![](media/image1.jpeg){width="6.489583333333333in"
height="1.15625in"}**Legislative
Bulletin...........................................May 9, 2007**

> **Contents:**
>
> **H.R. 1873** --- Small Business Fairness in Contracting Act

H.R. 1873 --- Small Business Fairness in Contracting Act (*Braley,
D-IA*)

**[Order of Business]{.underline}:** The bill is scheduled for
consideration on Wednesday, May 9, 2007, under a structured rule
([H.Res.
383](http://www.rules.house.gov/SpecialRules_details.aspx?NewsID=2646)).

**[Summary]{.underline}:** H.R. 1873 would revise Small Business
Administration (SBA) requirements regarding contracting bundling,
increase the government-wide goal for participation by small businesses
in federal procurement and services contracts, and make various other
modifications to SBA programs and reporting requirements. The specific
provisions of the bill are summarized below.

[Title I -- Contract Bundling]{.underline}

-   Defines "contract bundling" to mean "an order that is entered into
    to meet procurement requirements that are consolidated in a bundling
    of contract requirements, without regard to its designation by the
    procuring agency or whether a study of the effects of the
    solicitation on civilian or military personnel has been made."

-   Defines "bundling of contract requirements" to mean "the use of any
    bundling methodology to satisfy two or more procurement requirements
    for new or existing goods or services, including any construction
    services, that is likely to be unsuitable for award to a small
    business concern" due to various factors, such as the aggregate
    dollar value of the expected award or the specialized nature of the
    contract requirements. In other words, this provision allows an
    individual small business to be awarded a contract as part of a
    "contract bundle" (with other small businesses) that might otherwise
    not be able to perform the desired contract requirements on its own.

-   Stipulates that contracts under \$1.5 million (or \$65 million for
    construction) are exempted under the above mentioned definitions.

-   Requires the SBA to promulgate regulations within six months to
    implement the provisions of this Act.

> [Title II -- "Increasing the Number of Small Business Contracts and
> Subcontracts"]{.underline}

-   Increases the government-wide contract procurement goal from 23
    percent to 25 percent of the total value of all prime contract
    awards for each fiscal year. ***Note: Since the total value of
    government procurement contracts is roughly \$300 billion annually,
    this two (2) percent change represents a \$6 billion increase in the
    goal for government-wide small business contracts.***

-   Increases the government-wide contract procurement goal for small
    businesses owned and controlled by socially and economically
    disadvantaged individuals, and for small businesses owned by women,
    ***from 5 percent to 8 percent for each fiscal year.***

-   Requires the President to establish annual government-wide goals for
    procurement contracts for the following fiscal year *prior* to the
    close of the current fiscal year. Currently, the President is
    required to establish annual goals, but the Committee contends that
    in practice the Administration engages in "biannual goal setting."

-   Allows a small business to be counted toward a maximum of one
    additional category (when agencies are attempting to reach
    contracting goals). Thus, even if a small business may otherwise
    qualify for several categories, this provision would restrict the
    agency to count that small business as meeting a maximum of two
    categories (i.e. -- once as small, and one more for minority-owned).

-   Requires that each federal agency (prior to each fiscal year) submit
    a report to the SBA and to Congress outlining how the agency intends
    to meet its small business contracting goals for the upcoming fiscal
    year.

-   Requires that the small business set-aside requirement applies to
    orders as well (currently applies only to contracts); requires that
    the maximum dollar value for the small business threshold be raised
    from \$100,000 to that of the Simplified Acquisition Threshold.
    Currently, the SAT is currently at \$100,000 as well. The committee
    notes that by changing the \$100,000 threshold (defined in the U.S.
    Code) to that of the SAT, it allows "for greater flexibility than
    having one static number covering all acquisition types" and the two
    limits can more easily be adjusted for inflation simultaneously.

-   Requires the SBA to require each prime contractor to report small
    business contract usage at all tiers based on the percentage of the
    total dollar amount of the contract award. Thus, requires contractor
    reporting to be uniform.

-   Requires the SBA to develop and maintain a password-protected
    database that will enable the Administration "to assist small
    businesses in marketing to large corporations that have not achieved
    their small business goals."

-   Requires the SBA, whenever a small business enters information in
    the Central Contractor Registry, to contact that business within 30
    days regarding the likelihood of federal contracting opportunities.
    Further requires the SBA to ensure that each small business that
    registers is provided with the total dollar value of government
    contract awards to small businesses for each specific industry code
    for which the business entered.

-   Requires the SBA, within 120 days after enactment of this Act, to
    prescribe regulations to govern the SBA's review of subcontracting
    plans, including standards for determining good faith effort in
    compliance with the subcontracting plans.

-   Requires each federal agency to submit a report to Congress
    specifying the percentage of contracts awarded by that agency for
    that fiscal year that were awarded to small businesses. If the
    percentage is less than 25 percent (the new government-wide goal),
    the agency must explain why the goal has not been met and what will
    be done to ensure that the 25 percent goal will be met for the
    following fiscal year.

-   Requires the Federal Procurement Policy Administration in
    conjunction with the SBA Administrator, if a law is not enacted by
    December 31, 2007 revising the sole-source contract limits, to
    establish "appropriate limits on the value of contracts awarded
    without the use of competitive procedures to participants in the SBA
    8(a) program that are not subject to the limits on the value of such
    contracts (as defined in U.S. Code).

> [Title III -- "Protection of Taxpayers From Fraud"]{.underline}

-   Requires the SBA to work with federal agencies to ensure that
    whenever a business is awarded a contract on the basis that it
    qualifies as a "small business" and later is determined not to
    qualify as small, a notification of those facts must be entered in
    the Central Contractor Registry adjacent to that business' listing.

-   Requires the Inspector General (IG) of each federal agency to submit
    an annual report to Congress listing the number and dollar value of
    contract awards that were coded as awards to small businesses but in
    fact were made to businesses that did not qualify as small
    businesses.

-   Requires the SBA to ensure that an independent audit is performed on
    a biannual basis on the Central Contractor Registry, and the
    Registry is purged of any businesses that are not in fact small
    businesses. If a business that has been purged (which is not a small
    business) attempts to re-register, that business may be debarred and
    further penalized (subject to section 16 of the Small Business Act;
    15 U.S.C. 645).

-   For businesses that are awarded a contract (due to being qualified
    as a small business), and the business is close to exceeding the
    standard for small business at the time of the contract award, then
    the business must recertify annually to the agency awarding the
    contract (to determine/verify that the business still meets the
    standard). "Close to exceeding" is defined as 1) the business has
    95% of the number-of-employees standard, and 2) the business has a
    dollar volume of 80 percent or more of the maximum dollar volume
    allowed under the standard.

> [Title IV -- Authorizations of Appropriations]{.underline}

-   Authorizes such sums as necessary to be appropriated to carry out
    this Act.

**[Additional Background]{.underline}:** The SBA was originally
established in 1953, and has been subsequently expanded and reauthorized
numerous times in the last four decades, most recently within the 2005
Consolidated Appropriations Act (H.R. 4818; P.L. 108-447) in the 108^th^
Congress. Congress has also established and increased small business
contract set-asides (goals) that federal agencies are expected to meet
annually.

According to CRS, a "business" must meet the following SBA definition:

-   it is organized for profit

-   it makes a contribution to U.S. economy by paying taxes or using
    American labor, products, and materials, and

-   it does not exceed he size standard for its industry.

However, the definition of "small" (called the size standard) business
depends on what a business produces. Based on what is produced, the SBA
determines the size standard in terms of dollars of revenue or number of
employees at the business, but not both. For example, most manufacturers
cannot have more than 500 employees to meet the size standard of a small
business. Many construction firms cannot have more than an average
annual revenue of \$28.5 million to qualify. The formal determination
involves selecting the North American industrial classification system
(NAICS) codes that represent the business. For additional information,
please see this [CRS
Report](http://www.congress.gov/erp/rl/pdf/RL33243.pdf).

**[Possible Conservative Concerns]{.underline}:** As described above,
the bill increases the government-wide "goals" for all federal agencies
regarding the minimum percentage of procurement contracts for small
businesses. Some conservatives may be concerned by these increases,
which further restrict the competitive, free market process in obtaining
the most suitable contracts for the specific task at hand. Thus, rather
than requiring federal agencies to seek the most cost-effective and best
suited contractors for a government contract, Congress is increasing the
percentage of federal contract set-asides for certain groups. This
effectively diminishes or locks out the opportunity for larger
businesses (which may be better equipped to perform the contract) to
obtain federal contracts. While some may argue that the goals are not
"requirements" and no punitive action is taken against an agency that
fails to meet these goals, the very nature of these goals is to increase
contract set-asides for certain groups (small businesses, minority and
women-owned small businesses, veteran-owned small businesses, etc.).
Further, the bill's provisions specifically hold each federal agency
head accountable for failure to meet the increased goals, and require
each agency head to explain ***why*** the goal was not met and ***how***
the goals will be meet in the forthcoming fiscal year.

In addition, some conservative may be concerned that this bill is being
considered on the House Floor without the benefit of a CBO Cost
Estimate, and the bill itself calls for "such sums as may be necessary."
Thus, Members are expected to vote on a bill when they are unaware of
its costs or effect on the federal budget.

Rep. Chabot, the Ranking Member on the Small Business Committee and a
member of the RSC, is opposed to the bill in its current form. According
to the Small Business Minority Staff, H.R. 1873 "weakens protections
against inappropriate contract bundling, reduces opportunities for small
businesses to participate in the federal government marketplace, and
undermines the exclusive jurisdiction on the Committee on Small
Business" (since the Committee on Oversight and Government Reform
changed or modified many of the bill's provisions that were included by
the Small Business Committee).

**[Amendments]{.underline}:** Below are the summaries of the eight
amendments made in order under the rule (all debatable for 10 minutes
each). The rule provides for one hour of debate and waives all points of
order against the bill (except for clauses 9 and 10 of Rule XXI: for
PAYGO and earmarks/limited tax benefits), and allows for a motion to
recommit with or without instructions. [Note]{.underline}: Summaries are
based on RSC staff's review of actual amendment text.

**1. *Reyes (D-TX)*.** Requires the General Services Administration
(within 180 days of enactment) to make modifications to the Electronic
Subcontracting Reporting System (ESRS) to track companies' compliance
with small business plans included in successful contract bids. Requires
ESRS to be further developed to allow agencies to track whether or not
the prime contractor subcontracted work out to the subcontracting firms
described in the Small Business Subcontracting Plan, and to facilitate
review of a company's record of compliance with small business
subcontracting plans. Requires prime contractors to submit small
business subcontracting plans to ESRS describing the extent to which the
prime contractor complied with the plans submitted as part of the
company's successful contract proposal.

**\
2. *Shuler (D-NC)* / Chabot (R-OH).** Extends the contract procurement
goals (increased in the underlying bill from 23 to 25 percent) to
include overseas contracts. This provision was included in the version
of the bill that was reported out of the Small Business Committee, but
was stripped in the Oversight and Government Reform Committee reported
version.

**3. *Bean (D-IL)* / Chabot (R-OH).** Increases the government-wide
contract procurement goal from 25 percent (in the underlying bill) to 30
percent of the total value of all prime contract awards for each fiscal
year. The goal in current law is 23 percent. This provision was included
in the version of the bill that was reported out of the Small Business
Committee, but was stripped in the Oversight and Government Reform
Committee reported version. ***Note: Since the total value of government
procurement contracts is roughly \$300 billion annually, this five (5)
percent change represents an additional \$15 billion increase in the
goal for government-wide small business contracts.***

**4. *Sestak (D-PA)* / Chabot (R-OH).** Modifies the definitions
"bundled contract" and "bundling of contract requirements" and lowers
the dollar threshold to \$1.5 million (\$65 million if solely for
construction services -- same as base bill). The net effect of these
changes would be to decrease the number of small business impact studies
agencies are required to complete, and increase the portion of contracts
that are reviewed for their impact on small business.**\
**

**5. *Welch (D-VT)* / *Inslee (D-WA)* / *Blumenauer (D-OR)*.** Adds a
new provision to set the government-wide procurement goal for "green"
businesses to 5 percent for each fiscal year. It defines a "green small
business" to mean "a small business that carries out its activities in
an environmentally sound manner." The amendment requires the
Environmental Protection Agency, along with the GSA, to specify detailed
definitions and standards by which a business may be determined to be
"green." **\
**

**6. *Wynn (D-MD).*** Adds a new provision which would require the SBA
to complete a study on the feasibility and desirability of providing
financial incentives to federal prime contractors who achieve the goals
set forth in their subcontracting plan of utilizing small business
concerns owned by economically or socially disadvantaged individuals.

**7. *Jackson-Lee (D-TX).*** Requires the SBA to publish information on
its website regarding any action taken and result achieved by the SBA in
all instances where the SBA and the contracting procurement agency fail
to agree and the SBA has decided to take action to further the interests
of a small business.

**8. *Jackson-Lee (D-TX).*** Requires that, when the SBA and the
contracting procurement agency fail to agree and the SBA submits the
matter to the head of the agency for a determination, a copy of the
written response to the SBA be sent to all House and Senate committees
that have jurisdiction over the agency concerned, in addition to the
Committees on Small Business and Oversight & Government Reform.

**[Committee Action]{.underline}:** H.R. 1873 was introduced on April
17, 2007, and referred to the Committees on Small Business and Oversight
and Government Reform (OGR). The bill was marked-up by Small Business on
March 26, and marked up by OGR on May 3, and reported (amended) to the
House by both the same day respectively (House Report [110-111 Part
1](http://www.congress.gov/cgi-lis/cpquery/2?cp110:./temp/~cp110DCTAi&sid=cp110DCTAi&item=2&sel=DOC&hd_count=2&xform_type=3&r_n=hr111p1.110&&sid=cp110DCTAi&&),
[110-111 Part
2](http://www.congress.gov/cgi-lis/cpquery/1?cp110:./temp/~cp110Zqrb4&sid=cp110Zqrb4&item=1&sel=DOC&hd_count=2&xform_type=3&r_n=hr111p2.110&&sid=cp110Zqrb4&&)).

**[Administration Policy]{.underline}:** The Administration opposes
passage of H.R. 1873 and released a Statement of Administration Policy
(SAP) on May 8, 2007, which included the following statement:

> The Administration supports efforts to increase opportunities for
> small businesses to compete for Federal government acquisitions.
> ***The*** ***Administration, however, opposes H.R. 1873, because it
> would impose broad, burdensome statutory restrictions on Federal
> agencies' ability to conduct acquisitions and establish unrealistic
> small business procurement goals.*** (emphasis added)

**[Cost to Taxpayers]{.underline}:** A CBO score of H.R. 1873 is
unavailable. ***However, the bill authorizes "such sums as necessary" to
be appropriated.***

**[Does the Bill Expand the Size and Scope of the Federal
Government?]{.underline}:** Yes. As noted above, the bill creates two
new federal databases and increases the small business contracting
"goals" to which federal agencies must adhere.

**[Does the Bill Contain Any New State-Government, Local-Government, or
Private-Sector Mandates?]{.underline}:** No.

**[Constitutional Authority]{.underline}:** The Small Business
Committee, in House Report
[110-111](http://www.congress.gov/cgi-lis/cpquery/2?cp110:./temp/~cp110DCTAi&sid=cp110DCTAi&item=2&sel=DOC&hd_count=2&xform_type=3&r_n=hr111p1.110&&sid=cp110DCTAi&&),
cites constitutional authority in Article I, Section 8, Clause 18 (the
congressional power to make all laws necessary and proper for carrying
into execution the foregoing powers listed in the Constitution), but
fails to cite a foregoing power of authority.

House Rule XIII, Section 3(d)(1), requires that all committee reports
contain "a statement citing the *specific* powers granted to Congress in
the Constitution to enact the law proposed by the bill or joint
resolution." *\[emphasis added\]*

**[RSC Staff Contact]{.underline}:** Derek V. Baker;
[derek.baker@mail.house.gov](mailto:Derek.baker@mail.house.gov);
202-226-8585

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