Appendix C.--Fact Sheet, the Subcontracting Program BACKGROUND Prior to 1978, section 8(d) of the Small Business Act merely encouraged large business concerns to utilize small business as subcontractors in the performance of federal contracts. Whereupon, legislative emphasis was on voluntary "best efforts" by large contractors to subcontract to small concerns. Despite the fact that the percentage of subcontracts awarded to small concerns increased over the years, these procurements remained small in both absolute dollar value and share of total awards. Section 211 of Public Law 95-507 (1978), changed the emphasis from voluntary "best efforts" to mandatory efforts to insure that small and small disadvantaged concerns "have the maximum practicable opportunity to participate in the performance of contracts let by any federal agency." The act mandates that federal contracts over $10,000 shall contain a clause entitled, "Utilization of Small Business Concerns and Small Business Concerns Owned and Controlled by Socially and Economically Disadvantaged Individuals." For larger contracts over $500,000 ($1,000,000 for construction), the law also requires a subcontracting plan setting forth percentage goals for utilizing small business concerns, including separately identified goals for small disadvantaged concerns. Pursuant to section 211, large subcontractors that receive awards in excess of the dollar thresholds also are required to adopt a plan similar to that required from prime contractors. Such a contract cannot be awarded unless a plan is accepted within the time frames established by the agency. Under the law, the plan must contain at least the following six elements: -- Percentage goals for small and disadvantaged business subcontracting; - Name of the individual responsible for administering the subcontracting program and a description of the duties of such individual; Description of the efforts to ensure that small and small disadvantaged businesses will have an equal opportunity to compete for subcontracts; Assurances that the subcontracting clause be included in all subcontracts having further subcontracting opportunities and that all big business subcontractors having a subcontract in excess of $500,000 ($1 million for construction) that offers further subcontracting opportunities will adopt a subcontracting plan similar to the prime's; -- Submission of periodic reports and cooperation in any studies or surveys -- Description of the type of records maintained to demonstrate compliance with requirements and goals in the subcontracting plan. 2 The requirement for subcontracting plans does not apply to sinall business prime contractors or subcontractors, prine contracts not offering subcontracting possibilities, contracts where the work is to be done totally outside of the U.S., its territories/possessions and for services which are personal in nature Prior to award, it is the responsibility of the contracting officer to obtain and review plans for adequacy. After contract award, the contract administrator monitors compliance with the plan. The law states that failure of a contractor to comply in good faith with the plan is a material breach of the contract or subcontract. Remedies for violation of a plan available under the statute and Office of Federal Procurement Policy Letter 80-2 include but are not limited to termination for default and a negotiated reduction in the contract price. Moreover, the General Accounting Office has ruled that contracts awarded without a subcontracting plan where it is required are "legally defective" thereby invoking similar remedies. On December 10, 1982, a report of the House Committee on Small Business entitled "Minority Business Development Efforts of the Small Business Administration" (Report No. 97-956) concluded that the "subcontracting program has had limited success during its four years of implementation." Moreover, despite the availability of adequate remedial measures, federal buying activities have failed to utilize these remedies when substantive violations of subcontracting plans are discovered. PROBLEM AREAS Information contained in House Report No. 97-956 revealed the following major problems with the implementation of the subcontracting program: Lack of Enforcement There exists overwhelming evidence that despite ample enforcement provisions, prime contractors have violated their subcontracting plans with impunity and in somne cases have been awarded contracts without plans. For example, during fiscal year 1981, Small Business Administration (SBA) field offices "reported 537 cases of 'interim noncompliance,' that is, violations which existed prior to contract completion and, therefore, susceptible to a 'remedy' curing the noted deficiency. However, there were determined to be 61 cases of 'final non-compliance,' or, in other words, violations that went totally uncorrected." In 1981, SBA field offices reported 13 cases where contracts were awarded without subcontracting plans. In 1982, 12 cases were reported while 15 cases of such awards were reported in 1983. The Executive branch has shown no initiative to institute sanctions or remedies against large prime contrators who have violated the law. Moreover, federal procurement personnel have not been held accountable for their mismanagement. The Small Business Administration has failed to devise a logical system for the identification of contracts to be reviewed or a reporting system "to capture statistics on those contracts which do not have plans but which, by law, must have plans." 3 Lack of SBA Administration The Small Business Administration has failed to assign a sufficient number of personnel to administer the subcontracting program at the central office level. Lack of Consistent Interpretation There is a lack of consistent and uniform interpretation of both the statute and implementing regulations by various federal agencies. This problem is perpetuated due to the lack of a uniform checklist for all agencies to assess the acceptability of plans; the lack of uniform procedures applicable to the breach of a plan; the lack of consistency in reporting requirements; and the lack of consistent interpretation of "flowdown" requirements for lower-tiered subcontractors. Lack of Outreach There is virtually a total lack of initiative primarily on the part of SBA to engage in any substantive activities either to inform small business about potential subcontracting opportunities, or to "qualify" small concerns as potential subcontractors. STATISTICAL INFORMATION - See Attached Appendix |