SMALL BUSINESS SUBCONTRACTING PROGRAM (Part 1) THURSDAY, APRIL 5, 1984 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON SBA AND Washington, DC. The subcommittee met, pursuant to notice, at 10:12 a.m., in room 2359-A, Rayburn House Office Building, Hon. Ron Wyden (acting chairman of the subcommittee) presiding. Mr. WYDEN. The subcommittee will come to order. It is particularly unfortunate today that our very distinguished chairman, Chairman Mitchell, cannot be with us. The chairman had a death in the family. On behalf of the whole Committee on Small Business, we want to extend our condolences, and our thoughts are with our chairman today. The chairman has an opening statement and I will read his statement for the record. OPENING STATEMENT OF CHAIRMAN MITCHELL Today is the first in the series of hearings that this subcommittee will conduct to determine compliance with the Subcontracting Program for Small and Small Disadvantaged Businesses. This program was established by section 211 of Public Law 95-507, and mandates that most Federal contracts over $500,000, $1 million if for construction, awarded to large business must contain a subcontracting plan containing six specific elements designed to increase subcontracting opportunities for small and small disadvantaged business concerns. When Public Law 95-507 was signed into law on October 24, 1978, it was hailed at that time as a landmark piece of legislation. Substantial increases were expected in the amount of subcontracts awarded to small and small disadvantaged businesses. While some success has been achieved, much more clearly remains to be done. On the positive side, the number of large businesses participating in the subcontracting program increased from 810 in 1978 to 1,173 in 1983 for an increase of nearly 45 percent in the number of reporting businesses. In terms of dollars, small businesses received $7.6 billion in subcontract awards in fiscal 1978 as compared to $20.3 billion in fiscal 1984, an increase of 167 percent. Small and disadvantaged business subcontracting statistics were not available for years previous to fiscal year 1980. However, in that year, these firms received $748.2 million in subcontracts; last year, fiscal 1983, small disadvantaged business received $1.0 billion, an increase of only 35 percent. During this same period, 1980 to 1983, subcontracts to small business increased from $12.2 billion to $20.3 billion for 66 percent, or nearly doubled the rate of increase to minority firms. While there were increases in the aggregate amount of subcontract awards to small business and small disadvantaged business, the percentage share of the subcontract dollar shows a completely different picture. In fiscal year 1978, 40.4 percent subcontract dollars were awarded to small business; in fiscal year 1983, this percentage was only 39.0 percent. The small business share has actually decreased from the 1978 level, even though it is up from the 1981 level of 37.7 percent, and the 1982 level of 37.6 percent. The share going to small disadvantaged business, however, shows nothing but decline since Government figures were first maintained in fiscal year 1980. In that year, small disadvantaged concerns received 2.5 percent of the subcontract dollar; in fiscal year 1981, 2.1 percent. In fiscal year 1982, 2.0 percent, and last year, fiscal 1983, this meager share fell even further to a scant 1.9 percent. Despite the clear mandate of the law, we in Congress still hear complaints from our small business constituency about lack of enforcement and lack of aggressive management. We hear of situations where contractors are allowed to violate plans with impunity. In fact, even though this law is 6 years old, SBA's fiscal year 1982 subcontracting report to the Congress lists 21 contracts and contract modifications covered by the statute which were awarded without subcontracting plans. Not surprisingly, all of these contracts were let by military agencies. In fact, DOD remains a major offender of both the statute and the implementing guidance issued by the Office of Federal Procurement Policy (OFPP). SBA's fiscal year 1982 report states and I quote: Our agency's reports for fiscal year 1981 and 1982 cited an ongoing problem due to the apparent disregard by the Department of Defense for the requirements of Public Law 95-507 as addressed in the Office of Federal Procurement Policy's letter relating thereto. . . . The problem still existed in fiscal year 1983, and the Department of Defense has declined to revise DAR to conform to the Office of Federal Procurement Policy and SBA policy. Small business also complains of SBA's failure to provide more affirmative help in both locating potential subcontracting opportunities and providing the technical assistance sometimes needed to become qualified as a subcontractor. We also hear complaints that SBA has not taken more initiative to institute a uniform governmentwide procedure which would impose sanctions against offending prime contractors. The subcommittee will explore all of these complaints during this subcommittee's investigation. However, it should be noted that not all of the complaining against the executive agencies come from small and small disadvantaged business. Large business complains of the lack of uniformity in program administration, which leads to varying statutory and regulatory interpretations. For example, even though Public Law 95-507 is nearly 6 years old, there is not a uniform checklist that can be used by all agencies to evaluate the acceptability of plans for uniform procedure that are applicable to the breach of a subcontracting plan. This committee issued a report on December 10, 1982 which listed recommendations to the President, all Federal buying agencies, and the Small Business Administration regarding the subcontracting program. Its primary set of recommendations dealt with uniformity in program administration, and the initiation of appropriate remedial measures against those who would violate the law. All of these recommendations-as of this time-have been either ignored or rejected. Nevertheless, these hearings will examine whether these recommendations remain appropriate or whether other measures may be needed to enforce this law in a way intended by the Congress. We have invited witnesses from both the public and private sector representing the full range of considerations we need to explore. On behalf of the committee, I want to take this opportunity to thank each of our witnesses for taking the time out of their busy schedules to be with us. I am sure that we will find their testimony useful, as we proceed with our deliberations on this most important program. We have a vote on the floor, but I would like to recognize the distinguished gentleman from New York, the ranking minority member, Mr. Molinari, for any comments that he would like to make at this time. OPENING STATEMENT OF HON. GUY V. MOLINARI, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW YORK Mr. MOLINARI. I will be very brief, Mr. Chairman. I would like to state that there obviously has been a great deal of confusion about the sections of the law and the interpretation of it. There have been numerous complaints as to the gray area that exists. It is of concern to both the small and large. And I think that based on the information that comes forth at these hearings, that it may well be that it is incumbent upon those of us in Congress to change the law perhaps to clarify the existing statute, so that there is a clearer picture as to what is expected of those in dealing with the Government. I have looked at the panelists. They are an impressive group. I think that by the end of the hearings, we will have a better picture as to the real problem out there. Thank you, Mr. Chairman. Mr. WYDEN. I thank the gentleman. We will break briefly for the floor vote and return. Our first panel will be Lawyer Martin, president of the Black President's Roundtable Association; Donald W. Tidd, president, Association of Small Research Engineering and Technical Services Companies, and Mr. Stephen Denlinger, president of the Latin American Manufacturers Association. Gentlemen, if you would come forward, we will run over and vote, and be right back. [A short recess was taken.] Mr. WYDEN. The subcommittee will come to order. Let us proceed with panel one. Gentlemen, we are happy to have you and Mr. Lawyer Martin, if you will, why don't you please proceed. TESTIMONY OF LAWYER A. MARTIN, PRESIDENT, BLACK PRESIDENTS' ROUNDTABLE ASSOCIATION, ACCOMPANIED BY MARSHALL D. JOSEPH, PRESIDENT, TECHMATICS CORP.; AND GORDON D. ALEXANDER, PRESIDENT, CONGRESSIONAL EDUCATION ASSOCIATES Mr. MARTIN. Mr. Chairman, I am Lawyer A. Martin, president of the Black Presidents' Roundtable Association, known as BPRA. I am also president of Evaluation Technologies, Inc. or ETI, a multidisciplinary professional and technical services company incorporated in 1970. Accompanying me today are two BPRA members: Marshall D. Joseph on my left, president of TechMatics Corp.; and Gordon G. Alexander on my right, president of Congressional Education Associates. Mr. WYDEN. Mr. Martin, excuse me for interrupting you. We would very much appreciate it if you could summarize your remarks. We would like to keep our witnesses to about 5 minutes, and I know we will have some questions. Mr. MARTIN. I will then move on to the questions you asked us to address in our testimony. Mr. Chairman, our responses to these questions are in the form of recommendations submitted to SBA Administrator James C. Sanders by a task force created by the Small Business Administration on August 10, 1982 to review the implementation of the subcontracting provisions of Public Law 95-507. The recommendations that the task force made are as follows: Recommendation 1: That the SBA establish a goal for minority business subcontracting under Public Law 95-507, at an annual level of 15 percent, to be achieved in 1988 through an increase of 2 percent per year beginning in 1983. Recommendation 2: The SBA should recommend that each procuring agency award points to a contractor which, in its response to a Government "Request for Proposal," plans to use small and minority businesses as subcontracting team members for the proposed contract. The task force report had in mind 10 percent, 10 points of a 100-point scale. Recommendation 3: The SBA should recommend that additional monetary incentive payments be given to a contractor, which, in the performance of its contract, exceeds its small and minority subcontracting goals, as set out in the contract clause required by section 211 (section 8(d) of the Small Business Act), presently covered in OMB-OFPP Policy Letter 80-2. The dollars would not exceed 10 percent of the excess over the dollar goal of the subcontract plan. Four, the SBA should recommend that agency program and performance goals be established with the objective of increasing subcontracting with small and minority businesses, and that each agency establish a minimum of one critical performance standard under which contracting officers and procurement directors will be evaluated according to the amount of small and minority business they approve. Mr. Chairman, if those responsible for the procurement process acted more responsibly, the Minority Business Enterprise Development Program would be far better off today. |