[House Report 110-111]
[From the U.S. Government Publishing Office]
110th Congress Rept. 110-111
HOUSE OF REPRESENTATIVES
1st Session Part 1
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SMALL BUSINESS FAIRNESS IN CONTRACTING ACT
_______
April 26, 2007.--Ordered to be printed
_______
Ms. Velazquez, from the Committee on Small Business, submitted the
following
R E P O R T
[To accompany H. R. 1873]
The Committee on Small Business, to whom was referred the
bill (H.R. 1873) to reauthorize the programs and activities of
the Small Business Administration relating to procurement, and
for other purposes, having considered the same report favorably
thereon with an amendment and recommend that the bill as
amended to pass.
CONTENTS
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Page
I. Amendment........................................................1
II. Purpose and Summary..............................................6
III. Background and Need for Legislation..............................7
IV. Hearings........................................................14
V. Committee Consideration.........................................14
VI. Committee Votes.................................................14
VII. Section-by-Section Analysis of Procurement Bill.................14
VIII.Committee Estimate of Costs.....................................22
IX. Oversight Findings..............................................22
X. Statement of Constitutional Authority...........................22
XI. Compliance With Public Law 104-4................................22
XII. Congressional Accountability Act................................22
XIII.Federal Advisory Committee Statement............................22
XIV. Statement of No Earmarks........................................22
XV. Performance Goals and Objectives................................22
XVI. Changes in Existing Law Made by the Bill, as Reported...........23
I. Amendment
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Small Business
Fairness in Contracting Act''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
Sec. 2. Regulations.
TITLE I--CONTRACT BUNDLING
Sec. 101. Definitions of bundling of contract requirements and related
terms.
Sec. 102. Justification.
Sec. 103. Appeals.
Sec. 104. Third-party review.
TITLE II--INCREASING THE NUMBER OF SMALL BUSINESS CONTRACTS AND
SUBCONTRACTS
Sec. 201. Small business goal.
Sec. 202. Include overseas contracts in small business goal.
Sec. 203. Annual goal negotiation.
Sec. 204. Goal reasonableness.
Sec. 205. Usage of small companies in goal achievement.
Sec. 206. Annual plan for each agency explaining how agency will meet
small business goals.
Sec. 207. Making small businesses the first choice.
Sec. 208. Uniform metric for subcontracting achievements.
Sec. 209. Subcontracting database.
Sec. 210. National database.
Sec. 211. Review of subcontracting plans.
Sec. 212. Agency obligation for fulfilling contracting goals.
TITLE III--PROTECTION OF TAXPAYERS FROM FRAUD
Sec. 301. Small business size protest notification.
Sec. 302. Review of national registry.
Sec. 303. Recertification of compliance with size standards and
registration with Central Contractor Registry.
TITLE IV--AUTHORIZATION OF APPROPRIATIONS
Sec. 401. Authorization of appropriations.
SEC. 2. REGULATIONS.
(a) In General.--Not later than 180 days after the date of the
enactment of this Act--
(1) the Administrator of the Small Business Administration shall
promulgate regulations to implement this Act and the amendments made by
this Act; and
(2) the Federal Acquisition Regulation shall be revised to
implement this Act and the amendments made by this Act.
(b) Notice and Comment.--The regulations required by subsection (a)
shall be promulgated after opportunity for notice and comment as
required by section 553(b) of title 5, United States Code.
TITLE I--CONTRACT BUNDLING
SEC. 101. DEFINITIONS OF BUNDLING OF CONTRACT REQUIREMENTS AND RELATED
TERMS.
Section 3 of the Small Business Act (15 U.S.C. 632) is amended by
amending subsection (o) to read as follows:
``(o) Definitions of Bundling of Contract Requirements and Related
Terms.--For purposes of this Act:
``(1) Bundled contract.--
``(A) In general.--The term `bundled contract' means a contract or
order that is entered into to meet procurement requirements that are
consolidated in a bundling of contract requirements, without regard to
its designation by the procuring agency or whether a study of the
effects of the solicitation on civilian or military personnel has been
made.
``(B) Exceptions.--The term does not include--
``(i) a contract or order with an aggregate dollar value below the
dollar threshold specified in paragraph (4); or
``(ii) a contract or order that is entered into to meet procurement
requirements, all of which are exempted requirements under paragraph
(5).
``(2) Bundling of contract requirements.--
``(A) In general.--The term `bundling of contract requirements'
means the use of any bundling methodology to satisfy 2 or more
procurement requirements for new or existing goods or services,
including any construction services, that is likely to be unsuitable
for award to a small business concern due to--
``(i) the diversity, size, or specialized nature of the elements of
the performance specified;
``(ii) the aggregate dollar value of the anticipated award;
``(iii) the geographical dispersion of the contract or order
performance sites; or
``(iv) any combination of the factors described in clauses (i),
(ii), and (iii).
``(B) Exceptions.--The term does not include--
``(i) the use of a bundling methodology for an anticipated award
with an aggregate dollar value below the dollar threshold specified in
paragraph (4); or
``(ii) the use of a bundling methodology to meet procurement
requirements, all of which are exempted requirements under paragraph
(5).
``(3) Bundling methodology.--The term `bundling methodology'
means--
``(A) a solicitation to obtain offers for a single contract or
order, or a multiple award contract or order;
``(B) a solicitation of offers for the issuance of a task or a
delivery order under an existing single or multiple award contract or
order; or
``(C) the creation of any new procurement requirement that permits
a consolidation of contract or order requirements.
``(4) Dollar threshold.--The term `dollar threshold' means--
``(A) $65,000,000, if solely for construction services; and
``(B) $1,500,000, in all other cases.
``(5) Exempted requirements.--The term `exempted requirement' means
one or more of the following:
``(A) A procurement requirement solely for items that are not
commercial items (as the term `commercial item' is defined in section
4(12) of the Office of Federal Procurement Policy Act (41 U.S.C.
403(12))).
``(B) A procurement requirement with respect to which a
determination that it is unsuitable for award to a small business
concern has previously been made by the agency. However, the
Administrator shall have authority to review and reverse such a
determination for purposes of this paragraph and, if the Administrator
does reverse that determination, the term `exempted requirement' shall
not apply to that procurement requirement.
``(6) Procurement requirement.--The term `procurement requirement'
means a determination by an agency that a specified good or service is
needed to satisfy the mission of the agency.''.
SEC. 102. JUSTIFICATION.
Section 15(a) of the Small Business Act (15 U.S.C. 644(a)) is amended--
(1) by striking ``is in a quantity or estimated dollar value the
magnitude of which renders small business prime contract participation
unlikely'' and inserting ``would now be combined with other
requirements for goods and services'';
(2) by striking ``(2) why delivery schedules'' and inserting ``(2)
the names, addresses and size of the incumbent contract holders; (3) a
description of the industries that might be interested in bidding on
the contract requirements; (4) the number of small businesses listed in
the industry categories that could be excluded from future bidding if
the contract is combined or packaged; (5) why delivery schedules'';
(3) by striking ``(3) why the proposed acquisition'' and inserting
``(6) why the proposed acquisition'';
(4) by striking ``(4) why construction'' and inserting ``(7) why
construction'';
(5) by striking ``(5) why the agency'' and inserting ``(8) why the
agency'';
(6) by striking ``justified.'' and inserting ``justified. The
statement shall also set forth the proposed procurement strategy
required by subsection (e) and, if applicable, the specifications
required by subsection (e)(3). Concurrently, the statement shall be
made available to the public, including through dissemination in the
Federal contracting opportunities database.''; and
(7) by inserting after ``prime contracting opportunities.'' the
following: ``If no notification of the procurement and accompanying
statement is received, but the Administrator determines that there is
cause to believe the contract combines requirements or a contract
(single or multiple award) or task or delivery order for construction
services or includes unjustified bundling, then the Administrator can
demand that such a statement of work goods or services be completed by
the procurement activity and sent to the Procurement Center
Representative and the solicitation process postponed for at least 10
days to allow the Administrator to review the statement and make
recommendations as described in this section before the procurement is
continued.''.
SEC. 103. APPEALS.
Section 15(a) of the Small Business Act (15 U.S.C. 644(a)) is amended--
(1) by striking ``If a proposed procurement includes in its
statement'' and inserting ``If a proposed procurement would negatively
affect one or more small business concerns, or if a proposed
procurement includes in its statement''; and
(2) by inserting before ``Whenever the Administration and the
contracting procurement agency fail to agree,'' the following: ``If a
small business concern would be adversely affected, directly or
indirectly, by the procurement as proposed, and that small business
concern or a trade association on behalf of that small business concern
so requests, the Administrator may, in the Administrator's discretion,
take action to further the interests of that small business concern.''.
SEC. 104. THIRD-PARTY REVIEW.
Section 15(a) of the Small Business Act (15 U.S.C. 644(a)) is amended
by striking the sentence beginning ``Whenever the Administration and
the contracting procurement agency fail to agree,'' and inserting the
following: ``Whenever the Administrator and the contracting procurement
agency fail to agree, the Administrator shall submit the matter to the
Administrator of the Office of Federal Procurement Policy within the
Office of Management and Budget, who shall render his decision
regarding the matter not later than 10 days after receiving the
matter.''.
TITLE II--INCREASING THE NUMBER OF SMALL BUSINESS CONTRACTS AND
SUBCONTRACTS
SEC. 201. SMALL BUSINESS GOAL.
Section 15(g)(1) of the Small Business Act (15 U.S.C. 644(g)(1)) is
amended by striking ``23 percent'' and inserting ``30 percent''.
SEC. 202. INCLUDE OVERSEAS CONTRACTS IN SMALL BUSINESS GOAL.
Section 15(g) of the Small Business Act (15 U.S.C. 644(g)) is amended
by adding at the end the following:
``(3) The procurement goals required by this subsection apply to all
procurement contracts, without regard to whether the contract is for
work within or outside the United States.''.
SEC. 203. ANNUAL GOAL NEGOTIATION.
Section 15(g)(1) of the Small Business Act (15 U.S.C. 644(g)(1)) is
amended by striking ``The President shall annually establish
Government-wide goals for procurement contracts'' and inserting ``The
President shall before the close of each fiscal year establish new
Government-wide procurement goals for the following fiscal year for
procurement contracts''.
SEC. 204. GOAL REASONABLENESS.
Section 15(g)(1) of the Small Business Act (15 U.S.C. 644(g)(1)) is
amended by striking ``Notwithstanding the Government-wide goal, each
agency shall have an annual goal'' and inserting ``Each agency shall
have an annual goal, not lower than the Government-wide goal,''.
SEC. 205. USAGE OF SMALL COMPANIES IN GOAL ACHIEVEMENT.
Section 15(g) of the Small Business Act (15 U.S.C. 644(g)) is amended
by adding at the end the following:
``(4) For purposes of this subsection and subsection (h), a small
business concern shall be counted toward one additional category goal
only, even if that small business concern otherwise qualifies under
more than one category goal. In this paragraph, the term `category
goal' means a goal described in paragraph (2).''.
SEC. 206. ANNUAL PLAN FOR EACH AGENCY EXPLAINING HOW AGENCY WILL MEET
SMALL BUSINESS GOALS.
Section 15(g) of the Small Business Act (15 U.S.C. 644(g)) is amended
by adding at the end the following:
``(5) Before the beginning of each fiscal year, the head of each
Federal agency shall submit to the Administrator of the Small Business
Administration and to Congress a detailed plan explaining how the
agency intends to meet the small business goals under this subsection
that apply to that agency for that fiscal year.''.
SEC. 207. MAKING SMALL BUSINESSES THE FIRST CHOICE.
Section 15(j) of the Small Business Act (15 U.S.C. 644(j)) is amended--
(1) in paragraph (1)--
(A) by inserting ``or order'' after ``Each contract''; and
(B) by striking ``$100,000'' and insert ``the Simplified
Acquisition Threshold''; and
(2) in paragraph (3), by striking ``subsection (a) of section 8''
and inserting ``section 8, 31, or 36''.
SEC. 208. UNIFORM METRIC FOR SUBCONTRACTING ACHIEVEMENTS.
Section 8(d) of the Small Business Act (15 U.S.C. 637(d)) is amended by
adding at the end the following:.
``(12) In carrying out this subsection, the Administrator shall require
each prime contractor to report small business subcontract usage at all
tiers based on the percentage of the total dollar amount of the
contract award.''.
SEC. 209. SUBCONTRACTING DATABASE.
Section 8(d) of the Small Business Act (15 U.S.C. 637(d)) is amended by
adding at the end the following:
``(13) In carrying out this subsection, the Administrator shall develop
and maintain a password-protected database that will enable the
Administration to assist small businesses in marketing to large
corporations that have not achieved their small business goals.''.
SEC. 210. NATIONAL DATABASE.
The Administrator of the Small Business Administration shall ensure
that whenever a small business enters its information in the Central
Contractor Registry, or any successor to that registry, the
Administrator contacts that business within 30 days regarding the
likelihood of Federal contracting opportunities. The Administrator
shall ensure that each small business that so registers is, for each
industry code entered by that small business, provided with the total
dollar value of government contract awards to small businesses for that
industry.
SEC. 211. REVIEW OF SUBCONTRACTING PLANS.
Not later than 120 days after the date of the enactment of this
section, the Administrator of the Small Business Administration shall,
after an opportunity for notice and comment, prescribe regulations to
govern the Administrator's review of subcontracting plans, including
standards for determining good faith effort in compliance with the
subcontracting plans.
SEC. 212. AGENCY OBLIGATION FOR FULFILLING CONTRACTING GOALS.
Section 15(h) of the Small Business Act (15 U.S.C. 644(h)) is amended
by adding at the end the following:
``(4) At the conclusion of each fiscal year, the head of each Federal
agency shall submit to Congress a report specifying the percentage of
contracts awarded by that agency for that fiscal year that were awarded
to small business concerns. If the percentage is less than 30 percent,
the head of the agency shall, in the report, explain why the percentage
is less than 30 percent and what will be done to ensure that the
percentage for the following fiscal year will not be less than 30
percent.''.
TITLE III--PROTECTION OF TAXPAYERS FROM FRAUD
SEC. 301. SMALL BUSINESS SIZE PROTEST NOTIFICATION.
(a) In General.--The Administrator of the Small Business Administration
shall work with appropriate Federal agencies to ensure that whenever a
business concern is awarded a contract on the basis that it qualifies
as small and then is determined not to qualify as small, a notification
of those facts (that an award was made on such a basis, and that such a
determination was made) shall be placed adjacent to that concern's
listing in the Central Contractor Registry (or any successor to that
registry).
(b) Comptroller General Certification.--The Administrator shall, in
making any report of small business goal accomplishments, qualify the
accomplishments as ``estimated'', until the Administrator obtains from
the Comptroller General the Comptroller General's certification that
there are no data integrity issues with respect to the national
repository of contract award information known as Federal Procurement
Data System-Next Generation (FPDS-NG), or any successor to that
repository.
(c) Awards to Large Businesses.--For each Federal agency, the Inspector
General of that agency shall, on an annual basis, submit to Congress a
report on the number and dollar value of contract awards that were
coded as awards to small business concerns but in fact were made to
businesses that did not qualify as small business concerns.
SEC. 302. REVIEW OF NATIONAL REGISTRY.
The Administrator of the Small Business Administration shall ensure, on
a biannual basis, that an independent audit is performed of the Central
Contractor Registry, or any successor to that registry, and that the
Dynamic Small Business Search portion of the registry, or any successor
to that portion of the registry, is purged of any businesses that are
not in fact small businesses. If a business that has been so purged
attempts, while not in fact a small business, to re-register, that
business is subject to debarment as a Federal contractor and is further
subject to penalties outlined in section 16 of the Small Business Act
(15 U.S.C. 645).
SEC. 303. RECERTIFICATION OF COMPLIANCE WITH SIZE STANDARDS AND
REGISTRATION WITH CENTRAL CONTRACTOR REGISTRY.
Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) is amended by
adding at the end the following:
``(5) Recertification.--
``(A) In general.--If a business concern is awarded a contract
because of a standard by which it is determined to be a small business
concern, and the business concern is close to exceeding that standard
at the time the award is made, then the business concern must, annually
after the date of the award, recertify to the agency awarding the
contract whether it meets that standard.
``(B) `Close to exceeding'.--For purposes of subparagraph (A), a
business concern is close to exceeding--
``(i) a number-of-employees standard if the number of employees of
the business concern is 95 percent or more of the maximum number of
employees allowed under the standard; and
``(ii) a dollar-volume-of-business standard if the dollar volume of
business is 80 percent or more of the maximum dollar volume allowed
under the standard.
``(6) Registry.--For a business concern to be awarded a contract
because of a standard by which it is determined to be a small business
concern, the business concern must, annually after the end of the
fiscal year used by the business concern, update its listing in the
Central Contractor Registry.''.
TITLE IV--AUTHORIZATION OF APPROPRIATIONS
SEC. 401. AUTHORIZATION OF APPROPRIATIONS.
There are authorized to be appropriated such sums as may be necessary
to carry out this Act and the amendments made by this Act.
II. Purpose and Summary
The Small Business Fairness in Contracting Act, H.R. 1873,
amends key sections of the Small Business Act to assist small
business participation in federal procurement. The predecessors
to the Small Business Administration (SBA) can be traced back
to World War II and efforts by Presidents Roosevelt and Truman
to ensure that small businesses contributed to the maintenance
of a robust defense industrial base. Today, the SBA is best
known for its access to capital programs. Nevertheless, the
genesis of the agency in government procurement is reflected in
the Small Business Act's dictate that small business concerns
receive a ``fair proportion of the total purchases and
contracts for the Government in each industry category . . .
.'' \1\ Despite this clear mandate in existence for more than
50 years, small businesses have not received their fair share
of federal government contracts, much less in each industry
category. Although there are many reasons for this failure,
H.R. 1873 adopts a measured approach to addressing some of the
key causes for those failures. By doing so, the authors intend
to dramatically improve on the capability of small businesses
to earn their fair share of federal government contracts as
mandated by the Small Business Act.
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\1\ Sec. 15(a) of the Small Business Act 15 U.S.C. Sec. 644(a).
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The bill rectifies significant contracting problems in
three main areas: contract bundling, establishment of
contracting goals for small businesses, and inaccuracies of
government databases listing small business concerns. Title I
strengthens the definition of contract bundling by closing
loopholes in the definition, adding construction services to
those contracts that are subject to a bundling analysis
mandated by 15(e) of the Small Business Act,\2\ and providing a
means by which the Administrator of the SBA may obtain an
independent resolution of a dispute over the propriety of a
bundled contract. Title II raises the procurement goals for
small businesses, modifies how that overall goal is calculated,
mandates the time-frame for negotiating the goals with each
federal agency, and raises the threshold for set-asides of
small business contracts to the Simplified Acquisition
threshold of $400,000. Title II also enhances the capacity for
small businesses to obtain a fair share of subcontracts awarded
by large prime contractors through improved compliance with the
subcontracting plans proffered by the prime contractors. Title
III of the bill corrects a problem of recent origin concerning
the accuracy of the data kept on federal procurement databases
and the associated misreporting of firms' size status.
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\2\ 15 U.S.C. Sec. 644(e).
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The Committee does not expect that these changes will
alleviate all the problems associated with small business
access to federal government contracts. Nevertheless, this bill
makes a sound start at eliminating some of the more egregious
barriers erected that prevent small business concerns from
achieving the goal of their fair share of federal contracts set
forth in the Small Business Act.
III. Background and Need for Legislation
In 2006, the federal government spent over $417 billion on
goods and services in 8.3 million separate contract actions.
There is no reason to believe that the federal marketplace will
not continue to grow at a record pace. Small businesses won
approximately $80 billion in contracts which is about 21.5
percent of the remaining prime contracts. The opportunity for
free and predominantly fair competition for those contracts is
an immensely important benefit for small businesses.
Congress acknowledged the value of small business
participation in federal contracting and has established
federal policies to promote that objective for over 60 years.
During World War II it was found to be in our national interest
to ensure a strong and diverse industrial base. In Section 2 of
the Small Business Act \3\ procurement goals are established as
follows: ``it is the declared policy of the Congress that the
Government should aid, counsel, assist and protect ... the
interests of small business concerns in order to preserve free
competitive enterprise and to insure that a fair proportion of
the total purchases and contracts or subcontracts for property
and services for the Government ... be placed with small
business enterprises.'' Without competition, industrial
concentration occurs and the government's purchasing options
are dramatically reduced.
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\3\ 15 U.S.C. Sec. 631(a).
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Through a series of laws and procurement requirements
Congress established a benchmark to give small businesses every
opportunity to compete fairly for the award of federal
contracts. The foundation for these efforts is the Small
Business Act, passed in 1953, which has been steadily amended
to adapt to meet the demands of the marketplace, to support
important social and technological goals, and to conform to an
increasingly sophisticated procurement system.
In recent years, as the number of contracts grew and
competition for lucrative federal contracts intensified, the
process became still more complex. At the same time the federal
government has instituted significant initiatives designed to
streamline and centralize the procurement process which would
lower administration costs. Unfortunately some of these
procedures ended up artificially reducing competition. They
also provide an advantage to large corporations that have the
contacts and resources to operate successfully world-wide.
The issues the bill seeks to correct include: the increased
prevalence of contract bundling of federal contracts; the
miscoding of large businesses as small businesses for contract
purposes or the improper use of codes to include or exclude
certain businesses; the exclusion of overseas and other
categories of contracts from government small business goals
and programs; the lack of growth in general of small business
goals; and the need for stronger incentives and enforcement
mechanisms to spur the attainment of small business policy and
goals. These worsening problems need to be addressed because
they are central to maintaining fair competition.
BARRIERS FOR SMALL BUSINESS PARTICIPATION
In many cases, small businesses can handily fulfill the
basic requirements of federal contracts and beat their
competition; in fact, lower overhead, nimbler production and
structural efficiencies often mean they can rise to provide
services or products at the best price. But competition is not
always so straightforward. Small businesses might not have the
manpower or systems to track and bid on all the opportunities
for which they would qualify. Certain federal contracts, such
as overseas contracts, are exempted by the SBA from small
business goal setting, even though some small businesses would
like to bid for those opportunities.
Even in those cases where the law requires that certain
contracts be set aside for competition between capable small
businesses there are often barriers for smaller firms. For
example, the Committee found that agencies are not doing a good
job following the rules or ensuring all applicants are actually
small. Also, sometimes a smaller contract to provide parts can
disappear if it is swept into a larger contract for overall
maintenance. Or perhaps a small bidder could win the award and
simply turn it over to a large bidder, which in effect is a
backdoor award to a large bidder.
The latest figures show that federal buying of goods and
services continues a remarkable expansion. Since 2000, the U.S.
government's buying has expanded by nearly 60 percent to a
record total of $340 billion in goods and services in the basic
pool available to the small business rule. Current law requires
the SBA to negotiate and establish contracting goals for every
federal agency. The federal wide goal is currently 23 percent
but SBA establishes individual agency goals that they then
aggregate to obtain the overall 23 percent goal. One adverse
side effect of this system is that one agency's compliance with
the goal is used to conceal another agency's failure. A
standard goal would provide a fixed benchmark by which to judge
all agencies.
Unfortunately, contracting opportunities for small
businesses continue to lag and, because of the failure of the
government's tracking system, are likely worse than the
available data shows. Agencies pressed for time and budget
dollars rely more heavily on shortcuts such as contract
bundling and other procurement practices that shut small
businesses out of the federal marketplace. Seven years ago this
Committee set out to highlight individual agencies by grading
their performance. Those grades show a system that has
consistently gotten worse.
Equally problematic, as evidenced by the lack of disaster
recovery contracts going to local companies in the aftermath of
the Gulf coast hurricanes, are efforts to expand harmful small
business contracting practices. New methods of government
buying that have the potential to put taxpayer money at risk
are flourishing. Government contracts are structured so that
the only avenue for participation by small companies is as a
subcontractor where they are generally left to the vagaries of
commercial contract law. Overall, small businesses continue to
lose out on federal contracts, which have negative impacts for
taxpayers in the form of reduced quality and increased costs.
CONTRACT BUNDLING
The practice of bundling contracts--combining two or more
contracts into a larger single package--most often ends up
pushing small firms out of the contract competition. Congress
responded in 1997 with provisions in the Small Business
Reauthorization Act of 1997. The new law created its own
problems as ways were found to skirt its requirements. The last
ten years have illustrated that additional clarification is
needed.
The President's Small Business Agenda of 2002 requested
that the Office of Management and Budget (OMB) stop the
unnecessary bundling of contracts and required the Office of
Federal Procurement Policy (OFPP) to develop detailed plans to
implement this objective. In 2003, the SBA and OFPP proposed
regulations which were finalized and published in the Federal
Register on October 20, 2004. Shortly thereafter, the GAO
reviewed SBA bundling processes and data and found that the
Federal Procurement Data System (FDPS) was inaccurate because
of confusion about the statutory definition of contract
bundling, inadequate verification of information they were
receiving, and ineffective controls in the FPDS reporting
process. The Committee believes that, as a result, the
reporting of bundling actions is wholly inadequate. In 2006,
for example, only 43 bundlings were reported by the federal
government even though independent studies have put the number,
under a broader, more realistic definition at hundreds of
thousands of contracts.\4\
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\4\ The Impact of Contract Building on Small Business 1992-2001;
Office of Advocacy, SBA, 2001.
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Another indication to the Committee that bundling is
increasing over the last 5 years is that despite an increase in
total government contracting dollars of 60 percent since 2000,
the total number of contracting actions received by small
business has declined by 55 percent. Meanwhile, small business
contracts continue to be phased out and combined with larger
projects putting them beyond the reach of small firms. The
Committee has not seen evidence that these bundled contracts
are less expensive to taxpayers and provide higher quality
goods and services.
Currently, the Small Business Act (Act) defines ``Bundling
of Contract Requirements'' as:
[C]onsolidating 2 or more procurement requirements
for goods or services previously provided or performed
under separate smaller contracts into a solicitation of
offers for a single contract that is likely to be
unsuitable for award to a small-business concern due
to--
(A) the diversity, size, or specialized nature of the
elements of the performance specified;
(B) the aggregate dollar value of the anticipated
award;
(C) the geographical dispersion of the contract
performance sites; or
(D) any combination of the factors described in
subparagraphs (A), (B), and (C).\5\
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\5\ Small Business Act, Sec. 3(o)(2), 15 U.S.C. 632(o)(2).
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The definition requires that bundling only occurs for work
that has been performed under preexisting contracts. However,
over the years, contracts evolve and new requirements emerge
and this provision has resulted in limiting the contracts
covered. In addition, construction contracts are not covered
even though construction jobs tend to be very suitable for
smaller, individual contracts. Very few construction jobs are
alike because they involve a host of complex variables.
Witnesses at the Committee's April 19, 2007 hearing testified
that specifically including construction services in the
definition and deleting the requirement that work have been
previously provided or performed, will better address this
important sector of the small business economy.
APPEALS
Because of the current statutory definition of ``contract
bundling,'' very few contracts actually receive a review to
determine their impact on small firms. Merely adding one
component of work that was not in the previous contract seems
to allow an agency to avoid the analytical requirements that
come with the determination of bundling. In the rare cases
where bundled contracts are reviewed, the SBA is allowed under
statute to appeal the contracting action to the agency. The Act
currently only triggers a review of a proposed bundle when ``a
proposed procurement includes in its statement of work goods or
services currently being performed by a small business,'' \6\
and only allows bringing the issue to the attention of the
Administrator if the Procurement Center Representative begins
the appeal of the bundling decision. Unfortunately, these
appeals rarely improve the likelihood that the contract will be
unbundled. The SBA's appeal effectively asks an agency if it is
sure it wants to proceed with the bundled contract--with the
SBA offering arguments as to why the proposed approach would
harm small firms. In essence, this is asking the procuring
agency to reverse itself--a highly improbable outcome. Given
the failure of the SBA to prevail in these appeals, the agency
has used this option less and less.
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\6\ Small Business Act Sec. 15(a), 15 U.S.C. 644(a).
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Under current law, small businesses are allowed to protest
the award of a bundled contract if they are harmed by it, but
are unlikely to do so given the cost and that the agency may
take punitive action against them as a result. Small business
witnesses testified that being excluded from a contract
competition because of a combination of tasks should be enough
injury to a small business to trigger a review. However, they
pointed out that these reviews are expensive and therefore
might inhibit a small business from moving forward to assert
its rights. The Committee feels that appeals should be enlarged
to cover instances where the small business is negatively
affected by not being able to bid on the contract. In addition,
the business or a trade association should be able to pursue an
appeal through the Administrator.
Finally, a third party should be able to independently
review the appeal as it has proved ineffective to let agencies
review their own bundling decisions. The concept of an
independent third party was endorsed by the small business
witnesses who commented on the legislation.
SMALL BUSINESS GOALS
Federal contracts are awarded and coded based on the
businesses' characteristics (including small, women-owned,
minority-owned, HUBZone and disabled veteran-owned). This
information is collected by agencies. The federal government
and specifically the SBA (working with the OFPP) are required
to monitor the utilization of small businesses by federal
agencies and compile records of compliance with federal
contracting programs.
The Act provides that the government wide goal for small
business prime contracts is to be not less than 23 percent of
the prime contracts awarded each year. The SBA negotiates and
establishes individual goals for each federal agency and, under
the current procedures, these awards are added across all
federal agencies to obtain the percentage of federal prime
contracts awarded in each category annually. Not all federal
contracts are included in the pool of contracts on which goals
are based; for example, contracts performed overseas are
excluded from the tabulation. In addition to the overall prime
contracting goal for small businesses goals are established for
Historically Underutilized Business Zone (HUBZone) small
businesses and Service Disabled Veteran Owned Small Businesses
(SDVOSBs) at 3 percent each. Finally, the Act sets goals for
small business concerns owned and controlled by socially and
economically disadvantaged individuals (SDBs) and small
business concerns owned and controlled by women (WOSBs) at 5
percent.\7\
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\7\ Small Business Act Sec. 15(g)(1), 15 U.S.C. 644(g).
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If contracts won by large businesses or exempt entities are
counted toward the small business goal, its value is inflated
and, the Committee found, less effort is expended to bring
competitive and real small businesses into government
contracting. In addition, without good information policymakers
cannot make informed decisions and the purposes of the programs
are frustrated. The Committee has analyzed agency tabulations
over the last 7 years (1999 through 2005) in its Scorecard
Reports. Starting in 2002, it became apparent through this
analysis that a significant number of the contracts were
routinely misreported--always reflecting a higher goal
percentage attainment than was actually achieved. Therefore,
the Committee has recommended changes to require more accurate
reporting and to strengthen the manner in which the data was
reported and certified.
MISCODING
In a Committee investigation, it became apparent that large
businesses (including Fortune 500 companies) and ineligible
entities (non-profits or state, local and federal governments)
were receiving billions of dollars in contacts that were
attributed to small businesses and contaminating the goal
results. For example, in June of 2006, the SBAissued its annual
report on federal contracting and stated that small businesses received
25.36 percent of qualified federal prime contracts. However, a review
of the underlying data showed the report substantially overstated the
amount of contracts small businesses received. Further analysis showed
that if contracts actually awarded to large corporations and other
ineligible organizations were removed, the actual percentage of federal
prime contracts going to small business was 21.5 percent. Approximately
$12 billion in contract awards had been miscoded.\8\ In addition to the
Committee's oversight efforts, the SBA Inspector General, the
Government Accountability Office and the SBA Office of Advocacy have
all found significant miscoding problems with the data.\9\
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\8\ See ScoreCard VII at www.house.gov/smbiz.
\9\ See Analysis of Type of Business Coding for the Top 1000
Businesses Receiving Small Buainess Awards; Office of Advocacy, Small
Business Administration submitted by Eagle Eye Publishers, Inc;
December 2004.
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With the exception of a new SBA proposal that requires
companies to recertify their business size every five years,
very little has been done to ensure that large companies are
not able to take advantage of small business programs through
miscoding. The Central Contractor Registry (CCR) currently
includes hundreds of large businesses that present themselves
as small firms. In addition, there is no way to know that the
new SBA regulation will work unless the list of small business
vendors receiving contracts is audited individually to ensure
that no large businesses or other unqualified entities are
listed as small.
SUBCONTRACTING
Subcontracting can provide an important training ground for
small companies to familiarize themselves with the government
contracting process. Increasingly, small firms are becoming
subcontractors, not by choice, but by necessity. Most
businesses, given the choice, would prefer to have their own
contracts directly with the federal government. In this way
they receive the full benefit of their own hard work, ingenuity
and efficiency and enjoy federal protections and guarantees for
payment.
Unfortunately, subcontracting has been a very negative
experience for some small businesses even where large amounts
of contracting dollars were available. In the Gulf Region, for
example, billions of dollars of cleanup work was awarded
through four large no-bid contracts. When small businesses did
get a piece of that work, it was most often as sub-
subcontractors for low-value tasks and for a fraction of the
price the government was charged.
The same is true for the recent Department of Homeland
Security award for a $67 million ``virtual fence'' along the
U.S. border that went to a large company. By the time small
firms were made aware of this work, it was already awarded. At
some point in the future, if small firms are able to
participate, they will be relegated to subcontracts with the
profits going mainly to the prime contractor.
Subcontracts are commercial contracts between private
parties. Rights accorded under federal procurement statutes
between the government and prime contractors, such as prompt
payment, do not apply. Disputes are resolved through
arbitration or in costly litigation.
Subcontracting dollars are often overstated. Prime
contractors currently report their usage of small business
subcontractors as a percentage of the amount of the prime
subcontracts, as opposed to the total dollar value of the
contract award. This practice has the result of inflating the
amount of work that small business subcontractors are receiving
on large federal contracts.
OVERSEAS CONTRACTING
The large amount of federal dollars spent on combating
terrorism, providing international security and resultant
rebuilding efforts in Iraq and Afghanistan, has underscored the
unfairness of not including overseas contracts as part of the
base of contracts for which small businesses can compete. The
U.S. government operates hundreds of overseas bases and
facilities. Under its current rules the SBA does not include
work performed overseas in the calculation of goal results. If
foreign contract opportunities were considered, some analysts
calculate that the actual small business prime contracting
level is only about 19 percent of all federal contracts.\10\
The overseas exclusion sends the message to federal agencies
they need not bother soliciting small companies for contracts
performed abroad as it will not count against them for their
goals. But many small businesses are fully capable of
international performance and likely would bid for such
contracts.
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\10\ See recent study by Paul Murphy of Eagle Eye which had small
businesses receiving 19.3 percent of all federal prime contracts.
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In FY 2004, $340 billion in contracts were awarded in the
total federal marketplace. Of these contracts, more than $6
billion (and probably much more) was spent overseas using
domestic U.S. corporations. Small firms received less than $122
million of these contracts; roughly 2 percent.\11\ As a rule,
this information is not tracked by the federal agencies that
contract much of this work, such as the Defense Department, the
State Department, and the U.S. Agency for International
Development. The problem is intensified because large
corporations rarely are required to utilize small U.S.
businesses as subcontractors on contracts they perform for the
U.S. abroad. A temporary fix was added last year through an
amendment to the appropriations bill that now requires prime
contractors to make stronger efforts to use small businesses in
the overseas contracts of the Defense Department, with the
exception that combat areas such as Iraq and Afghanistan
continue to be excluded.
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\11\ Committee estimate based on available data. Not all such data
is available or is kept in a form that can be tabulated.
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The Committee believes this policy should be recalibrated
with a policy that advances the use of small American firms as
prime contractors and subcontractors for work performed outside
of U.S. territory. There may be good reasons why some contracts
are awarded tolarge domestic companies or foreign contractors,
but these decisions should be reviewed and publicly disclosed when
possible. Strengthening and diversifying the international capabilities
of our small business base would have a positive impact on our
international competitiveness.
IV. Hearings
In the 110th Congress, the full Committee on Small Business
held a hearing on Women's Business Ownership March 21, 2007
that examined barriers to full participation by women-owned
business in federal contracting. Also, a significant portion of
the Committee's hearing on the President's FY2008 budget
proposals centered on questions raised about contracts awarded
to large businesses that were ``miscoded'' as small businesses
for reporting purposes. The hearing looked at the sufficiency
of the SBA's personnel and budget requests to address the
serious problems in small business procurement activities that
were indicated in reports from the Inspector General, the
Government Accountability Office, the Office of Advocacy and
our Committee reports. A full Committee hearing was held in New
Orleans on April 12, 2007 where the heads of six federal
agencies testified about federal contracting to local small
businesses in the wake of the Hurricane Katrina disaster. Most
recently a hearing was held on April 19, 2007 on key
contracting issues for small businesses and how H.R. 1873 would
address those problems. Finally, the Committee held over 15
hearings on these topics in the 107th, 108th and 109th Congress
where the Committee found that chronic structural and
administrative problems that created barriers to small business
participation were increasing, rather than abating.
V. Committee Consideration
The Committee on Small Business met in open session on
April 24, 2007 to consider H.R. 1873.
VI. Committee Votes
The Committee on Small Business ordered H.R. 1873 reported
to the House, as amended by an amendment in the nature of a
substitute, by a voice vote at 10:12 a.m.
VII. Section-by-Section Analysis of Procurement Bill
Sec. 1 Short title; table of contents
This section includes a short title and the table of
contents.
Sec. 2 Regulations
This section requires the SBA and the Federal Procurement
Agencies that constitute the Federal Acquisition Rule Council
to implement any necessary regulations within 180 days of the
passage of this Act.
The Committee is concerned that, often times, regulatory
changes are not timely reflected in the Federal Acquisition
Regulation (FAR). Because contracting officers generally
consult the FAR when making procurement decisions, and not SBA
regulations, it is important that the changes mandated be
performed in a coetaneous manner. Furthermore, the Committee
requires the regulations be issued pursuant to the
Administrative Procedure Act to avoid any question whether
these regulations constitute a major procurement rule under
section 418 of the Office of Federal Procurement Policy Act.
Title I
Sec. 101 Definitions of bundling of contract requirements
and related terms
This provision clarifies the definition of contract
bundling and related terms. Specifically, ``bundled contract''
is defined as a contract or order that is entered into to meet
requirements that are consolidated in a bundling of contract
requirements without regard to its designation by the procuring
agency or whether a study of the effects of the solicitation on
civilian or military personnel has been made. ``Bundling of
contract requirements'' is defined as the use of any bundling
methodology to satisfy 2 or more requirements for new or
existing goods or services, including any services for
construction, that is likely to be unsuitable for award to a
small business concern due to (a) the diversity, size, or
specialized nature of the elements of the performance
specified; (b) the aggregate dollar value of the anticipated
award; (c) the geographical dispersion of the contract or order
performance sites; or (d) any combination of the factors
described in (a), (b), and (c). ``Bundling methodology'' is
defined as a solicitation to obtain offers for a single
contract or order, or a multiple award contract or order; a
solicitation of offers for the issuance of a task or delivery
order under an existing single or multiple award contract or
order; or the creation of any new procurement requirement that
permits a consolidation of contract or order requirements.
Contracts under $1.5 million (or $65 million for construction),
however, are exempted under all of these definitions.
Additionally, contracts for solely non-commercial items, and
contracts made up of two elements previously determined to be
unsuitable for small business performance cannot be considered
bundled. The Administrator will, however, be entitled to
examine and overturn previous determinations of unsuitability.
Finally, the term ``procurement requirement'' is defined in
this section as ``a determination by an agency that a specified
good or service is needed to satisfy the mission of the
agency.''
Under the current definition, a contract may only be
considered bundled if it has been previously performed. This
provision expands the definition to include construction and
other new work. By expanding the definition, more contracts
will be subject to a bundling review and may ultimately be
broken into smaller parts that are better suited for small
business performance. The dollar thresholds have been added to
ensure that the expanded definition is not too broad. These
dollar limits have been set at levels abovewhich that indicate
bundling of contract requirements.\12\ This provision is not intended
to include contracts including only one requirement, or contracts for
goods or services that small businesses are inherently incapable of
providing.
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\12\ One requirement means the procurement of one good. The
definition is not intended to exclude one requirement with indefinite
quantity.
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With respect to orders, the Committee intends that not only
contracts, but also orders such as indefinite delivery
vehicles, requirements-type contracts, and indefinite delivery
indefinite quantity contracts--whether single award or multiple
award--are reviewed for potential bundling as long as the
contracts exceed the dollar thresholds set forth in this
section. For the following types of contracts, this review will
occur at formation: single award, single requirement; single
award, indefinite delivery vehicle; single award, and
requirements. For the following types of contracts, this review
will occur both at the time of formation and at the time of
task order issuance: single award, indefinite delivery
indefinite quantity; multiple award, indefinite delivery
vehicle; multiple award, requirements; and multiple award,
indefinite delivery indefinite quantity.
Sec. 102 Justification
This provision requires a Procurement Activity to provide
the Procurement Activity's Small Business Procurement Center
Representative with the names, addresses, and size of the
incumbent contract holders; a description of the industries
that might be interested in bidding on the contract
requirements; and the number of small businesses listed in the
industry categories that could be excluded from future bidding
if the contract is combined or packaged. The provision also
allows for the Administrator to intervene if no notification is
provided, but he determines that a contract may be bundled. He
may demand that a statement of work goods or services be
completed by the Procurement Activity and sent to the
Procurement Center Representative. Meanwhile, the solicitation
process is postponed for at least 10 days to allow time for the
Administrator's review and recommendations. Finally, the
provision requires that justifications be made publicly
available.
The Committee intends this provision to close an existing
loophole. The SBA is not presently advised of a number of
contract bundles. This provision will allow the SBA to
intervene in bundled contracts that the SBA becomes aware of
even though the SBA was not originally notified of the bundle
by the procuring agency. The justifications are intended to be
made publicly available via the FedBizOpps website.
Sec. 103 Appeals
This provision allows small businesses, and trade
organizations acting on their behalf, that are adversely
affected, directly or indirectly, by a proposed procurement, to
request that the SBA appeal the procurement on their behalf.
This provision is intended to allow small businesses to protest
procurements through trade associations, which decreases the
financial and reputation-related burdens associated with
protests. This is not intended to be a vehicle for
unmeritorious claims.
Sec. 104 Third-party review
This provision requires the OFPP within the Office of
Management and Budget (OMB) to decide a dispute between the SBA
and a procuring agency with regard to contract bundling. The
OFPP Administrator is required to render a decision not later
than 10 days after receiving the matter. Moreover, the OFPP
Administrator may not delegate this duty except to a
subordinate official within OMB appointed by the President,
with the advice and consent of the Senate.
The Committee intends for this provision to provide an
alternative to the current review process, which requires SBA
to appeal to the contracting agency. As the contracting agency
initially let the contract, it would be highly improbable to
agree with an appeal as evidenced by the SBA's record of not
prevailing on these appeals. A third party such as the OFPP,
which has been authorized by Executive Order 13170, would be a
more appropriate mediator. The ten day limit has been set to
ensure efficiency. The Committee does not intend for the OFPP
to become involved in every federal contract. Rather, the
Committee intends that OFPP involvement occur only when
agencies and SBA disagree as to the appropriateness of action.
The Committee understands that the OFPP is not normally
supposed to get involved in specific contract actions. However,
the Committee believes that bundled contracts should be an
exception given the OFPP's and OMB's numerous existing
involvements in bundling as policy. As a result, the Committee
intends that OFPP act to ensure that the Administration's
policies with respect to contract bundling are being furthered.
Title II
Sec. 201 Small business goal
This provision raises the small business goal from 23
percent to 30 percent. The Committee believes that this
increase is appropriate, as the goal has not been raised in ten
years--since 1997. In 1997, there were 23 million small
businesses. In 2005, there were 25.8 million. Furthermore, the
federal marketplace has expanded from $177.5 billion to over
$300 billion. Given that, a seven percent raise seems
reasonable. The Committee intends for this increased level to
encourage agencies to strive for accomplishments beyond 23
percent.
Sec. 202 Include overseas contracts in small business goal
This provision extends the small business goal to all
procurement contracts without regard to whether the contract is
for work within or outside the United States. The Committee
intends for the small business contracting goal to apply to all
contracts, and is concerned that certain contracts are being
excluded from the goal calculation. By not extending the goal
to overseas contracts, agencies have no incentive to contract
with small businesses for this work. This provision is intended
to afford small businessesgreater opportunity to compete for
these contracts, and to allow agencies to apply overseas contracts
awarded to small businesses toward their annual achievements.
Sec. 203 Annual goal negotiation
This provision requires the President, before the close of
each fiscal year, to establish new Government-wide procurement
goals for the following fiscal year for procurement contracts.
This is intended to allow agencies to adjust their goals on an
annual basis so that the most appropriate objective is set. The
Committee is concerned that over the past several years, the
administration--despite the language of the existing statute--
has engaged in biannual goal setting. By modifying the language
of the statute, the Committee is ensuring that new goals will
be established each year.
Sec. 204 Goal reasonableness
This provision requires that the annual small business
contracting goals of each agency be not lower than the
Government-wide goals. The Committee intends that the
Government-wide goals serve as a floor for all individual
agency goals. No agency may set its goals at a lower
percentage.
Sec. 205 Usage of small companies in goal achievement
This provision requires that small business concerns shall
be counted toward a maximum of one additional category, even if
the concern otherwise qualifies under more than one category
goal. The Committee intends for this provision to eliminate the
problem of agencies searching for businesses that can meet as
many criteria as possible--and for small business owners making
decisions on the location and structure of their companies
based on recommendations of agency personnel. This provision
will allow any small business that qualifies in other
categories to count once as small, and again in only one
additional category (e.g., HUBZone, minority-owned, etc.) as
chosen by the agency.
Sec. 206 Annual plan for each agency explaining how agency
will meet small business goals
This provision will require the head of each Federal
agency, before the beginning of each fiscal year, to submit to
the Administrator and Congress, a detailed plan outlining how
the agency intends to meet its small business goals for the
upcoming fiscal year. The Committee expects for the agency
leadership to be fully engaged in small business contracting
policy. By requiring the development of an annual plan, the
leadership will have to take a proactive role in the agency's
commitment to small business participation in federal
procurement.
Sec. 207 Making small business the first choice
This provision requires that the small business set-aside
requirement applies not only to contracts, but also to orders.
It will additionally require that the maximum dollar value for
the small business threshold be raised to that of the
Simplified Acquisition Threshold. This is intended to apply the
set-aside requirement--known as the ``small business
reserve''--to the Federal Supply Schedules and other
procurement vehicles. Because these purchases are considered
``orders'' rather than ``contracts,'' they have been previously
exempted from certain contracting rules.
By tying the maximum threshold to the Simplified
Acquisition Threshold, the two limits can be adjusted for
inflation at the same time. Additionally, the Simplified
Acquisition Threshold allows for greater flexibility than
having one static number covering all acquisition types.
Sec. 208 Uniform metric for subcontracting achievement
This provision requires prime contractors to report small
business subcontract usage, at all tiers, based on the
percentage of the total dollar amount of the contract award.
The purpose of this provision is to establish a uniform metric
for measuring subcontracting performance. The Committee intends
to measure performance as a percentage of the total dollar
amount rather than the dollar amount subcontracted out, or any
other form of measurement.
Sec. 209 Subcontracting database
This provision requires the Administrator to develop and
maintain a password-protected database that will enable agency
contracting personnel to assist small businesses in marketing
their goods and services to large corporations. The Committee
intends for this to aid small businesses in finding
opportunities as subcontractors. The Committee does not intend
this database to be made available to the public or subject to
disclosure pursuant to the Freedom of Information Act. The
Committee expects that the SBA will use the information to
direct small businesses to appropriate prime contractors for
potential subcontracting opportunities.
Sec. 210 National database
This provision will require the Administrator to ensure
that, whenever a small business enters its information into the
Central Contractor Registry, or any successor to that registry,
the SBA personnel contacts that business within 30 days
regarding the likelihood of Federal contracting opportunities.
Moreover, the Administrator will be required to ensure that
each small business that so registers is, for each industry
code entered by that small business, provided with the total
dollar value of government contract awards to small businesses
for that industry.
The Committee is increasingly concerned that small
companies are registering in the Central Contractor Registry,
but remain unfamiliar with other federal registries such as the
online bid listing ``Fedbizopps.'' This provision is intended
to aid businesses wishing to contract with the federal
government. By SBA response, firms may gain a better
understanding of the opportunities available within their
industry. This is not intended to require a personal response
from the Administrator or SBA personnel. A software program
could be used to generate an industry-specific response for
each registrant.
Sec. 211 Review of subcontracting plans
This provision will require the Administrator to, after an
opportunity for notice and comment, and not later than 120 days
after the enactment of this section, prescribe regulations to
govern the Administrator's review of subcontracting plans,
including standards for determining good faith effort in
compliance with the subcontracting plans.
This provision is intended to ensure that subcontracting
plans are thoroughly reviewed. A more thorough review should
encourage the production of better-prepared subcontracting
plans. Moreover, the Committee is concerned that although the
Small Business Act has allowed for the assessment of liquidated
damages against prime contractors that fail to achieve their
small business goals since the enactment of P.L. 100-656 in
1988, the Committee is unaware of even a single assessment.
Primarily, this has occurred because of the requirement that
prior to an assessment of damages an agency must demonstrate
that the prime contractor did not put forth a good faith effort
to comply but prime contractors are given no guidelines in what
constitutes compliance. A rulemaking will clarify this
provision and provide appropriate standards for measurement of
good faith compliance.
Sec. 212 Agency obligation for fulfilling contracting goals
This provision requires the head of each Federal agency to
submit a report to Congress at the conclusion of each fiscal
year specifying the percentage of small business contracts
awarded by that agency for that fiscal year. If the percentage
is less than 30 percent, the head of the agency shall, in the
report, explain why the 30 percent goal has not been met, and
what will be done to ensure that the goal will be met for the
following fiscal year. By requiring the heads of agencies that
have not met the goal to formulate strategies for meeting the
goal in the future, it increases the likelihood that agency-
wide contracting policies will be adopted with a view toward
small business inclusion.
Title III
Sec. 301 Small business size protest notification
This provision requires the Administrator of the SBA to
work with appropriate Federal agencies to ensure that whenever
a business fails to prevail in a size protest and is determined
to be other than small, the business is flagged as such in the
Central Contractor Registry (or any successor to that
registry). The provision will further require the
Administrator, in making any report of small business goal
accomplishments, to qualify the accomplishments as
``estimated'' until the Administrator obtains from the
Comptroller General's certification that there are no data
integrity issues with respect to the national repository of
contract award information known as Federal Procurement Data
System--Next Generation (FPDS-NG), or any successor to that
repository. Finally, the provision will require the
Administrator, acting through the Inspector General, to
annually submit a report to Congress on the number and dollar
value of contract awards that were coded as awards to small
business concerns but in fact were made to businesses that did
not qualify as small business concerns.
The Committee intends for this provision to help ensure
that there is coordination among agencies. Currently, when a
business loses a size protest with one agency, other agencies
may be unaware of this, and may continue to contract with this
business and count it as a small business towards its goal
achievements. By requiring a notification in CCR, all agencies
will be aware of the adverse decision.
Moreover, requiring the Administrator to qualify
accomplishments as ``estimated'' until the Comptroller General
has certified the data integrity of FPDS will alleviate
problems associated with miscoding. When agencies rely on goal
accomplishments that have been produced with erroneous data, a
false sense of achievement and decreased incentive to use small
businesses may result. This provision is intended to address
that problem.
Lastly, the provision is intended to directly address
miscoding by requiring the Administrator to report to Congress
regarding miscoded contract entries. The Committee has opted to
require the reporting through the Inspector General of each
agency because those offices are the independent investigative
arms of the agencies.
Sec. 302 Review of national registry
This provision requires the Administrator of the SBA to
ensure, on a biannual basis, that an independent audit is
performed of the Central Contractor Registry, or any successor
to that registry. The Administrator will be required to ensure
that the Dynamic Small Business Search of the registry, or any
successor to that portion of the registry, is purged of any
businesses that are other than small. Furthermore, any business
that has been so purged that attempts, while not in fact a
small business, to re-register, may be subject to debarment as
a Federal contractor or other penalties as set forth in the FAR
and is further subjected to penalties outlined in section 16 of
the Small Business Act.
The Committee intends for this provision to address the
problem of companies incorrectly identifying themselves as
small businesses. Inaccurate small business goal achievements
are the result of both agencies counting large businesses as
small, and small businesses incorrectly representing themselves
as small. Reviewing the CCR for incorrectly listed businesses
would address the latter issue and reduce the chances of large
businesses trying to take advantage of small business
opportunities.
Sec. 303 Recertification of compliance with size standards
and registration with Central Contract Registry
This provision will require businesses that are, at the
time of a contract award, close to exceeding their size
standards, to annually recertify throughout the duration of the
contract. Business concerns not close to exceeding their size
standards will be required only to annually update their
listings in the Central Contracting Registry. The provision
defines ``close to exceeding'' as being within 5 percent of an
employee-based size standard and 20 percent of a receipts-based
size standard.
This is intended to ensure that businesses that outgrow the
small business classification do not remain eligible for small
business awards for years afterwards. The Committee intends
that only small businesses are eligible for assistance derived
through that designation. However, a business that exceeds the
size standard will not lose its contract. Rather, the Committee
intends only that agencies are no longer able to take credit
for the company as a small business.
Sec. 401 Authorization of appropriations
This provision authorizes to be appropriated such sums as
may be necessary to carry out this Act and the amendments made
by this Act.
VIII. Committee Estimate of Costs
At the time of the filing of the report on H.R. 1873, the
cost estimate of the Congressional Budget Office was not
available. In compliance with clause 3(d)(2) of rule XIII of
the Rules of the House of Representatives and based on the best
information available at this time, the Committee estimates
that, should H.R. 1873 be enacted, it would be a cost of $2.5
million in fiscal year 2008 and $2 million each year
thereafter. Most of the costs fall within budget function 370
(commerce and housing credit).
We estimate that the bill would be enacted prior to FY 2008
and that necessary amounts will be appropriated near the start
of each fiscal year thereafter. Accordingly we estimate the 5
year cost from 2008 through 2012 to be $10.5 million.
IX. Oversight Findings
In accordance with clause (2)(b)(1) of rule X of the Rules
of the House of Representatives, the oversight findings and
recommendations of the Committee on Small Business with respect
to the subject matter contained in H.R. 1873 are incorporated
into the descriptive portions of this report.
X. Statement of Constitutional Authority
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds the authority for
this legislation in Article I, Section 8, clause 18, of the
Constitution of the United States.
XI. Compliance with Public Law 104-4
H.R. 1873 contains no unfunded mandates.
XII. Congressional Accountability Act
H.R. 1873 does not relate to the terms and conditions of
employment or access to public services or accommodations with
the meaning of section 102(b)(3) of P.L. 104-1.
XIII. Federal Advisory Committee Statement
H.R. 1873 does not establish or authorize the establishment
of any new advisory committees.
XIV. Statement of No Earmarks
Pursuant to clause 9 of rule XXI, H.R. 1873 does not
contain any congressional earmarks, limited tax benefits, or
limited tariff benefits as defined in clause 9(d), 9(e), or
9(f) of rule XXI.
XV. Performance Goals and Objective
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee establishes the
following performance related goals and objectives for this
legislation: H.R. 1873 includes a number of provisions designed
to update and to improve the Small Business Administration's
procurement monitoring systems.
XVI. Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
SMALL BUSINESS ACT
* * * * * * *
Sec. 3. (a)(1) * * *
* * * * * * *
(5) Recertification.--
(A) In general.--If a business concern is awarded a
contract because of a standard by which it is
determined to be a small business concern, and the
business concern is close to exceeding that standard at
the time the award is made, then the business concern
must, annually after the date of the award, recertify
to the agency awarding the contract whether it meets
that standard.
(B) ``Close to exceeding''.--For purposes of
subparagraph (A), a business concern is close to
exceeding--
(i) a number-of-employees standard if the
number of employees of the business concern is
95 percent or more of the maximum number of
employees allowed under the standard; and
(ii) a dollar-volume-of-business standard if
the dollar volume of business is 80 percent or
more of the maximum dollar volume allowed under
the standard.
(6) Registry.--For a business concern to be awarded a
contract because of a standard by which it is determined to be
a small business concern, the business concern must, annually
after the end of the fiscal year used by the business concern,
update its listing in the Central Contractor Registry.
* * * * * * *
[(o) Definitions of Bundling of Contract Requirements and
Related Terms.--In this Act:
[(1) Bundled contract.--The term ``bundled contract''
means a contract that is entered into to meet
requirements that are consolidated in a bundling of
contract requirements.
[(2) Bundling of contract requirements.--The term
``bundling of contract requirements'' means
consolidating 2 or more procurement requirements for
goods or services previously provided or performed
under separate smaller contracts into a solicitation of
offers for a single contract that is likely to be
unsuitable for award to a small-business concern due
to--
[(A) the diversity, size, or specialized
nature of the elements of the performance
specified;
[(B) the aggregate dollar value of the
anticipated award;
[(C) the geographical dispersion of the
contract performance sites; or
[(D) any combination of the factors described
in subparagraphs (A), (B), and (C).
[(3) Separate smaller contract.--The term ``separate
smaller contract'', with respect to a bundling of
contract requirements, means a contract that has been
performed by 1 or more small business concerns or was
suitable for award to 1 or more small business
concerns.]
(o) Definitions of Bundling of Contract Requirements and
Related Terms.--For purposes of this Act:
(1) Bundled contract.--
(A) In general.--The term ``bundled
contract'' means a contract or order that is
entered into to meet procurement requirements
that are consolidated in a bundling of contract
requirements, without regard to its designation
by the procuring agency or whether a study of
the effects of the solicitation on civilian or
military personnel has been made.
(B) Exceptions.--The term does not include--
(i) a contract or order with an
aggregate dollar value below the dollar
threshold specified in paragraph (4);
or
(ii) a contract or order that is
entered into to meet procurement
requirements, all of which are exempted
requirements under paragraph (5).
(2) Bundling of contract requirements.--
(A) In general.--The term ``bundling of
contract requirements'' means the use of any
bundling methodology to satisfy 2 or more
procurement requirements for new or existing
goods or services, including any construction
services, that is likely to be unsuitable for
award to a small business concern due to--
(i) the diversity, size, or
specialized nature of the elements of
the performance specified;
(ii) the aggregate dollar value of
the anticipated award;
(iii) the geographical dispersion of
the contract or order performance
sites; or
(iv) any combination of the factors
described in clauses (i), (ii), and
(iii).
(B) Exceptions.--The term does not include--
(i) the use of a bundling methodology
for an anticipated award with an
aggregate dollar value below the dollar
threshold specified in paragraph (4);
or
(ii) the use of a bundling
methodology to meet procurement
requirements, all of which are exempted
requirements under paragraph (5).
(3) Bundling methodology.--The term ``bundling
methodology'' means--
(A) a solicitation to obtain offers for a
single contract or order, or a multiple award
contract or order;
(B) a solicitation of offers for the issuance
of a task or a delivery order under an existing
single or multiple award contract or order; or
(C) the creation of any new procurement
requirement that permits a consolidation of
contract or order requirements.
(4) Dollar threshold.--The term ``dollar threshold''
means--
(A) $65,000,000, if solely for construction
services; and
(B) $1,500,000, in all other cases.
(5) Exempted requirements.--The term ``exempted
requirement'' means one or more of the following:
(A) A procurement requirement solely for
items that are not commercial items (as the
term ``commercial item'' is defined in section
4(12) of the Office of Federal Procurement
Policy Act (41 U.S.C. 403(12))).
(B) A procurement requirement with respect to
which a determination that it is unsuitable for
award to a small business concern has
previously been made by the agency. However,
the Administrator shall have authority to
review and reverse such a determination for
purposes of this paragraph and, if the
Administrator does reverse that determination,
the term ``exempted requirement'' shall not
apply to that procurement requirement.
(6) Procurement requirement.--The term ``procurement
requirement'' means a determination by an agency that a
specified good or service is needed to satisfy the
mission of the agency.
* * * * * * *
Sec. 8. (a) * * *
* * * * * * *
(d)(1) * * *
* * * * * * *
(12) In carrying out this subsection, the Administrator shall
require each prime contractor to report small business
subcontract usage at all tiers based on the percentage of the
total dollar amount of the contract award.
(13) In carrying out this subsection, the Administrator shall
develop and maintain a password-protected database that will
enable the Administration to assist small businesses in
marketing to large corporations that have not achieved their
small business goals.
* * * * * * *
Sec. 15. (a) To effectuate the purposes of this Act, small-
business concerns within the meaning of this Act shall receive
any award or contract or any part thereof, and be awarded any
contract for the sale of Government property, as to which it is
determined by the Administration and the contracting
procurement or disposal agency (1) to be in the interest of
maintaining or mobilizing the Nation's full productive
capacity, (2) to be in the interest of war or national defense
programs, (3) to be in the interest of assuring that a fair
proportion of the total purchases and contracts for property
and services for the Government in each industry category are
placed with small-business concerns, or (4) to be in the
interest of assuring that a fair proportion of the total sales
of Government property be made to small-business concerns; but
nothing contained in this Act shall be construed to change any
preferences or priorities established by law with respect to
the sale of electrical power or other property by the
Government or any agency thereof. These determinations may be
made for individual awards or contracts or for classes of
awards or contracts. [If a proposed procurement includes in its
statement] If a proposed procurement would negatively affect
one or more small business concerns, or if a proposed
procurement includes in its statement of work goods or services
currently being performed by a small business, and if the
proposed procurement [is in a quantity or estimated dollar
value the magnitude of which renders small business prime
contract participation unlikely] would now be combined with
other requirements for goods and services, or if a proposed
procurement for construction seeks to package or consolidate
discrete construction projects, or the solicitation involves an
unnecessary or unjustified bundling of contract requirements,
as determined by the Administration, the Procurement Activity
shall provide a copy of the proposed procurement to the
Procurement Activity's Small Business Procurement Center
Representative at least 30 days prior to the solicitation's
issuance along with a statement explaining (1) why the proposed
acquisition cannot be divided into reasonably small lots (not
less than economic production runs) to permit offers on
quantities less than the total requirement, [(2) why delivery
schedules] (2) the names, addresses and size of the incumbent
contract holders; (3) a description of the industries that
might be interested in bidding on the contract requirements;
(4) the number of small businesses listed in the industry
categories that could be excluded from future bidding if the
contract is combined or packaged; (5) why delivery schedules
cannot be established on a realistic basis that will encourage
small business participation to the extent consistent with the
actual requirements of the Government, [(3) why the proposed
acquisition] (6) why the proposed acquisition cannot be offered
so as to make small business participation likely, [(4) why
construction] (7) why construction cannot be procured as
separate discrete projects, or [(5) why the agency] (8) why the
agency has determined that the bundled contract (as defined in
section 3(o)) is necessary and justified. The statement shall
also set forth the proposed procurement strategy required by
subsection (e) and, if applicable, the specifications required
by subsection (e)(3). Concurrently, the statement shall be made
available to the public, including through dissemination in the
Federal contracting opportunities database. The thirty-day
notification process shall occur concurrently with other
processing steps required prior to issuance of the
solicitation. Within 15 days after receipt of the proposed
procurement and accompanying statement, if the Procurement
Center Representative believes that the procurement as proposed
will render small business prime contract participation
unlikely, the Representative shall recommend to the Procurement
Activity alternative procurement methods which would increase
small business prime contracting opportunities. [Whenever the
Administration and the contracting procurement agency fail to
agree, the matter shall be submitted for determination to the
Secretary or the head of the appropriate department or agency
by the Administrator.] If no notification of the procurement
and accompanying statement is received, but the Administrator
determines that there is cause to believe the contract combines
requirements or a contract (single or multiple award) or task
or delivery order for construction services or includes
unjustified bundling, then the Administrator can demand that
such a statement of work goods or services be completed by the
procurement activity and sent to the Procurement Center
Representative and the solicitation process postponed for at
least 10 days to allow the Administrator to review the
statement and make recommendations as described in this section
before the procurement is continued. If a small business
concern would be adversely affected, directly or indirectly, by
the procurement as proposed, and that small business concern or
a trade association on behalf of that small business concern so
requests, the Administrator may, in the Administrator's
discretion, take action to further the interests of that small
business concern. Whenever the Administrator and the
contracting procurement agency fail to agree, the Administrator
shall submit the matter to the Administrator of the Office of
Federal Procurement Policy within the Office of Management and
Budget, who shall render his decision regarding the matter not
later than 10 days after receiving the matter. For purposes of
clause (3) of the first sentence of this subsection, an
industry category is a discrete group of similar goods and
services. Such groups shall be determined by the Administration
in accordance with the definition of a ``United States
industry'' under the North American Industry Classification
System, as established by the Office of Management and Budget,
except that the Administration shall limit such an industry
category to a greater extent than provided under such
classification codes if the Administration receives evidence
indicating that further segmentation for purposes of this
paragraph is warranted due to special capital equipment needs
or special labor or geographic requirements or to recognize a
new industry. A market for goods or services may not be
segmented under the preceding sentence due to geographic
requirements unless the Government typically designates the
area where work for contracts for such goods or services is to
be performed and Government purchases comprise the major
portion of the entire domestic market for such goods or
services and, due to the fixed location of facilities, high
mobilization costs, or similar economic factors, it is
unreasonable to expect competition from business concerns
located outside of the general areas where such concerns are
located. A contract may not be awarded under this subsection if
the award of the contract would result in a cost to the
awarding agency which exceeds a fair market price.
* * * * * * *
(g)(1) [The President shall annually establish Government-
wide goals for procurement contracts] The President shall
before the close of each fiscal year establish new Government-
wide procurement goals for the following fiscal year for
procurement contracts awarded to small business concerns, small
business concerns owned and controlled by service disabled
veterans, qualified HUBZone small business concerns, small
business concerns owned and controlled by socially and
economically disadvantaged individuals, and small business
concerns owned and controlled by women. The Government-wide
goal for participation by small business concerns shall be
established at not less than [23 percent] 30 percent of the
total value of all prime contract awards for each fiscal year.
The Government-wide goal for participation by small business
concerns owned and controlled by service-disabled veterans
shall be established at not less than 3 percent of the total
value of all prime contract and subcontract awards for each
fiscal year. The Governmentwide goal for participation by
qualified HUBZone small business concerns shall be established
at not less than 1 percent of the total value of all prime
contract awards for fiscal year 1999, not less than 1.5 percent
of the total value of all prime contract awards for fiscal year
2000, not less than 2 percent of the total value of all prime
contract awards for fiscal year 2001, not less than 2.5 percent
of the total value of all prime contract awards for fiscal year
2002, and not less than 3 percent of the total value of all
prime contract awards for fiscal year 2003 and each fiscal year
thereafter. The Government-wide goal for participation by small
business concerns owned and controlled by socially and
economically disadvantaged individuals shall be established at
not less than 5 percent of the total value of all prime
contract and subcontract awards for each fiscal year. The
Government-wide goal for participation by small business
concerns owned and controlled by women shall be established at
not less than 5 percent of the total value of all prime
contract and subcontract awards for each fiscal year.
[Notwithstanding the Government-wide goal, each agency shall
have an annual goal] Each agency shall have an annual goal, not
lower than the Government-wide goal, that presents, for that
agency, the maximum practicable opportunity for small business
concerns, small business concerns owned and controlled by
service-disabled veterans, qualified HUBZone small business
concerns, small business concerns owned and controlled by
socially and economically disadvantaged individuals, and small
business concerns owned and controlled by women to participate
in the performance of contracts let by such agency. The
Administration and the Administrator of the Office of Federal
Procurement Policy shall, when exercising their authority
pursuant to paragraph (2), insure that the cumulative annual
prime contract goals for all agencies meet or exceed the annual
Government-wide prime contract goal established by the
President pursuant to this paragraph.
* * * * * * *
(3) The procurement goals required by this subsection apply
to all procurement contracts, without regard to whether the
contract is for work within or outside the United States.
(4) For purposes of this subsection and subsection (h), a
small business concern shall be counted toward one additional
category goal only, even if that small business concern
otherwise qualifies under more than one category goal. In this
paragraph, the term ``category goal'' means a goal described in
paragraph (2).
(5) Before the beginning of each fiscal year, the head of
each Federal agency shall submit to the Administrator of the
Small Business Administration and to Congress a detailed plan
explaining how the agency intends to meet the small business
goals under this subsection that apply to that agency for that
fiscal year.
(h)(1) * * *
* * * * * * *
(4) At the conclusion of each fiscal year, the head of each
Federal agency shall submit to Congress a report specifying the
percentage of contracts awarded by that agency for that fiscal
year that were awarded to small business concerns. If the
percentage is less than 30 percent, the head of the agency
shall, in the report, explain why the percentage is less than
30 percent and what will be done to ensure that the percentage
for the following fiscal year will not be less than 30 percent.
* * * * * * *
(j)(1) Each contract or order for the purchase of goods and
services that has an anticipated value greater than $2,500 but
not greater than [$100,000] the Simplified Acquisition
Threshold shall be reserved exclusively for small business
concerns unless the contracting officer is unable to obtain
offers from two or more small business concerns that are
competitive with market prices and are competitive with regard
to the quality and delivery of the goods or services being
purchased.
* * * * * * *
(3) Nothing in paragraph (1) shall be construed as precluding
an award of a contract with a value not greater than $100,000
under the authority of [subsection (a) of section 8] section 8,
31, or 36 of this Act, section 2323 of title 10, United States
Code, section 712 of the Business Opportunity Development
Reform Act of 1988 (Public Law 100-656; 15 U.S.C. 644 note), or
section 7102 of the Federal Acquisition Streamlining Act of
1994.
* * * * * * *