Hon. John J. LaFalce (chairman of the subcommittee) presiding. OPENING STATEMENT OF CHAIRMAN LaFALCE Mr. LAFALCE. The Subcommittee on General Oversight and Minority Enterprise will come to order. This morning, the subcommittee will commence a series of hearings investigating small business opportunities for participation in Federal procurement. Federal agencies and departments annually let approximately $100 billion in contracts and all too often, small business does not get its fair share of the Federal procurement dollar. Today's hearing will focus on the subcontracting provisions of Public Law 95-507 which provide considerable opportunities for small and minority business and the apparent recalcitrance in the Federal Government's implementation of that law. Public Law 95-507, signed into law on October 24, 1978, has been hailed as landmark legislation to increase the small and minority business share of the Federal procurement dollar. Prior to the passage of this law, the small business subcontracting program lacked statutory authority to require prime contractors to subcontract to small business. The program paid lipservice to these concerns, in that prime contractors merely agreed to use their best efforts to promote subcontracting: However, there were no mechanisms to review a prime contractor's compliance with his agreement, nor was there any manner to compel his adherence to his promise. The new authority provided by Public Law 95-507 is an attempt to remedy this past situation by significantly improving the position of both small and minority business as subcontractors to the major prime contractors. Congress affirmatively committed itself to improving the procurement climate for small business as evidenced by the following language from the statute: "It is the policy of the United States that small business concerns, and small business (1) concerns owned and controlled by socially disadvantaged individuals, shall have the maximum practicable opportunity to participate in the performance of contracts let by any Federal agency." In order to effectuate this policy, Congress made crystal clear the requirements, obligations, and responsibilities relating to the subcontracting program. The law spells out in considerable detail the circumstances under which a contractor must provide for small and minority business subcontracting opportunities, the contents of subcontracting plans, the obligations imposed upon contractors to carry out this policy in awarding subcontracts, the obligations imposed on the Federal agencies to carry out this policy, and finally, the various means for enforcing this program. Congress provided that a best efforts subcontracting clause be included in most contracts in excess of $10,000 which essentially requires a contractor to provide the maximum practicable opportunity for small business to participate in subcontracting. Furthermore, all solicitations for contracts in excess of $500,000, or $1 million if for construction, must contain a clause notifying prospective offerors or bidders that the apparent successful offeror or bidder, if other than a small business, must submit a subcontracting plan. The subcontracting plan must include, among other items, the percentage goals for the utilization of small and disadvantaged business as subcontractors and assurances that the offeror or bidder will include a "best efforts" clause in all subcontracts he may make which provide further subcontracting opportunities. To insure compliance with the law by prime contractors, Congress provided that: One, an apparent successful offeror who fails to negotiate a subcontracting plan becomes ineligible to be awarded the contract; two, an apparent low bidder selected to receive a contract who fails to submit a subcontracting plan shall be ineligible to be awarded the contract; three, any plan negotiated by an offeror must provide the maximum practicable opportunity for small and small disadvantaged business to participate in the performance of the contract; four, a subcontracting plan is a material part of the contract; and five, the failure of any contractor or subcontractor to comply in good faith with either the best efforts clause or a subcontracting plan constitutes a material breach of the contract or subcontract. By providing that the plan is a material part of the contract, and that the failure to adhere to it is a material breach, Congress has put the prime contractors on notice that ignoring the concerns of small and disadvantaged business will not be treated lightly as they had been in the past. To insure proper implementation of, and subsequent compliance with, the subcontracting program by the Federal Government, Congress provided the various agencies and departments with specific functions and duties. The Office of Federal Procurement Policy was authorized and directed, "To promulgate a single, simplified, uniform Federal procurement regulation and to establish procedures for insuring compliance with such provisions by all Federal agencies." The SBA was given ample authority to review, to assist and consult with the Federal buying agencies and prime contractors to facilitate their compliance, and to report to Congress on plans it finds unsatisfactory. Each Federal agency with procurement authority was required to establish an Office of Small and Disadvantaged Business Utilization to implement and execute the subcontracting functions and duties of the agency. Furthermore, each Federal agency was required to: One, cooperate and consult with SBA on a regular basis with respect to compliance; two, report to the SBA on the extent of participation by small business in procurement contracts; three, establish goals with SBA for participation by small business to perform subcontracts; four, conduct studies or surveys as may be necessary to determine the extent of a prime contractor's compliance with the best efforts clause; and five, provide incentives to encourage subcontracting opportunities for small business in noncompetitive or sole source contracts, which comprise the bulk of the Federal procurement dollar. Nevertheless, despite our efforts to provide small and minority business with the maximum practicable opportunity to participate in the performance of contracts let by the Federal Government, it has come to the subcommittee's attention that the Federal agencies and departments have been derelict in their implementation of the subcontracting program. The result is that the law's goal, to increase the small and disadvantaged business share of the Federal procurement dollar, has been frustrated. To the extent that we are aware, 14 Government agencies have issued almost 1,000 solicitations without required subcontracting notices, and over 1,200 contracts valued at approximately $4.6 billion have been awarded without requisite subcontracting plans. The actual performance by the agencies has been less than stellar. As of October 24, 1979, which is precisely 12 months after enactment of this law, merely 441 contract solicitations from 18 agencies contained the requisite subcontracting notice; 10 agencies reported no contracts awarded with subcontracting plans; and 4 agencies reported a total of 80 contracts awarded with plans, of which 68 came from a single agency (DOE). Although OFPP issued regulations implementing the subcontracting program in April 1979, some agencies have yet to commence their implementation. While we recognize that it might take a reasonable time for regulations to filter down from the head of an agency to the individual contracting officers in the field, over 13 months have passed since the law was enacted, and over 5 months have elapsed since OFPP issued its uniform guidelines. To compound this situation, a recent legal opinion given by the General Accounting Office has cast doubt over the legality of many of these solicitations and contracts. According to that opinion, which was issued on October 19, 1979, at the request of my distinguished colleague Congressman Joseph Addabbo, former chairman of this subcommittee, contracts awarded after the issuance of GSA's and DOD's implementing regulations-which GAO found to be on July 2, 1979, and July 27, 1979 respectively-which fail to contain subcontracting plans required by the law, are "legally deficient," and, depending on the particular circumstances, contract modification or termination may be required. Under the circumstances, the subcommittee believes that it is imperative to establish precisely what each Federal agency has done to date regarding the implementation of the subcontracting |