This mission work is carried out under the  direction of NNSA and DOE’s program offices. As figure 1 shows, facility management  contracts account for more than 80 percent of this amount. Further, meeting a long-term goal of 23 percent  small business prime contracting would represent an achievement far  beyond what DOE has ever reached—about 6 times the $847 million that it  directed to small businesses in fiscal year 2003. Meeting Near-term Goals Requires More Small Business Prime Contracting Dollars Than Previously Achieved

Now that DOE’s facility management subcontracts can no longer be  counted toward achieving its small business prime contracting goals,  achieving its near-term goals for fiscal years 2004 and 2005, will require  DOE to expand the amount of prime contracting dollars it provides  directly to small businesses. To meet its fiscal year 2004 goal, DOE will  need to direct an additional $226 million, or 26.7 percent, over the 2003  amount. SBA expects DOE to achieve a small business  prime contracting goal at least on par with the federal goal of 23 percent. Put in terms of DOE’s current  contracting base, the additional amount of contracting dollars necessary  to achieve the 23 percent goal approximately equals the combined annual  budgets of the facility management contracts for the two largest  laboratories—Los Alamos and Sandia National Laboratories. To achieve the near-term goals of 5.06 of prime contracting  dollars to small businesses in fiscal year 2004, and 5.50 percent in fiscal  year 2005, DOE has focused primarily on improving outreach to the small  business community, directing more of the dollars not associated with  facility management contracts toward small businesses, and beginning to  redirect selected facility management contract activities to small business  prime contracts. Officials in these  offices have differing views as to how much of the work done by their  facility management contractors can be redirected to small businesses  without jeopardizing critical agency missions. In addition to its outreach efforts, DOE has taken steps in two other major  areas. Although in the near term DOE is concentrating primarily on contracts not  associated with facility management, it has also begun to look at certain  facility management contracts as they come up for renewal to identify  potential work that could be made available to small businesses. DOE’s Small Business Office and Program Offices Have Different Views on the Extent to Which Facility Management Contract Dollars Can Be Redirected to Small Business

While DOE’s Small Business Office and the three largest offices have a  consistent approach to their near-term goals—primarily focusing on  increasing small business prime contracting by using dollars not  associated with facility management contracts—a consistent view does  not prevail in the department on whether or how to achieve the eventual  goal of directing 23 percent of prime contracting dollars to small  businesses. Potential Benefits and Risks of Increased Small Business Prime Contracting Depend on the Goal that DOE Tries to Achieve

Since DOE is in the early stages of implementing a long-term strategy to  redirect facility management contracting dollars to small businesses, the  implications of increased small business prime contracting are still  relatively uncertain. According to EM officials, increased  competition from a larger pool of potential contractors could result in  better prices for the government. In addition to increased competition, DOE procurement and program  office officials believe that small businesses may bring new ideas and  innovative approaches to the work. For example, as part of its accelerated  cleanup strategy, EM has been looking for better and faster ways to  accomplish cleanup at its sites and facilities. In addition, DOE’s  efforts to increase small business prime contracting could inadvertently  reduce the amount of small business subcontracting directed to local and  regional small businesses. Both DOE and facility  management contractor officials have expressed concerns about  successfully integrating and coordinating the efforts of an increased  number of prime contractors at a site. It is not clear to what extent these potential risks will affect DOE’s ability  to carry out its missions in a safe, secure, and effective manner. Appendix I: Department of Energy (DOE) Contract Dollars Directed to Small Businesses, Fiscal Years 1990–2003

	Small business subcontracts awarded by prime contractors

Small business  subcontracts awarded by  all other prime contractors  Small and large business  subcontracts awarded by prime  contractors  Small business prime and subcontracts  (as a percent of contracting base)
Small business subcontracts  awarded by prime contractors  Small business  subcontracts awarded by  all other prime contractors  Small and large business  subcontracts awarded by prime  contractors  Small business prime and subcontracts  (as a percent of contracting base)
DOE’s contracting base includes dollars that can potentially be directed to U.S. small businesses,  excluding, under Small Business Administration (SBA) guidelines, dollars that cannot go to small  business prime contracts, such as grants and purchases from mandatory or foreign sources.
Why GAO Did This Study

Under the Small Business Reauthorization Act of 1997, the federal government has a goal of awarding at least 23 percent of prime, or direct, contracting dollars to small businesses each fiscal year. The Department of Energy (DOE), like other federal agencies, shares in the responsibility for meeting this goal. In fiscal year 2003, DOE spent $21.6 billion on prime contracts. More than 80 percent of this amount was spent on facility management contracts to manage and operate DOE's sites. Before 1999, DOE included subcontracts awarded by its facility management contractors when calculating its small business prime contracting achievements. In 1999, however, the Office of Federal Procurement Policy determined that DOE could no longer do so. This testimony discusses (1) the effect of the 1999 policy change on the amount of prime contract dollars that DOE will be required to direct to small businesses, (2) the steps that DOE has taken or plans to take to achieve its small business contracting goals, and (3) the likely implications for DOE's programs resulting from these changes.

What GAO Found

To meet its share of federal goals, DOE would need to direct significantly more prime contracting dollars to small businesses. If it is to reach its near-term goals of 5.06 percent in fiscal year 2004, and 5.50 percent in fiscal year 2005, DOE must direct to small businesses an additional $226 million and $319 million, respectively, over the $847 million it directed to small businesses in fiscal year 2003. Achieving a long-term goal of directing 23 percent of prime contracting dollars to small businesses would require DOE to contract with small businesses at about 6 times its current rate. Such an increase is about equal to the combined annual budgets for Los Alamos and Sandia--the two largest national laboratories. To address its near-term small business prime contracting goals, DOE has improved its outreach efforts and has redirected to small businesses some contract dollars not associated with facility management contracts. DOE has also begun to review facility management contracts up for renewal to identify work that could be redirected to small business prime contracts. Achieving a long-term goal of 23 percent is much more problematic. Notably, DOE's three largest offices--the National Nuclear Security Administration (NNSA), Environmental Management (EM), and Science--have differing views as to what extent facility management contract work can be redirected to small businesses without having a negative impact on accomplishing their missions. EM is in favor of doing so if redirecting the work is consistent with its accelerated cleanup strategy. NNSA and Science officials express concern that redirecting work now done by facility management contractors could jeopardize critical research missions at the laboratories. DOE's efforts to increase small business prime contracting involve both potential benefits and risks, which depend on the eventual goal DOE attempts to achieve. The potential benefits to DOE of increased small business prime contracting include increasing the pool of potential contractors, which could result in better competition and better prices for the government; finding new and innovative approaches to the work developed by small businesses; and providing experiences to small businesses to allow them to better compete for other federal contracts. The potential risks include integrating and coordinating the work of a greater number of contractors at a site in a safe, secure, and effective manner, and having adequate federal resources for effective contract management and oversight--areas that already pose significant challenges for DOE. In addition, DOE's efforts to increase small business prime contracting may cause its facility management contractors to reduce the amount of subcontracting that they direct to local and regional small businesses. DOE largely agreed with the information in this testimony. However, it disagreed with GAO's characterization of DOE's long-term small business prime contracting goal and its strategy to achieve it. GAO believes that both the longterm goal and DOE's strategy have been accurately described.