THE POSITION OF SMALL BUSINESS WEDNESDAY, NOVEMBER 1, 1967 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GOVERNMENT PROCUREMENT Washington, D.C. The subcommittee met, pursuant to the call of the Chair, at 10:10 a.m., in room 2359 Rayburn House Office Building, Hon. Abraham J. Multer, chairman of the subcommittee, presiding. Present: Representatives Multer, Corman, Broyhill, and Burton. Also present: Representative Dingell of the full committee; Henry A. Robinson, subcommittee counsel; Myrtle Ruth Foutch, clerk; and John J. Williams, minority counsel. Mr. MULTER. The committee will please be in order. This morning, we continue the subcommittee's hearing to review small business procurement programs and practices of Federal departments and agencies. We are scheduled to hear representatives of the Department of the Navy, Department of the Air Force, and Defense Supply Agency. The opening witness today, I am pleased to note, is the Honorable Graeme C. Bannerman, Assistant Secretary of the Navy for installation Logistics. Mr. Bannerman has always been very cooperative and helpful to this committee. We are very happy to have him with us again today. Mr. Secretary, won't you come forward with your associates? We will introduce them for the record in a moment. (183) DEPARTMENT OF THE NAVY Mr. MULTER. Without objection, I will place in the record at this point the subcommittee's September 19 letter of invitation, the subcommittee's September 28 request, and the Navy's October 10 response. (The letters referred to follow:) Hon. PAUL R. IGNATIUS, SELECT COMMITTEE ON SMALL BUSINESS, HOUSE OF REPRESENTATIVES, Washington, D.C., September 19, 1967. DEAR MR. SECRETARY: Subcommittee No. 2 on Government Procurement and Economic Concentration of the House Select Committee on Small Business has scheduled hearings to review small business procurement practices and programs of military and major civilian procurement agencies. In connection with these hearings, we invite you and such officials as you may designate to testify on October 17 at 11:30 a.m. in Room 2359, Rayburn House Office Buidling, regarding the following: 1. Prime contract awards in fiscal years 1964-1967 to all business firms for work in the United States, to small business firms in dollars and percentages and small business set-asides in dollars and percentages. 2. Awards by claimant program in the same period to all business firms and to small firms in dollars and percentages. 3. Research and development awards in the same period to all business firms and to small business in dollar amounts and percentages. 4. Multiyear contracts awarded in the same period to all business firms and to small firms, showing items procured, number of contracts, dollar amounts, percent to small firms, and remaining term of those currently in force. 5. Various existing regulations and policies are designed or can be utilized to encourage and assist small business firms in receiving and performing prime awards and subcontracts. Small business participation depends largely upon the application of such regulations and policies by contracting officers and contract administration officers. Please provide actual cases in fiscal years 1966-1967 showing procedures followed, regulations utilized, procurement and contract administration offices involved, items procured, manner in which small business benefitted, and other details, including the role of the contracting officer, the contract administration officer, and the Navy small business specialist, if any, regarding each of the following subjects and any others you deem appropriate: (a) Set-asides-class, total and partial. (b) Total package procurement. (c) Weapons system buying. (d) Break outs. (e) Dividing procurements into smaller lots suitable for small business. (f) Multiyear contracts. (g) Sole source procurement. (h) Elimination of restrictive specifications. (i) Mobilization planning. (j) Profit factors for contractors' input to total performance under weighted guidelines policy. (k) Profit factors for contractors' performance record under weighted guidelines policy. (1) Utilization of make-or-buy approval authority to increase small business subcontracting. Identify regulations and policies which conflict with others regarding their effect on small business, e.g., multiyear procurements versus dividing procurements into lots suitable for small business, and in each instance describe criteria in reaching final determination. 6. Coordination with Small Business Administration in fiscal years 1966-1967 in furtherance of small business programs, including set-asides and subcontracting. 7. Procedures followed, criteria and guidelines applied, in the same period, to determine each of the following: (a) Goals for awards to small business. (b) Feasibility of component break outs. (d) Availability of small business for bidding. (e) Decisions not to invite small business to bid. (f) Reasons for failure to award procurements to small business. (g) Lack of capacity and credit. (h) Irresponsibility other than capacity or credit. (2) Ample time for submitting bids and proposals. (k) Procurements from foreign sources. (1) Effectiveness of small business subcontracting programs, including make-or-buy decisions. 8. Analysis of small business procurement by dollar amounts during fiscal years 1964-1967, showing procurements (a) not offered to small business with reasons for exclusion, and (b) offered but not awarded to small business with reasons for failure. 9. Such comments as you may wish to make regarding the subject matter of the hearings. It will be appreciated if you would furnish names of witnesses and 12 copies of their statements by October 10 and additional copies at the time of your testimony. Sincerely yours, ABRAHAM J. MULTER, Chairman, Procurement Subcommittee. Hon. PAUL R. IGNATIUS, Secretary of the Navy, Department of Defense, Washington, D.C. SELECT COMMITTEE ON SMALL BUSINESS, HOUSE OF REPRESENTATIVES, Washington, D.C., September 28, 1967. DEAR MR. SECRETARY: This is in further reference to our September 19 letter regarding procurement hearings scheduled for October 17. In the event you should find it inconvenient to attend, we request, in view of the level of policy involved in various matters to be reviewed, that your Assistant Secretary (Installations and Logistics) testify in your place. Your cooperation is appreciated. ABRAHAM J. MULTER, Chairman, Procurement Subcommittee. DEPARTMENT OF THE NAVY, Hon. ABRAHAM J. MULTER, Chairman, Subcommittee No. 2 on Government Procurement and Economic Concentration, Select Committee on Small Business, House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: The Secretary of the Navy has asked me to reply to your letters of 19 and 28 September 1967 inviting the Secretary or his designee to testify before your Subcommittee on 17 October 1967 regarding certain small business matters. You asked to be furnished with the names of witnesses and 12 copies of their statements by 10 October. The Honorable Graeme C. Bannerman, Assistant Secretary of the Navy (Installations and Logistics) will be the Navy's chief witness at your hearing on 17 October. Mr. Morris Questal, Special Assistant for Small Business and Economic Utilization, will appear with Mr. Bannerman. Twelve copies of Mr. Bannerman's prepared statement are forwarded herewith. Additional copies will be provided in the near future. Sincerely, W. P. MACK, Rear Admiral, U.S. Navy, Chief of Legislative Affairs. Mr. MULTER. You may proceed to read your statement or summarize it, as you please. If you do summarize it, the complete statement will, of course, be made a part of the record. TESTIMONY OF GRAEME C. BANNERMAN, ASSISTANT SECRETARY OF THE NAVY FOR INSTALLATIONS AND LOGISTICS; ACCOMPANIED BY MORRIS QUESTAL, SPECIAL ASSISTANT FOR SMALL BUSINESS AND ECONOMIC UTILIZATION Mr. BANNERMAN. At this moment, I would like to introduce Mr. Morris Questal, Special Assistant for Small Business and Economic Utilization, who is on my staff in the Department of the Navy. The statement dated October 17 has been in the hands of the counsel for some time. It is long and moderately complicated. I think it will not be particularly useful for me to read it now. I think the staff has had a chance to analyze it and, if it is agreeable with the committee, I believe we could start right out with the answering of questions. Mr. MULTER. We will insert the statement in full, together with the attachments. (The statement follows:) STATEMENT OF HON. GRAEME C. BANNERMAN, ASSISTANT SECRETARY OF THE NAVY (INSTALLATIONS AND LOGISTICS) Mr. Chairman and members of the committee, I appreciate this opportunity to testify on the Navy's small business procurement practices and programs. It is and has been the continuing policy of the Navy to encourage increased participation of competent small business concerns as prime contractors and subcontractors in our procurement programs. This policy is an integral part of and directly supports our efforts to achieve maximum competition and cost reduction. Prior to responding to the specific questions raised in your letter of 19 September 1967 to the Secretary of the Navy, it may be of interest to the subcommittee to review significant statistics relating to the placement of prime contracts, subcontracts, and set-asides with small business concerns during fiscal year 1967. I. SMALL BUSINESS PRIME-CONTRACT AWARDS During fiscal year 1967, the Navy awarded small business concerns prime contracts totaling approximately $2.1 billion or 17.2% of the value of all of our prime contracts placed with U.S. business concerns. This represented the highest total dollars of Navy prime contract awards received by small concerns in any fiscal year since 1952. It was also, with the exception of FY 1966, the highest percentage of total awards to small firms during the last nine fiscal years. We substantially met our assigned Department of Defense small business objective of 17.3% for FY 1967. Although small business dollars increased by $343 million over FY 1966, the percentage dropped from 19.3% in FY 1966 to 17.2% in FY 1967. This was primarily due to major in creases in obligations for the airframes and ships procurement programs and ordnance materiel required to support Vietnam operations. The airframes procurement program rose to $2.8 billion in FY 1967 as compared to $1.6 billion in FY 1966. The ships program increased to $2.0 billion as compared to $1.2 billion in FY 1966. These programs, which have only limited potential for small business as prime contractors, represented approximately 39% of our total obligations with U.S. business concerns in FY 1967 as compared to 31% in FY 1966. II. SMALL BUSINESS SUBCONTRACT AWARDS During FY 1967, the Navy continued to encourage and motivate prime contractors to provide maximum subcontracting opportunities for small business concerns. In that fiscal year, the Navy was responsible for reviewing and determining the adequacy of the small business and labor surplus area subcontracting programs of approximately 40 plants of large military prime contractors. Companies required to submit subcontracting statistical reports to the Navy indicated that during FY 1967, small business firms received military (Army, Navy, Air Force, and Defense Supply Agency) subcontract commitments totaling approximately $1.3 billion or 37.7% of total subcontract commitments. In FY 1966, subcontract commitments made by these companies to small firms were $207 million less and represented 37.9% of total subcontract commitments. The increased value of subcontract dollars flowing to small business in FY 1967 resulted primarily from the need to support a high volume of military prime contract awards for airframes and engines. III. SMALL BUSINESS SET-ASIDES During FY 1967, the Navy set-aside for exclusive small business participation contracts totaling approximately $358 million. This represented the highest dollar volume of set-asides accomplished by the Navy since the inception of the set-aside program and exceeded FY 1966 small business set-aside awards by approximately $53 million. In both fiscal years 1966 and 1967, the total dollar value of procurements set aside for small business represented approximately 3% of total awards to all U.S. business concerns. Similarly, in both of these years, the value of contracts awarded to small business through the use of this set-aside technique represented approximately 17% of the total contract dollars received by small firms. I would now like to address myself to the questions raised in your letter of 19 September. These questions are repeated below with appropriate responses thereto. Question No. 1.—Prime contract awards in fiscal years 1964-1967 to all business firms for work in the United States, to small business firms in dollars and percentages and small business set-asides in dollars and percentages. Comment.-Please see attached table A. (The table referred to follows:) DEPARTMENT OF THE NAVY TABLE A.-SMALL BUSINESS PARTICIPATION IN NAVY PRIME-CONTRACT AWARDS Question No. 2.-Awards by claimant program in the same period to all business firms and to small firms in dollars and percentages. Comment.-Please see attached table B. (The table referred to follows:) 84-790-68-13 |