All of the reviews found that the  program resulted in administrative costs savings and enhanced  subcontracting opportunities for small businesses. Test Program Allows Participants and DOD to Avoid Millions in Administrative Costs and May Provide Additional Benefits

Prior DOD reviews estimated that use of the Test Program resulted in the  avoidance of millions of dollars in administrative costs for both  participants and DOD and may offer other benefits. Significant one-time  administrative costs could result if the Test Program were canceled or  allowed to expire and comprehensive subcontracting plans could no  longer be used. However, DOD has not taken action to address the program’s status. According to these  reviews, cost avoidance is enabled primarily by the use of a single  comprehensive subcontracting plan for multiple contracts rather than an  individual subcontracting plan for each contract. For example, for fiscal year  2005, the review estimated that the administrative cost avoided by DOD  under the Test Program was at least $45 million. All of the participants we interviewed noted that the issue of  small business subcontracting has greater visibility and awareness with  corporate leadership as a result of the Test Program and that their entities  might be less inclined to award subcontracts to small businesses in its  absence. Our analysis found  that 87 percent of DCMA’s reviews indicated that participants made  acceptable progress on their initiatives to enhance small business  opportunities, but that participants’ performance in meeting their  negotiated subcontracting goals varied. Our analysis also found that while  participants did not always meet individual goals, their aggregate  performance resulted in subcontract awards to small business that  exceeded aggregate goals by approximately $5.4 billion from fiscal years  2006 through 2013. Finally, DCMA’s annual  performance reviews, which assess achievements against both  negotiated initiatives and goals, have been largely positive. In our review period of fiscal years  2006 through 2013, we found
16 initiatives resulted in the redirect of approximately $93 million in  subcontracts from large business to small businesses; a 72-percent success rate in participants meeting milestones for  increasing small business subcontracts in targeted industries;
24 mentor-protégé initiatives resulted in 61 new mentor-protégé  relationships between participants and small businesses; and
11 SBIR projects that identified 83 new small business suppliers. The 2013 DOD review estimated that initiatives completed by Test  Program participants could amount to as much as $1.8 billion per year in  increased small business opportunities, and that participants spent as  much as $5.5 million annually on small business subcontracting  enhancements and initiatives. Test Program participants can only count certain small business  subcontracting activities toward their goals. DOD officials said they have never terminated a participant from the  program, but that some have voluntarily exited the program. Working with Congress to address the program’s status, for  example by providing information on the effectiveness of the Test  Program as identified in the three DOD-commissioned reviews and our  analysis, could help eliminate the uncertainty associated with the  program. Matter for Congressional Consideration

To help ensure continued reductions in administrative costs to DOD and  program participants and enhance subcontracting opportunities for small  businesses, Congress should consider making the Test Program  permanent. Given these  findings, and that DOD had not acted on the 2007 review  recommendation to work with Congress to make the program permanent,  we included a recommendation in the draft report for DOD to draft a  legislative proposal to make the program permanent or otherwise work  with Congress to determine the status of the Test Program. Appendix I: Objectives, Scope, and Methodology

Section 821(e) of the National Defense Authorization Act for Fiscal Year  2015 included a provision for us to report on the results of the Department  of Defense’s Test Program for Negotiation of Comprehensive Small  Business Subcontracting Plans (Test Program). This report addresses  the extent to which the Test Program (1) reduces administrative costs,  and (2) enhances subcontracting opportunities for small businesses. To address whether the Test Program enhances subcontracting  opportunities for small businesses by successfully achieving its annual  goals, we reviewed Test Program participants’ comprehensive  subcontracting plans and negotiation support memorandums and  analyzed performance data from fiscal years 2006 through 2013.
Why GAO Did This Study

Since 1990, DOD has been conducting a congressionally directed test program related to how contractors report their subcontracting activities. The purpose of the program is to test whether using comprehensive subcontracting plans that cover multiple contracts across contractor plants, divisions, or entire companies can yield administrative cost savings and enhance small business subcontracting opportunities. Despite the 25-year existence of the program, little is publicly known about its effectiveness.
The National Defense Authorization Act for Fiscal Year 2015 included a provision for GAO to report on the results of the program. This report addresses the extent to which the program (1) reduces administrative costs, and (2) enhances subcontracting opportunities for small businesses. GAO analyzed prior DOD reviews and data on estimates of administrative costs savings; reviewed program participants' performance for enhancing small business subcontracting opportunities for fiscal years 2006 through 2013; and interviewed officials from DOD, program participants, and small business advocacy groups.

What GAO Found

Reviews commissioned by the Department of Defense (DOD) concluded that the Test Program for Negotiation of Comprehensive Small Business Subcontracting Plans (Test Program) has resulted in the avoidance of millions of dollars in administrative costs for both program participants and DOD. According to the review conducted in 2013, the 12 firms then participating in the program avoided about $18.5 million in costs through the use of single comprehensive subcontracting plans rather than multiple individual subcontracting plans. Also, a 2007 review estimated that DOD avoided administrative costs of at least $45 million in fiscal year 2005. GAO reviewed the methodologies used for these reviews and took other steps to validate their findings. According to DOD officials, if the Test Program were terminated or allowed to expire, a significant one-time administrative cost of about $22 million could result to participants. GAO's analysis confirms this conclusion. Test Program participants and DOD officials GAO interviewed stated that the program also has resulted in non-financial benefits, including greater company-wide awareness of small business subcontracting opportunities. The participants GAO interviewed said that without the program their companies might be less inclined to award subcontracts to small businesses. They emphasized, however, that the program's continuing test status creates uncertainty and inhibits further expansion. The 2007 review recommended that DOD work with Congress to make the Test Program permanent; however, DOD has not acted on this recommendation. Doing so could help eliminate uncertainty with the program.
GAO found that the Test Program enhanced small business subcontracting opportunities, although participants' performance in meeting individual goals has varied. Participants are evaluated on their achievement of negotiated initiatives and goals in their comprehensive subcontracting plans. GAO's analysis of performance reports found that participants made acceptable progress on their initiatives 87 percent of the time, thus providing tangible subcontracting opportunities for small businesses. For example, during fiscal years 2006 through 2013, program participants redirected nearly $93 million in subcontracts from large businesses to small businesses. Participants also achieved a 72-percent success rate in increasing small business subcontracts in areas such as integrated circuits and information technology, thus addressing a concern among some small businesses that high-end technical work was not being subcontracted under the program. The 2013 DOD review estimated that participant initiatives could amount to as much as $1.8 billion per year in increased small business opportunities. GAO's analysis found that participants did not always meet individual goals, in part due to the challenging nature of these goals. However, GAO also found that their combined performance from fiscal years 2006 through 2013 resulted in subcontract awards to small businesses that exceeded aggregate goals by about $5.4 billion. The annual performance reviews of the participants, which take into account performance on both initiatives and goals, have been largely positive.

What GAO Recommends

Congress should consider making the program permanent. GAO also recommends that DOD work with Congress on the program's status. DOD agreed. DOD disagreed with a recommendation to draft a legislative proposal to make the program permanent. GAO subsequently modified the recommendation and added the matter for Congress.