The general rules governing procurement are set out in federal  procurement statutes and in the Federal Acquisition Regulation (FAR). § 644) to require that all federal agencies with procurement  authority establish an Office of Small and Disadvantaged Business  Utilization. This office is responsible for helping oversee the agency’s  functions and duties related to the awarding of contracts and subcontracts  to small and disadvantaged businesses. Agencies Awarded Varied Amounts of Contracting Dollars to Small Businesses, but Information on Subcontracting Plans Was Incomplete

Our March 2007 report identified the extent to which DHS, GSA, DOD, and  the Corps awarded contracts directly to small businesses; the extent to  which different types of small businesses received contracts; and the  extent to which small businesses located in Alabama, Mississippi, and  Louisiana received contracts for Katrina-related projects. Small Businesses Received Varied Amounts of the Contracting Dollars That DHS, GSA, DOD, and the Corps Awarded

We found that small businesses received 28 percent of the $11 billion that  DHS, GSA, DOD, and the Corps awarded directly for Katrina-related  projects, but the percentages varied among the four agencies (see fig. 1). 2). First, primarily with respect to DHS and GSA contract  actions, the official procurement data system had no information at all on  whether the agencies required subcontracting plans for 70 percent or more  of their contracting funds. This database should have contained  information on whether the agencies required subcontracting plans in  these instances. Furthermore, the lack of transparency surrounding much of the agencies’  subcontracting data—missing information on plans when contracts appear  to meet the criteria for having them—may lead to unwarranted  perceptions about how the federal procurement system is working,  particularly in terms of the government’s stated preference for contracting  with small businesses. To ensure compliance with federal contracting regulations and more  transparently disclose the availability of subcontracting opportunities for  small businesses, we recommended that the Secretaries of Homeland  Security and Defense and the Administrator of General Services issue  guidance reinforcing, among other things, the necessity for documenting  in publicly available sources the agencies’ contracting decisions,  particularly in instances when the agencies decided not to require  subcontracting plans. The agencies generally agreed with our recommendations, and GSA has  already implemented them. DOD and DHS officials have stated that they are  working on implementing these recommendations. Some Agencies May Not Be Maximizing Their Advocacy Roles

SBA has governmentwide responsibilities for advocating that federal  agencies use small businesses as prime contractors, and that prime  contractors give small businesses opportunities to participate as  subcontractors in federal contracts awarded to large businesses. Each federal agency that has procurement authority is required to have an  OSDBU. The Small Business  Act requires that OSDBU directors be responsible to and report only to  agency heads or their deputy. However, none of the legal  arguments that the agencies raised caused us to revise our conclusions or  recommendations. Because the OSDBU directors  at agencies that do not comply with this provision of the Act do not have a  direct reporting relationship with their agencies’ head or deputy, the  reporting relationships potentially limit their role as effective advocates  for small and disadvantaged businesses. Ongoing Work to Evaluate SBA and OSDBU Advocacy Efforts

At your request, we have ongoing work evaluating the efforts of SBA and,  to some extent, OSDBUs within federal agencies, to advocate on behalf of  small disadvantaged businesses and those in SBA’s 8(a) business  development program. Specifically, it will include assessment of the actions SBA  takes to encourage that prime contracting goals for small disadvantaged  businesses are met; the extent to which such goals have been met;  whether federal agencies are having difficulty awarding contracts to 8(a)  firms; and SBA’s efforts to advocate that small disadvantaged businesses  have the maximum practicable opportunity to participate as  subcontractors for prime federal contracts. In our evaluation, we also  plan to assess actions by selected agency OSDBUs in serving as advocates  for 8(a) firms.
Why GAO Did This Study

The federal government's long-standing policy has been to use its buying power to maximize procurement opportunities for various types of small businesses. GAO initiated work and completed a report in March 2007 under the Comptroller General's authority describing the extent to which small businesses participated in contracting opportunities related to Hurricane Katrina. This testimony discusses (1) results from the March 2007 GAO report, including the amounts that small and local businesses received directly from federal agencies from contracts related to Hurricane Katrina and the lack of required information in official procurement data systems on subcontracting plans, (2) information from two previous GAO reports regarding the small business advocacy responsibilities of Small Business Administration (SBA) and federal agencies that award contracts, and (3) GAO work on SBA's efforts to advocate for small disadvantaged businesses, and similar efforts by entities within selected agencies. In conducting the studies discussed in this testimony, GAO analyzed agency contract data, reviewed federal acquisition regulations, and interviewed agency procurement officials; we also sent a questionnaire to agency officials regarding Office of Small and Disadvantaged Business Utilization (OSDBU) reporting relationships; reviewed organizational charts and other pertinent information; analyzed relevant laws, legislative history, and court cases; and, updated information on agency actions on our recommendations.

What GAO Found

Small businesses received 28 percent of the $11 billion in contracts that Department of Homeland Security (DHS), General Services Administration (GSA), Department of Defense (DOD), and the Army Corps of Engineers (Corps) awarded directly for Katrina-related projects. Information on whether DHS and GSA required subcontracting plans was generally not available in the federal government's official procurement database for 70 percent or more of the contracting dollars each agency awarded for activities related to Hurricane Katrina. This database should have contained information on whether or not the agencies required subcontracting plans in these instances. The lack of transparency surrounding much of the agencies' subcontracting data may lead to unwarranted perceptions about how the federal procurement system is working, particularly in terms of the government's stated preference for contracting with small businesses. GAO recommended in its March 2007 report that DHS, GSA, and DOD take steps designed to ensure compliance with federal contracting regulations and more transparently disclose the extent to which subcontracting opportunities are available to small businesses. These agencies generally agreed with GAO's recommendations. GSA has implemented them while DOD and DHS indicate they are in the process of doing so. SBA has governmentwide responsibilities for advocating that federal agencies use small businesses as prime contractors for federal contracts and set goals for and encourage the use of small businesses as subcontractors to large businesses receiving federal contracts. Similarly, within each federal agency there is an OSDBU that plays an advocacy role by overseeing the agency's duties related to contracts and subcontracts with small and disadvantaged businesses. The Small Business Act requires that the OSDBU director be responsible to and report only to agency heads or their deputies. In 2003, GAO reported that 11 of 24 agencies reviewed did not comply with this provision. While most of the agencies disagreed with our conclusion, none of the legal arguments that they raised changed GAO's recommendations. Because the OSDBU directors at these agencies do not have a direct reporting relationship with their agencies' heads or deputies, the reporting relationships potentially limit their role as effective advocates for small and disadvantaged businesses. GAO is presently evaluating SBA's and agency OSDBUs' advocacy efforts. This evaluation includes an assessment of the actions SBA takes to advocate that small disadvantaged businesses receive opportunities to participate as subcontractors under federal prime contracts and encourage that prime contracting goals for these businesses are met. Also, the evaluation addresses selected OSDBUs' actions to advocate for certain small business firms.