Small Business Subcontracting: Oversight of Contractor Compliance with Subcontracting Plans Needs Improvement
Fast Facts
Certain federal contracts that go to large businesses must have small business subcontracting plans. Under these plans, contractors have to make a good-faith effort to offer subcontracting opportunities to small businesses.
Agencies are supposed to notify Small Business Administration representatives about proposed contracts with these plans for possible review. But for about half of the 26 contracts we examined, agencies couldn’t show whether that happened. Agencies also didn’t ensure that contractors submitted subcontracting reports, or that the reports were accurate.
We made 10 recommendations to strengthen oversight of these plans.
The subcontracting report submission system is web-based
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Highlights
What GAO Found
GAO found selected agencies did not consistently follow all required procedures for oversight of small business subcontracting plans, both before and after contracts were awarded. GAO reviewed 26 contracts with a subcontracting plan at four agencies—Defense Logistics Agency (DLA), General Services Administration (GSA), National Aeronautics and Space Administration (NASA), and the Department of the Navy (Navy).
For about half of the 26 contracts, agencies could not demonstrate that procedures for Procurement Center Representative (PCR) reviews were followed. These representatives may review small business subcontracting plans and provide recommendations for improving small business participation. When an agency is awarding a contract that includes a subcontracting plan, contracting officers are required to notify these representatives of the opportunity to review the proposed contract. Without taking steps to ensure these opportunities are provided, agencies may not receive and benefit from suggestions for increasing small business participation.
For 14 of the 26 contracts, contracting officers did not ensure contractors submitted required subcontracting reports. After a contract is awarded, contracting officers must review reports contractors submit that describe their progress towards meeting approved small business subcontracting goals. In some cases, contracting officers accepted reports with subcontracting goals different from those in the approved subcontracting plans, with no documentation explaining the difference. Without complete and accurate information about a contractor's subcontracting goals, an agency cannot adequately assess a contractor's performance in meeting its subcontracting plan responsibilities.
The Small Business Administration (SBA) encourages agency compliance with small business subcontracting plan requirements by providing training to contracting officers and contractors, and by conducting reviews. For instance, SBA Commercial Market Representatives conduct compliance reviews to evaluate a large prime contractor's compliance with subcontracting program procedures and goal achievement. However, SBA could not provide documentation or information on almost all compliance reviews conducted in fiscal years 2016–2018. SBA has developed new procedures for conducting compliance reviews, but as of mid-March 2020, had yet to fully implement them. SBA has conducted fiscal year 2019 compliance reviews that reflect a first phase of their new procedures. SBA has draft guidance on the new compliance review process, including some specific information regarding what Commercial Market Representatives are to record as part of the compliance review. SBA has begun to conduct compliance reviews in accordance with the guidance, but does not have clearly documented and maintained records for the first phase of these reviews. Without consistent, clear documentation and records that will be maintained going forward, SBA's ability to track contractor compliance and agency oversight efforts will be limited.
Why GAO Did This Study
Certain federal contracts must have a small business subcontracting plan if subcontracting opportunities exist. But recent Department of Defense Inspector General reports raised concerns about agency oversight of subcontracting requirements. GAO was asked to review oversight of subcontracting plans. Among its objectives, this report discusses (1) the extent to which selected agencies (DLA, GSA, NASA, and Navy) oversee small business subcontracting plans, and (2) how SBA encourages agency compliance with subcontracting plan requirements.
GAO reviewed data and documentation for a non-generalizable sample of 32 federal contracts (including 26 contracts with a subcontracting plan) at four agencies, selected to include contracts over $1.5 million at both civilian and military agencies awarded in fiscal years 2016–2018. GAO also reviewed the Federal Acquisition Regulation, SBA and selected agency documentation, and interviewed agency officials.
Recommendations
GAO is making 10 recommendations for ensuring procedures for PCR reviews are followed, contractor subcontracting reports are monitored and reviewed for accuracy, and SBA compliance reviews are clearly documented and maintained. DLA, GSA, NASA, and Navy concurred with our recommendations. SBA partially concurred with our recommendation. GAO maintains that its recommendation is warranted.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Defense Logistics Agency | The Director of DLA should include a step for the opportunity for PCR review of the proposed contract and subcontracting plan in agency procedures and memorandums, and develop a mechanism for documenting whether the opportunity for PCR review was provided. (Recommendation 1) |
On August 28, 2020, DLA issued a procurement letter, which added a new section, 19.705-5, Awards Involving Subcontracting Plans, to the Defense Logistics Acquisition Directive. The new section includes a checklist that provides guidance to contracting officers regarding their responsibility to provide the SBA PCR an opportunity to review a solicitation requiring a subcontracting plan before it is issued. The use of the checklist is discretionary but it serves as a mechanism to document that the PCR was provided an opportunity to review the subcontracting plan. Additionally, the checklist instructs contracting officers to ensure that they document actions taken throughout the acquisition process in the contract file. DLA officials told us that email correspondence with the PCR could serve as appropriate documentation. The information provided is sufficient to close as implemented this recommendation.
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| Department of the Navy | The Secretary of the Navy should include a step for the opportunity for PCR review of the proposed contract and subcontracting plan in agency procedures and memorandums, and develop a mechanism for documenting whether the opportunity for PCR review was provided. (Recommendation 2) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
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| Defense Logistics Agency | The Director of DLA should take steps to fulfill the requirement that contracting officers ensure that subcontracting reports are submitted by contractors in a timely manner. For example, the agency could require contracting officers to verify that prior reports were submitted when reviewing current submissions. (Recommendation 3) |
DOD noted that guidance that is part of a procurement letter revision will remind contracting officers of the requirements to ensure that subcontracting reports are submitted in a timely manner. The guidance includes a checklist for contracting officers to monitor submission of subcontract reports, including taking appropriate enforcement actions if reports are not submitted when they are due. According to DLA officials, the agency provided a first round of training on December 3, 2020 to its acquisition workforce. The training slides discussed the checklist guidance. Additionally, the DLA Office of Small Business Programs developed a training video as part of DLA's corrective action. In a memorandum for DLA Heads of Contracting Activities (HCAs), which was signed on February 16, 2021, the Senior Procurement Executive asked HCAs to ensure that their contracting personnel access and review the training material as needed to perform their responsibilities related to small business subcontracting requirements. The memorandum also asked HCAs to ensure widest dissemination of this training to their contracting professionals and to make the link available via workforce training sites and sources. According to a DLA official, the agency plans to annually remind HCAs, the DLA Small Business Office, the DLA Acquisition Directors and others about the availability of the training video. The information provided is sufficient to close this recommendation as implemented.
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| National Aeronautics and Space Administration | The NASA Administrator should take steps to fulfill the requirement that contracting officers ensure that subcontracting reports are submitted by contractors in a timely manner. For example, the agency could require contracting officers to verify that prior reports were submitted when reviewing current submissions. (Recommendation 4) |
In response to GAO's recommendation, NASA's Office of Procurement sent an email to procurement officers which they disseminated to their contracting officers reminding them of their oversight responsibilities for small business subcontracting plans. Additionally, NASA revised its procurement management processes and guidance to require NASA Center procurement offices to annually monitor and assess compliance with requirements in the Federal Acquisition Regulations related to a prime contractor's compliance with its subcontracting plan. The revised guidance requires procurement offices to specifically monitor timely submittal of subcontracting reports and that contracting officers specifically review contractor submissions and compare the goals in the submission for consistency with the approved subcontracting plan; and address any identified discrepancies. In addition to the revised guidance, NASA's Office of Small Business Programs provided, and has plans to continue providing, training to increase awareness of pre- and post-award subcontracting requirements.
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| Department of the Navy | The Secretary of the Navy should take steps to fulfill the requirement that contracting officers ensure that subcontracting reports are submitted by contractors in a timely manner. For example, the agency could require contracting officers to verify that prior reports were submitted when reviewing current submissions. (Recommendation 5) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
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| Defense Logistics Agency | The Director of DLA should take steps to ensure contracting officers compare subcontracting goals in contractor report submissions to goals in the approved subcontracting plan and address any discrepancies. (Recommendation 6) |
DOD noted that planned workforce training will address the requirement for contracting officers to compare subcontracting reports to goals in the approved subcontracting plans and address discrepancies with the contractor. Additionally, the checklist guidance that was included in a revision to the Defense Logistics Acquisition Directive instructs contracting officers to reject reports that are not adequately complete, for instance, if the goals included in the report do not match the goals in the approved plan. According to DLA officials, the agency provided a first round of training on December 3, 2020 to its acquisition workforce. The training slides discussed the checklist guidance and the contracting officer's responsibility to track, review, and accept reports, or reject them if they are not complete or if subcontracting goals included in the report do not match the goals in the approved subcontracting plan. Additionally, the DLA Office of Small Business Programs developed a training video as part of the corrective action. In a memorandum for DLA Heads of Contracting Activities (HCAs), which was signed on February 16, 2021, the Senior Procurement Executive asked HCAs to ensure that their contracting personnel access and review the training material as needed to perform their responsibilities related to small business subcontracting requirements. The memorandum also asked HCAs to ensure widest dissemination of this training to their contracting professionals and make the link available via workforce training sites and sources. According to a DLA officials, the agency plans to annually remind HCAs, the DLA Small Business Office, the DLA Acquisition Directors and others about the availability of the training video. The information provided is sufficient to close this recommendation as implemented.
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| General Services Administration | The Administrator of the GSA should take steps to ensure contracting officers compare subcontracting goals in contractor report submissions to goals in the approved subcontracting plan and address any discrepancies. (Recommendation 7) |
In July and November 2020, GSA provided training to contracting officers on their responsibilities related to small business subcontracting. The training slides noted that it is a contracting officer's responsibility to review individual subcontracting reports (ISRs), including comparing the ISRs against the contract's subcontracting plan to ensure the subcontracting goals listed in the ISRs match the goals in the plan. In addition to the training, GSA made available to staff a list of frequently asked questions (FAQs) on how to review an ISR in the electronic Subcontracting Report System (eSRS). The FAQs include instructions on comparing the "Current Goal" listed in the ISR to the goals of the contract's subcontracting plan to determine if they match. Finally, in October 2020 GSA sent an email reminder to prime contractors reminding them to ensure that current goals listed in the ISR match the goals in the subcontracting plan to avoid errors when submitting the reports. The information provided is sufficient to close this recommendation as implemented.
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| National Aeronautics and Space Administration | The NASA Administrator should take steps to ensure contracting officers compare subcontracting goals in contractor report submissions to goals in the approved subcontracting plan and address any discrepancies. (Recommendation 8) |
In response to GAO's recommendation, NASA's Office of Procurement sent an email to procurement officers which they disseminated to their contracting officers reminding them of their oversight responsibilities for small business subcontracting plans. Additionally, NASA revised its procurement management processes and guidance to require NASA Center procurement offices to annually monitor and assess compliance with requirements in the Federal Acquisition Regulations related to a prime contractor's compliance with its subcontracting plan. The revised guidance requires procurement offices to specifically monitor timely submittal of subcontracting reports and that contracting officers specifically review contractor submissions and compare the goals in the submission for consistency with the approved subcontracting plan; and address any identified discrepancies. In addition to the revised guidance, NASA's Office of Small Business Programs provided, and has plans to continue providing, training to increase awareness of pre- and post-award subcontracting requirements.
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| Department of the Navy | The Secretary of the Navy should take steps to ensure contracting officers compare subcontracting goals in contractor report submissions to goals in the approved subcontracting plan and address any discrepancies. (Recommendation 9) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
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| Small Business Administration | The SBA Administrator should ensure Commercial Market Representatives clearly and consistently document compliance reviews and maintain these records. (Recommendation 10) |
SBA issued two guidance memos based on its action plan to address GAO's recommendation. The first memo, issued on November 9, 2020, instructed Commercial Market Representatives (CMRs) to begin using a single electronic repository to store compliance review information. According to SBA officials, CMRs upload documents from other systems such as the electronic Subcontracting Report System directly (eSRS) into this repository. To help ensure CMRs clearly and consistently document compliance reviews, SBA issued the second memo on November 23, 2020. This memo instructed CMRs to immediately begin conducting a type of compliance review, called a performance review, in which SBA reviews progress towards subcontracting goals and whether required contractor reports have been submitted on time. This memo instructed CMRs to conduct performance reviews as instructed in the Performance Review Desk guide and follow the sample letters provided in the desk guide. SBA officials stated that CMRs input the required information extracted from eSRS directly into a template, which is a part of the repository. CMRs use this template to communicate the results of the performance review to the contractor. As of June 4, 2021, CMRs have completed seventy-one performance reviews and uploaded the information into the repository. To meet the document retention requirements, documents in the electronic repository must be maintained for nine years and three months. The information provided is sufficient to close this recommendation as implemented.
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