Mr. ROBINSON. In connection with subcontracting programs, this committee recommended at the close of the 89th Congress a continuing study of Public Law 87-305 to determine whether changes are needed to increase the effectiveness of the small business subcontracting program and to strengthen the position of small business in the subcontracting program. It has been suggested, by representatives of the industry, that there be flow-down provisions so as to secure set-asides at subcontract levels. Thus, a prime contractor would in effect be setting aside his purchases of goods and services for small concerns. Has SBA any position on this subject? Mr. MANESS. I am trying to refresh my memory, Counsel. In your question, you suggest the possibility that we might induce the prime contractor to utilize the set-aside provisions or set-aside criteria in letting subcontracts. I believe we were successful in one instance in a very large, complex, sophisticated procurement in the billions of dollars with a large prime contractor to let a subcontract by set-aside procedures, but I don't know of any other success in this effort. But I will look through our files and if we have any, we shall be delighted to submit them to the committee. Mr. BOTHMER. While I don't know of any really active efforts that we want to take too much or put too much credence in at this time, I do know the Navy has been discussing the possibility of doing this in certain types of contracts with some of its primes. NASA has also been looking into the possibility under certain limited circumstances. How much success we should anticipate from these things I am not sure. It certainly is encouraging that they are at least giving some consideration to it. Mr. MANESS. If I may add just one more word on that subject. There are certain inherent legal difficulties involved because of either a fixed price contract or a negotiated contract, things of that nature. Mr. ROBINSON. Those which may be cured by amendment to Public Law 87-305. Mr. MANESS. If it requires legislation, we will so indicate and suggest that legislation is required. Mr. ROBINSON. Thank you. I certainly appreciate, Mr. Maness, that you have been very helpful. In these hearings conducted in Washington and in the field, the subcommittee documented many hundreds of pages of testimony. We have a good record on the position of small business in Government procurement and I think that the testimony we are getting from the SBA witnesses today will be helpful to the committee in evaluating the small business position, and in reaching proper conclusions and making recommendations. You have been very helpful. I want to thank you. Mr. Henry Marcheschi, who is present here today, had brought to the attention of this committee some time ago certain problems in connection with DOD weighted guidelines and their effect on small business. The committee, as you know, reviewed the problems and made certain recommendations for remedial action. You were helpful to the committee in the matter and we appreciate the views that were expressed by you, Mr. Maness, on the subject. Have there been any developments in this area that would tend to change the opinion previously stated by you or would you care to add any comments? Mr. MANESS. I am aware of the efforts of this committee and counsel and its predecessor chairman and the present chairman of this subcommittee. Counsel has mentioned our previous statements and position. There is no question that this committee and SBA walk side by side and are both interested that there be a payment or an incentive for the small business effort. I am aware of the recommendation of this committee in the last Congress. I am aware of the fact that there has been response to this committee from the Department of Defense in connection with its recommendations. I can only say, Counsel, that if I had the influence I would be delighted to write a letter to Mr. Malloy and say change the construction set-aside and change the weighted guidelines. I can assure you I won't be successful in either one if he didn't want to do it. Mr. ROBINSON. Mr. Maness, we don't find any fault, I am sure, with SBA's efforts that are being made in the subcontracting area. As a matter of fact, the presentation that SBA conducted in this room on May 15 was a testimonial for the success of the voluntary referral program and SBA's participation subcontracting, and if we looked at the graph, we would find the subcontracting figures go up from year to year; that is, the small business participation. On the other hand, we are disturbed with the decline at the prime level, that the prime contract awards to small business are going down. And I would like to close by asking you the questions that Mr. Corman put in his opening statement of March 13. You can answer them now, or if you wish, you may submit for the record. Mr. Corman after commenting upon the decline in prime awards to small business stated: "At the same time, we get reports that the small business share of said contracts awarded by prime contractors is increasing. What does this mean? What are the reasons for these trends? Is small business becoming discouraged from bidding for prime contracts? Is small business being relegated to the subcontracting market or to other markets other than Government work? Do the procurement policies of the Government agencies encourage and develop the actual and potential capacity of small business in accordance with congressional intent?" These questions are significant in the light of certain facts that have been presented to the committee. There is the instance of Mr. Paul Otto in Boston who said that for 15 years he was a prime contractor serving the Air Force and Army and because he was discouraged by various problems, involving paper profusion, restrictive specifications, and other situations, he went out of the prime market and is selecting only good subcontracts. We hear that same story in Washington, we hear it on the west coast. We are told by many small businessmen that they are being discouraged from participating in prime contracts. Since you are doing so. well in the subcontract area, we are hopeful that the prime contract levels will be increased with the new program you have just described. We will appreciate your comments either now or later for the record. Mr. MANESS. Counsel, I graciously accept your offer and submit in depth the response to all the inquiries raised by your statement and Congressman Corman's opening statement. Mr. ROBINSON. No further questions. Mr. ADDABBO. Again, Mr. Maness, on behalf of myself and the committee I want to congratulate you on a wonderful presentation, a complete, courageous, and strong statement, and also your associates, and thank you for being patient with us in our program. The members of this subcommittee who haven't been able to be with you all afternoon apologize, but as you know, the House calls them to other duties. This committee now stands adjourned until further call by the Chair. Mr. MANESS. Thank you very much. (Whereupon, at 3:55 p.m., June 11, 1968, the subcommittee was recessed, to reconvene at the call of the Chair.) THE POSITION OF SMALL BUSINESS IN GOVERNMENT PROCUREMENT Part V(b).-SBA'S VIEWS REGARDING SMALL BUSINESS COMPLAINTS AND GOVERNMENT AGENCY RESPONSES (Excerpt from the subcommittee's invitation to SBA to testify applicable to the request for SBA's evaluations and recommendations, if any, regarding the complaints presented by small business, follows:) SELECT COMMITTEE ON SMALL BUSINESS, Hon. ROBERT C. MOOT, DEAR MR. Moor: This is in reference to the study being conducted by the Subcommittee on Government Procurement and Economic Concentration of the House Select Committee on Small Business to determine the position of small business in the procurement market. In this inquiry the Subcommittee is seeking to determine whether existing legislation and the procurement policies and regulations of the agencies and their implementation enable and encourage small business to participate equitably in Government procurement. As you know, testimony was obtained from represenatives of various Federal departments and agencies and small business firms and their associations in public hearings held in Washington, D.C. and Los Angeles, Calif. It will be helpful to the Subcommittee if you would review all the testimony of the Government and industry witnesses and present to us your views, comments, evaluations, and recommendations, if any, with special emphasis on the following: (g) Complaints presented and problems identified by industry witnesses. For this purpose, I am pleased to invite you, and such officials as you may designate, to testify before the Subcommittee in the closing session of these hearings scheduled to be held on June 11, 1968, at 10:00 a.m. in Room 2359 of the Rayburn House Office Building, Washington, D.C. If it will be inconvenient for you to personally appear at that time, we will be pleased to hear your Associate Administrator for Procurement. * Please furnish twelve copies of the prepared statement by June 6. Sincerely yours, JAMES C. CORMAN, Chairman, Procurement Subcommittee. (Excerpt from SBA's communication applicable to the subcommittee's request for information follows:) SMALL BUSINESS ADMINISTRATION, Hon. JAMES C. CORMAN, Chairman, Subcommittee on Government Procurement and Economic Concentration, Select Committee on Small Business, Washington, D.C. DEAR MR. CHAIRMAN: During my testimony before your Subcommittee on June 11, 1968, several questions were raised which required consideration and later submission. We have not yet received the responses of the various Federal agencies to complaints voiced at your hearings by certain representatives of the small business community. Hence, we are unable to comment thereon at this time. However, we shall do so as soon as possible after receiving them. You will recall that by reason of my service as a member of the Small Business Size Appeals Board I was unable to comment on a pending size appeal containing allegations that a large meat packer was participating in small business set-asides for boned beef, through a concern to which it had leased facilities within one of its packing plants. The appeal involving these circumstances has now been withdrawn. Therefore, I am now able to make the following statement: The problem of large businesses reorganizing or making arrangements with newly formed or existing concerns in such a way as to claim small business status has long been with us. Under our currently effective regulation, a concern cannot qualify as a small business unless it, together with its affiliates, meets the applicable definition of small business. The regulation provides that concerns are affiliates if directly or indirectly one concern controls or has the power to control another or, directly or indirectly, the same third party or parties controls or has the power to control both. This, by design, is a very broad definition. It is our view that, with this broad definition, we can, if problem cases are brought to our attention, thoroughly investigate them and make decisions which reflect enforcement of the spirit as well as of the letter of the regulation and, thus, effectively prevent large concerns from utilizing "fronts" in order to obtain small business set-asides. As for the actual case which raised the Committee's question, it should be noted that the Size Appeals Board had, through the cooperation of the Department of Agriculture, obtained a complete report on the circumstances, and was prepared to conduct an oral hearing with respect thereto. However, the appellant, representing various small businesses in the meat industry, elected to withdraw its appeal with full knowledge that this would result in the continued small business eligibility of the concern whose size status had been questioned. Consequently, no decision was made by the Size Appeals Board. In the event of a future protest as to the eligibility of the concern in question, the Small Business Administration (SBA) will review the matter and determine whether that concern meets the applicable size standard. I hope the above satisfactorily answers the questions which remained pending at the end of my testimony. I appreciated the opportunity to represent SBA before the Subcommittee and its interest in our programs. If I or my staff can be of any assistance, please call on me. Sincerely yours, IRVING MANESS, Associate Administrator. (The subcommittee's request for additional information follows:) Mr. IRVING MANESS, SELECT COMMITTEE ON SMALL BUSINESS, Associate Administrator for Procurement and Management Assistance, Small Business Administration, Washington, D.C. DEAR MR. MANESS: This will acknowledge and respond to your June 25 letter and attachments submitted for the record following your recent testimony in the hearings conducted by the Subcommittee on Government Procurement and Economic Concentration. The additional information, I am certain, will be helpful to the Subcommittee and is appreciated. In view of the testimony previously obtained from representatives of small firms and their associations regarding their procurement experiences, complaints and problems, the Subcommittee Members are concerned that certain regulations, policies and practices applied by procurement and other Government agencies may be discouraging small business bidding and participation in Government contracts. We look forward to receiving your further submissions for the record which will set forth your Agency's views, comments, and evaluations and any recom |