COMMISSION RECOMMENDATION NO. 48, PART A

Procurement from Small Business

Test mandatory small business subcontracting on a selected basis to determine its feasibility.

COMMISSION RECOMMENDATION NO. 1, PART A

Policy Development and Implementation

Establish by law a central Office of Federal Procurement Policy in the Executive Office of the President, preferably in the Office of Management and Budget, with specialized competence to take the leadership in procurement policy and related matters. If not organizationally placed in OMB, the office should be established in a manner to enable it to testify before committees of Congress. It should develop and persistently endeavor to improve ways and means through which executive agencies can cooperate with and be responsive to Congress.

COMMISSION RECOMMENDATION NO. 2, PART A

The Statutory Framework

Enact legislation to eliminate inconsistencies in the two primary procurement statutes by consolidating the two statutes and thus provide a common statutory basis for procurement policies and procedures applicable to all executive agencies. Retain in the statutory base those provisions necessary to establish fundamental procurement policies and procedures. Provide in the statutory base for an Office of Federal Procurement Policy in the executive branch to implement basic procurement policies.

Public Law 91-129,3 dated November 26, 1969, provided for the creation of a Commission on Government Procurement to be headed by twelve commissioners selected in part by Congress, in part by the President, and designating specifically the Comptroller General as the twelfth commissioner. Congress appointed two members from each House, including the Honorable Edward J. Gurney of Florida, a member of your subcommittee. The Commission was headed by Mr. E. Perkins McGuire, consultant and corporate director, with Congressman Chet Holifield as vice chairman.

The purpose of the Commission was to study and propose to the Congress methods "to promote the economy, efficiency and effectiveness" of the procurement process. As a result of its work, the Commission made some 149 recommendations in a four-volume work 4 covering many of the aspects and problems developed from the hearings held preceding the authorizing legislation.

This was the first systematic review of the overall procurement program since the First Hoover Commission in 1949, and the Second Hoover Commission Task Force in 1955, which was limited to military procurement. The study was completed in two and one-half years and was submitted to the Congress on December 31, 1972.

315 U.S.C. 637(d)(1).

Report of the Commission on Government Procurement, Washington, D.C., December 1972.

The Commission devoted one of its chapters specifically to "Procurement from Small Business" (Chapter 12, Vol. One). Although many subtopics concerning small business are covered in the chapter, the Commission made only three recommendations, which pertain to the statutory goal of a fair proportion of government contracts for small businesses, small business subcontracting, and reviewing the procurement programs to make small business participation more effective.

B. HEARINGS OF SUBCOMMITTEE

The Subcommittee chose two of the three recommendations in the small business chapter for detail study, believing that the third recommendation pertaining to a review within the Executive branch was directed to the Executive agencies and would not require legislative action for its implementation.

In addition to these recommendations bearing on small business interests exclusively, the Subcommittee selected two major recommendations from the report which it believes will have a vast effect on the procurement process, including the role of small business in it. The recommendations for creation of an Office of Federal Procurement Policy and consolidation of the two principal procurement statutes have been called the centerpiece recommendations of the Commission report and will require legislative implementation. Because of this, the Subcommittee was desirous of commencing an early review of the recommendations to determine more precisely how their implementation would affect the small business community.

C. SUMMARY AND COMMITTEE RECOMMENDATIONS

Based on information developed in the hearings held by the Subcommittee on Government Procurement, the following are the conclusions and recommendations of your Committee contained in this report:

1. New Standards for Determining Fair Proportion-(See Chap. II, pages 5-16.)

After finding that the present means of looking at statistical percentages in determining the small business share of the total procurement of the Government is inadequate in determining the success of small business procurement programs, the Commission recommended new standards be established. The Committee concurs in this recommendation, with the addition that, on a test basis, procuring agencies assess the proportion of contracts being awarded to small businesses within industry categories. The Committee also recommends that legislation be adopted amending the Small Business Act to require that all procuring agencies, rather than just the Department of Defense, make a consolidated report on a semi-annual basis of their contracting with small business.

2. Small Business Subcontracting Program-(See Chap. III, pp. 17-23.)

The Commission, noting the decline in the percentage of subcontracting with small business reported by prime contractors with government contracts, recommended further testing of the mandatory subcontracting concept. Under this contract obligation, a prime contractor would be required to subcontract with small businesses to

the extent necessary to meet a predetermined percentage of the contract price. The Committee accepts this recommendation as one way to promote small business subcontracting, but urges other alternatives be explored. Specifically, it believes greater emphasis should be placed on an offeror's small business program in determining his suitability for performing a contract or in the negotiation of the fee in a cost reimbursable contract.

3. Creation of an Office of Federal Procurement Policy-(See Chap. IV, pp. 25-28.)

The Commission found the need for a central body responsible for procurement policy formulation for all procurement agencies. The Committee fully supports this recommendation for the legislative creation of an Office of Federal Procurement Policy.

4. Consolidation of the Two Primary Procurement Statutes-(See Chap. V, pp. 29-32.)

The Commission found that the Armed Services Procurement Act of 1947 and the Federal Property and Administrative Services Act of 1949, while similar in many aspects, are also needlessly inconsistent in other ways. It therefore recommended a consolidation of these statutes. The Committee concurs in this recommendation because of the evidence of the value this consolidation would have to the small business contracting community.

CHAPTER II. NEW STANDARDS FOR “FAIR PROPORTION"

A. COMMISSION RECOMMENDATION No. 47, PART A

Procurement from Small Business

Establish new standards for annually measuring the performance of procuring agencies and their prime contractors in using small business. Standards for measuring performance, including the sound use of set-aside techniques, should assess progress made in assisting small businesses to obtain a fair proportion of awards-not just statistical percentages.1

The Commission on Government Procurement noted, in reviewing the fair proportion goal of the Small Business Act, that there have been no studies to determine if the data available provide a "valid and reliable measure of fair proportion." 2 The Commission found that the practice of comparing the proportion of contracts with small business for one year with those of preceeding years without compensating for the procurement mix, the capability of small business to supply what was being bought, how the Government made its purchases, which agencies were making the purchases, and other facts, does not indicate whether small business is receiving a "fairer" proportion, or a "less fair" proportion in a given year. It concluded that the fair proportion goal should be one that expands or contracts from year to year depending on the types of procurement, state of the economy, and fluctuations of particular industries.

B. FINDINGS OF SUBCOMMITTEE

3

By law, small business is to receive a fair proportion of the total Government contracts. This legislative goal has been implemented by the procuring agencies in their regulations and policies as a guide in their purchasing activities. It also serves as a measure for your committee when it looks annually at the performance of the procuring agencies in awarding contracts and subcontracts to small businesses. A concrete definition of what Congress meant by "fair proportion" has never been established. The committee requested the Congressional Research Service of the Library of Congress to explore the legislative history of this phraseology in the hope of finding the original interpretation of "fair proportion." After noting the statutes in which it has been included over the years, and the accompanying

1 Report of the Commission on Government Procurement, Vol. 1, Part A, Chap. 12, p. 125. 2 Ibid., p. 127.

The Small Business Act in section 2(a) provides that the Government should assist small business interests by insuring "that a fair proportion of the total purchases and contracts or subcontracts for property and services for the Government (including but not limited to contracts or subcontracts for maintenance, repair, and construction) be placed with small-business enterprises. . . ." 15 U.S.C. 631(a)(1970).

29-941-74-2

reports and papers, the Congressional Research Service concluded that the phrase has been used for over twenty-five years without a statutory definition.*

Statistics on small business contracting are reported by the procuring agencies in terms of both the total contract dollars awarded to small business and the percentage of that to the total procurement expenditures. Each year the committee takes these statistics and makes them available in its annual report to the Senate. In the past few years, the proportion of small business contracting in the total procurement has been displayed in graphs for the civilian and military agencies.5

4 See Appendix A, Memoradum of Congressional Research Service, Library of Congress, "Legislative History of the Phrase 'Fair Proportion' in Small Business Act," Oct. 1, 1973.

S. Rep. No. 357, 93d Cong., 1st Sess., pp. 54-57.