Mr. ADDABBO. Thank you very much, Mr. Martin. I would like to read my opening statement at this time.

OPENING STATEMENT OF HON. JOSEPH P. ADDABBO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW YORK

Mr. ADDABBO. I would like to commend my colleague for holding investigatory hearings on the subcontracting program mandated by section 211 of Public Law 95-507. As the coauthor of 95-507, these hearings are extremely important to monitor implementation of the law and to ensure that it is being fully implemented pursuant to congressional intent.

The subcontracting program was established for the purpose of ensuring that small and minority businesses have the maximum practicable opportunity to participate in the performance of contracts let by any Federal agency. To accomplish this objective, Federal agencies are required to receive subcontracting plans from their large prime contractors specifying, among other things, goals for the award of subcontracts to small and minority businesses. Submission of a plan is required prior to the award of contracts exceeding $500,000 and $1 million for construction contracts.

Despite the concise expression of congressional intent, the committee has received overwhelming evidence that the subcontracting program has not been implemented by the executive agencies in a manner consistent with the statutory requirements. Morever, there is further evidence that prime contractors have consistently violated subcontracting plans and that contracts have been awarded without plans.

Last session this committee issued a report that specified the problems with implementation of the subcontracting program. Also, contained therein, were detailed recommendations for improvements. Some of the major problems cited by this committee were: Lack of enforcement, lack of consistent interpretation of the statute, and lack of outreach to the small business community concerning potential subcontracting opportunities. Notwithstanding the issuance of this report, the problem areas remain unresolved. In fact, a recent report submitted by SBA to the Congress indicated that the practice of awarding contracts without plans is prevalent and a substantial number of contracts contain unacceptable plans. Today, I look forward to hearing the concerns raised by the small business associations and how the military installations intend to address these concerns.

Mr. Tidd is our next witness. He is the president of the Association of Small Research, Engineering and Technical Services Companies.

TESTIMONY OF DONALD W. TIDD, PRESIDENT, ASSOCIATION OF SMALL RESEARCH, ENGINEERING AND TECHNICAL SERVICES COMPANIES

Mr. TIDD. My name is Don Tidd. I am the president of ASRET. I agree with many of the comments that Mr. Martin made. In fact, Mr. Martin's company is a member of ASRET.

In preparation for this testimony, we did a survey of our membership, and in another 1,000 companies there is a potential of

ASRET. Our survey indicates that the companies that responded are receiving less than one subcontract every 3 years from large businesses. The companies that responded to our survey are in 11 States, averaging 84 people each, and have been in business an average of 8 years.

This to me clearly means that Public Law 95-507 is not working. In answer to the specific questions that are asked in your letter; how should subcontracting goals be assigned to Government agencies?

Each Government agency should be giving a specific percentage goal for subcontracting, just as it has for the small business ASRET program.

Each agency should be required to report each year to Congress on its success in meeting these goals.

Our testimony includes specific language change required to implement this change in the law.

The second question you asked was: How should goals be established for individual contracts? We believe that each agency should have the discretion to assign or not assign goals for individual contracts, consistent with meeting the annual goals specified in our answer to question 1 above.

The requirement to meet these annual goals in combination with the incentives specified in our answers to questions 3 and 4, we believe, would make Public Law 95-507 work.

Your third question was: How can administration of the contracts containing plans be improved?

We believe that Public Law 95-507 should be revised to make it mandatory that contracting officers assign to the subcontracting plan, a portion of the contractor's proposal, not less than 5 or more than 10 percent of the total contract award evaluation points.

A part of the evaluation criteria for these subcontracting plans would be the contractor's prior performance in implementing other subcontracting plans.

In response to your fourth question which is: How should the Government use its authority to include incentive clauses in connection with subcontracting plans?

We believe that effectively negotiated small business and small disadvantaged business subcontracting plans could have both a positive and negative profit swing negotiated against the subcontracting plan's target goals.

If the prime contractor failed to meet the percentage goal, negotiated into the subcontracting plan, the contractor would lose up to 5 percent of the total profit. If on the other hand, he exceeded the subcontracting plan goals, he would be able to increase his total profit by up to 5 percent.

It does require more time and money to locate, evaluate and to administer a number of new small business sources as opposed to staying with the familiar large contractor. Compensation for this would be provided from the above incentives.

Your fifth quesion is: What sanctions should be required in the event of noncompliance?

We do not believe that termination or debarment as remedies for noncompliance really work. We do not think that the continual threat of these really works.

We believe, instead, that the use of annual goals in combination with making the subcontracting plans a part of the evaluation and providing financial incentives for compliance, would make it work. I thank you, Mr. Chairman.

[Mr. Tidd's prepared statement follows:]

PREPARED Statement of DONALD W. TIDD, President, AssOCIATION OF SMALL
RESEARCH, Engineering anD TECHNICAL SERVICES COMPANIES

My name is Donald W. Tidd and I am one of the Founders and currently the President of ASRET (the Association of Small Research, Engineering and Technical Services Companies). ASRET is a relatively new

organization, having been incorporated in the District of Columbia on March 15, 1983, as a non-profit, non-stock corporation under the provisions of paragraph 501(c)6 of the Internal Revenue Code of 1954, as amended.

During the period of slightly over one year since its formation, ASRET has grown to a membership of 170 companies in 17 states and the District of Columbia. This growth has been largely the result of a vacuum in terms of representation of our industry. The small, high technology industry that ASRET represents has not previously been adequately represented before Congress. Some number of our companies are represented by

other associations such as the Professional Services Council (which

represents primarily large technology services companies), the American Association of Small Research Companies (which represents the very small companies of inventors) and the Smaller Business Association of New England (which represents all types of small businesses but only in a specific region of the country). There are also special interest groups concerned with the issues of spare parts in the aerospace industry.

ASRET would represent, on a national basis, the small (less than 500 people) companies that perform research, engineering and technical services. We believe there are 5,000 to 10,000 of these companies in the country and we believe, also, that they are a vital resource, employing

some of our leading engineers, scientists and business people. About 178 of these companies are owned or controlled by people who are minorities or otherwise disadvantaged. The Founders of ASRET are the presidents of 25 of

our companies. We represent an industry that wants and needs to be heard. We are delighted to have this opportunity.

In preparation for this testimony, and with the limited time available to us after a phone call from your office and a subsequent letter from you dated March 8, we initiated a survey of our membership concerning their experience with Public Law 95-507. We surveyed our 170 members and about 1,000 other companies that are prospective members of ASRET. Our survey asked a series of questions including those that are in your letter. I would like to first provide the results of our survey concerning our members' general experience with Public Law 95-507, and then provide our responses to the specific questions in your letter of March 8. testimony also includes the specific language we believe is needed to modify PL 95-507 to make it workable.

Our

As of March 28, seventy-two companies had responded to our survey. These companies are headquartered in eleven states and the District of Columbia. They range in size from companies of one person to companies of Their average number of years in business is eight and they average 84 employees each.

362 persons.

Our survey shows that during the past three years these 72 companies were contacted a total of 246 times by large businesses concerning subcontracting opportunities.

They have submitted 144 proposals at