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are in their early stages, we felt that the use of the incentive clause in contracts should be waived by a class determination where insufficient experience has been gained in setting goals in subcontracting plans. On August 1, 1979, OFPP so directed the procuring agencies.

We also asked that if its procurement exceeds $5 million annually, the agency should use an incentive clause in at least selected negotiated contracts as a pilot program. We asked that the results and lessons learned from these pilot programs be submitted to OFPP by June 1, 1980. At that time, OFPP will evaluate the results and provide further guidance concerning the circumstances in which incentive clauses should or should not be used.

We can hope the incentive provision will eventually prove to be a valuable tool in promoting the aims of Section 211, but we must gain some more experience in negotiating goals before its use can be widespread if the purposes of the law are not to be frustrated by abuses.

CONCLUSION

Mr. Chairman, I believe we are making substantial progress in implementing Public Law 95-507; but as I have testified previously, it is a complex and difficult law, presenting unique obstacles to smooth implementation. We will continue to work with this Subcommittee and its staff to overcome those obstacles. We would be glad to answer any questions you may have.

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To the 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

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.

tunity 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 package 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.

Mr. LAFALCE. Before we get to questioning you, I would like to call on the Small Business Administration, which is represented here this morning by William Clement and Bernard Kulik. I believe Mr. Clement is going to give testimony.

TESTIMONY OF WILLIAM A. CLEMENT, JR., ASSOCIATE ADMINISTRATOR FOR MINORITY SMALL BUSINESS AND CAPITAL OWNERSHIP DEVELOPMENT, SMALL BUSINESS ADMINISTRATION; ACCOMPANIED BY BERNARD KULIK

Mr. CLEMENT. Mr. Chairman and Mr. Carter, it is my pleasure, along with my colleague, Mr. Kulik, to update this subcommittee on the activities at SBA since the December 4 hearings on the implementation of the subcontracting provisions of Public Law 95-507.

We have submitted a statement for the record, but I would like to take this opportunity to review the three issues which you raise in your letter of invitation, dated February 7, 1980, to the Adminis

trator.

Mr. LAFALCE. Without objection, your prepared testimony will be placed in the record in its entirety.

Mr. CLEMENT. The first issue had to do with the status of contracts and/or solicitations which were termed "legally deficient." The sec

ond issue had to do with the educational and motivational activities at SBA since the December 4 hearing. The third, what particular problems we are still encountering with regard to the implementation of the subcontractor provisions.

With regard to the first issue, contracts and/or solicitations, subsequent to the December 4 hearing, our Administrator sent a memo to each and every agency head indicating the following four points.

First: That their performance with regard to Public Law 95-507 had been entirely unsatisfactory.

Second: We wanted their personal attention with regard to implementation of the entire law, but in particular the subcontracting plans.

Third: It said that if they could not in a positive way remedy the contracts that were termed "legally deficient," to please indicate why immediately. We received no response.

Fourth: It mentioned goal setting.

This particular memo, Mr. Chairman, was followed up by a memo over the signature of Mr. Kulik dated December 18, asking each of the Directors of the Office of OSADBU to provide this agency with two items. First of all, a listing of all contracts and all solicitations, by identification numbers and also by procuring installations. Second, to indicate to us in writing, by January 15 and the 15th of each subsequent month, the status of the number and the dollar amounts of all contracts and/or solicitations which were remedial and the actions taken.

Based on our first report, Mr. Chairman, through January 15, 1980, and by the agencies, there were approximately 2,536 contracts that were legally deficient, totaling approximately $9.6 billion. Of these, approximately 358 have been corrected, approximately 640 have been amended, approximately 1,538 are presently under review.

We will continue to receive each month, Mr. Chairman, on the 15th, a report until all contracts are accounted for with regard to remedial action.

The second item raised in your letter was the educational and motivational activities problem. The thrust of SBA has been to get each agency to self-comply and to self-enforce. We have, for example, approximately 200 people at the most involved in subcontracting. In the Department of Defense alone, for example, there are some 20,000 contracting officers. Our emphasis has been to get each agency to selfcomply and self-enforce.

The impetus of our activities, primarily through our Administrator, resulted in the President's memo dated January 12, 1980, which you made reference to in your opening statement. The President talked about goals and the fact that this is a high priority, and that he wanted each agency to pay particular attention to the subcontracting provisions of Public Law 95-507.

This particular exercise was also repeated, Mr. Chairman, at the Cabinet meeting on January 7 in which the President addressed each Cabinet head, indicating the subject of goals and, in particular, Public Law 95-507.

We have been given, or have liaison with Mr. Jack Watson, who is one of the senior staff persons in the White House, in an effort to com

Our Administrator has been involved in this activity, too. I think perhaps the most important thing has been the Administrator's personal visits to at least 3 of the top 10 agency heads with regard to Public Law 95-507 and to talk about that activity, Mr. Chairman.

The second, I think, is perhaps as important as any, and that is our belief that the civil service reform should be a part of the performance review of each and every contracting officer so that when he or she is reviewed, based on a performance, and they do not adhere to the law of the land with regard to section 211 of Public Law 95-507, there should be no pay raises at the minimum, and no job at the maximum. Third, with regard to problems, we have two problems that I would like to identify this morning. The first is goal setting.

We have rejected each and every goal submitted by each agency with regard to goals for small and disadvantaged businesses. We have set the week of February 18-the current week-to negotiate at the top. That is, our Administrator is meeting with the agency head to come up with adequate goals which we think will facilitate the subcontracting and other provisions of Public Law 95-507.

We have identified the top eight agencies that account for approximately 77 percent of all the procurement dollars expended annually. We have a second tier of nine agencies and a third tier. However, we will use the strategy of negotiating at the top to get adequate goals for our constituents.

The second general problem, Mr. Chairman, is that with our philosophy of having each agency self-enforce and self-comply, it is very important to have a pivotal person or a contact person at each agency. It is our belief that there are several agencies which, as of last week--and we have indicated this in a letter dated February 12, 1980, to Mr. Currie with a copy to Mr. McIntyre and Mr. Jack Watson-do not have a full-time, permanent director reporting to the agency head or the deputy per the instructions of the President.

In closing, Mr. Chairman, we think that there has been definite movement in the Federal sector, probably in part from the impetus we got from this subcommittee back in December. However, there are still two goals that we would like to accomplish; that is, to continue to manage the procedure for getting a final report on the 2,536 contracts under solicitations that were deemed legally deficient, and to have a complete and accurate report on that. Second, through self-education and motivational activities, to get each agency to selfcomply.

We are encouraged, Mr. Chairman, by the support we have had from the President and other top-level personnel, including the Administrator of OFPP, to get the executive branch moving in the right direction.

The best way, though, to summarize our situation right now is to say that, while we aren't where we ought to be with regard to the implementation of Public Law 95-507 today, we certainly aren't where we were on December 4.

We would be happy to answer any questions you may have.
Mr. LAFALCE. Thank you very much, Mr. Clement.

I think it would be inappropriate if I did not commend you and the SBA for the efforts you have made since December 4, 1979. It is

difficult to make up for the past within a 2-month period or so. That hasn't been done, but at least a strong effort has been made, which I am pleased to observe and commend.

Dr. Carter, do you have any questions you would like to ask at this time?

Mr. CARTER. I have only one or two.

I notice that corrective actions have been taken on 358 contracts totaling $1 billion. Could you tell me the nature of these corrective actions?

Mr. CLEMENT. Mr. Carter, that is simply to include the clause which provides for maximum practical opportunities. As Mr. Currie indicated in his opening statement, there is no acceptable percentage-5 percent, a percent, or what have you-but when we indicate corrections, there are opportunities for small and disadvantaged businesses to participate in that particular contract.

Mr. CARTER. They have made corrective actions-these 358 contractors. Is that correct?

Mr. CLEMENT. That is correct.

Mr. CARTER. Have they made these contracts available to minorities? Mr. CLEMENT. When we talk about disadvantaged business, it includes minority subcontractors.

Mr. CARTER. I see.

An additional 640 contracts or solicitations are being amended to comply with Public Law 95-507. What are these amendments?

Mr. CLEMENT. These are contracts that are in the process of being negotiated between the agency and the prime contractor. Our PCR's indicate that they have three reasons that contracts could not be amended. This is another way of answering your question. That is, the original contract was let to a small business or that the contract has been completed, or that there are no subcontracting possibilities. If none of those options exist, then they are in the process right now of negotiating between the agency and the prime contractor to amend the original contract.

Mr. CARTER. To amend the original contract. How would that be done?

Mr. CLEMENT. That is to include the clause which provides for maximum practical opportunities for small businesses and disadvantaged business owners.

Mr. CARTER. This maximum opportunity has not been afforded in previous contracts that have been let?

Mr. CLEMENT. That is entirely correct, Mr. Carter.

Mr. CARTER. Thank you, Mr. Chairman.

Mr. LAFALCE. I will be relying heavily on counsel today to ask some questions. Mr. Neidich?

Mr. NEIDICH. Could I clarify something, Mr. Clement, in response to Congressman Carter's question? You indicated that the remedy was the inclusion of a clause. Is it the inclusion of a clause, or is it the negotiation or inclusion of a subcontracting loan?

Mr. CLEMENT. The latter would be technically correct.

Mr. NEIDICH. So, in effect these are-again, in the contracts that have been remedied they have gone back and contacted the contractor

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