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Testimony: 

Before the Subcommittee on Government Management, Organization, and 
Procurement; Committee on Oversight and Government Reform; House of 
Representatives: 

United States Government Accountability Office: 

GAO:

For Release on Delivery: 
Expected at 2:00 p.m. EDT: 
Wednesday, September 26, 2007: 

Small Business Contracting: 

Observations from Reviews of Contracting and Advocacy Activities of 
Federal Agencies: 

Statement of William B. Shear: 
Director: 
Financial Markets and Community Investment: 

GAO-07-1255T: 

GAO Highlights: 

Highlights of GAO-07-1255T, a testimony before the Subcommittee on 
Government Management, Organization, and Procurement; Committee on 
Oversight and Government Reform; House of Representatives. 

Why GAO Did This Study: 

The federal government’s long-standing policy has been to use its 
buying power to maximize procurement opportunities for various types of 
small businesses. 

GAO initiated work and completed a report in March 2007 under the 
Comptroller General’s authority describing the extent to which small 
businesses participated in contracting opportunities related to 
Hurricane Katrina. This testimony discusses (1) results from the March 
2007 GAO report, including the amounts that small and local businesses 
received directly from federal agencies from contracts related to 
Hurricane Katrina and the lack of required information in official 
procurement data systems on subcontracting plans, (2) information from 
two previous GAO reports regarding the small business advocacy 
responsibilities of SBA and federal agencies that award contracts, and 
(3) GAO work on SBA’s efforts to advocate for small disadvantaged 
businesses, and similar efforts by entities within selected agencies. 

In conducting the studies discussed in this testimony, GAO analyzed 
agency contract data, reviewed federal acquisition regulations, and 
interviewed agency procurement officials; we also sent a questionnaire 
to agency officials regarding OSDBU reporting relationships; reviewed 
organizational charts and other pertinent information; analyzed 
relevant laws, legislative history, and court cases; and, updated 
information on agency actions on our recommendations. 

What GAO Found: 

Small businesses received 28 percent of the $11 billion in contracts 
that DHS, GSA, DOD, and the Corps awarded directly for Katrina-related 
projects. Information on whether DHS and GSA required subcontracting 
plans was generally not available in the federal government’s official 
procurement database for 70 percent or more of the contracting dollars 
each agency awarded for activities related to Hurricane Katrina. This 
database should have contained information on whether or not the 
agencies required subcontracting plans in these instances. The lack of 
transparency surrounding much of the agencies’ subcontracting data may 
lead to unwarranted perceptions about how the federal procurement 
system is working, particularly in terms of the government’s stated 
preference for contracting with small businesses. GAO recommended in 
its March 2007 report that DHS, GSA, and DOD take steps designed to 
ensure compliance with federal contracting regulations and more 
transparently disclose the extent to which subcontracting opportunities 
are available to small businesses. These agencies generally agreed with 
GAO’s recommendations. GSA has implemented them while DOD and DHS 
indicate they are in the process of doing so. 

SBA has governmentwide responsibilities for advocating that federal 
agencies use small businesses as prime contractors for federal 
contracts and set goals for and encourage the use of small businesses 
as subcontractors to large businesses receiving federal contracts. 
Similarly, within each federal agency there is an Office of Small and 
Disadvantaged Business Utilization (OSDBU) that plays an advocacy role 
by overseeing the agency’s duties related to contracts and subcontracts 
with small and disadvantaged businesses. The Small Business Act 
requires that the OSDBU director be responsible to and report only to 
agency heads or their deputies. In 2003, GAO reported that 11 of 24 
agencies reviewed did not comply with this provision. While most of the 
agencies disagreed with our conclusion, none of the legal arguments 
that they raised changed GAO’s recommendations. Because the OSDBU 
directors at these agencies do not have a direct reporting relationship 
with their agencies’ heads or deputies, the reporting relationships 
potentially limit their role as effective advocates for small and 
disadvantaged businesses. 

GAO is presently evaluating SBA’s and agency OSDBUs’ advocacy efforts. 
This evaluation includes an assessment of the actions SBA takes to 
advocate that small disadvantaged businesses receive opportunities to 
participate as subcontractors under federal prime contracts and 
encourage that prime contracting goals for these businesses are met. 
Also, the evaluation addresses selected OSDBUs’ actions to advocate for 
certain small business firms. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.GAO-07-1255T]. For more information, contact 
William B. Shear at (202) 512-8678 or shearw@gao.gov. 

[End of section] 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss our previous and ongoing work 
related to contracting opportunities for small businesses. The federal 
government's long-standing policy has been to use its buying power--the 
billions of dollars it spends through contracting each year--to 
maximize procurement opportunities for various types of small 
businesses. The Small Business Act creates responsibilities for both 
the Small Business Administration (SBA) and the federal agencies that 
award contracts to provide various types of small businesses with 
opportunities to receive federal contracts and subcontracts. 
Furthermore, the act sets goals for participation by specific types of 
small businesses, including small disadvantaged businesses. Given the 
importance of assessing the extent to which various types of small 
businesses participate in federal contracts and subcontracts, even in 
times of presidentially-declared disasters, as well as the important 
roles of both the SBA and federal agencies concerning small business 
participation, this is a timely hearing at which to consider our 
relevant previous and ongoing work. 

My statement today is based primarily on a report we issued in March 
2007, which discussed the amounts that small businesses received 
through prime contracts and subcontracts related to Hurricane Katrina; 
two earlier reports we issued on federal agencies' responsibilities for 
advocating for small and disadvantaged businesses; and work now 
underway at the request of this subcommittee dealing with SBA's efforts 
to advocate that federal agencies and contractors provide the maximum 
practicable opportunity for small disadvantaged businesses to 
participate in federal contracts.[Footnote 1] Specifically, I will 
discuss (1) the amounts that small and local businesses received 
directly from federal agencies through contracts related to Hurricane 
Katrina and the lack of required information in official procurement 
data systems on subcontracting plans, (2) the small business advocacy 
responsibilities of SBA and federal agencies that award contracts and 
(3) work we are beginning at your request on SBA's and selected 
agencies' Offices of Small and Disadvantaged Business Utilization 
(OSDBU) efforts to advocate for small disadvantaged businesses. 

In assessing contracts related to Hurricane Katrina, we analyzed data 
on contracts awarded or used by the Departments of Homeland Security 
(DHS) and Defense (DOD) (including the U.S. Army Corps of Engineers), 
and the General Services Administration (GSA) for Katrina-related 
projects overall and specifically for projects in Alabama, Louisiana, 
and Mississippi from August 1, 2005, through June 30, 2006.[Footnote 2] 
These agencies were responsible for over 85 percent of the federal 
funds awarded via contracting when we began our data analysis. We also 
identified contracts that were used for activities related to Hurricane 
Katrina and that required subcontracting plans, reviewed federal 
acquisition regulations, and interviewed agency procurement officials. 
We conducted our work under the Comptroller General's authority to 
initiate evaluations between March 2006 and February 2007 in accordance 
with generally accepted government auditing standards. To describe the 
small business advocacy responsibilities of SBA and federal agencies, 
we summarized our previous work on small disadvantaged businesses and 
updated information on agency responses to our recommendations. In this 
previous work, we sent a questionnaire to agency officials regarding 
OSDBU reporting relationships, reviewed organizational charts and other 
pertinent information, and analyzed relevant laws, legislative history, 
and court cases. Our final objective highlights ongoing work assessing 
the efforts of SBA and selected OSDBUs in advocating for small 
disadvantaged businesses. 

In summary: 

* Small businesses received 28 percent of the $11 billion that DHS, 
GSA, DOD, and the Corps awarded directly for Katrina-related projects. 
DHS awarded the highest dollar amount to small businesses (about $1.6 
billion), and GSA awarded the highest percentage of its Katrina-related 
contracting dollars to small businesses (72 percent of about $658 
million). Information on whether DHS and GSA required subcontracting 
plans was generally not available in the federal government's official 
procurement database for 70 percent or more of the contracting dollars 
each agency awarded for activities related to Hurricane Katrina. This 
database should have contained information on whether the agencies 
required subcontracting plans in these instances. The lack of 
transparency surrounding much of the agencies' subcontracting data may 
lead to unwarranted perceptions about how the federal procurement 
system is working, particularly in terms of the government's stated 
preference for contracting with small businesses. 

* SBA has governmentwide responsibilities for advocating that federal 
agencies use small businesses as prime contractors, and that prime 
contractors give small businesses opportunities to participate as 
subcontractors in federal contracts awarded to large businesses. To 
meet its responsibilities, SBA negotiates annual procurement goals with 
each agency and reviews certain proposed contracts to encourage them to 
offer the maximum practicable opportunity for small businesses to 
participate. Similarly, each federal agency has an Office of Small and 
Disadvantaged Business Utilization (OSDBU) that plays an advocacy role 
by overseeing the agency's functions and duties related to the awarding 
of contracts and subcontracts to small and disadvantaged businesses. To 
advocate effectively for small and disadvantaged businesses, the Small 
Business Act requires that the OSDBU directors be responsible to and 
report only to agency heads (or their deputies) so that the directors 
have immediate access to their agency's top decision-makers. However, 
in 2003, we reported that 11 of the 24 agencies we reviewed did not 
comply with this provision and as of our most recent follow-up work, 9 
agencies were out of compliance. Because the OSDBU directors at these 
agencies do not have a direct reporting relationship with their 
agencies' head or deputy, the reporting relationships potentially limit 
their role as an advocate for small and disadvantaged businesses. 

* In response to a request from the Chairman of this subcommittee about 
the extent to which 8(a) firms are obtaining federal contracts, we 
initiated an evaluation of SBA's efforts to advocate for such 
businesses. This evaluation includes an assessment of the actions SBA 
takes to encourage agencies to meet their prime contracting goals for 
small disadvantaged businesses; the extent to which such goals have 
been met; and SBA's efforts to advocate that small disadvantaged 
businesses have the maximum practicable opportunity to participate as 
subcontractors for prime federal contracts. In our evaluation, we also 
will assess actions by selected agency OSDBUs in serving as advocates 
for 8(a) firms. 

Background: 

Federal agencies' contracts with private businesses, whether made in 
the normal course of agency operations or specifically related to a 
natural disaster declaration, are used to meet certain goals to 
increase participation by various types of small businesses. The Small 
Business Act, as amended, defines a small business generally as one 
that is "independently owned and operated and that is not dominant in 
its field of operation.[Footnote 3]" In addition, a business must meet 
the size standards published by SBA to be considered "small." The act 
sets a governmentwide goal for small business participation of not less 
than 23 percent of the total value of all prime contract awards-- 
contracts that are awarded directly by an agency--for each fiscal 
year[Footnote 4]. The Small Business Act sets annual prime contract 
dollar goals for participation by specific types of small businesses: 
small disadvantaged businesses (5 percent); women-owned or service- 
disabled, veteran-owned, (5 and 3 percent, respectively); and 
businesses located in historically underutilized business zones 
(HUBZones, 3 percent[Footnote 5]). 

In August 2007, SBA issued its fiscal year 2006 Goaling Report. The 
Goaling Report includes data on the extent to which federal agencies 
met their goals for awarding contracts to various types of small 
businesses. According to this report, federal agencies awarded 22.8 
percent of their prime contracting dollars to small businesses, just 
short of the 23 percent statutory goal. In addition, while federal 
agencies collectively exceeded the goals for awarding prime contracting 
dollars to small disadvantaged businesses, they did not meet the goals 
for awarding prime contracting dollars to women-owned, HUBZone, or 
service-disabled veteran-owned businesses. Of the agencies we reviewed 
in our March 2007 report, all exceeded their agency-specific goals for 
awarding prime contracting dollars to small disadvantaged businesses, a 
subset of which are Section 8(a) firms. Generally, in order to be 
certified under SBA's 8(a) program, a firm must satisfy SBA's 
applicable size standards, be owned and controlled by one or more 
socially and economically disadvantaged individuals who are citizens of 
the United States, and demonstrate potential for success.[Footnote 6] 
Black Americans, Hispanic Americans, Native Americans, and Asian 
Pacific Americans are presumptively socially disadvantaged for purposes 
of eligibility.[Footnote 7] The personal net worth of an individual 
claiming economic disadvantage must be less than $250,000 at the time 
of initial eligibility and less than $750,000 thereafter. 

The general rules governing procurement are set out in federal 
procurement statutes and in the Federal Acquisition Regulation (FAR). 
Among other things, these rules require that any business receiving a 
prime contract for more than the simplified acquisition 
threshold[Footnote 8] must agree to give small business the "maximum 
practicable opportunity" to participate in the contract.[Footnote 9] 
Additionally, for contracts (or modifications to contracts) that (1) 
are individually expected to exceed $550,000 ($1 million for 
construction contracts) and (2) have subcontracting possibilities, the 
prime contractor generally must have in place a subcontracting 
plan.[Footnote 10] This plan must identify the types of work the prime 
contractor believes it is likely to award as subcontracts as well as 
the percentage of subcontracting dollars it expects to direct to the 
specific categories of small businesses for which the Small Business 
Act sets specific goals.[Footnote 11] 

When they award contracts, federal agencies collect and store 
procurement data in their own internal systems--typically called 
contract writing systems. The FAR requires federal agencies to report 
the information about procurements directly to the Federal Procurement 
Data System-Next Generation (FPDS-NG), GSA's governmentwide contracting 
database, which collects, processes, and disseminates official 
statistical data on all federal contracting activities of more than 
$3,000.[Footnote 12] 

Congress has enacted several laws designed to foster small business 
participation in federal procurement. One of these laws, Public Law 95-
507, enacted in 1978, amended section 15 of the Small Business Act (15 
U.S.C. § 644) to require that all federal agencies with procurement 
authority establish an Office of Small and Disadvantaged Business 
Utilization. This office is responsible for helping oversee the 
agency's functions and duties related to the awarding of contracts and 
subcontracts to small and disadvantaged businesses. 

Finally, the Stafford Act sets forth requirements for the federal 
response to presidentially declared disasters. It requires federal 
agencies to give contracting preferences, to the extent feasible and 
practicable, to organizations, firms, and individuals residing or doing 
business primarily in the area affected by a major disaster or 
emergency.[Footnote 13] 

Agencies Awarded Varied Amounts of Contracting Dollars to Small 
Businesses, but Information on Subcontracting Plans Was Incomplete: 

Our March 2007 report identified the extent to which DHS, GSA, DOD, and 
the Corps awarded contracts directly to small businesses; the extent to 
which different types of small businesses received contracts; and the 
extent to which small businesses located in Alabama, Mississippi, and 
Louisiana received contracts for Katrina-related projects.[Footnote 14] 
Our report also noted that information on small business subcontracting 
plans was not consistently available for the four agencies. 

Small Businesses Received Varied Amounts of the Contracting Dollars 
That DHS, GSA, DOD, and the Corps Awarded: 

We found that small businesses received 28 percent of the $11 billion 
that DHS, GSA, DOD, and the Corps awarded directly for Katrina-related 
projects, but the percentages varied among the four agencies (see fig. 
1).[Footnote 15] We assessed the agencies individually and found that 
DHS had awarded the highest dollar amount to small businesses--about 
$1.6 billion dollars--and that GSA had awarded the highest percentage 
of its dollars to small businesses--72 percent of about $658 million. 

Figure 1: Dollar Amount of Katrina-Related Prime Contracts Awarded to 
Businesses by Socioeconomic Group: 

[See PDF for image] 

Dollars (in millions) by business size: 

Agency: DHS: 
Small Business: $1,559.9 (24%);
Large Business: $4,858.6 (76%);
Total: $6,418.5. 

Agency: GSA: 
Small Business: $474.7 (72%);
Large Business: $183.0 (28%);
Total: $657.8. 

Agency: DOD: 
Small Business: $332.7 (34%);
Large Business: $653.9 (66%);
Total: $986.6. 

Agency: Corps: 
Small Business: $728.2 (23%);
Large Business: $2,318.7 (77%);
Total: $3,109.9. 

Agency: Total: 
Small Business: $3,095.6 (28%);
Large Business: $8,077.2 (72%);
Total: $11,172.8. 

Source: GAO analysis of FPDS-NG and DD-350 data on contracting actions 
awarded from August 1, 2005 to June 30, 2006. 

Note: Dollars are rounded to the nearest hundred thousand and 
percentages were calculated from unrounded numbers. 

[End of figure] 

Among categories of small businesses, small disadvantaged businesses 
received 7 percent of the approximately $11 billion that the four 
agencies awarded to both large and small businesses. Other categories 
of small businesses, including women-and veteran-owned businesses and 
businesses located in HUBZones, received from 2 to 4 percent (see fig. 
2). Contracting dollars awarded directly to businesses can be counted 
in more than one category, so the dollars awarded to various types of 
small businesses are not mutually exclusive. 

Figure 2: Dollar Amount of Katrina-Related Prime Contracts Awarded to 
Businesses by Socioeconomic Group: 

[See PDF for image] 

Agency: DHS;
Total awarded to small and large businesses (dollars in millions): 
$6,418.5;
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: Veteran-owned (all): $127.9 (2%);
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: Veteran-owned (service-disabled [a]): $1.0;
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: HubZone: $222.7 (3%);
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: Disadvantaged: $409.0 (6%);
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: Women-owned: $243.7 (4%); 

Agency: GAS;
Total awarded to small and large businesses (dollars in millions): 
$657.8;
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: Veteran-owned (all): $9.0 (1%);
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: Veteran-owned (service-disabled [a]): $0.6;
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: HubZone: $14.0 (2%);
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: Disadvantaged: $37.7 (6%);
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: Women-owned: $58.1 (9%); 

Agency: DOD;
Total awarded to small and large businesses (dollars in millions): 
$986.6;
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: Veteran-owned (all): $11.0 (1%);
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: Veteran-owned (service-disabled [a]): $0.8;
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: HubZone: $36.8 (4%);
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: Disadvantaged: $76.9 (8%);
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: Women-owned: $45.8 (5%); 

Agency: Corps;
Total awarded to small and large businesses (dollars in millions): 
$3,109.9;
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: Veteran-owned (all): $61.8 (2%);
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: Veteran-owned (service-disabled [a]): $0.8;
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: HubZone: $106.2 (3%);
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: Disadvantaged: $207.6 (7%);
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: Women-owned: $84.7 (3%); 

Total:
Total awarded to small and large businesses (dollars in millions): 
$11,172.8;
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: Veteran-owned (all): $209.7 (2%);
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: Veteran-owned (service-disabled [a]): $3.2;
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: HubZone: $379.7 (3%);
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: Disadvantaged: $731.3 (7%);
Dollar amount (in millions) and percentage of total awarded to 
socioeconomic group: Women-owned: $432.3 (4%). 

Source: GAO analysis of FPDS-NG and DD-350 data on contracting actions 
awarded from August 1, 2005, to June 30, 2006. 

Note: Percentages cannot be totaled across columns because under SBA 
Guidelines, contracting dollars awarded directly to businesses can be 
counted in more than one category-- for example, a small disadvantaged 
business owned by a women can be counted as both disadvantaged and 
women-owned. Dollars are rounded to the nearest hundred thousand and 
percentages were calculated from unrounded numbers. 

[a] The service-disabled category is a subset of the veteran-owned 
business category. 

[End of figure] 

Small businesses in Alabama, Mississippi, and Louisiana received 66 
percent of the $1.9 billion in Katrina-related contracting dollars 
awarded to local businesses by the four agencies we reviewed. Among the 
three states, the proportion of Katrina-related contracting dollars 
awarded to small businesses was largest in Mississippi (75 percent), 
followed by Alabama and Louisiana at 65 percent and 62 percent, 
respectively, of the dollars awarded (table 1). In general, these small 
local businesses received contracting dollars directly from the four 
agencies to provide trailers, administrative and service buildings, 
restoration activities, and other supportive services. 

Table 1: Small Businesses Received the Majority of Contracting Dollars 
Awarded Directly to Local Businesses (dollars in millions): 

Agency: DHS[a];
Alabama, All Businesses, dollar amount: $160;
Alabama, Small Businesses, dollar amount: $119;
Alabama, Small Businesses, percent: 75%;
Louisiana, All Businesses, dollar amount: $460;
Louisiana, Small Businesses, dollar amount: $345;
Louisiana, Small Businesses, percent: 75%;
Mississippi, All Businesses, dollar amount: $138;
Mississippi, Small Businesses, dollar amount: $138;
Mississippi, Small Businesses, percent: 100%. 

Agency: GSA;
Alabama, All Businesses, dollar amount: $77;
Alabama, Small Businesses, dollar amount: $72;
Alabama, Small Businesses, percent: 92%;
Louisiana, All Businesses, dollar amount: $48;
Louisiana, Small Businesses, dollar amount: $26;
Louisiana, Small Businesses, percent: 54%;
Mississippi, All Businesses, dollar amount: $210;
Mississippi, Small Businesses, dollar amount: $194;
Mississippi, Small Businesses, percent: 92%. 

Agency: DOD;
Alabama, All Businesses, dollar amount: $10;
Alabama, Small Businesses, dollar amount: $10;
Alabama, Small Businesses, percent: 98%;
Louisiana, All Businesses, dollar amount: $7;
Louisiana, Small Businesses, dollar amount: $6;
Louisiana, Small Businesses, percent: 89%;
Mississippi, All Businesses, dollar amount: $45;
Mississippi, Small Businesses, dollar amount: $9;
Mississippi, Small Businesses, percent: 20%. 

Agency: Corps;
Alabama, All Businesses, dollar amount: $84;
Alabama, Small Businesses, dollar amount: $16;
Alabama, Small Businesses, percent: 19%;
Louisiana, All Businesses, dollar amount: $609;
Louisiana, Small Businesses, dollar amount: $320;
Louisiana, Small Businesses, percent: 53%;
Mississippi, All Businesses, dollar amount: $114;
Mississippi, Small Businesses, dollar amount: $42;
Mississippi, Small Businesses, percent: 36%. 

Agency: Total;
Alabama, All Businesses, dollar amount: $331;
Alabama, Small Businesses, dollar amount: $217;
Alabama, Small Businesses, percent: 65%;
Louisiana, All Businesses, dollar amount: $1,124;
Louisiana, Small Businesses, dollar amount: $697;
Louisiana, Small Businesses, percent: 62%;
Mississippi, All Businesses, dollar amount: $508;
Mississippi, Small Businesses, dollar amount: $383;
Mississippi, Small Businesses, percent: 75%. 

Source: GAO analysis of FPDS-NG and DD-350 data on contract actions 
awarded from August 1, 2005, to June 30, 2006. 

Note: Dollars are rounded to the nearest million and percentages were 
calculated from unrounded numbers. 

[a] DHS data are missing information on the contractor's state for 3.5 
percent of its records. Where possible, GAO used available information 
on the contractor's city and place of performance to identify the state 
in which the contractor was located. 

[End of table] 

Information on Subcontracting Plan Requirements Was Missing or 
Incomplete: 

In two respects, key information on small business subcontracting plans 
was not consistently available in official procurement data systems for 
the four agencies. First, primarily with respect to DHS and GSA 
contract actions, the official procurement data system had no 
information at all on whether the agencies required subcontracting 
plans for 70 percent or more of their contracting funds. This database 
should have contained information on whether the agencies required 
subcontracting plans in these instances. For DOD and the Corps, their 
system lacked information on whether they required subcontracting plans 
for one percent of their contracting funds. Table 2 shows the total 
amounts each agency awarded to large businesses for contracts valued 
over $500,000 (column 2) and the extent to which no information was 
available in the official procurement data system on whether the 
agencies required subcontracting plans for those contracts (column 6). 

Table 2: Subcontracting Plan Requirements by Dollar Amounts Awarded 
(dollars in millions):  

Agency: DHS;
Total amount awarded to large businesses over $500,000[a]: $4,866.2;
Percent of total amount awarded and dollar amount requiring a 
subcontractor plan: 1%; $27.2;
Percent of total amount awarded and dollar amount with no 
subcontracting possibilities: 0%; $16.3;
Percent of total amount awarded and dollar amount reported as not 
requiring a subcontracting plan: 29%; $1,406.0;
Percent of total amount awarded and dollar amount with no information 
on subcontracting plan requirements: 70%; $3,416.7. 

Agency: GSA;
Total amount awarded to large businesses over $500,000[a]: $127.1;
Percent of total amount awarded and dollar amount requiring a 
subcontractor plan: 7%; $8.9;
Percent of total amount awarded and dollar amount with no 
subcontracting possibilities: 4%; $4.7;
Percent of total amount awarded and dollar amount reported as not 
requiring a subcontracting plan: 12%; $15.1;
Percent of total amount awarded and dollar amount with no information 
on subcontracting plan requirements: 77%; $98.4. 

Agency: DOD;
Total amount awarded to large businesses over $500,000[a]: $631.2;
Percent of total amount awarded and dollar amount requiring a 
subcontractor plan: 22%; $8.9;
Percent of total amount awarded and dollar amount with no 
subcontracting possibilities: 0%; [Empty];
Percent of total amount awarded and dollar amount reported as not 
requiring a subcontracting plan: 77%; $483.6;
Percent of total amount awarded and dollar amount with no information 
on subcontracting plan requirements: 1%; $6.2. 

Agency: Corps;
Total amount awarded to large businesses over $500,000[a]: $2,468.7;
Percent of total amount awarded and dollar amount requiring a 
subcontractor plan: 76%; $1,880.1;
Percent of total amount awarded and dollar amount with no 
subcontracting possibilities: 0%; [Empty];
Percent of total amount awarded and dollar amount reported as not 
requiring a subcontracting plan: 23%; $574.5;
Percent of total amount awarded and dollar amount with no information 
on subcontracting plan requirements: 1%; $14.1. 

Source: GAO analysis of FPDS-NG and DD-350 data on contract actions 
awarded from August 1, 2005, to June 30, 2006. 

Note: Dollars are rounded to the nearest hundred thousand and 
percentages were calculated from unrounded numbers. 

[a] One million dollars for construction. 

[End of table] 

Second, the procurement data systems showed that the agencies had 
determined that subcontracting plans were not required for contracts 
representing 12 to 77 percent of the dollars they awarded to large 
businesses for Katrina-related projects. Agencies are required to 
document their reasons for these determinations. However, information 
on the four agencies' reasons for not requiring these plans, which 
should have been readily available, was incomplete. 

Overall, procurement officials from the four agencies were able to 
explain some of the missing or incomplete information on subcontracting 
plans by, for example, identifying data entry errors or providing 
evidence of the agencies' reasons for not requiring the plans. For 
example, DHS officials determined that $545 million of the DHS 
contracting funds the procurement data system showed as not requiring a 
plan had been miscoded and should have been entered in the procurement 
system under a different category that listed the contracts as having 
"no subcontracting possibilities." In another instance, GSA officials 
did not require a subcontracting plan for a $26 million contract for 
ice because they believed that the urgency of the situation required 
buying and shipping the ice faster than normal procedures would allow. 
Nonetheless, at the time we issued our report contracting dollars 
remained for each agency with incomplete subcontracting plan 
information that agency officials had not been able to explain. These 
amounts ranged from $3.3 million for DOD (excluding the Corps) to $861 
million for DHS. 

In our report, we concluded there was little doubt that Hurricane 
Katrina posed challenges to the agencies, which had to award contracts 
quickly while still following government procurement rules, especially 
those regarding subcontracting plans. Certain choices, such as 
documenting compliance with these requirements at a later date 
(something GSA and DOD officials indicated was the case), might have 
been understandable. Nonetheless, more than a year after the hurricane, 
we reported that a substantial amount of information about the four 
agencies' subcontracting requirements remained incomplete. Conclusively 
demonstrating compliance with the rules about subcontracting plans is 
important for reasons beyond just documentation. First, in requiring 
these plans agencies commit prime contractors to specific goals for 
providing opportunities to small businesses. Second, the agencies have 
tools--incentives as well as sanctions--that they can use to ensure 
that the contractors engage in good faith efforts to meet their small 
business subcontracting goals. In doing so, the agencies ensure 
compliance with federal procurement regulations and help guarantee that 
small businesses have all of the practical opportunities to participate 
in federal contracts that they are supposed to have. Because so much 
key information about subcontracting plans was incomplete in federal 
procurement data systems and, at the conclusion of our review, remained 
unresolved, we cannot tell the extent to which the agencies are 
complying with the regulations. Furthermore, the lack of transparency 
surrounding much of the agencies' subcontracting data--missing 
information on plans when contracts appear to meet the criteria for 
having them--may lead to unwarranted perceptions about how the federal 
procurement system is working, particularly in terms of the 
government's stated preference for contracting with small businesses. 

To ensure compliance with federal contracting regulations and more 
transparently disclose the availability of subcontracting opportunities 
for small businesses, we recommended that the Secretaries of Homeland 
Security and Defense and the Administrator of General Services issue 
guidance reinforcing, among other things, the necessity for documenting 
in publicly available sources the agencies' contracting decisions, 
particularly in instances when the agencies decided not to require 
subcontracting plans. Moreover, we recommended that the agencies 
consider asking their respective Inspectors General to conduct a review 
to ensure that this guidance and related requirements were being 
followed. 

The agencies generally agreed with our recommendations, and GSA has 
already implemented them. Specifically, in March 2007, GSA issued 
guidance to its contracting officers reminding them of the importance 
both of the subcontracting plan requirements and of documenting key 
decisions affecting acquisitions, including any decisions impacting 
subcontracting plan requirements. In addition, GSA will include a 
review of compliance with subcontracting plan requirements in its 
annual internal procurement management reviews. DOD and DHS officials 
have stated that they are working on implementing these 
recommendations. For example, Corps officials indicated they are 
developing a new training module on the requirements regarding 
subcontracting plans and plan to deliver this to its contracting 
officers. 

Some Agencies May Not Be Maximizing Their Advocacy Roles: 

SBA has governmentwide responsibilities for advocating that federal 
agencies use small businesses as prime contractors, and that prime 
contractors give small businesses opportunities to participate as 
subcontractors in federal contracts awarded to large businesses. To 
meet its responsibilities, SBA negotiates annual procurement goals with 
federal executive agencies to achieve the 23 percent governmentwide 
goal for contract dollars awarded directly by federal agencies. In 
addition, SBA is responsible for assigning Procurement Center 
Representatives (PCRs) to major contracting offices to implement small 
business policies and programs. Responsibilities of PCRs include 
reviewing proposed acquisitions and recommending various types of small 
business sources; recommending contracting methods to increase small 
business prime contracting opportunities; conducting reviews of the 
contracting office to ensure compliance with small business policies; 
and working to ensure that small business participation is maximized 
through subcontracting opportunities. 

Each federal agency that has procurement authority is required to have 
an OSDBU. The OSDBU is responsible for helping to oversee the agency's 
functions and duties related to the awarding of contracts and 
subcontracts to small and disadvantaged businesses. For example, the 
office must report annually on the extent to which small businesses are 
receiving their fair share of federal procurements, including contract 
opportunities under programs administered under the Small Business 
Act.[Footnote 16] The Small Business Act requires that OSDBU directors 
be responsible to and report only to agency heads or their deputy. By 
providing immediate access to top decision-makers, Congress intended to 
enhance the directors' ability to advocate effectively for small and 
disadvantaged businesses. However, in 2003 we reported that 11 of the 
24 federal agencies we reviewed were not in compliance with this 
provision.[Footnote 17] As of our most recent follow-up work, nine of 
the agencies reviewed were out of compliance (the Departments of 
Agriculture, Commerce, Education, Health and Human Services, Justice, 
State, the Interior, and the Treasury; and the Social Security 
Administration). The Environmental Protection Agency has complied, and 
the Federal Emergency Management Agency has been subsumed into the 
Department of Homeland Security, which has an OSDBU with a director 
reporting to the highest agency levels. 

Most of the agencies that provided comments on this work disagreed with 
our conclusion that the reporting relationships did not comply with 
this provision of the Small Business Act.[Footnote 18] However, none of 
the legal arguments that the agencies raised caused us to revise our 
conclusions or recommendations. For example, the Departments of 
Agriculture and Treasury had delegated OSDBU responsibilities to lower 
level officials and argued in their comments to us that because the 
Small Business Act does not explicitly prohibit such a delegation, 
their reporting relationships complied with this provision. However, we 
noted that the lack of an express prohibition on such a delegation does 
not necessarily mean that it is thereby permitted and cited case 
history supporting our belief that the delegation of authority may be 
withheld by implication, which we believe this section of the Small 
Business Act does. Because the OSDBU directors at agencies that do not 
comply with this provision of the Act do not have a direct reporting 
relationship with their agencies' head or deputy, the reporting 
relationships potentially limit their role as effective advocates for 
small and disadvantaged businesses. 

Ongoing Work to Evaluate SBA and OSDBU Advocacy Efforts: 

At your request, we have ongoing work evaluating the efforts of SBA 
and, to some extent, OSDBUs within federal agencies, to advocate on 
behalf of small disadvantaged businesses and those in SBA's 8(a) 
business development program. As you are aware, both SBA and agencies' 
OSDBUs play important roles in advocating federal contracting 
opportunities for small disadvantaged businesses and 8(a) firms. SBA 
certifies the firms' eligibility for one or both designations and, as I 
noted earlier, has a governmentwide advocacy role for all types of 
small businesses, and OSDBUs advocate for contracting opportunities 
within each agency by, for example, reviewing proposed contracts and 
making recommendations to contracting officials about those they 
believe could be awarded to a small business, including disadvantaged 
businesses. 

The Small Business Act authorizes SBA's 8(a) Business Development 
Program as one of the federal government's vehicles to help small 
disadvantaged businesses compete in and access the federal procurement 
market. To be eligible for the program, a firm must, among other 
things, meet SBA's applicable size standards for small businesses and 
be owned and controlled by one or more socially and economically 
disadvantaged individuals who are U.S. citizens who demonstrate the 
potential for success. Firms receiving 8(a) certification are eligible 
for contracts that federal agencies set aside for them. To qualify for 
SDB certification, a firm must be owned or controlled by one or more 
socially and economically disadvantaged individuals or a designated 
community development organization. Section 8(a) firms automatically 
qualify as SDBs, but other firms may apply for SDB-only certification. 

Mr. Chairman, you recently wrote to us expressing concern about whether 
SBA was taking an appropriate, proactive approach to advocate that 
small disadvantaged businesses--those in SBA's 8(a) and SDB programs-- 
have access to federal government contracts. As you know, procurement 
decisions--who gets each federal contract--ultimately rest with the 
agencies' contracting offices, not with their OSDBUs and not with SBA. 
Neither SBA nor the OSDBUs can force contracting officials to give a 
contract to a small business. However, as language in the Small 
Business Act suggests, they do have an important role to play in 
advocating that small businesses have the "maximum practicable 
opportunity" to participate. Consequently, our evaluation will focus on 
the advocacy role that SBA and OSDBUs play regarding these 
opportunities for small businesses. Specifically, it will include 
assessment of the actions SBA takes to encourage that prime contracting 
goals for small disadvantaged businesses are met; the extent to which 
such goals have been met; whether federal agencies are having 
difficulty awarding contracts to 8(a) firms; and SBA's efforts to 
advocate that small disadvantaged businesses have the maximum 
practicable opportunity to participate as subcontractors for prime 
federal contracts. In our evaluation, we also plan to assess actions by 
selected agency OSDBUs in serving as advocates for 8(a) firms. 

Our evaluations of contracting in the aftermath of Hurricane Katrina 
and agency OSDBUs provide useful perspectives as we move forward in our 
examination of the important advocacy roles undertaken by SBA and the 
OSDBUs. When we complete the design phase of this work, we will reach 
agreement with you on our reporting objectives and the anticipated 
issuance date. Mr. Chairman, this concludes my prepared statement. I 
would be happy to answer any questions at this time. 

Contacts and Acknowledgments: 

For further information on this testimony, please contact William B. 
Shear at (202) 512-8678 or shearw@gao.gov. Individuals making key 
contributions to this testimony included Bill MacBlane, Assistant 
Director; Emily Chalmers; Nancy Eibeck; Julia Kennon; Tarek Mahmassani; 
Lisa Moore; Paul Thompson; Myra Watts-Butler; and Bill Woods. 

[End of section] 

Footnotes: 

[1] GAO, Hurricane Katrina: Agency Contracting Data Should Be More 
Complete Regarding Subcontracting Opportunities for Small Businesses, 
GAO-07-205 (Washington, D.C., March 1, 2007); GAO, Small Disadvantaged 
Businesses: Most Agency Advocates View Their Roles Similarly, GAO-04-
451, (Washington, D.C., March 22, 2004); GAO, Small and Disadvantaged 
Businesses: Some Agencies' Advocates Do Not Report to the Required 
Management Level, GAO-03-863, (Washington, D.C., Sept. 4, 2003.) 

[2] We reported on the U.S. Army Corps of Engineers (Corps) and the 
rest of DOD separately because, of the four supplemental appropriations 
measures for Department of Defense activities relating to Hurricane 
Katrina relief (Pub. L. Nos. 109-61, 109-62, 109-148, and 109-234), the 
latter three specifically directed certain funds to the Corps for its 
disaster relief activities. 

[3] Public Law 85-536, as amended, 15 U.S.C. § 632(a). 

[4] 15 U.S.C. § 644(g). 

[5] HUBZones are economically distressed metropolitan or 
nonmetropolitan areas--that is, areas with low-income levels or high 
unemployment rates--and qualified Hubzone small businesses must employ 
some staff who live in those zones. See 15 U.S.C. § 632. A small 
disadvantaged business is a business that is owned and controlled by 
socially and economically disadvantaged individuals, or certain 
economically disadvantaged groups, such as Indian Tribes. These owners 
must have at least a 51 percent stake in the business. See 15 U.S.C. § 
637(a). 

[6] Unless otherwise noted, ownership means having a stake of 51 
percent or more in the business. 

[7] 13 C.F.R. §§124.103 and 124.104 (2006). Business owners who are not 
members of presumptive socially disadvantaged groups may petition the 
SBA to be classified as disadvantaged. To do so, business owners must 
provide narrative and supporting documentation that demonstrates social 
disadvantage. That evidence must include the following elements: (1) 
possession of at least one objective distinguishing feature that has 
contributed to the business owners' social disadvantage --such as race, 
ethnic origin, gender, physical handicap, or long-term residence in an 
environment that is isolated from mainstream America; (2) personal 
experience of a substantial and chronic social disadvantage within 
American society; and (3) the negative impact of this disadvantage on 
the business owners' entry into or advancement in the business world. 

[8] FAR section 201.1 defines "simplified acquisition threshold" to 
mean $100,000, except when the acquisition of supplies or services is 
used to support a contingency operation or facilitate defense against 
nuclear, biological, chemical, or radiological attack. In those 
instances, the term means $250,000 for contracts to be awarded and 
performed inside the United States and $1 million for contracts to be 
awarded and performed outside the United States. 

[9] FAR §§ 19.702, 2.101. see, e.g., 15 U.S.C. § 644(g)(1) 

[10] Id. The dollar threshold was changed to $550,000 on September 28, 
2006. 71 Fed. Reg. (Sept. 28, 2006). 

[11] These and other aspects of the small business subcontracting plan 
requirement are set forth at FAR Part 19.7. 

[12] The FPDS-NG reporting threshold in FAR 4.602(c) was raised from 
$2,500 to $3,000. 71 Fed. Reg. 57,364 (Sept. 28, 2006). U.S.C. § 
644(g). 

[13] 42 U.S.C. § 5150. Our work did not assess agency compliance with 
Stafford Act requirements. 

[14] GAO-07-205. 

[15] Each of the agencies we reviewed establishes annual goals for 
small business participation. Among the agencies, these goals ranged 
from 23 percent for DOD and DHS to 45 percent for GSA in fiscal years 
2005 and 2006. 

[16] 13 C.F.R. § 125.3(e). 

[17] GAO-03-863. 

[18] Specifically, section 15(k)(3) of the Small Business Act. 

[End of section] 

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