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It is a pleasure to appear before your committee today to discuss the

De partment of the Navy's implementation of the subcontracting program

established under Section 211 of Public Law 95-507.

The Na vy's success in actively supporting and fostering the Small Business

Program is a matter of record.

I believe that our performance in fiscal year

1983 illustrates our solid commitment to the small business community. During

the past year, for example, the Navy posted the largest one-year increase in

small business awards in the history of the Navy's program.

In total, $5.9

billion was awarded to small business on a prime contract basis.


represents a 28.6 percent growth in small business awards over the previous

fiscal year.

Moreover, the Navy achieved unprecedented real dollar increases

in our small business set-aside awards (from $2.3B to $3.2B) and small

disadvantaged business awards (from $469M to $621M) during fiscal year 1983.

Also, subcontract awards to small businesses and small disadvantaged

businesses increased from $1.8 billion to $2.1 billion and from $70.5 million

to $86.3 million, respectively.

Awards to women-owned small businesses

increased from $64.3 million to $104 million.

These accomplishments can be

attributed, in part, to the positive actions the Navy has taken.

For example,

the Navy has enthusiastically participated in 25 conferences, cosponsored by

members of Congress and our Office of Legislative Affairs, since March 1983,

in which over 2,700 small business firms were briefed on "How to do Business

with the Navy" in both the prime and subcontract roles.

We have 12 more

planned during the next three and a half months.

Similarily, over the last

two years the Navy participated in 47 Federal Procurement Conferences for

small businesses, having lead coordination responsibility on 12.

At each of

these conferences the Navy routinely provided counselors to assist small firms

on a one-to-one basis.

With regard to motivating and training our small

business advocates, since December 1981 the Navy conducted two All-Na vy Small

and Disadvantaged Business Utilization Conferences in which most of our 171

Small and Disadvantaged Business Utilization Specialists, as well as a large

number of contracting officers, met to discuss, in detail, additional ways to

improve the Na vy's Small Business programs.

And just last month the Navy

participated in a DoD-Wide Small and Disadvantaged Business Utilization

Conference with similar objectives.

In addition to these Navy-wide

initiatives, individual commands have conducted various training programs at

the local level to ensure their contracting and technical personnel are kept

abreast of small business program initiatives and of their importance in

broadening the industrial base. Also, wany of our personnel involved in the

acquisition process have a personal interest in the program, not only because

they recognize its positive impact on the nation's industrial base, but also

because of Navy policy to include small business program accomplishments as

part of their performance evaluations.

For military personnel, it is an

element of their fitness reports and for civilian personnel it is used in

annual merit pay decisions pursuant to the Civil Service Reform Act of 1978.

Not only are the members of the workforce evaluated but as well Heads of

Contracting Activities who are responsible for the attainment of assigned

small business and small disadvantaged business utilization goals at their

respective activities.

In another initiative, the Navy has gone beyond the Defense Acquisition

Regulation (DAR) requirements by establishing regulatory guidance which

requires Navy contracting offices to display in a public place all small

purchase solicitations in order to stimulate competition and small business

interest. Speaking of competition, the Navy's performance is dramatically

improving in this area as well, and much of our success can be attributed, I an sure, to increased participation by small businesses in our procurements.

Through the first four months of fiscal year 1984 the Navy awarded $1.6

billion more competitively than during the same period in the previous fiscal


The competition percentage for this period in 1983 was 21.8 percent,

and I am pleased to report that it increased to 41.3 percent for the same

period in 1984. This improvement will continue during 1984 as the Navy's

initiatives continue to gain momentum.

Let me discuss for a moment a few of

these initiatives First, the competition advocate program which we

established in over 150 of our buying activities.

The Navy has a flag rank

officer assigned as the Navy's Competition Advocate General and during the

last eight months we have concentrated our efforts on achieving maximum


For example, the Navy CAG was successful in negotiating from a large

pride the release of proprietary data rights for over 4,500 parts.

This will

enhance competition and create further opportunities for small business


Second, we are concentrating on breakout and competition for

spare parts at the Navy Inventory Control Points and Systems Commands.

At the

Na vy's two Inventory Control Points, using the additional resources Navy has

dedicated to competition and breakout, we are seeing results; for example,

1,400 spare parts items have been screened, resulting in 40% being broken out

to competition and another 17% being broken out to the original equipment

manufacturer. Third, the Navy's multifaceted program called Project BOSS (Buy

Our Spares Smart) has been implemented and contains over 100 initiatives

actively working to improve the procurement of spare parts in the Navy.

Positive top-down efforts like these are producing measurable results for the

Navy and account for many of our recent accomplishments in our Small Business

and Competition programs.

I would like to emphasize that we are in the early

stages of producing results.

With this as background, I will now provide specific comments on our

subcontracting program.

The Navy's subcontracting program is conducted within

guidelines established by the Department of the Defense (DOD) in its

acquisition regulations.

In 1981 when Public Law 95-507 was enacted the Navy

responded and conducted 12 workshops and seminars nationwide for over 1,500

contracting officers, negotiators, buyers and administrators to ensure proper


Since that time the Navy has continued the subcontracting

training program and through this contact with the people that make the

subcontracting program work the Navy has some observations on how it can be


In fiscal year 1981, 1,878 Navy prime contracts contained subcontracting

plans; in 1982, 2,206; and in 1983, 2,501.

Dollar values of these contracts

were $17.5 billion, $24.9 billion and $30.8 billion, respectively. Although

the Navy has not yet received the SBA Annual Report for fiscal year 1983, of

the 6,585 Navy prime contracts awarded during the last three years with plans,

only six have been identified by the SBA as not having the required

subcontracting plan or a determination by the contracting officer that the

contract did not offer subcontracting opportunities.

In four of the

identified cases the Navy determined that the required plan was either

inadvertently omitted from the contract or the required documentation was

erroneously omitted from the contract file.

Ultimately, the contracts and

contract files were modified to correct the identified deficiencies. In the


other two cases the responsible contracting offices are taking appropriate

actions toward resolution.

Although the SBA does not identify in its annual


reports the number of plans it reviewed each year on a department or agency

basis, it does identify the total number of proposed plans and post-award

reviews it made to determine prime contractor compliance with approved

subcontracting plans. Of the 12,251 proposed subcontracting plans and 13,658

post-award reviews conducted by the SBA in fiscal years 1981 and 1982, only

107 Navy plans were identified as needing improvement because, in the opinion

of the SBA, they did not contain maximum practicable opportunities for small

businesses to participate in the performance of the prime contracts.

Some of

these plans were improved as recommended by the SBA, and the SBA report

indicates that some contracting officers may have failed to apprise SBA of

final contract actions prior to the end of the SBA reporting period for

purposes of their annual reports.

For example, the Navy's analysis of the 35

plans identified by the SBA in fiscal year 1982 found that in most cases

either the SBA ultimately concurred in the plan or the contracting officer was

unable to identify any recommendation calling for improvement.

I am aware of

no instance in which a Navy prime was ultimately in non-compliance

necessitating remedial actions including debarment proceedings.

Subcontract data is compiled and transmitted to the Office of the

Secretary of Defense by the DOD component that has contract administration


For example, a significant number of the Navy's contracts are

administered by the other Services, particularly the Defense Logistics Agency,

and these contract administration offices compile and transmit subcontract

data direct to OSD for Navy primes. Conversely, Navy contract administration

offices report subcontract data for prime contractors when the Navy has

cognizance of the facility.

Therefore, I cannot identify the total dollar

va lue of all subcontracts awarded under Navy prime contracts containing plans,

including the percent and dollar value to small and small disadvantaged


Table 1 provides information with respect to all DoD contracts

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