REPORTING OF ENERGY DEPARTMENT SMALL BUSINESS CONTRACTS
Statement of Robin Nazzaro Director, Natural Resources & Environment U.S. General Accounting Office
Committee on Senate Energy and Natural Resources
May 18, 2004
Mr. Chairman and Members of the Committee: I am pleased to be here today to discuss the Department of Energy`s (DOE) efforts to increase its direct contracting with small businesses. The Small Business Act, as amended by the Small Business Reauthorization Act of 1997, established a government-wide goal of directing at least 23 percent of prime contracting dollars to small businesses each fiscal year.1 DOE, like other federal agencies, shares in the responsibility for meeting this goal. Contracting is particularly significant at DOE, which spends more on contracting than any other civilian agency in the federal government. More than 90 percent of DOE`s total fiscal year 2003 budget, or $21.6 billion, was spent on prime contracts.
The majority of this amount–$18.2 billion, or more than 80 percent of the contracting dollars–was spent on 37 large contracts for the management of DOE`s laboratories, production facilities, and environmental restoration sites. As a group, these contracts are referred to as facility management contracts. Under these facility management contracts, a contractor is responsible for performing, managing, and integrating the work at a DOE site, often subcontracting specific portions of the work to other businesses. DOE`s approach to reporting its small business prime contracting dollars has been affected by a change in federal policy concerning whether subcontracts with small businesses can in certain situations be counted toward achieving small business prime contracting goals. For most of the 1990s, DOE included in its calculations of small business prime contracting achievements the subcontracts awarded to small businesses by its facility management contractors.
The Office of Federal Procurement Policy had allowed DOE to include these subcontracts because of DOE`s unique reliance on facility management contractors to operate its facilities and carry out its missions. In 1999, however, the Office of Federal Procurement the subcontracts under facility management contracts when calculating the percentage of prime contracting dollars awarded to small businesses. You asked us to examine what has happened as a result of this policy change. My testimony will discuss (1) the effect of the 1999 policy change on the amount of prime contracting 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, if any, resulting from these changes.
My testimony is based on a review of DOE small business contracting goals and achievements from fiscal year 1990 through fiscal year 2003. Our work included a review of DOE`s plans to achieve its near-term goals and the projected incremental increases needed to achieve long-term goals. These goals were developed by DOE`s Office of Small and Disadvantaged Business Utilization (referred to in this testimony as DOE`s Small Business Office) within its Office of Economic Impact and Diversity. We also reviewed documentation provided by DOE and the Small Business Administration (SBA), and completed and current procurements for new small business prime contracts. We interviewed DOE and contractor officials at DOE headquarters and selected sites, as well as national and regional small business associations and advocacy groups. Our scope included DOE`s three largest offices-the National Nuclear Security Administration (NNSA), and the Offices of Environmental Management (EM) and Science-that account for about 70 percent of DOE`s annual budget. We conducted our review from February 2004 through May 2004 in accordance with generally accepted government auditing standards. Our review included a data reliability assessment on DOE`s small business prime contracting and subcontracting results for fiscal years 1990 through 2003.
These data are being used primarily for context. Our assessment of 3The Office of Federal Procurement Policy stated that for fiscal year 2000 and beyond, contracts awarded by DOE`s facility management contractors should instead be counted toward DOE`s small business subcontracting goals. 4DOE awards new small business contracts through a procurement process that generally includes issuing a request for proposals, evaluating those proposals, and selecting a contractor.
DOE`s prime contracting data determined that the data are sufficiently reliable for the purposes of this testimony. Although we are not as confident of the reliability of the subcontracting data as reported to DOE by its facility management contractors, we determined that these are the only data available and they are sufficiently reliable for the observations presented in this testimony. In summary, we found the following: – To comply with the 1999 federal policy change and to achieve federal small business prime contracting goals, DOE would need to direct significantly more prime contracting dollars to small businesses.
To achieve DOE`s near-term small business prime contracting goals of 5.06 percent in fiscal year 2004, and 5.50 percent in fiscal year 2005, DOE will have to direct an additional $226 million in fiscal year 2004, and $319 million in fiscal year 2005, above the roughly four percent of prime contracting dollars directed to small businesses in fiscal year 2003. The long-term goal of 23 percent in small business prime contracting represents a level significantly beyond what DOE has ever achieved–about 6 times the $847 million directed to small businesses in fiscal year 2003.
Placed in the context of DOE`s current contracting base, such an increase would represent an amount approximately equal to the annual budgets of the two largest laboratories–Los Alamos and Sandia National Laboratories.
- DOE has taken steps to increase its near-term small business prime contracting, but has no consistent strategy for reaching the eventual goal of directing 23 percent of its prime contracting dollars to small businesses.
To achieve the near-term goals, DOE has focused primarily on improving outreach to the small business community and directing additional contract dollars to small businesses from procurements not associated with facility management contracts. In addition, as certain facility management contracts are due for renewal, DOE, and especially EM, has begun identifying potential work that could be redirected in the form of small business prime contracts. In the longer term, it is less clear how, or if, DOE intends to achieve an eventual goal of 23 percent small business prime contracting.
In 2002, DOE`s Small Business Office prepared a 20-year plan outlining when and how the department would achieve the 23 percent small business prime contracting goal. Since DOE`s facility management contracts represent about 80 percent of its total contract dollars, the department cannot mathematically achieve the 23 percent goal without redirecting some of those dollars to small business prime contracts. Although the 20-year plan proposed that eventually DOE would redirect about a fifth of its Page 4 GAO-04-738T facility management contract dollars to small business prime contracts, it provides no details as to which offices would provide those dollars. DOE`s three largest offices have differing views as to how much of the work that is done by facility management contractors can be redirected to small businesses without jeopardizing the department`s missions.
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