Mr. ADDABBO. All right, please supply for the record how many contracts did not contain subcontracting plans, and also translate this into dollars for fiscal year 1980, 1981, 1982, and 1983.

Also supply for the record what percentage of your contracts in excess of $500,000 were awarded without plans because they contain no subcontracting opportunities.

[The information referred to above follows:]

During fiscal years 1981, 1982, and 1983, only 8 percent of our large business contracts over $500,000 were determined not to require plans because they contained no subcontracting opportunities.

Mr. ADDABBO [continuing]. General, how does the contracting officer determine if subcontracting opportunities exist? Can you give me a short explanation, and can expand it for the record.

[The information referred to above follows:]

The data for fiscal year 1980 is not available. For fiscal year 1981, there were 47 contracts over $500,000 awarded to a large business that did not contain a plan. The dollar value of the 47 contracts was $328,085,000. The data for fiscal year 1982 was 71 contracts worth $595,173,000 and for fiscal year 1983, 65 contracts worth $286,075,000. The percentage of the contracts that did not contain a plan because there were no opportunities for subcontracting is not readily available. I would expect that lack of such opportunities would be the pricipal reason for no plan.

General STALLINGS. The contracting officer has, of course, the small business specialist there in his command to help. He can also go to the Small Business Administration locally to help search things out.

Of course, he deals with the contractor, and hopefully that contractor is going to be in a search for seeking out these people. One of the good ways to do it, that was addressed up here earlier, is to put an incentive in the contract whereas he will share-you know, once he decides on a goal, it becomes part of the contract, and the ACO and the PCO agree to it, then a good way to do that is to have some sort of an incentive in the contract. So I would say that he has the opportunity. He has his own small business specialist. He has Small Business Administration folks to help him seek these out. Then he has the contractor that he's dealing with to motivate the company to get out and seek these people, too, sir.

Mr. ADDABBO. Mr. DeLuca, are you a subcontracting officer? Mr. DELUCA. No, sir, I'm not. I have Mr. Oswalt here who is our AFSC small and small disadvantaged business specialist.

Mr. ADDABBO. Would your procedure be similar to that of the Army?

Mr. OSWALT. I'm the AFSC executive for small and small disadvantaged business.

Mr. ADDABBO. Well, you've heard the description of the activities of the Army. Is your activity similar?

Mr. OSWALT. Mr. Chairman, I was writing the questions to which we must submit data for the record, and didn't hear what General Stallings said.

Mr. ADDABBO. OK.

Mr. DELUCA. Mr. Chairman, I can answer that if you'd like. Yes, our provisions are very similar. Typically the PCO would look at the work to be performed to determine if, indeed, any subcontract opportunities exist.

His decision is reviewed by his superior, as well as reviewed by the SAOBUS, which is what we call the small and disadvantaged business utilization specialist.

In addition, contracts are reviewed by our contract review committee.

Depending on dollar value, the contract is, in turn, forwarded up to Air Force Systems Command for manual approval, and is again reviewed. So I think the procedures are there, and adequate to insure that the subcontracting opportunities are reviewed.

Captain HARRINGTON. Mr. Chairman, our procedures are similar to that, other than they are much larger activities than we are. We make an implied assumption that subcontracting opportunities do exist in those contracts over the $500,000 threshold. Then if a subcontracting plan came in where it recommended zero goals we'd have to analyze that. We use the services of our SADBU, the PCR, the SBA rep in the field, and DCAS, to verify that the zero goals are appropriate.

But we make the assumption that opportunities do exist and analyze their plan, because that's one of the issues that a contractor has to address in his plan, what he is doing, how he is doing it. Mr. ADDABBO. So does your contracting officer use the PASS system, and how helpful is this to the identifying potential small and minority business subcontractors?

General STALLINGS. The PASS system is, if I understand your question, a form of accounting to keep up with the contracts within a command so that they can develop their statistical analysis to insure that they're doing their business in a good manner.

The PASS system is the basis for being able to look and see how much business is done at the small business area, and small disadvantaged area. I would say that it is a positive force, plus it's our basic way of accounting for the business that's going on. Yes, sir, I'd say it's positive.

Mr. DELUCA. Sir, I'd like to defer to Mr. Oswalt to answer that. Mr. OSWALT. Mr. Chairman, our contracting officers, on a case by case basis, do obtain PASS system sources from the SBA Procurement Center representative, and it's a mixed bag. Some feel that good sources are received, but I think for the most part that there are more negative comments received than positive comments on the effectiveness of the PASS system.

Mr. ADDABBO. Captain?

Captain HARRINGTON. Mr. Chairman, we do utilize the PASS system, and, in fact, I agree there are deficiencies in it.

Our contracting officers don't use it though, Mr. Chairman. It's used by our small disadvantaged business utilization specialist during her review of potential sources for the contracts.

If the contractor we're dealing with is not aware of it, or if the small business is not aware of it, we do provide them with this handout so that they can register themselves in this system.

I think the deficiency is of not trying to do a good job. It's like with any large data base. It's very difficult to keep it current, with businesses being added, and going out of business, that's the feeling we have. But it's certainly an effective system. It is being improved through terminal access. I know it's been a source within Navy Regional Contracting Center. So I think it is an effective system. I

think it will get better as we make more use of it, and as the data base is cleaned up.

Mr. ADDABBO. We have discussed this morning the question of incentive clause.

General, what percentage of your contracts actually contain incentive clauses? Do you know?

General STALLINGS. Sir, I'll have to furnish that for the record. Mr. ADDABBO. Tony?

Mr. DELUCA. Very, very few, Mr. Chairman. We do have some at our Electronic Systems Division. However, I think if you look at the focus, where the focus should be, it is on management on the part of the contractor.

Consequently, where we have used an incentive it's been more in the form of an award fee. An award fee in this case is a subjective judgment on the part of the Government, and that's not subject to disputes.

We have found that it works fairly well, but its frequency and use in contracts is very, very low.

Mr. ADDABBO. Who determines when an incentive clause should be included in the contract?

Mr. DELUCA. On the most part it would be the PCO, sir.

Mr. ADDABBO. Do you know of any case where contractors have actually exceeded their goals and requested incentive fees?

Mr. DELUCA. I'd have to get that information for the record, sir, on those up at ESD.

Mr. ADDABBO. General?

General STALLINGS. I know of one case, RCA at Fort Monmouth, has requested that they receive payment against an award fee because their contract, as I recall, said that they will attempt to get 85 percent small business subcontracting and they actually came up with over 90 percent, and they're asking for an award.

It's sort of controversial right now because they didn't do very well on their small disadvantaged business, so the contracting officers have a tough call.

We have not had occasion to use incentive clauses in conjunction with subcontracting plans. Our contracts containing plans are mostly for engineering and technical services work of an indefinite nature. We have not felt that these contracts permitted the precise quantification necessary to establish monetary rewards for specific subcontracting achievements.

Mr. ADDABBO. Let me ask you for the record that each of you for the percentage of your contracts that actually contain incentive clauses, and how many contractors have actually exceeded their goals and requested incentive fees.

[The information referred to above follows:]

In Fiscal Year 1981, the percentage of DARCOM contracts with subcontracting plans that also had an incentive provision was 8 percent. The data for Fiscal Year 1982 and Fiscal Year 1983 is 6 percent and 5 percent respectively. Data on how many contractors have requested incentive fees is not readily available. It appears, however, that the number is quite small.

Mr. ADDABBO [continuing]. Mr. Daub?

Mr. DAUB. Thank you, Mr. Chairman. I've got a leaky pen on my hands.

Mr. WYDEN. A big business pen.

OPENING STATEMENT OF HON. HAL DAUB, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA

Mr. DAUB. It's the kind that might come out of some of these deals.

Mr. Chairman, let me take this opportunity to commend you on initiating this three part series of oversight hearings to investigate compliance with the Federal Subcontracting Program for Small and Small Disadvantaged Businesses. Now that Federal law mandates that most Federal contracts over $500,000 ($1 million, if for construction) must contain a subcontracting plan for the award of subcontracts to small business, this committee has a vital function to assure compliance. I look forward to listening to our witnesses this morning, as well as over the next two hearings and again commend you, Mr. Chairman, on holding these hearings.

Of course, I'm happy to see green in front of me because I am an Army brat, and grew up in the system, and I appreciated the former member of DARCOM, General Guthrie, who was one of my commanding officers in the 2d Infantry Division in Korea. So I happen to when I got to this 10 mile square bounded by reality look him up, and got a chance to go through a 2 hour briefing at DARCOM, and get a good oversight of what you all do, what you're up against from mandates from Congress, and concerns by small and disadvantaged business.

I enjoy being on this committee because of this particular subject. I spent a lot of time, as our chairman today knows, on the 8(a) subject. It's an area in which I developed some degree of knowledge. I think its goals are laudible. I think it creates enormous numbers of problems for everyone who tries to work intently, and forthrightly with delivering the stated goals and commitments that are involved in 8(a).

I think we fall into a trap by and large, ladies and gentlemen, when we try to quantify rather than use the quality opportunity that exists for the delivery of expertise in training and business opportunity, not so much within the small business area, but within the small and disadvantaged category.

I find the use of percentages extremely misleading. Not only dollar volume sometimes, but the number of minority business people who actually get contracts, or economically or socially disadvantaged people is a concern of mine. There might be a more important way, more useful way of deciding, rather that, for example, looking at a decline in the numbers to 916, as shown on your chart, General Stallings, that you might look at how many subcontracts are met in terms of the numbers of people that are actually working on jobs, within the framework of those kinds of awards. That might be a better way to see it for fulfilling the mandates of the law.

Tell me, if each of you would, what is the overall attitude that you find contractors displaying to you when they are in a quandry over how to set aside a disadvantaged percentage within the small business designation? I mean what do they tell you: That there's nobody out there that they can find to help them do the quality work, or what are their concerns as they try to fulfill their stated contract with you? There has to be somebody out there that is very

unhappy with being put in a position of trying to build a communication system, or a building, because maybe they're not going to be able to get the contract because they can't comply with that mandate.

General STALLINGS. Mr. Daub, I think some of the comments range everywhere from the fact that as you move into small business and small disadvantaged business, I mean, in a very technical area, it sometimes in certain regions is very hard to find people who have the requisite skills to be able to do what that contractor has to produce. That is one of the comments. Contractors in some specific areas also may find it difficult to find small disadvantaged businesses at all in that particular region.

But as you understand, as you said better than I am saying now, that will differ depending upon what part of the country you are in and whether you are trying to make a turbine engine or whether you are looking at contracting out for base operations, which is certainly a difference in the type of business that you are going to, or the opportunities that you might have.

I really wish I could give you a better answer, Mr. Daub. I think that the people that you are going to hear from civilian industry are the people that are going to be able to answer that better than I can, what their specific problems are.

Mr. DAUB. Do you find that you are ever behind schedule and unable to get things done when they should be done because of the requirements of complying with these particular provisions?

General STALLINGS. Mr. Daub, we find that across the board. There is no way that I am going to tell you that it happens just because it is with a small business. We find that a large number of our contractors are late on their deliveries, and that is equally true with the large contractors as it is with the small disadvantaged.

I am giving you a personal opinion here now: I do not think that we are hurting the defense industry or people are producing slow just because we are dealing with small disadvantaged or a small business.

I think that in most cases they are able to produce a quality product that they signed up to deliver.

Mr. DAUB. That is my opinion, too. Thank you.

Mr. DeLuca.

Mr. DELUCA. Mr. Daub, yes, I would echo some of the things that General Stallings says, but I think more importantly, we need to look at what efforts, some of our contractors have been taking to ensure that the opportunity exists to contract with small and small disadvantaged business.

I know that one of the areas Major General Stallings alluded to was a lack of a particular firm in a geographical location. We have one contractor located in the State of Washington who has a limited number of small and small disadvantaged businesses present in his geographical area, but the contractor has taken positive steps. He currently has full-time personnel assigned in Los Angeles and also Chicago whose sole job is to search out high technology small and small disadvantaged businesses.

So, I think there are quite a few reasons, not just one, that would preclude it. I think we need to look at what positive steps are being