* These subcontracting plans are subject to restrictive legends consistent with the Freedom of Information Act.

Mr. MITCHELL. Thank you very much. Could we hear from Mr. Rice next and then we will ask questions to the entire panel.

TESTIMONY OF JAMES E. RICE, DEPUTY DIRECTOR, CENTER SUPPORT OPERATIONS, JOHN F. KENNEDY SPACE CENTER, NATIONAL AERONAUTICS AND SPACE ADMINISTRATION, ACCOMPANIED BY NORMAN PERRY, INDUSTRY ASSISTANCE OFFICER, AND WILLIAM M. BAULIG, PROCUREMENT OFFICER, KENNEDY SPACE CENTER, NASA

Mr. RICE. I am James Rice from the Kennedy Space Center. I would like to introduce Norman Perry, industry assistance officer, and on his right is Mr. William Baulig, who is the procurement officer at the Kennedy Space Center.

Mr. MITCHELL. Thank you. We have a copy of your statement, so if you merely want to talk about the salient points in your statement, that will be fine.

Mr. RICE. That is what I prefer to do.

Mr. MITCHELL. Fine. Then your statement will be submitted for the record in its entirety.

Mr. RICE. Thank you.

Mr. Chairman and members of the subcommittee, I am pleased to be here today to explain to you how KSC implements the small and small disadvantaged subcontracting program as established under section 211 of Public Law 95-507. I would like to start by giving a brief procurement overview of our activities at the Kennedy Space Center. From fiscal year 1981 to fiscal year 1983, our procurement activity in terms of dollars increased from $479 million to $682 million per year.

The preponderance of these dollars went to the extensions and growth of the launch and support service contracts. Of the remaining $175 million, which was new procurement, the small business and small disadvantaged business communities captured 39 percent of that amount of money.

Mr. MITCHELL. You are lumping them both together?

Mr. RICE. Yes.

Mr. MITCHELL. Small and small disadvantaged?

Mr. RICE. Yes, for this summary.

Mr. MITCHELL. Do you have a separate breakout for small disadvantaged?

Mr. RICE. I would have to check the full statement. I believe we do. With respect to the subcontracting program itself, as you are well aware, ÑASA has goals at headquarters but they do not allocate them to the centers. Therefore at KSC we negotiate a goal and a subcontracting plan in those contracts where such a plan is required, and we do that with a team effort consisting, of course, of a contractor who submits a plan to the contracting officer, the industry assistance officer, and technical representatives when needed. In some rare cases, the Small Business Administration participates at that stage also.

The plan is then monitored by several techniques. There are periodic reports and reviews of the contractors purchasing systems, but I think the two major things that impress me, at least, at KSC

contractor's profit or award fee can be affected by how well he does with his subcontracting program.

I think another important factor is that virtually all of our award fee contracts are on site at KSC and are not off in the distance, with maybe the exception of the Martin-Marietta aerospace which does our CCMS work out in the Denver area. So we are in constant contact with the contractors, daily contact, and we can observe what is going on very readily.

For purposes of my summary, I have added the number values of all the plans together, and the total results for fiscal years 1981 through 1983. The total of the subcontract plans that we accepted during those 3 years was 25. The total dollar value of all subcontracting effort was $188 million approximately. I am rounding, of course, the aggregate of all the small and disadvantage subcontract goals, adding them together and adding them up, came to $40.8 million. Our actual accomplishments to those goals were $69,500,000. We exceeded the goal by nearly $30 million.

The small disadvantaged business goals for the 3 years totaled $5.2 million, and the actual performance experienced was $7.8 million.

Your letter of June 6 to Mr. Beggs set forth four questions and further asked us to summarize how we would improve in the future. I will try to discuss this without repeating the question, if that is all right with you.

Mr. MITCHELL. That is all right.

Mr. RICE. With respect to the acceptability of subcontract plans, with the advent of Public Law 95-507 there was quite a bit of learning on the part of the contractors and our own people to improve subcontracting plans. We generally believe the plans have been greatly improved over the years, but most plans still require additional data or clarification, but they have improved.

I have knowledge of no plan that was ever ultimately rejected. We have been able to work the problems out through the negotiation process. KSC had one case where a violation of a subcontract plan was suspected. The procurement officer wrote the contractor, immediately warning him of the seriousness of this problem and alluded to the potential material breach of contract. The sequence events after that included top management at KSC, and at NASA headquarters. The Small Business Administration became involved and performed a compliance review. The SBA finally determined that there was, in fact, no violation.

of

When it appears to us, on the other hand, that a contractor is lax in not doing what he should do or could do to support his own plan, we then caution him about his award fee and his profit, because performance certainly will be evaluated and can affect the profit. That is quite an incentive to do a good job.

With respect to outreach programs, this is one of our top priorities since the Kennedy Space Center is not located geographically very close to any industrial area or metropolitan area. We therefore go out and try to explain procurement requirements we have at the Center, in the hope of drawing small businesses and small disadvantaged businesses into participation.

A note that might be of interest to you. A Baltimore firm owned by a minority woman, fairly high technology, has opened offices in

Orlando, so our outreach program is beginning to have some effect in the high technology area. This is what we would like to have.

A quick look at some of the things we do. We support the Federal procurement conference program. We support the congressionally sponsored business conferences. Our industry assistance office makes monthly trips to small business development centers located at colleges. There are five such centers at which seminars are conducted. There is also one-on-one counseling with small and small disadvantaged businesses.

We have sponsored seminars at KSC on how to do business with the Government. Last month we had an industry briefing which was advertised in "Commerce Business Daily" and invited small business, small disadvantaged business and large businesses to attend. Although we limited the participation from any one firm to three people, we couldn't accommodate the people who wanted to come to our 300-seat auditorium. We had to turn people away. Of course, we gave them all the information that was passed out at that briefing.

The briefing was a presentation by KSC of our future procurements so the whole audience could see what we would be doing in the next few years, and then both Lockheed, who has one shuttle processing contract, and EG&G, who has our base operations contract, put on similar presentation of what their subcontracting would look like over the next several years. Following that, there was an exhibition by the firms, and there were counseling booths staffed by Mr. Perry and Small Business Administration people, as well as by our prime contractors.

Mr. Perry, by the way, received an award from the Space Coast Minority Purchasing Council for having gone the "extra mile" to aid in the development of minority businesses.

Nearly all of our major support contracts have been award fee contracts or have had award-fee features in them over the years. Prior to the award of the base operations contract and the Shuttle Processing Contract we had approximately 14 such contracts per year. The average value of these 14 contracts was something like $17 million annually, but the range of contract values was from $1.9 million up to $91 million annually. This is quite a range from which we calculated the average. Currently, the value of the base operations contract is approximataely $169 million, and the shuttle processing contract is $1.1 billion for the first 3 years.

In conclusion, Mr. Smith, the Director of the Kennedy Space Center, and I believe that we have made significant progress in the small and small disadvantaged subcontract program. In the future we are going to pursue our outreach program with vigor. We want results from it. We are getting more high technology firms interested, and that is exactly what we want to do.

This ends my statement. I would like to thank you for allowing me to appear on behalf of the Kennedy Space Center, and I will be pleased to answer questions.