Both the Senior Executive Service System and the Merit Pay System require goals and objectives for evaluating employee performance. Where it is feasible and appropriate I want the achievement of procurement goals in these two areas to be included as a performance objective. This objective should be a critical element in the evaluation of procurement officials and related program personnel.

I have asked Jack Watson to work closely with Deputy Secretary of Commerce Luther Hodges, Administrator Vernon Weaver of SBA, and with OMB in monitoring our performance in these two areas. Please report to me through Jack by January 30 on specific steps you have taken, and are taking, in accordance with this memorandum including the specific goals set for your department or agency in these areas. I would like each of you to devote sufficient, continuing, and personal attention to these procurement matters to ensure achievement of our goals.

JIMMY CARTER.

EXECUTIVE OFFICE OF THE PRESIDENT,
OFFICE OF MANAGEMENT AND BUDGET,
Washington, D.C., January 24, 1980.

To: Heads of Executive Departments and Establishments.
Subject: Public Law 95-507, Section 211, Subcontracting: Agency Coordination
with the Small Business Administration Resident Procurement Center
Representatives.

POLICY LETTER 80-1

Section 211 of Public Law 95-507 amends section 8(d) (10) of the Small Business Act, 15 U.S.C. 637, to authorize the Small Business Administration (SBA) to review any solicitation for any contract over the stated thresholds. The purpose of the review is to determine whether maximum practicable opportunity has been afforded small business concerns and small business concerns owned and controlled by socially and economically disadvantaged individuals to participate as subcontractors in such awards. Furthermore, SBA is responsible for evaluating compliance with agreed upon subcontracting plans.

In order to facilitate the implementation of these provisions by the Small Business Administration, departments and agencies shall observe the following policies regarding section 8(d) (10), and shall incorporate them in their procurement regulations:

1. The Small Business Administration's resident Procurement Center Representatives shall be provided an opportunity to review any solicitation that meets the threshold prior to release to the public. The Procurement Center Representative shall be provided a period reasonable under the circumstances to review the solicitation.

2. Prior to the execution of any negotiated contractual document requiring a subcontracting plan, the total procurement passage including the proposed subcontracting plan shall be made available to the resident Procurement Center Representative, with a reasonable time for review. The Procurement Center Representative may submit recommendations, which shall be advisory in nature, to the contracting officer. The Procurement Center Representative shall also be provided a copy of the subcontracting plan finally negotiated by the contracting officer. A copy of any subcontracting plan submitted pursuant to a formally advertised procurement also shall be provided the resident Procurement Center Representative upon execution of the contractual document.

3. The small and disadvantaged business specialist of the contracting activity shall notify the Small Business Administration of the award of contracts, amendments, or modifications that contain subcontracting plans. The notification shall contain the contractor's name and address, place of performance, dollar amount, performance period, description of contract item or items, and name and address of contracting officer. A copy of the award document (e.g., DD 350) is sufficient for these purposes. The notification shall be sent to the Assistant Regional Administrator for Regional Programs in the SBA region where contract performance is to take place. The Director of the Office of Management and Budget concurs in the issuance of this policy directive to be effective February 25, 1980.

JAMES D. CURRIE,
Acting Administrator.

Illinois/Service Federal Savings & Loan Association.

(312) 928-5587.

(809) 753-7740.

Macy's, New York, N.Y.

(212) 673-9733.

(212) 560-4312.

Mr. LAFALCE. We will now call to the table panel No. 2. This is comprised of military agencies. The Office of the Secretary of Defense, the Department of the Army, the Department of the Air Force, the Department of the Navy, and the Defense Logistics Agency.

I would ask that each representative of the aforementioned agencies briefly summarize their prepared testimony in no more than 5 minutes, if possible.

First, we have the Office of the Secretary of Defense representative, Mr. Robert F. Trimble.

Mr. Trimble?

TESTIMONY OF ROBERT F. TRIMBLE, DIRECTOR, CONTRACTS AND SYSTEMS ACQUISITION OFFICE OF THE DEPUTY UNDER SECRETARY OF DEFENSE FOR RESEARCH AND ENGINEERING-ACQUISITION POLICY

Mr. TRIMBLE. Thank you, Mr. Chairman.

I am Bob Trimble. I serve as the Director of Contracts and Systems Acquisition in the Office of the Deputy Under Secretary for Defense for Research and Engineering. Appearing with me today is Mr. Roy Schooling from the Office of the Assistant Secretary of the Army. For the Navy is Mr. Thomas E. Harvey, the Principal Deputy Assistant Secretary for the Navy for Logistics. For the Air Force is Mr. Donald Rellins, the Director for Small and Disadvantaged Business Utilization, and Mr. Charles Patterson, Defense Logistics Agency who is the staff director for Small and Disadvantaged Business Utilization for that particular agency.

Mr. Chairman, Dr. Carter, and Mr. Mitchell, I would like to very briefly cover the high points in my prepared statement.

Mr. LAFALCE. That will be fine. Without objection, your entire prepared statement will be inserted in the record.

Mr. TRIMBLE. You forwarded to the Secretary of Defense on December 13, a copy of the Comptroller General's decision which established September 1, 1979, as the effective date for the Department of Defense contracting activities to include notices in solicitations and inclusion in contract awards of subcontracting plans and goals mandated by Public Law 95-507.

On December 17, 1979, we received that letter, and on that day we published instructions to our field activities to comply with the GAO's decision. We also initiated a reporting system on December 21, 1979, to determine how many solicitations were issued and contracts awarded since September 1 which did not meet section 211 provisions for subcontract coverage. This reporting system was designed not only to provide my office and the military department offices with information to insure that we have compliance with the law but also to provide this information for the Office of Federal Procurement Policy and the Small Business Administration who asked for it.

I will now summarize the results of two of our reports. I believe the comments thus far have alluded to statistical data collected as of the middle of January. We can bring you up to date on statistical data as of February 15, 1980.

Insofar as the solicitations are concerned, I think we have a rather good picture to portray to you. There were 287 solicitations that were

issued after September 1, 1979, that did not contain the prescribed requirements. Of these 245 have been modified; 30 have been determined not to require modification; 12 are in the process of being modified now; and there are none remaining to be modified over and above the 12.

The picture, however, with respect to contracts is not quite as rosy. You will notice on the top of page 3 of my prepared statement that we went from $7.2 billion in dollar amounts for contracts awarded after September 1, 1979, but not covered, to a figure which is now $9.9 billion. Of this amount, contracts in the amount of $1.5 billion have been modified, or a determination has been made that correction or modification is not required. We now have $8.1 billion of contracts that are in the process of modification and another $365 million worth of contracts that are being reviewed.

I am most concerned about this $2.8 billion increase in dollar awards. It appears to indicate that we are not complying with Public Law 95-507. However, an investigation on my part shows that there are several problems which have resulted in statistical errors.

One of the main problems that I am finding, Mr. Chairman, is that our agencies are reporting provisioning ordering documents and options against contracts awarded prior to September 1, 1979. Also, significant contract modifications for follow-on work required since September 1, 1979, is just now being reported. These actions are being classified as noncompliant, whereas, in the case of provisioning orders and options against contracts awarded prior to September 1, 1979, such actions do not fall under the purview of the requirement that was placed on us by the General Accounting Office and by your office to modify contracts awarded after September 1.

We are going to work very diligently to be sure that we have the right reporting criteria so that we do not have a continuation of this problem. Also, we will work diligently to insure that our contracts contain the required provisions.

I can assure you that we are taking the necessary action to preclude this type of situation from continuing into the future.

Most of the laws passed by Congress which deal with acquisition generally affect a limited segment of our acquisition process. Public Law 95-507, however, is radically different in this regard.

I am hard-pressed to identify any individual involved in our contracting functions who is not responsible in the implementation of Public Law 95-507.

In my public presentations and in my trips around the country, I am finding that our contract people have this as the foremost topic on their minds, and I am also gratified that they are approaching the project as diligently as they possibly can. Furthermore, they indicate good faith efforts, by and large, on the part of the procurement officers, small businesses, and contractors.

The question was asked a few moments ago if we are having some contractors, some prime contractors, who are refusing to accept the requirements of Public Law 95-507, and that is true. I ran across several cases last week in San Antonio where prime contractors absolutely refused to accept contracts. The Government contracts personnel did

You also asked for us to identify significant problems that we are experiencing. I will not cover in any great detail the matter of commerciality since Mr. Currie did cover that. That is one of our major problems.

The GAO, in its report on the mandatory small business subcontracting test: Considerations for Public Law 95-507's new subcontracting program, did state that they would recommend to the Congress, and we would endorse this, that there be an amendment to Public Law 95-507 to make provisions for the problem of commerciality.

I would like to add here, parenthetically, that we are having similar problems in dealing with large Defense contractors who are making spare aircraft parts for DOD. When we go back to them to buy replenishment spare parts, which are taken off an assembly line, it is hard for them to identify the material and labor that goes into those parts from similar costs for parts going into production line aircraft.

Another problem involves attempts to modify contracts when the contractor wants to charge more money than we think that it is worth, and more money than we would expect to pay.

It is in these kinds of situations that the contracting officer must use his knowledge in determining the best course of action to follow to protect the interests of the Government.

Another problem has to do with who will be responsible to assure that subcontractors receiving awards meeting the Public Law 95-507 threshold carry out the required provisions of its subcontracting plans. Some of our prime contractors would like for the Government in its contract administration functions to pick up surveillance responsibility over the subcontractor. We would prefer not to do that. However, we run into some situations involving two large primes, where one is the sub and the sub does not want the prime contractor to have access to his records for confidential reasons. In those situations, we will atempt to accommodate the contractor.

Mr. Chairman, in the interest of time I will not cover any more of the problems that we have experienced. I can assure you that there are many, but I believe that the Department of Defense and its contracting officers are working diligently to overcome these difficulties.

Mr. LAFALCE. Thank you very much, Mr. Trimble. [Mr. Trimble's prepared statement follows:1

PREPARED STATEMENT OF ROBERT F. TRIMBLE, DIRECTOR, CONTRACTS AND SYSTEMS ACQUISITION, OFFICE OF THE DEPUTY UNDER SECRETARY OF DEFENSE FOR RESEARCH AND ENGINEERING (ACQUISITION POLICY), OFFICE OF THE UNDER SECRETARY OF DEFENSE FOR RESEARCH AND ENGINEERING, DOD

Mr. Chairman, I'm Bob Trimble. I serve as the Director of Contracts and Systems Acquisition in the Office of the Deputy Under Secretary of Defense for Research and Engineering (Acquisition Policy). Appearing with me are: for the Army-Roy Schooling from the Office of the Assistant Secretary of the Army (Research, Development and Acquisition); for the Navy-Thomas E. Harvey, the Principal Deputy Assistant Secretary for the Navy (Logistics); for the Air Force-Donald Rellins, the Director for Small and Disadvantaged Business Utilization and for the Defense Logistics Agency-Charles Patterson, the Staff Director for Small and Disadvantaged Business Utilization.

As you recall, you forwarded to the Secretary of Defense on December 13. 1979 a copy of the Comptroller General's (GAO) decision ruling which established