Enhance Programs for Small Business and Small Disadvantaged Business Concerns Background The federal government has a policy to place a fair proportion of its contracts with small business and small disadvantaged business concerns. It also has a policy to grant small business and small disadvantaged business concerns the maximum practicable opportunity to participate in performance of federal contracts as subcontractors.1 To implement these policies, the Small Business Act requires federal agencies to obtain small business subcontracting plans from prime contractors when the value of the procurement exceeds $500,000 ($1 million for construction) and offers subcontracting possibilities.2 This requirement also applies when contracting with state and local governments or with entities that are controlled or regulated by state and local governmental bodies (e.g., public utilities). The Small Business Act requires the President to establish annual governmentwide goals for procurement contracts awarded to small business and small disadvantaged business concerns. The governmentwide goal for participation by small business concerns must be established at not less than 20 percent of the total value of all prime contract awards for each fiscal year. As part of this, a goal for participation by small disadvantaged business concerns must also be established at not less than 5 percent of the total value of all prime contracts and subcontract awards for each fiscal year.3 The Small Business SetAside Program. A number of programs have been established to implement the policies and facilitate agency achievement of the abovecited goals. The most commonly used programs are the small business setaside program, the 8(a) program, and the program for subcontracting with small business and small disadvantaged business concerns.4 The small business setaside program authorizes agencies to reserve individual procurements exclusively for participation by small business concerns. The 8(a) program is a business development program administered by the Small Business Administration (SBA) for small businesses owned and controlled by socially and economically disadvantaged U.S. citizens. To participate, firms must apply and meet eligibility criteria. Program participation is limited to nine years. Participants may receive a variety of business development services including management and technical assistance, direct SBA loans, surety bond waivers, the transfer of government surplus property, and government contracts awarded under special procedures. SBA's subcontractors are referred to as "8(a) contractors." Federal agencies award contracts to SBA, which in turn subcontracts with eligible 8(a) firms either on a solesource or competitive basis for performance of the agencies' work. Small businesses awarded contracts under the small business setaside and 8(a) programs are limited in the amount of subcontracting during the contract's term. For service and supply contracts, the small business concern must perform at least 50 percent of the cost of contract performance incurred for personnel with its own employees. For construction, small business general contractors must perform at least 15 percent of the contract cost, not including cost of materials, with their own employees. Small business special trade contractors must perform at least 25 percent of the contract with their own employees.5 In addition, small businesses must supply the product of another small business under the small business setaside and 8(a) programs. Other small business programs. In addition to the small business setaside and 8(a) programs, which apply governmentwide, the Department of Defense (DOD) has special statutory authority to conduct small disadvantaged business setasides.6 Under the setaside program, DOD has the authority to limit competition on a specific procurement exclusively to small disadvantaged businesses. The program requires a selfcertification that the offeror is a small disadvantaged business as defined in the Small Business Act. This certification may be challenged, but SBA precertification is not required. Need for Change The administrative burden imposed on small business by the limitation on subcontracting is enormous. Every quotation a small business obtains from a prospective supplier or subcontractor must be evaluated not only from a "make or buy" standpoint prior to contract award, but also from a large or small business supplier perspective. The small business must compare costs from each source and consider the expertise of the small business supplier to meet the requirements of the solicitation as a subcontractor, even if the large business supplier is a known acceptable source. The small business submitting an offer to the government must expend extra time locating sources in order to comply with the limitation on subcontracting, instead of selecting a supplier or service provider based on price or other factors important to that small business. This limitation is prejudicial to small businesses, as large businesses do not have to comply with such requirements. Civilian agencies need authority to conduct small disadvantaged business setasides because the 8(a) program does not encompass all small disadvantaged businesses. Some firms have graduated from the 8(a) program but still qualify as small businesses under the applicable size standard, while others have never applied to the 8(a) program. To the extent that these firms are not included in competitions for 8(a) awards, the procuring agency's options for cost and capability are limited. Procuring agencies need the flexibility to use either the 8(a) program or small disadvantaged business setasides as means to achieve the statutory goals. Federal agencies have difficulty getting subcontracting plans when contracting with state and local governments or entities they regulate. The problem is most prevalent in the monopolistic public utilities industry, where the federal government has few options to enforce the requirements for subcontracting plans. Currently, thousands of staff hours and dollars are expended annually debating the issue, trying to persuade utilities of the merits of the federal government's position, or otherwise litigating conflicts. For all the effort, few benefits accrue to the small business community. Attempts to resolve the problem have been unsuccessful. Public utilities refuse to enter into contracts, insisting that the federal government can procure service under tariffs like every other customer. When the federal government does procure service under tariffs, many utilities insist they are not subject to the requirement for a subcontracting plan because they do not have a contract with the federal government. Some utilities maintain this position notwithstanding written opinions from the General Accounting Office and the Department of Justice that the subcontracting plan requirements apply even in the absence of a written contract. Additionally, utilities and state and local governments complain that the federal subcontracting plan requirements overlap with state or local laws requiring similar plans providing contracting opportunities for small and small disadvantaged business concerns.7 Utilities and state and local governments add that the overlap creates an unnecessary intrusion by the federal government on state and local affairs and a duplication of effort, paperwork, and reporting. Resolution of these issues will help federal managers by allowing them to use their resources in more productive endeavors. Cross References to Other NPR Accompanying Reports Small Business Administration, SBA02: Improve Assistance to Minority Small Businesses. Endnotes 1. Section 19.201 of the Federal Acquisition Regulation (48 CFR 19.201). 2. Section 8 (d) of the Small Business Act (16 U.S.C. 737(d)). 3. Section 15(g) of the Small Business Act (15 U.S.C. 644(g)). 4. Subparts 19.5, 19.7 and 19.8 of the Federal Acquisition Regulation (48 CFR 19.5, 19.7 and 19.8). 5. Section 921(c)(2) of the Defense Authorization Act of 1987, P.L. 99661. 6. Section 1207(e)(3) of the National Defense Authorization Act for Fiscal Year 1987 (10 U.S.C. 2301 note). 7. U.S. General Accounting Office, Public Utilities Plans for Small and Disadvantaged Subcontractors, GGD9344 (Washington, D.C.: U.S. General Accounting Office, April 1993), p. 22.
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