prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 1.

Report 1: The Small Business Act of 1953 (P L  83-163, as amended) authorized the U S  Small Business Administration (SBA) and justified the agency's existence on the grounds that small businesses are essential to the maintenance of the free enterprise system  In economic terms, the congressional intent was to assist small businesses as a means to deter monopoly and oligarchy formation within all industries and the market failures caused by the elimination or reduction of competition in the marketplace  Congress decided to allow the SBA to establish size standards to ensure that only small businesses were provided SBA assistance  Specifically, the Small Business Act of 1953 defines a small business as one that is organized for profit; has a place of business in the United States; operates primarily within the United States or makes a significant contribution to the U S  economy through payment of taxes or use of American products, materials, or labor; is independently owned and operated; and is not dominant in its field on a national basis  The business may be a sole proprietorship, partnership, corporation, or any other legal form  The SBA conducts an analysis of various economic factors, such as each industry's overall competitiveness and the competitiveness of firms within each industry, to determine its size standards  The analysis is designed to ensure that only small businesses receive SBA assistance and that these small businesses are not dominant in their field on a national basis  The SBA currently uses two types of size standards to determine SBA program eligibility: (1) industry-specific size standards and (2) alternative size standards based on the applicant's maximum tangible net worth and average net income after federal taxes  The SBA's industry-specific size standards are also used to determine eligibility for federal small business contracting purposes  The SBA's industry-specific size standards determine program eligibility for firms in 1,036 industrial classifications (hereinafter industries) in 23 sub-industry activities described in the 2017 North American Industry Classification System (NAICS)  Given its mandate to promote competition in the marketplace, the SBA includes an economic analysis of each industry's overall competitiveness and the competitiveness of firms within the industry in its size standards methodology  The size standards are based on four measures: (1) number of employees (505 industries), (2) average annual receipts in the previous three (may soon be the previous five) years (526 industries), (3) average asset size as reported in the firm's four quarterly financial statements for the preceding year (5 industries), or (4) a combination of number of employees and barrel per day refining capacity (1 industry)  Overall, about 97% of all employer firms qualify as small  These firms represent about 30% of industry receipts  In the absence of precise statutory guidance and consensus on how to define small, the SBA's size standards have often been challenged, typically by industry representatives seeking to increase the number of firms eligible for assistance  The size standards have also been challenged by Members of Congress concerned that the size standards may not adequately target federal assistance to firms that they consider to be truly small  This report provides a historical examination of the SBA's size standards and assesses competing views concerning how to define a small business  It also discusses P L  111-240 , the Small Business Jobs Act of 2010, which authorized the SBA to establish an alternative size standard using maximum tangible net worth and average net income after federal taxes for both the 7(a) and 504/CDC loan guaranty programs; established, until the SBA acted, an interim alternative size standard for the 7(a) and 504/CDC programs of not more than $15 million in tangible net worth and not more than $5 million in average net income after federal taxes (excluding any carry-over losses) for the two full fiscal years before the date of the application; and required the SBA to conduct a detailed review of not less than one-third of the SBA's industry size standards every 18 months beginning on the new law's date of enactment (September 27, 2010) and ensure that each size standard is reviewed at least once every five years  P L  112-239 , the National Defense Authorization Act for Fiscal Year 2013, which directs the SBA not to limit the number of size standards and to assign the appropriate size standard to each NAICS industrial classification  This provision addressed the SBA's practice of limiting the number of size standards it used and combining size standards within industrial groups as a means to reduce the complexity of its size standards and to provide greater consistency for industrial classifications that have similar economic characteristics  P L  114-328 , the National Defense Authorization Act for Fiscal Year 2017, which authorizes the SBA to establish different size standards for agricultural enterprises using existing methods and appeal processes  Previously, the small business size standard for agricultural enterprises was set in statute as having annual receipts not in excess of $750,000  P L  115-324 , the Small Business Runway Extension Act of 2018, which directs federal agencies proposing a size standard (and, based on report language accompanying the act, presumably the SBA as well) to use the average annual gross receipts from at least the previous five years, instead of the previous three years, when seeking SBA approval to establish a size standard based on annual gross receipts  Legislation introduced during the 112 th Congress ( H R  585 , the Small Business Size Standard Flexibility Act of 2011), 113 th Congress ( H R  2542 , the Regulatory Flexibility Improvements Act of 2013, and included in H R  4 , the Jobs for America Act), 114 th Congress ( H R  527 , the Small Business Regulatory Flexibility Improvements Act of 2015, and its Senate companion bill, S  1536 ), and 115 th Congress ( H R  33 , the Small Business Regulatory Flexibility Improvements Act of 2017, and its Senate companion bill, S  584 , and included in H R  5 , the Regulatory Accountability Act of 2017) to authorize the SBA's Office of Chief Counsel for Advocacy to approve or disapprove a size standard requested by a federal agency for purposes other than the Small Business Act or the Small Business Investment Act of 1958  The SBA's Administrator currently has that authority  In 2016 (the most recent available data), there were over 5 95 million employer firms and over 24 8 million nonemployer (self-employed) firms  As Table 1 indicates, there were 5,954,684 employer firms in the United States employing 126,752,238 people and providing total payroll of $6 43 trillion in 2016  Most employer firms (61 6%) had 4 or fewer employees, 78 6% had fewer than 10 employees, 89 1% had fewer than 20 employees, 98 1% had fewer than 100 employees, and 99 7% had fewer than 500 employees in 2016  The table also provides data concerning other economic factors that might be used to define a small business: an employer firm's number of employees as a share (cumulative percentage) of the total number of employer firms, as a share of employer firm total employment, and as a share of employer firm total annual payroll  As will be discussed, the SBA has traditionally applied economic factors to specific industries, not to cumulative statistics for all employer firms, to determine which firms are small businesses  Nonetheless, the data in Table 1 illustrate how the selection of economic factors used to define small business affects the definition's outcome  For example, for illustrative purposes only, if the mid-point (50%) for these three economic factors was used to define what is a small business, three different employee firm sizes would be used to designate firms as small: Businesses would be required to have no more than 4 employees to be defined as small if the definition for small used the mid-point (50%) share of the total number of employer firms (employer firms with no more than four employees accounted for 61 6% of the total number of employer firms in 2016)  Businesses would be required to have no more than 999 employees to be defined as small if the definition for small used the mid-point (50%) share of employer firm total employment (employer firms with no more than 999 employees accounted for 52 6% of employer firm total employment in 2016)  Businesses would be required to have no more than 1,999 employees to be defined as small if the definition for small used the mid-point (50%) share of employer firm total annual payroll (employer firms with no more than 1,999 employees accounted for 51 8% of employer firm total annual payroll in 2016)  Other economic factors that might be used to define a small business include the value of the employer firm's assets or its market share, expressed as a firm's sales revenue from that market divided by the total sales revenue available in that market or as a firm's unit sales volume in that market divided by the total volume of units sold in that market  The Small Business Act of 1953 (P L  83-163, as amended) authorized the SBA to establish size standards for determining eligibility for SBA assistance  More than sixty years have passed since the SBA established its initial small business size standards on January 1, 1957  Yet, decisions made then concerning the rationale and criteria used to define small businesses established precedents that continue to shape current policy  Moreover, as mentioned previously, the SBA relies on an analysis of various economic factors, such as each industry's overall competitiveness and the competitiveness of firms within each industry, in its size standards methodology to ensure that businesses receiving SBA assistance are not dominant in their field on a national basis  However, in the absence of precise statutory guidance and consensus on how to define small, the SBA's size standards have often been challenged, typically by industry representatives seeking to increase the number of firms eligible for assistance and by Members of Congress concerned that the size standards do not adequately target the SBA's assistance to firms that they consider to be truly small  Over the years, the SBA typically reviewed its size standards piecemeal, reviewing specific industries when the SBA determined that an industry's market conditions had changed or the SBA was asked to undertake a review by an industry claiming that its market conditions had changed  On five occasions, in 1980, 1982, 1992, 2004, and 2008, the SBA proposed a comprehensive revision of its size standards  The SBA did not fully implement any of these proposals, but the arguments presented, both for and against the proposals, provide a context for understanding the SBA's current size standards, and the rationale and criteria that have been presented to retain and replace them  As mentioned previously, P L  111-240 requires the SBA to conduct a detailed review of not less than one-third of the SBA's industry size standards during the 18-month period beginning on the date of enactment (September 27, 2010) and during every 18-month period thereafter  The act also requires the SBA to review each size standard at least once every five years  The SBA completed its first five-year review of all SBA industry size standards in 2016  As a result of its five-year review, the SBA estimates that more than 72,000 small businesses gained SBA eligibility  There is no uniform or accepted definition for a small business  Instead, several criteria are used to determine eligibility for small business spending and tax programs  This was also the case when Congress considered establishing the SBA during the early 1950s  For example, in 1952, the House Select Committee on Small Business reviewed federal statutes, executive branch directives, and the academic literature to serve as a guide for determining how to define small businesses  The Select Committee began its review by asserting that the need to define the concept of small business was based on a general consensus that assisting small business was necessary to enhance economic competition, combat monopoly formation, inhibit the concentration of economic power, and maintain "the integrity of independent enterprise " It noted that the definition of small businesses in federal statutes reflected this consensus by taking into consideration the firm's size relative to other firms in its field and "matters of independence and nondominance " For example, the War Mobilization and Reconversion Act of 1944 defined a small business as either "employing 250 wage earners or less" or having "sales volumes, quantities of materials consumed, capital investments, or any other criteria which are reasonably attributable to small plants rather than medium- or large-sized plants " The Selective Service Act of 1948 classified a business as small for military procurement purposes if "(1) its position in the trade or industry of which it is a part is not dominant, (2) the number of its employees does not exceed 500, and (3) it is independently owned and operated " The Select Committee also found that, for data-gathering purposes, the executive branch defined small businesses in relative, as opposed to absolute, terms within specific industries  For example, the Bureau of Labor Statistics "defined small business in terms of an average for each industry based on the volume of employment or sales  All firms which fall below this average are deemed to be small " The U S  Census Bureau also used different criteria for different industries  For example, manufacturing firms were classified as small if they had fewer than 100 employees, wholesalers were considered small if they had annual sales below $200,000, and retailers were considered small if they had annual sales below $50,000  According the Census Bureau, in 1952, small businesses accounted for "roughly 92 percent of all business establishments, 45 percent of all employees, and 34 percent of all dollar value of all sales " The Select Committee also noted that in 1951, the National Production Authority's Office of Small Business proposed defining all manufacturing firms with fewer than 50 employees as small and any with more than 2,500 employees as large  Manufacturers employing between these numbers of employees would be considered large or small depending on the general structure of the industry to which they belonged  The larger the percentage of total output produced by large firms, the larger the number of employees a firm could have to be considered small  Using this definition, most manufacturing firms with fewer than 50 employees would be classified as small, but others, such as an aircraft manufacturer, could have as many as 2,500 employees and still be considered small  For procurement purposes, the Select Committee found that executive branch agencies defined small businesses in absolute, as opposed to relative, terms, using 500 employees as the dividing line between large and small firms  Federal agencies defended the so-called 500 employee rule on the grounds that it "had the advantage of easy administration" across federal agencies  In reviewing the academic literature, the Select Committee reported that Abraham Kaplan's Small Business: Its Place and Problems defined small businesses as those with no more than $1 million in annual sales, $100,000 in total assets, and no more than 250 employees  Applying this definition would have classified about 95% of all business concerns as small, and would have accounted for about half of all nonagricultural employees  Based on its review of federal statutes, executive branch directives, and the academic literature, the Select Committee decided that it would not attempt "to formulate a rigid definition of small business" because "the concept of small business must remain flexible and adaptable to the peculiar needs of each instance in which a definition may be required " However, it concluded that the definition of small should be a relative one, as opposed to an absolute one, that took into consideration variations among economic sectors: This committee is also convinced that whatever limits may be established to the category of small business, they must vary from industry to industry according to the general industrial pattern of each  Public policy may demand similar treatment for a firm of 2,500 employees in one industry as it does for a firm of 50 employees in another industry  Each may be faced with the same basic problems of economic survival  Reflecting the view that formulating a rigid definition of small business was impractical, the Small Business Act of 1953 provided leeway in defining small businesses  It defined a small firm as "one that is independently owned and operated and which is not dominant in its field of operation " The SBA was authorized to establish and subsequently alter size standards for determining eligibility for federal programs to assist small business, some of which are administered by the SBA  The act specifies that the size standards "may utilize number of employees, dollar volume of business, net worth, net income, a combination thereof, or other appropriate factors " It also notes that the concept of small is to be defined in a relative sense, varying from industry to industry to the extent necessary to reflect "differing characteristics" among industries  The House Committee on Banking and Currency's report accompanying H R  5141, the Small Business Act of 1953, issued on May 28, 1953, provided the committee's rationale for not providing a detailed definition of small: It would be impractical to include in the act a detailed definition of small business because of the variation between business groups  It is for this reason that the act authorizes the Administration to determine within any industry the concerns which are to be designated small-business concerns for the purposes of the act  The report did not provide specific guidance concerning what the committee might consider to be small, but it did indicate that data on industry employment, as of March 31, 1948, "reveals that on the basis of employment, small business truly is small in size  Of the approximately 4 million business concerns, 87 4% had fewer than 8 employees and 95 2% of the total number of concerns, employed fewer than 20 people " Initially, the SBA created two sets of size standards, one for federal procurement preferences and another for the SBA's loan and management training services  At the request of federal agencies, the SBA adopted the then-prevailing small business size standard used by federal agencies for procurement, which was no more than 500 employees  The SBA retained the right to make exceptions to the no more than 500 employee procurement size standard if the SBA determined that a firm having more than 500 employees was not dominant in its industry  For the SBA's loan and management training services, the SBA's staff reviewed economic data provided by the Census Bureau to arrive at what Wendell Barnes, SBA's Administrator, described at a congressional hearing in 1956 as "a fairly accurate conclusion as to what comprises small business in each industry " Jules Abels, SBA's economic advisor to the Administrator, explained at that congressional hearing how the SBA's staff determined what constituted a small business: There are various techniques for the demarcation lines, but in a study of almost any industry, you will find a large cluster of small concerns around a certain figure     On the other hand, above a certain dividing line you will find relatively few and as you map out a picture of an industry it appears that a dividing line at a certain point is fair  On January 5, 1956, the SBA published a notice of proposed rulemaking in the Federal Register announcing its first proposed small business size standards  During the public comment period, representatives of several industries argued that the proposed standards were too restrictive and excluded too many firms  In response, Mr  Abels testified that the SBA decided to adjust its figures to make them "a little bit more liberal because there was some feeling on the part of certain industries that they were too tight and that they excluded too many firms " The SBA published its final rule concerning its small business size standards on December 7, 1956, and they became effective on January 1, 1957  The SBA decided to use number of employees as the sole criterion for determining if manufacturing firms were small and annual sales or annual receipts as the sole criterion for all other industries  Mr  Abels explained at the congressional hearing the SBA's rationale for using number of employees for classifying manufacturing firms as small and annual sales or annual receipts for all other firms: in the absence of automation which would give one firm in an industry a great advantage over another, roughly speaking if the firms were mechanized to the same extent, a firm with 400 employees would have an output which would be twice as large as the output of a firm with 200 employees     However when you depart from the manufacturing field and go into, say, a distributive field or trade, it then becomes necessary to discard the number of employees, because it is a matter of judicial notice, that one man for example in the distributive trades can sell as much as 100 men can sell  One small construction firm possibly can do a lot more business than one with a lot more employees  A service trade again has its volume geared to something other than the number of employees  So I think that one can say with reasonable certainty that it is only within the manufacturing field that the employee standard is the uniform yardstick, but that other than manufacturing the dollar volume is the appropriate yardstick  The SBA's initial size standards defined most manufacturing firms employing no more than 250 employees as small  In addition, the SBA considered manufacturing firms in some industries (e g , metalworking and small arms) as small if they employed no more than 500 employees, and in some others (e g , sugar refining and tractors) as small if they employed no more than 1,000 employees  To be considered small, wholesalers were required to have annual sales volume of $5 million or less; construction firms had to have average annual receipts of $5 million or less over the preceding three years; trucking and warehousing firms had to have annual receipts of $2 million or less; taxicab companies and most firms in the service trades had to have annual receipts of $1 million or less; and most retail firms had to have annual sales of $1 million or less  Mr  Abels testified that the SBA experienced "continual" protests of its size standards by firms denied financial or support assistance because they were not considered small  He also testified that in each case, the SBA denied the protest and determined, in his words, that the standard was "valid and accurate " In 1977, the U S  General Accounting Office (GAO, now the U S  Government Accountability Office) was asked by the Senate Select Committee on Small Business to review the SBA's size standards  At that time, most of the SBA's size standards remained at their original 1957 levels, other than a one-time upward adjustment for inflation in 1975 for industries using annual sales and receipts to restore eligibility to firms that may have lost small-business status due solely to the effect of inflation  GAO's report, issued in 1978, found that the SBA's size standards "are often high and often are not justified by economic rationale " Specifically, GAO reported that many size standards may not direct assistance to the target group described in SBA regulations as businesses "struggling to become or remain competitive" because the loan and procurement size standards for most industries were established 15 or more years ago and have not been periodically reviewed; SBA records do not indicate how most standards were developed; and the standards often define as small a very high percentage of the firms in the industries to which they apply  GAO recommended that the SBA reexamine its size standards "by collecting data on the size of bidders on set-aside and unrestricted contracts, determining the size of businesses which need set-aside protection because they cannot otherwise obtain Federal contracts" and then consider reducing its size standards or "establishing a two-tiered system for set-aside contracts, under which certain procurements would be available for bidding only to the smaller firms and others would be opened for bidding to all businesses considered small under present standards " Citing the GAO report, several Members objected to the SBA's size standards at a House Committee on Small Business oversight hearing conducted on July 10, 1979  Representative John J  LaFalce, chair of the House Committee on Small Business Subcommittee on General Oversight and Minority Enterprise, stated that "what we have faced from 1953 to the present is virtually nothing other than acquiescence to the demands of the special interest groups  That is how the size standards have been set " Representative Tim Lee Carter, the subcommittee's ranking minority member, stated that "it seems to me that we may be fast growing into just a regular bank forum not just to small business but to all business " At that time, approximately 99% of all firms with employees were classified by the SBA as a small business  Roger Rosenberger, SBA's associate administrator for policy, planning and budgeting, testified at the hearing that the SBA would undertake a comprehensive economic analysis of industry data to determine if its size standards should be changed  However, he also defended the validity of the SBA's size standards, arguing that the task of setting size standards was a complicated and difficult one because of "how market structure and size distribution of firms vary from industry to industry " He testified that some industries are dominated by a few large firms, some are comprised almost entirely of small businesses, and others "can be referred to as a mixed industry " He argued that each market structure presents unique challenges for defining small businesses within that industry group  For example, he argued that it was debatable whether the SBA should provide any assistance to any of the businesses within industries where "smaller firms are flourishing " On March 10, 1980, the SBA issued a notice of proposed rulemaking designed to "reduce administrative complexity" by replacing its two sets of size standards, one for procurement preferences and another for its loan and consultative support services, with a single set of size standards for both purposes  The SBA also proposed to use a single factor, the firm's number of employees, for definitional purposes for nearly all industries instead of using the firm's number of employees for some industries, the firm's assets for others, and the firm's annual gross receipts for still others  The SBA argued that when size standards are denominated in dollars, i e , annual revenues, its ability to help the small business sector is undermined by inflation  Using employment, as opposed to dollar sales, will provide greater stability for SBA and its clients; will remove inter-industry distortions generated by differential inflation rates; and reduce the need for SBA to make frequent revisions in the size standards merely to reflect price increases  In setting its proposed new size standards for each industry (ranging from no more than 15 to no more than 2,500 employees), the SBA first placed each industry into one of three groups: concentrated (characterized by a highly unequal distribution of sales among the firms in the industry), competitive (characterized by a more equal distribution of sales in the industry), or mixed (industries that do not meet the criteria of competitive or concentrated industries)  The SBA determined that there were 160 concentrated industries, 317 competitive industries, and 249 mixed industries  The SBA argued that establishing a size standard for the 160 concentrated industries was a "straight-forward task—simply identify and exclude those few firms which account for a disproportionately large share of the industry's sales " For competitive industries, the SBA argued that the size standard should be set "relatively low, so as to support entry and moderate growth " The SBA argued that mixed industries require "relatively high size standards     to reinforce competition and offset the pressures to increase the degree of concentration in these industries " The proposed new SBA size standards would have had the net effect of reducing the number of firms classified as small by about 225,000  In percentage terms, the number of firms classified as small would have been reduced from about 99% of all employer firms to 96%  Over 86% of the more than 1,500 public comments received by the SBA concerning its proposed new size standards criticized it  Most of the criticism was from firms that would no longer be considered small under the new size standards  In addition, several federal agencies indicated that the proposed size standards in the services and construction industries were set too low, reducing the number of small firms eligible to compete for procurement contracts below levels they deemed necessary to ensure adequate competition to prevent agency costs from rising  On October 21, 1980, Congress required the SBA to take additional time to consider the consequences of the proposed changes to the size standards by adopting the Small Business Export Expansion Act of 1980 ( P L  96-481 )  It prohibited "the SBA from promulgating any final rule or regulation relating to small business size standards until March 31, 1981 " In the meantime, the Reagan Administration entered office, and, as is customary when there is a change in Administration, replaced the SBA's senior leadership  The SBA's new Administrator, Michael Cardenas, was sympathetic to the concerns of federal agencies that the proposed size standards in the services and construction industries were set too low to meet those agencies' procurement needs  As a result, he indicated that the SBA would modify its size standards proposal by (1) increasing the proposed size standards for 51 industries, mostly in the services and construction industries; (2) lowering the proposed size standards in 157 manufacturing industries (typically from no more than 2,500 employees to no more than 500 employees) to prevent one or more of the largest producers in those industries from being classified as small; and (3) increasing the SBA's proposed lowest size standard from no more than 15 employees to no more than 25 employees (affecting 93 service and trade industries)  The net effect of these changes would have restored eligibility for approximately 60,000 of the 225,000 firms expected to lose eligibility under the previous Administration's proposal  The SBA subsequently met with various trade organizations and federal agency procurement officials to discuss the proposal  As these consultations took place, the SBA experienced another turnover in its senior leadership  The SBA, headed by the new appointee, James C  Sanders, issued a notice of proposed rulemaking concerning its size standards on May 3, 1982  The proposal differed from its March 10, 1980, predecessor in three ways: First, the range of size standards was narrowed to a range of 25 employees to 500 employees  This reflected a widespread view that 15 employees was too low a cutoff while 2,500 employees was too high  Second, SBA proposed a 500-employee ceiling, focusing on smaller firms  Third, SBA responded to sentiments within many procurement-sensitive industries that the proposed size standards in some cases were too low to accommodate the average procurement currently being performed by small business  Therefore, SBA proposed higher size standards in a number of procurement-sensitive industries, while maintaining the 500-employee cap  The SBA received over 500 comments on the proposed rule, with about 72% of those comments opposing the rule  Taking those comments into consideration, the SBA reexamined its size standards once again, and, after a year of further consultation with various trade organizations and federal agency procurement officials, issued another notice of proposed rulemaking on May 6, 1983  The 1983 proposal (1) replaced the use of two sets of size standards, one for procurement and another for the SBA's loan and consultative support services, with a single set for all programs; (2) retained most of the size standards that were expressed in terms of average annual sales or receipts; (3) adjusted those size standards for inflation (an upward adjustment of 81%); (4) retained most of the size standards for manufacturing; and (5) made relatively minor changes to the size standards in other industries, with a continued emphasis on a 500-employee ceiling for most industries  The SBA received 630 comments on the proposed rule, with almost 70% supporting it  SBA Administrator Sanders characterized the SBA's revised size standard proposal as "a fine-tuning of current standards which has the basic support of both the private sector and the Federal agencies that use the basic size standards to achieve their set-aside procurement goals " He also added that "since almost no size standard is proposed to decrease, and most will in fact increase, very few firms will lose their small business status  We estimate that about 39,000 firms will gain small business status " He testified that in percentage terms, in 1983, 97 9% of the nation's 5 2 million firms with employees were classified by the SBA as small  Under the SBA's proposal, 98 6% of all firms with employees would be classified as small  The final rule was published in the Federal Register on February 9, 1984  Representative Parren J  Mitchell, chair of the House Committee on Small Business, expressed disappointment in the SBA's final rule, stating at a congressional oversight hearing on July 30, 1985, that "the government and the business community are still victimized by that same ad hoc, sporadic system that the SBA promised to fix some six years ago " He introduced legislation ( H R  1178 , a bill to amend the Small Business Act) that would have required the SBA to adjust its size standard for an industrial classification downward by at least 20% if small business' share of that market equaled or exceeded 60%, and at least 40% of the market share was achieved through the receipt of federal procurement contracts  The bill also mandated a minimum 10% increase in the SBA's size standard for an industrial classification if small business' share of that market was less than 20% and less than 10% of the market share was achieved through the receipt of federal procurement contracts  The bill was opposed by various trade associations, the SBA, and federal agency procurement officials, and was not reported out of committee  On December 31, 1992, the SBA issued a notice of proposed rulemaking "to streamline its size standards" by reducing the number of fixed size standard levels from 30 to 9  The nine proposed size standards were no more than 100, 500, 750, 1,000, or 1,500 employees; and no more than $5 million, $10 million, $18 million, or $24 million in annual receipts  The annual receipts levels reflected an upward adjustment of 43% for inflation  The SBA argued that the proposed changes would make the size standards more user-friendly for small business owners and restore eligibility to nearly 20,000 firms that were no longer considered small solely because of the effects of inflation  The proposed rule was later withdrawn as a courtesy to allow the incoming Clinton Administration time to review it  The SBA ultimately decided not to pursue this approach because it felt that converting "receipts based size standards in effect at that time to one of four proposed receipts levels created a number of unacceptable anomalies " Over the subsequent decade, the SBA reviewed the size standards for some industries on a piecemeal basis and, in 1994, adjusted for inflation its size standards based on firm's annual sales or receipts (an upward adjustment of 48 2%)  The SBA estimated that the adjustment would restore eligibility to approximately 20,000 firms that lost small-business status due solely to the effects of inflation  In 2002, the SBA adjusted for inflation its annual sales and receipts based size standards for the fourth time (an upward adjustment of 15 8%)  The SBA estimated that the adjustment would restore eligibility to approximately 8,760 firms that lost small-business status due solely to the effects of inflation  The rule also included a provision that the SBA would assess the impact of inflation on its annual sales and receipts based size standards at least once every five years  Then, on March 19, 2004, the SBA, once again, issued a notice of proposed rulemaking to streamline its size standards  The proposed rule would have established size standards based on the firm's number of employees for all industries, avoiding the need to adjust for inflation size standards based on sales or receipts  At that time, the SBA size standards consisted of 37 different size levels: 30 based on annual sales or receipts, 5 on the number of employees (both full- and part-time), 1 on financial assets, and 1 on generating capacity  Under the proposed rule, the SBA would use 10 size standards, 5 new employee size standards (adding no more than 50, 150, 200, 300, and 400 employees), and the existing 5 employee size standards (no more than 100, 500, 750, 1,000, and 1,500 employees)  The proposed rule would not have changed any existing size standards based on number of employees  The SBA argued that the use of a single size standard would "help to simplify size standards" and "tends to be a more stable measure of business size" than other measures  It added that the proposed rule would change 514 size standards and that, after the proposed conversion to the use of number of employees, of the "approximately 4 4 million businesses in the industries with revised size standards, 35,200 businesses could gain and 34,100 could lose small business eligibility, with the net effect of 1,100 additional businesses defined as small " A majority (51%) of the more than 4,500 comments on the proposed rule supported it, but with "a large number of comments opposing various aspects of SBA's approach to simplifying size standards " In addition, the chairs of the House Committee on Small Business and Senate Committee on Small Business and Entrepreneurship opposed the proposed rule, largely because they were concerned about potential job losses resulting from more than 34,000 small businesses losing program eligibility  The SBA withdrew the proposed rule on July 1, 2004  In 2005, the SBA adjusted for inflation size standards based on firms' annual sales or receipts (an upward adjustment of 8 7%)  The SBA estimated that the adjustment restored eligibility to approximately 12,000 firms that lost small-business status due solely to inflation  In 2008, the SBA made another adjustment for inflation to its annual sales and receipts based standards (another upward adjustment of 8 7%)  The SBA estimated that the adjustment restored eligibility for approximately 10,400 firms that lost small-business status due solely to inflation  In June 2008, the SBA announced that it would undertake a comprehensive, two-year review of its size standards, proceeding one industrial sector at a time, starting with Retail Trade (NAICS Sector 44-45), Accommodations and Food Services (NAICS Sector 72), and Other Services (NAICS Sector 81)  The SBA argued that it was concerned that "not all of its size standards may now adequately define small businesses in the U S  economy, which has seen industry consolidations, technological advances, emerging new industries, shifting societal preferences, and other significant industrial changes " It added that its reliance on an ad hoc approach "scrutinizing the limited number of specific industries during a year, while worthwhile, leaves unexamined many deserving industries for updating and may create over time a set of illogical size standards " The SBA announced that it would begin its analysis of its size standards by assuming that "$6 5 million [later increased to $7 5 million] is an appropriate size standard for those industries with receipts size standards and 500 employees for those industries with employee size standards " It would then analyze the following industry characteristics: "average firm size; average asset size (a proxy for startup costs); competition, as measured by the market share of the four largest firms in the industry; and, the distribution of market share by firm size—that is, are firms in the industry generally very small firms, or dominated by very large firms " Then, before making its final determination on the size standard, it would "examine the participation of small businesses in federal contracting and SBA's guaranteed loan program at the current size standard level  Depending on the level of small business participation, additional consideration may be given to the level of the current size standard and the analysis of industry factors " In April 2009, the SBA announced that was simplifying the administration and use of its size standards by reducing the number of receipts based size standards from 31 to 8 when establishing a new size standard or reviewing an existing size standard: For many years, SBA has been concerned about the complexity of determining small business status caused by a large number of varying receipts based size standards (see 69 FR 13130 (March 4, 2004) and 57 FR 62515 (December 31, 1992))  At the start of current comprehensive size standards review, there were 31 different levels of receipts based size standards  They ranged from $0 75 million to $35 5 million, and many of them applied to one or only a few industries  The SBA believes that to have so many different size standards with small variations among them is unnecessary and difficult to justify analytically  To simplify managing and using size standards, SBA proposes that there be fewer size standard levels  This will produce more common size standards for businesses operating in related industries  This will also result in greater consistency among the size standards for industries that have similar economic characteristics  Under the current comprehensive size standards review, SBA is proposing to establish eight "fixed-level" receipts based size standards: $5 0 million, $7 0 million, $10 0 million, $14 0 million, $19 0 million, $25 5 million, $30 0 million, and $35 5 million  These levels are established by taking into consideration the minimum, maximum and the most commonly used current receipts based size standards  These eight receipts based size standards were increased to $5 5 million, $7 5 million, $11 0 million, $15 0 million, $20 5 million, $27 5 million, $32 5 million, and $38 5 million in 2014 to account for inflation  The SBA also announced that it would use eight employee based size standards when establishing a new size standard or reviewing an existing size standard (no more than 50, 100, 150, 200, 250, 500, 750, and 1,000 employees) instead of seven (no more than 50, 100, 150, 500, 750, 1,000, and 1,500 employees); and continue to use one asset based size standard, one megawatt hours size standard (based on electrical output over the preceding fiscal year), and one size standard based on a combination of the number of employees and barrel per day refining capacity  The SBA also announced that "to simplify size standards further" it "may propose a common size standard for closely related industries " The SBA argued although the size standard analysis may support a separate size standard for each industry, SBA believes that establishing different size standards for closely related industries may not always be appropriate  For example, in cases where many of the same businesses operate in the same multiple industries, a common size standard for those industries might better reflect the Federal marketplace  This might also make size standards among related industries more consistent than separate size standards for each of those industries  Because SBA size standards remain in force until after they are reviewed, the number of size standards did not immediately drop from 41 to 19 in 2009  Instead, the number of size standards began to decline gradually as new size standard final rules were issued  In addition, from 2010 through 2016, the SBA decided, in most instances, not to lower size standards (which would have made it more difficult for businesses to qualify) even if the data supported lowering them because unemployment at that time was relatively high and doing so would "run counter to numerous Congressional and Administration's initiatives and programs to create jobs and boost economic growth " As a result of this policy decision, several size standards that would have otherwise been eliminated remained in place  Also, in 2016, the SBA added a new employee based size standard (no more than 1,250 employees) and reinstated the use of another (no more than 1,500 employees) when establishing a new, or revising an existing, size standard  The SBA's decisions in 2009 to reduce the number of receipts based size standards and to propose a common size standard for closely related industries were opposed by some industry groups  They argued that these policies could lead to the SBA to classify an industry "for the sake of convenience" into a size standard that the agency's own economic analysis indicates should be in a different (easier to qualify) size standard  Congress adopted legislation in 2013 ( P L  112-239 , National Defense Authorization Act for Fiscal Year 2013) that included provisions directing the SBA not to limit the number of size standards and to assign the appropriate size standard to each NAICS industrial classification  The SBA currently has 27 SBA industry size standards in effect (16 receipts based size standards, 9 employee based sized standards, 1 asset based size standard, and 1 size standard based on a combination of the number of employees and barrel per day refining capacity)  That number is expected to increase given the SBA's directive not to limit the number of size standards  As mentioned previously, P L  111-240 requires the SBA to conduct a detailed review of not less than one-third of the SBA's industry size standards during the 18-month period beginning on the date of enactment (September 27, 2010) and during every 18-month period thereafter  The act directs the SBA to "make appropriate adjustments to the size standards" to reflect market conditions, and to report to the House Committee on Small Business and the Senate Committee on Small Business and Entrepreneurship and make publicly available "not later than 30 days" after the completion of each review information regarding the factors evaluated as part of each review, the criteria used for any revised size standard, and why the SBA did, or did not, adjust each size standard that was reviewed  The act also requires the SBA to ensure that each industry size standard is reviewed at least once every five years  On July 7, 2011, the SBA announced that its "comprehensive review of all small business size standards" would begin with the following six industries: Educational Services (final rule was issued on September 24, 2012); Health Care and Social Assistance Services (final rule was issued on September 24, 2012); Real Estate Rental and Leasing (final rule was issued on September 24, 2012); Administrative and Support, Waste Management and Remediation Services (final rule was issued on December 6, 2012); Information (final rule was issued on December 6, 2012); and Utilities (final rule was issued on December 23, 2013)  The SBA subsequently completed size standard reviews for all industries in January 2016 (listed by when the final rule was issued): Professional, Scientific and Technical Services (final rule was issued on February 24, 2012); Transportation and Warehousing (final rule was issued on February 24, 2012); Agriculture, Forestry, Fishing and Hunting (final rule was issued on June 20, 2013); Arts, Entertainment, and Recreation (final rule was issued on June 20, 2013); Finance and Insurance (final rule was issued on June 20, 2013); Management of Companies (final rule was issued on June 20, 2013); Support Activities for Mining (final rule was issued on June 20, 2013); Construction (final rule was issued on December 23, 2013); Wholesale Trade (final rule was issued on January 25, 2016); Industries with Employee Based Size Standards not Part of Manufacturing, Wholesale Trade, or Retail Trade (final rule was issued on January 26, 2016); and Manufacturing (final rule was issued on January 26, 2016)  A summary of the final rules issued for each industry is provided in Table A-1   During the first five-year review cycle, the SBA increased 621 size standards, decreased 3 (to exclude potentially dominant firms from being considered small), and retained 388 at their pre-existing levels  Of the 388 retained size standards, 214 were retained based on the results of the SBA's economic analysis and 174 were retained based on the SBA's policy of generally not lowering any size standard, even though the results of the economic analysis supported lowering them, due to national economic conditions  The SBA has started its second five-year review of its size standards and anticipates issuing its first final rules in the second five-year review cycle in 2019, using new size standard methodology announced in April 2018 (discussed in the next section)  The SBA also announced in April 2018 that its policy of generally not lowering size standards when the analysis indicates that a lower standard is justified would no longer be in force, at least initially, during the second five-year review cycle: the decision to raise, lower, or retain a size standard will primarily be driven by analytical results, with due considerations of public comments, impacts of changes on the affected businesses, and other factors SBA considers important  All of these decisions will be detailed in individual rulemakings  It will take several years to complete the five-year review of all size standards … during which the state of the economy may change  It is, therefore, not possible to state now … what impact, if any, the future economic environment would have on the SBA's policy decision regarding size standards  As mentioned earlier, the SBA, relying on statutory language, defines a small business as a concern that is organized for profit; has a place of business in the United States; operates primarily within the United States or makes a significant contribution to the economy through payment of taxes or use of American products, materials, or labor; is independently owned and operated; and is not dominant in its field on a national basis  The business may be a sole proprietorship, partnership, corporation, or any other legal form  The SBA uses two measures to determine if a business is small: industry specific size standards or a combination of the business's net worth and net income  For example, the SBA's Small Business Investment Company (SBIC) program allows businesses to qualify as small if they meet the SBA's size standard for the industry in which the applicant is primarily engaged, or an alternative net worth and net income based size standard which has been established for the SBIC program  The SBIC's alternative size standard is currently set as a maximum net worth of not more than $19 5 million and average after-tax net income for the preceding two years of not more than $6 5 million  All of the company's subsidiaries, parent companies, and affiliates are considered in determining if it meets the size standard  The SBA decided to apply the net worth and net income measures to the SBIC program "because investment companies evaluate businesses using these measures to decide whether or not to make an investment in them " Businesses participating in the SBA's 504/Certified Development Company (504/CDC) loan guaranty program are to be deemed small if they did not have a tangible net worth in excess of $8 5 million and did not have an average net income in excess of $3 million after taxes for the preceding two years  As discussed below, P L  111-240 increased these threshold amounts on an interim basis to not more than $15 million in tangible net worth and not more than $5 million in average net income after federal taxes for the two full fiscal years before the date of the application  All of the company's subsidiaries, parent companies, and affiliates are considered in determining if it meets the size standard  Also, before May 5, 2009, businesses participating in the SBA's 7(a) loan guaranty program, including its express programs, were deemed small if they met the SBA's size standards for firms in the industries described in NAICS  Using authority provided under P L  111-5 , the American Recovery and Reinvestment Act of 2009, the SBA temporarily applied the 504/CDC program's size standards as an alternative for 7(a) loans approved from May 5, 2009, through September 30, 2010  Firms applying for a 7(a) loan during that time period qualified as small using either the SBA's industry size standards or the 504/CDC program's size standard  The provision's intent was to enhance the ability of small businesses to access the capital necessary to create and retain jobs during the economic recovery  P L  111-240 made the use of alternative size standards for the 7(a) program permanent  The act directs the SBA to establish an alternative size standard for both the 7(a) and 504/CDC programs that uses maximum tangible net worth and average net income as an alternative to the use of industry standards  The act also establishes, until the date on which the alternative size standard is established, an interim alternative size standard for the 7(a) and 504/CDC programs of not more than $15 million in tangible net worth and not more than $5 million in average net income after federal taxes (excluding any carry-over losses) for the two full fiscal years before the date of the application  The SBA Administrator has the authority to establish and modify size standards for particular industries  Overall, about 97% of all employer firms qualify as small under the SBA's size standards  These firms account for about 30% of industry receipts  The SBA generally "prefers to use average annual receipts as a size measure because it measures the value of output of a business and can be easily verified by business tax returns and financial records " However, historically, the SBA has used the number of employees to determine if manufacturing and mining companies are small  Before a proposed change to the size standards can take effect, the SBA's Office of Size Standards (OSS) undertakes an analysis of the change's likely impact on the affected industry, focusing on the industry's overall degree of competition and the competitiveness of the firms within the industry  The analysis includes an assessment of the following four economic factors: "average firm size, average assets size as a proxy of start-up costs and entry barriers, the 4-firm concentration ratio as a measure of industry competition, and size distribution of firms " The SBA also considers the ability of small businesses to compete for federal contracting opportunities and, when necessary, several secondary factors "as they are relevant to the industries and the interests of small businesses, including technological change, competition among industries, industry growth trends, and impacts of size standard revisions on small businesses " The specifics of SBA's size standards methodology have evolved over the years with the availability of new industry and federal procurement data and staff research  For example, the SBA previously presumed less than $7 0 million (increased to less than $7 5 million in 2014 to account for inflation) as an appropriate "anchor" size standard for the services, retail trade, construction, and other industries with receipts based size standards; 500 or fewer employees as an appropriate anchor size standard for the manufacturing, mining and other industries with employee based size standards; and 100 or fewer employees as an appropriate anchor size standard for the wholesale trade industries  These three anchor size standards were used as benchmarks or starting points for the SBA's economic analysis  To the extent an industry displayed "differing industry characteristics," a size standard higher, or in some cases lower, than an anchor size standard was used  In April 2018, the SBA replaced the "anchor" approach with a "percentile" approach, primarily because the anchors were no longer representative of the size standards being used (just 24% of industries with receipt-based size standards and 22% of those with employee based size standards have the anchor size standards) and the anchor approach entails "grouping industries from different NAICS sectors thereby making it inconsistent with section 3(a)(7) of the [Small Business] Act," which limits the SBA's ability to create common size standards by grouping industries below the 4-digit NAICS level  Specifically, when assessing the appropriateness of the current size standards, the SBA now evaluates the structure of each industry in terms of four economic characteristics or factors, namely average firm size, average assets size as a proxy of start-up costs and entry barriers, the 4-firm concentration ratio as a measure of industry competition, and size distribution of firms using the Gini coefficient  For each size standard type     SBA ranks industries both in terms each of the four industry factors and in terms of the existing size standard and computes the 20 th percentile and 80 th percentile values for both  SBA then evaluates each industry by comparing its value for each industry factor to the 20 th percentile and 80 th percentile values for the corresponding factor for industries under a particular type of size standard  If the characteristics of an industry under review within a particular size standard type are similar to the average characteristics of industries within the same size standard type in the 20 th percentile, SBA will consider adopting as an appropriate size standard for that industry the 20 th percentile value of size standards for those industries  For each size standard type, if the industry's characteristics are similar to the average characteristics of industries in the 80 th percentile, SBA will assign a size standard that corresponds to the 80 th percentile in the size standard rankings of industries  A separate size standard is established for each factor based on the amount of differences between the factor value for an industry under a particular size standard type and 20 th percentile and 80 th percentile values for the corresponding factor for all industries in the same type  Specifically, the actual level of the new size standard for each industry factor is derived by a linear interpolation using the 20 th percentile and 80 th percentile values of that factor and corresponding percentiles of size standards  Each calculated size standard will be bounded between the minimum and maximum size standards levels [see Table 2 ]     the calculated value for a receipts based size standard for each industry factor is rounded to the nearest $500,000 and the calculated value for an employee based size standard is rounded to the nearest 50 employees for Manufacturing and industries in other sectors (except Wholesale and Retail Trade) and to the nearest 25 employees for employee based size standards for Wholesale Trade and Retail Trade  The SBA anticipates that its shift from using the anchor approach to the percentile approach will have minimal impact, both in terms of the direction and magnitude of changes, to its industry size standards  Any changes to size standards must follow the rulemaking procedures of the Administrative Procedure Act  A proposed rule changing a size standard is first published in the Federal Register , allowing for public comment  It must include documentation establishing that a significant problem exists that requires a revision of the size standard, plus an economic analysis of the change  Comments from the public, plus any other new information, are reviewed and evaluated before a final rule is promulgated establishing a new size standard  The SBA currently uses employment size to determine eligibility for 505 of 1,036 industries (48 6%), including all 360 manufacturing industries, 24 mining industries, and 71 wholesale trade industries  As of October 1, 2017, 98 manufacturing industries have an upper limit of 500 employees (27 2%); 91 have an upper limit of 750 employees (25 2%); 89 have an upper limit of 1,000 employees (24 7%); 56 have an upper limit of 1,250 employees (15 6%); and 26 have an upper limit of 1,500 employees (7 2%)  3 of the 24 mining industries have an upper limit of 250 employees (12 5%), 7 have an upper limit of 500 employees (29 2%), 7 have an upper limit of 750 employees (29 2%), 2 have an upper limit of 1,000 employees (8 3%), 3 have an upper limit of 1,250 employees (12 5%), and 2 have an upper limit of 1,500 employees (8 3%)  25 of the 71 wholesale trades industries have an upper limit of 100 employees (35 2%), 16 have an upper limit of 150 employees (22 5%), 21 have an upper limit of 200 employees (29 6%), and 9 have an upper limit of 250 employees (12 7%)  The SBA currently has nine employee based industry size standards in effect (no more than 100, 150, 200, 250, 500, 750, 1,000, 1,250, and 1,500 employees)  The SBA uses average annual receipts over the three (soon to be five) most recently completed fiscal years to determine program eligibility for most other industries (526 of 1,036 industries, or 50 8%)  The SBA also uses average asset size as reported in the firm's four quarterly financial statements for the preceding year to determine eligibility for five finance industries, and a combination of number of employees and barrel per day refining capacity for petroleum refineries  The SBA currently has 16 receipts based industry size standards in effect  In some instances, there is considerable variation in the size standards used within each industrial sector  For example, the SBA uses 11 different size standards to determine eligibility for 66 industries in the retail trade sector  In general, most administrative and support service industries have an upper limit of either $15 0 million or $20 5 million in average annual sales or receipts; most agricultural industries have an upper limit of $0 75 million in average annual sales or receipts; most construction of buildings and civil engineering construction industries have an upper limit of $36 5 million in average annual sales or receipts, and most construction specialty trade contractors have an upper limit of $15 0 million in average annual sales or receipts; most educational services industries have an upper limit of either $7 5 million or $11 0 million in average annual sales or receipts; most health care industries have an upper limit of either $7 5 million or $15 0 million in average annual sales or receipts; most social assistance industries have an upper limit of $11 0 million in average annual sales or receipts; there is considerable variation within the professional, scientific, and technical service industries, ranging from an upper limit of $7 5 million in average annual sales or receipts to $38 5 million; there is considerable variation within the transportation and warehousing industrial sector, ranging from an upper limit of $7 5 million in average annual sales or receipts to $38 5 million for 43 industries and from an upper limit of 500 employees to 1,500 employees for 15 industries); and most finance and insurance industries have an upper limit of $38 5 million in average annual sales or receipts  The SBA also applies a $550 million average asset limit (as reported in the firm's four quarterly financial statements for the preceding year) to determine eligibility in five finance industries: commercial banks, saving institutions, credit unions, other depository credit intermediation, and credit card issuing  Many federal statutes provide special considerations for small businesses  For example, small businesses are provided preferences through set-asides and sole source awards in federal contracting and pay lower fees to apply for patents and trademarks  In most instances, businesses are required to meet the SBA's size standards to be considered a small business  However, in some cases, the underlying statute defines the eligibility criteria for defining a small business  In other cases, the statute authorizes the implementing agency to make those determinations  Under current law, a federal agency that decides that it would like to exercise its authority to establish its own size standard through the federal rulemaking process is required to, among other things, (1) undertake an initial regulatory flexibility analysis to determine the potential impact of the proposed rule on small businesses, (2) transmit a copy of the initial regulatory flexibility analysis to the SBA's Chief Counsel for Advocacy for comment, and (3) publish the agency's response to any comments filed by the SBA's Chief Counsel for Advocacy in response to the proposed rule and a detailed statement of any change made to the proposed rule in the final rule as a result of those comments  In addition, the federal agency must provide public notice of the proposed rule and an opportunity for the public to comment on the proposed rule, typically through the publication of an advanced notice of proposed rulemaking in the Federal Register and notification of interested small businesses and related organizations  Also, prior to issuing the final rule, the federal agency must have the approval of the SBA's Administrator  Under current practice, the SBA's Administrator, through the SBA's Office of Size Standards, consults with the SBA's Office of Advocacy prior to making a final decision concerning such requests  The Office of Advocacy is an independent office within the SBA  During the 112 th Congress, H R  585 , the Small Business Size Standard Flexibility Act of 2011, was reported by the House Committee on Small Business on November 16, 2011, by a vote of 13 to 8  The bill would have retained the SBA's Administrator's authority to approve or disapprove size standards for programs under the Small Business Act of 1953 (as amended) and the Small Business Investment Act of 1958 (as amended)  The Office of Chief Counsel for Advocacy would have assumed the SBA Administrator's authority to approve or disapprove size standards for purposes of any other act  Similar legislative provisions have been introduced during the 113 th Congress ( H R  2542 , the Regulatory Flexibility Improvements Act of 2013, and included in H R  4 , the Jobs for America Act), 114 th Congress ( H R  527 , the Small Business Regulatory Flexibility Improvements Act of 2015, and its Senate companion bill, S  1536 ), and 115 th Congress ( H R  33 , the Small Business Regulatory Flexibility Improvements Act of 2017, and its Senate companion bill, S  584 , and included in H R  5 , the Regulatory Accountability Act of 2017)  Advocates of splitting the SBA Administrator's small business size standards' authority between the Office of Chief Counsel for Advocacy and the SBA's Administrator have argued that Should an agency wish to draft a regulation that adopts a size standard different from the one already adopted by the Administrator in regulations implementing the Small Business Act, the agency must obtain approval of the Administrator  However, that requires the Administrator to have a complete understanding of the regulatory regime of that other act—knowledge usually outside the expertise of the SBA  However, the Office of the Chief Counsel for Advocacy, an independent office within the SBA, represents the interests of small businesses in rulemaking proceedings (as part of its responsibility to monitor agency compliance with the Regulatory Flexibility Act, 5 U S C  601-12, (RFA)) does have such expertise  Therefore, it is logical to transfer the limited function on determining size standards of small businesses for purposes other than the Small Business Act and Small Business Investment Act of 1958 to the Office of the Chief Counsel for Advocacy…  the Administrator is not the proper official to determine size standards for purposes of other agencies' regulatory activities  The Administrator is not fluent with the vast array of federal regulatory programs, is not in constant communication with small entities that might be affected by another federal agency's regulatory regime, and does not have the analytical expertise to assess the regulatory impact of a particular size standard on small entities  Furthermore, the Administrator's standards are: very inclusive, not developed to comport with other agencies' regulatory regimes, and lack sufficient granularity to examine the impact of a proposed rule on a spectrum of small businesses  Opponents have argued that When an agency is seeking to use a size standard other than those approved by the SBA, the agency may consult with the Office of Advocacy  Such consultation is sensible, as the Office of Advocacy has significant knowledge of the regulatory environment outside of the canon of SBA law  However, the SBA's Office of Size Standards, with its historical involvement, expertise, and staff resources in this area, remains the appropriate entity to approve such size standards…  While the legislation permits the SBA to continue to approve size standards for its enabling statutes, it removes SBA's authority to do so for other statutes  The result would be to create a duplicate size standard authority in both the SBA and the Office of Advocacy  Both the SBA and the Office of Advocacy would have personnel who would analyze and evaluate size standards  Through the bifurcation of these responsibilities, taxpayers would effectively be forgoing the economies of scale that are currently enjoyed by the operation of a single Office of Size Standards in the SBA…  Having two such entities that have the same mission is not a transfer of function, but an inefficient and duplicative reorganization … Instead of having one central office, there will now be two—further muddling small businesses' relationship with the federal government  Two bills were introduced during the 114 th Congress ( H R  3714 , the Small Agriculture Producer Size Standards Improvements Act of 2015, and H R  4341 , the Defending America's Small Contractors Act of 2016) to authorize the SBA to establish size standards for agricultural enterprises not later than 18 months after the date of enactment  The size standard for agricultural enterprises was, at that time, set in statute as having annual receipts not in excess of $750,000  H R  4341 , among other provisions, would have also limited an industry category to a greater extent than provided under the North American Industry Classification codes for small business procurement purposes if further segmentation of the industry category is warranted  H R  4341 was introduced on January 7, 2016, and ordered to be reported with amendment by the House Committee on Small Business on January 13, 2016  H R  3714 was introduced on October 8, 2015, considered by the House under suspension of the rules on April 19, 2016, and agreed to by voice vote  P L  114-328 , the National Defense Authorization Act for Fiscal Year 2017, includes a provision which authorizes the SBA to establish different size standards for agricultural enterprises using existing methods and appeal processes  Also, as mentioned previously, P L  115-324 , the Small Business Runway Extension Act of 2018, directs federal agencies proposing a size standard (and, based on report language accompanying the act, presumably the SBA as well) to use the average annual gross receipts from at least the previous five years, instead of the previous three years, when seeking SBA approval to establish a size standard based on annual gross receipts  The SBA has not announced if it will continue to use the average annual gross receipts over three years to determine receipts-based size standards or if it will use the average annual gross receipts from the previous five years  Historically, the SBA has relied on economic analysis of market conditions within each industry to define eligibility for small business assistance  On several occasions in its history, the SBA attempted to revise its small business size standards in a comprehensive manner  However, because (1) the Small Business Act provides leeway in how the SBA is to define small business; (2) there is no consensus on the economic factors that should be used in defining small business; (3) federal agencies have generally opposed size standards that might adversely affect their pool of available small business contractors; and (4) the SBA's initial size standards provided program eligibility to nearly all businesses, the SBA's efforts to undertake a comprehensive reassessment of its size standards met with resistance  Firms that might lose eligibility objected  Federal agencies also objected  As a result, in each instance, the SBA's comprehensive revisions were not fully implemented  The SBA's congressionally mandated requirement to conduct a detailed review of at least one-third of the SBA's industry size standards every 18 months was imposed by P L  111-240 , the Small Business Jobs Act of 2010, to prevent small business size standards from becoming outdated  More frequent reviews of the size standards were expected to increase their accuracy and, generally speaking, result in (1) increased numbers of small businesses found to be eligible for SBA assistance and (2) an increase in the number and amount of federal contracts awarded to small businesses (primarily by preventing large businesses from being misclassified as small and by increasing the number of small businesses eligible to compete for federal contracts)  As expected, the SBA's economic analyses during the recent five-year review cycle often supported an increase in the size standards for many industries  However, the SBA's economic analyses also occasionally supported a decrease in the size standards for some industries  Despite the SBA's decision to, in most circumstances, make no changes when their economic analyses indicated that a decrease was warranted, it could be argued that the increased frequency of the reviews has generally prevented the SBA's size standards from becoming outdated  This, in turn, has, at least to a certain extent, improved the accuracy of the size standards (as measured by the extent to which the size standard is in alignment with the SBA's economic analyses)  In a related matter, the SBA continues to adjust its receipts based size standards for inflation at least once every five years, or more frequently if inflationary circumstances warrant, to prevent firms from losing their small business eligibility solely due to the effects of inflation  The most recent adjustment for inflation took place on July 14, 2014  Prior to that, the last adjustment for inflation took place in 2008  The SBA also continues to review size standards within specific industries whenever it determines that market conditions within that industry have changed  Congress has several options related to the SBA's ongoing review of its size standards  For example, as part of its oversight of the SBA, Congress can wait for the agency to issue its proposed rule before providing input or establish a dialogue with the agency, either at the staff level or with Members involved directly, prior to the issuance of its proposed rule  Historically, Congress has tended to wait for the SBA to issue proposed rules concerning its size standards before providing input, essentially deferring to the agency's expertise in the technical and methodological issues involved in determining where to draw the line between small and large firms  Congress has then tended to respond to the SBA's proposed rules concerning its size standards after taking into consideration current economic conditions and input received from the SBA and affected industries  Waiting for the SBA to issue its proposed rule concerning its size standards before providing congressional input has both advantages and disadvantages  It provides the advantage of insulating the proposed rule from charges that it is influenced by political factors  It also has the advantage of respecting the separation of powers and responsibilities of the executive and legislative branches  However, it has the disadvantage of heightening the prospects for miscommunication, false expectations, and wasted effort, as evidenced by past proposed rules concerning the SBA's size standards that were either rejected outright, or withdrawn, after facing congressional opposition  Another policy option that has not received much congressional attention in recent years, but which Congress may choose to address, is the targeting of the SBA's resources  When the SBA reviews its size standards, it focuses on the competitive nature of the industry under review, with the goal of removing eligibility of firms that are considered large, or dominant, in that industry  There has been relatively little discussion of the costs and benefits of undertaking those reviews with the goal of targeting SBA resources to small businesses in industries that are struggling to remain competitive  GAO recommended this approach in 1978 and Roger Rosenberger, then SBA's associate administrator for policy, planning, and budgeting, testified at a congressional hearing in 1979 that it was debatable whether the SBA should provide any assistance to any of the businesses within industries where "smaller firms are flourishing " Revising the SBA's size standards using this more targeted approach would likely reduce the number of firms eligible for assistance  It would also present the possibility of increasing available benefits to eligible small firms in those industries deemed "mixed" or "concentrated" by the SBA without necessarily increasing overall program costs  Perhaps because previous proposals that would result in a reduction in the number of firms eligible for assistance have met with resistance, this alternative approach to determining program eligibility has not received serious consideration in recent years  Nonetheless, it remains an option available to Congress should it decide to change current policy 


Report 2: The Department of Defense (DOD) obligates more than $300 billion annually to pay for goods and services (including research and development)  Most of these acquisitions are governed by numerous statutes and regulations found in Title 10 of the United States Code, the Federal Acquisition Regulation (FAR), and the Defense Federal Acquisition Regulation Supplement (DFARS)  DOD can also enter into certain transactions without triggering most of the standard acquisition statutes and regulations by using other transaction (OT) authorities  In recent years, Congress has expanded these authorities and DOD is increasingly using OTs for research, prototyping, and production  This report examines (1) how OTs work, (2) why they were established, (3) potential benefits and risks of using OTs, and (4) whether there are data available against which to measure their effectiveness  Appendix A provides a legislative history of DOD's other transaction authorities  On October 4, 1957, the Soviet Union triggered a space race with the United States when it successfully launched Sputnik I into orbit, becoming the first nation to send a man-made satellite into space  Congress, concerned that the United States was falling behind in space, held a series of hearings on an "emergency" effort to respond to the Soviet launch of Sputnik  At the same time, a bill was introduced in the Senate to create an agency with the means to quickly and efficiently develop a national space program  These efforts led to passage of the National Aeronautics and Space Act of 1958 (Space Act, P L  85-568) in July 1958, which established the National Aeronautics and Space Administration (NASA)  In an effort to give the new agency "the necessary freedom to carry on research, development, and exploration     to insure the full development of these peaceful and defense uses without unnecessary delay," the Space Act granted NASA broad authority to "enter into and perform such contracts, leases, cooperative agreements, or other transactions as may be necessary" to accomplish its mission of research and exploration (emphasis added)  Congress extended different variations of OT authorities to other select agencies, granting the authority to DOD in the FY1990 & 1991 National Defense Authorization Act (NDAA, P L  101-189 )  For an analysis of which non-DOD agencies can use OTs and how the authorities differ by agency, see Appendix B   Other transactions are legally binding contracts that are generally exempt from federal procurement laws and regulations such as the Competition in Contracting Act and the Federal Acquisition Regulation  In contrast, traditional procurement contracts must adhere to the procurement rules set forth in statute and regulation  Generally, DOD can use other transaction authorities for three purposes: 1  conduct research, 2  develop prototypes, or 3  contract for follow-on production of a successful prototype project  DOD's other transaction authorities are found in two sections of law: 10 U   S   C   2371 grants DOD the authority to use other transactions to carry out basic, applied, and advanced research projects  DOD regulations treat these projects as financial assistance instruments, not as contracts  10 U   S   C   2371b permits the use of other transactions to conduct prototype projects and follow-on production  OTs can only be used for prototypes if one of the following applies: at least one nontraditional defense contractor significantly participating in the project; all significant participants are small businesses or nontraditional defense contractors; at least one-third of the total cost of the prototype project is provided by nongovernment participants; or the senior procurement acquisition official provides in writing an explanation of the exceptional circumstances justifying an OT  Follow-on production can only be conducted when the underlying prototype OT was competitively awarded, and the prototype project was successfully completed  10 U   S   C   2373 , while generally not considered an o ther t ransaction authority , allows DOD to buy certain items and designs for experimental or test purposes without having to adhere to the procurement laws set forth in Chapter 137 of Title 10  OT authorities grant government officials the flexibility to include, amend, or exclude contract clauses and requirements that are mandatory in traditional procurements (e g , termination clauses, payments, audit requirements, intellectual property, and contract disputes)  OTs can be structured in numerous ways, including a direct relationship between a single government agency and a single provider; joint ventures; partnerships; multiple agencies joining together to fund an agreement encompassing multiple providers; or through a consortium  One common application of OTs is to forge an agreement with a consortium  A consortium is an organized group— it can consist of nonprofits, academic institutions, or contractors— focusing on a specific technology area  Generally, a lead entity coordinates and directs a consortium's activities  Consortia have consisted of a handful to as many as 1,000 members  Consortia can act to facilitate multiparty agreements whereby each member is akin to its own co-prime contractor with the government  In such a case, the government articulates the need or problem it is trying to solve, and the various members of the consortium can submit white papers for consideration  In this scenario, OTs can serve as an efficient way for all members to send unsolicited technology suggestions and solutions to solve a defined challenge  Consortia can also be used to develop an ecosystem of entities working together on a project, whereby members of a consortium pool resources and collaborate with DOD  A number of analysts argue that using consortia in this way gives the federal government a unique ability to leverage and pool the technological expertise and innovation of multiple entities in a particular sector, thereby strengthening and advancing a sector of the industrial base that may have defense applications  Seen like this, OTs can be considered a mechanism to promote defense technology and the defense industrial base, with the potential added benefit of advancing the domestic commercial technology base  Some analysts, however, have argued that many of today's consortia do not operate as collaborative organizations, but function more like managed multiple award task order contracts  These analysts argue that DOD should seek to foster more collaboration in consortia  Some analysts have argued that consortia reduce competition, since only members of the consortium under contract can participate in the project or submit white papers for consideration and funding  Others counter that even when an OT is signed with a single consortium, competition could be increased, since all members of the consortium are notified of the opportunity (expanding the pool of potential competitors aware of the opportunity), and the OT will foster internal competition among consortium members  OTs are not procurement contracts and thus are exempt from numerous procurement statutes and regulations, including the statutes in Chapter 137 of Title 10 ( Procurement Generally )  They are, however, bound by standard contract and other select laws and regulations  Examples of laws that do not apply include the Truth in Negotiations Act, Competition in Contracting Act, Cost Accounting Standards, Contract Disputes Act, and select intellectual property statutes such as the Bayh-Dole Act  A number of these laws are aimed at oversight and protecting the interests of taxpayers  While the Competition in Contracting Act does not apply, 10 U S C  2371b requires that research and prototype projects be competed "to the maximum extent practicable " DOD policy mirrors the statutory language, stating "[C]ompetition is a good thing  It helps keep prices low, quality high, and gives the government leverage in negotiations " To the extent that OTs induce nontraditional contractors to work with DOD, OTs can be viewed as promoting competition among (and within) entities that would not normally compete for DOD contracts  However, the lack of explicitly defined competition requirements could result in less competition for certain OTs  OTs are not free from all legislative and regulatory requirements  Generally, statutes and regulations that are not procurement-specific apply, including the Trade Secrets Act, (18 U S C  1905); the Economic Espionage Act (18 U S C  1831-39); elements of the Freedom of Information Act (5 U S C  552); and fiscal and property laws, such as the Anti-deficiency Act (31 U S C  1341); and the Tucker Act (28 U S C  1491)  As can be seen by these citations, many of these statutes are not located in the procurement titles of Title 10 or Title 41  The Government Accountability Office (GAO) has held that OTs are not procurement contracts, and therefore it will not review protests of such an award or solicitation  However, GAO will review "a timely protest that an agency is improperly using its other transaction authority " OT contracts can be protested to the Court of Federal Claims, although there is debate as to the extent of the court's jurisdiction  The limited protest jurisdiction of GAO is appealing to many government procurement officials  One senior Air Force official reportedly stated that OTs are "just so much faster and so much more attuned to getting something that we want today and not have to spend a couple of years going through a protest, going through this huge process to get something we wanted two years ago " It generally does not take that long to go through a GAO protest  By statute, GAO must issue an opinion on a protest within 100 days of the protest being filed, and 70% of cases are resolved in less than 60 days  While exempt from GAO bid protests, OTs are not exempt from GAO audits  Generally, OTs that include government payments exceeding $5 million are required to include a clause granting GAO the right to examine the records of any related party  However, this requirement has a number of limitations  Used properly, OTs can provide significant benefits to DOD  Along with the potential benefits come certain risks  Some of the potential benefits to OTs highlighted by analysts and officials include providing a mechanism to pool R&D resources with industry to facilitate development of, and obtain "the latest state-of-the-art, dual use technologies"; attracting nontraditional contractors with promising technological capabilities to work with DOD; lowering costs by eliminating requirements associated with the Federal Acquisition Regulations (i e , costs associated with required reporting and administrative activities) or sharing costs with industry; and "speeding up" the acquisition process  A number of experts argue that OTs provide a unique mechanism for DOD to invest in, and influence the direction of, technology development even when the end result is not directly tied to a military capability  As one observer noted, the real benefit to DOD may be that [t]he R&D has been accomplished and is available to the technical and scientific communities  As a result, a subsequent phase of research can begin or a particular approach can be demonstrated to be of no value  Some argue that OTs have particular import today  Drawing parallels to the space race, these analysts argue that DOD is engaged in a defense technology race  According to the 809 Panel: DoD is now in a period during which the time a particular technology is a dominant force on the battlefield is getting increasingly shorter, disruptive technologies are emerging at a faster pace, and these technologies are more widely dispersed…In a world with rapidly changing technology, time is a valuable resource that must not be taken for granted  It is difficult to predict what capabilities DoD will need 5 to 10 years from now—biotechnology, nanotechnology, artificial intelligence, robotics, or a new technology area not even known today  It also is unclear on what plane the military will conduct warfare—traditional battlefields, space, cyberspace, or some other domain  The current acquisition system lacks the agility needed to adapt to new paradigms  These analysts argue that OTs and similar rapid acquisition authorities are critical for DOD to compete in such a fast-paced global environment where technology and innovation are no longer driven by DOD, but by industry and foreign competitors  In 1960, the United States accounted for 69% of global R&D, with U S  defense-related R&D alone accounting for more than one-third of global R&D  The federal government funded approximately twice as much R&D as U S  business  However, from 1960 to 2016, the U S  share of global R&D fell to 28%, and the federal government's share of total U S  R&D fell from 65% to 24%, while business's share more than doubled from 33% to 67%  As a result of these global, national, and federal trends, federal defense R&D's share of total global R&D fell to 3 7% in 2016  Given the shift in the global R&D landscape, and the diminishing influence of DOD as a market mover, analysts suggest that the current procurement system is overburdened by regulations and bureaucratic processes that slow the system, increase costs, and dissuade companies from doing business with DOD  In contrast, OTs are viewed as faster, attracting companies that would otherwise forgo working with DOD and promoting broader investment in critical defense capabilities  As one analyst wrote: OTAs are currently the only way to remove the barriers necessary to get these nontraditional sources of innovation to do business with the military  Properly constructed, OTAs help speed up the process, respect a company's IP through negotiation rather than regulatory fiat, and result in contracting under commercial terms and conditions  Congress also appears to have shifted its view on appropriate use of other transactions  In the FY1999 conference report, Congress stated that [OT] authority should only be used in the exceptional cases where it can be clearly demonstrated that a normal contract or grant will not allow sufficient access to affordable technologies  By comparison, in the FY2018 NDAA, Congress expanded OT authorities and stated the following: In the execution of science and technology and prototyping programs, the Secretary of Defense shall establish a preference, to be applied in circumstances determined appropriate by the Secretary, for using transactions other than contracts, cooperative agreements, and grants  Along with the potential benefits come potential risks, including that of diminished oversight and exemption from laws and regulations designed to protect government and taxpayer interests  Some analysts, while acknowledging the important role of OTs, raise concerns over transparency and how these agreements are being employed  As one industry official stated, OTs are a contracting method, not a substitute for good acquisition practices  Discussing a particular OT for cloud services that was protested and ultimately cancelled by DOD, one observer argued The cloud contract provides a teachable moment for procurement reform-minded officials in the Pentagon and Capitol Hill  The problem was not with the OTA mechanism, which remains an essential element of reforming Pentagon procurement  Rather, the problem was with a lack of transparency with how the mechanism was employed  Scott Amey, general counsel of the Project on Government Oversight, cautioned We have to seriously consider how we are using [OTs]; whether we are using them as intended, whether we are getting the goods and services that we really want and need, whether we are getting them at the best cost and process, and we are using this procurement vehicle as a way to just circumvent the rules and have contractors not have the administration and oversight they need to hold them accountable  I'm just afraid this is going to result in a lot of waste, fraud, and abuse in the future  Congress has expressed repeated concerns that OTs could be used to circumvent congressional intent  In the FY1999 NDAA, the committees emphasized that the authority should only be used in a limited manner  The conference report stated the following: The conferees are especially concerned that such authority not be used to circumvent the appropriate management controls in the standard acquisition and budgeting process  Congress echoed a similar concern in the FY2019 NDAA  According to the House report: The committee also urges the Department to reiterate through established guidelines that OTA is not a means for circumventing appropriate use of the Federal Acquisition Regulations, and that full and open competition should be used to the maximum extent possible to maintain a sense of integrity, fairness, and credibility in the Federal Procurement process  Other transactions are also exempt from many of the socioeconomic policies put in place by Congress to promote public policies, including some Buy America requirements  Some analysts have raised concerns that OTs are a way to circumvent many of the public policies enshrined in the acquisition process  A number of analysts and officials have raised concerns that if DOD uses OTs in ways not intended by Congress—or is perceived to abuse the authority—Congress could clamp down on the authority  Under Secretary of the Army Ryan McCarthy reportedly stated that the military department is "trying to be very judicious about this authority so we don't lose it " Some analysts argue that Congress is already clamping down on the use of OTs  These analysts point to language in the FY2019 NDAA and FY2019 appropriations legislation ( P L  115-245 ) requiring additional reporting and notification (see Appendix A )  Such notification and reporting requirements, however, are not new; when Congress expanded OT authorities in the past, reporting and notification requirements were commonly included  The reporting requirements may also be a result of congressional frustration with a lack of transparency and data on how DOD uses OTs  DOD lacks authoritative data that can be used to assess OT effectiveness and better understand broader trends associated with these agreements  The most frequently cited source for such data is the Federal Procurement Data System-Next Generation (FPDS-NG), which is the primary source for tracking data on contract obligations, including other transactions for prototypes and follow-on production  FPDS-NG is configured to track data on cost-sharing, other transaction award type, and prevalence of nontraditional contractors  Obligations connected to OTs for research are tracked by the Defense Assistance Awards Data System, which is primarily used to track grants and cooperative agreements  This bifurcation of how OT data are tracked makes it more difficult to get a consolidated view of OT data  According to DOD, all OT data will be reported through FPDS-NG starting in late 2019  The procurement data in FPDS-NG are not fully reliable  There are quality issues relating to accuracy, completeness, and timeliness of data  CRS reviewed FPDS-NG data for prototype OT agreements signed or modified between FY2015 and FY2017 and found similar data inconsistencies  DOD officials acknowledge that they do not have sufficiently reliable data upon which to conduct analysis on the use of OTs and are taking steps to try to improve the data  The analyses below reflect CRS's effort to analyze DOD's use of other transaction authority based on the best available data  According to FPDS-NG, in FY2017, DOD obligated $2 1 billion—and received $360 million in cost-share contributions—on prototype other transaction agreements, representing less than 1% of DOD's total FY2017 contract obligations (approximately $320 billion)  Despite the small percentage of obligations, OTs are growing quickly and are expected to continue to grow at a rapid pace  From FY2013 to FY2017, the number of new prototype agreements increased from 12 to 94, an increase of over 650% (see Table 1 )  DOD's Defense Innovation Unit (DIU, formerly known as the Defense Innovation Unit Experimental, or DIUx) was involved with approximately half of the prototype agreements executed in 2017  DOD officials have stated their intent to further increase the department's use of OTs  Officials say that this increase is due to Congress expanding the statutory authority  The Army executed more than 66% of the prototype OT agreements between FY2013 and FY2017, often on behalf of other military departments and components (see Table 2 )  Army Contracting Command-New Jersey at Picatinny Arsenal executes many of these agreements  DIU currently uses Picatinny Arsenal to execute all of its other transaction agreements  A number of private sector companies do not pursue federal government contracts because they are unwilling to forfeit intellectual property rights or adhere to some of the procurement regulations  One of the goals of OTs is to expand the defense marketplace by creating a mechanism for access to technologies and services of companies that would not otherwise work with DOD, particularly startups and companies developing innovative technology  As one industry representative stated: Because they are "outside" the FAR, OT agreements do not require such cumbersome oversight and audit requirements such as those imposed by the Truth in Negotiations Act, cost and pricing data or an expensive Cost Accounting System (CAS) qualified financial system  CAS compliant financial systems can cost a company millions of dollars to implement and maintain — and are therefore a significant, if not potentially fatal, barrier to government market entry for startups and small, innovative companies  These requirements tend to reinforce the "legacy advantage" of large traditional contractors, who can afford to hire and staff these requirements with large staffs of accountants and lawyers  A number of nontraditional companies told CRS that they are more likely to work with DOD because of the department's other transaction authorities  Despite these claims, some observers question whether OTs are effectively bringing nontraditional contractors into the defense marketplace  A DOD Inspector General report examining other transactions from FY1994 to FY2001 found that OTs did not attract significant numbers of nontraditional defense contractors to do business with DOD  The report found that of the 209 prototype agreements examined, traditional defense contractors received 95% of the $5 7 billion in funds awarded  A recent analysis of FPDS-NG data by Federal News Network had similar findings  According to the report, from FY2015 to FY2017, while nontraditional defense contractors were awarded most of the new OTs (66% vs  33% for traditional defense contractors), the dollar value of the OTs favored traditional contractors ($20 8 billion vs  $7 4 billion for nontraditional contractors)  Some observers have questioned the accuracy of the data published by Federal News Network  According to Charlie McBride, president of Consortium Management Group (which manages two consortia working with DOD through OTs), 88% of the total dollar value of awards to CMG Group has gone to nontraditional prime contractors, and nontraditional entities have participated in the remaining 12%  This debate highlights the lack of authoritative data on OTs  The currently available data may not accurately reflect the extent to which nontraditional contractors are engaged in OT agreements  FPDS-NG does not collect data regarding subcontractors or consortia composition, making it difficult to determine the nature and extent to which nontraditional defense contractors and entities may be working under OT agreements with DOD directly or as subcontractors  When Congress extended OT authority to DOD, it authorized inserting a clause requiring a person or entity to make payments to DOD as a condition of receiving support under the agreement  Such funds were to be merged into an account dedicated to support DARPA advanced research projects  The intent of this provision was to permit DARPA to "recoup the fruits of such arrangements, when there is a 'dual use' potential for commercial application" and reinvest the funds to develop other technologies  In addition to the recoupment authority, DOD can share costs with other parties under an OT  Using this approach, the amount of each party's share is negotiated and incorporated into the agreement  Congress believed that OTs and cooperative agreements were ideal vehicles for promoting DOD-industry collaboration in developing dual-use technologies  For example, the FY1992 & 1993 NDAA ( P L  102-190 ) authorized DOD to enter into cooperative and other transaction agreements to develop critical dual-use technologies as set forth in the Defense Critical Technologies Plan  According to the Senate report:     the United States tends to underinvest in dual-use technologies  National security requirements alone often do not justify major DOD support, and market prospects alone often appear to be too long-term or high risk to justify US industry carrying the entire development burden     The committee encourages use of cooperative agreements and other transactions in lieu of grants or contracts     The provision would require that at least 50 percent of funding over the life of a partnership derive from non-federal sources but would allow for a smaller industry share at the start  In the 1990s, some DARPA OTs required participants to share costs because the types of work completed generally involved R&D that was mutually beneficial to government needs and industry commercial goals  In certain instances, present-day OTs have cost-sharing requirements that foster collaborative research  Some analysts believe that DOD is not always realizing all the benefits that OTs have to offer, such as sufficiently leveraging private capital or forming true consortia of multiple parties pooling resources  Some of these analysts believe that DOD does not sufficiently use consortia to leverage private investment through the pursuit of collaborative, mutually beneficial, dual-use technologies  Some observers argue that as the legislation on OTs has evolved, the cost-sharing provision for prototype projects has come to create an unfair playing field biased against traditional defense contractors  For prototype projects, traditional contractors generally are required to assume one-third of costs whereas nontraditional defense contractors and small businesses generally do not have to cost share  From a fairness perspective, these observers argue that traditional contractors should not have a mandatory cost share  These observers also point out that some nontraditional defense contractors are companies with billions of dollars of revenue that should not be granted a competitive cost advantage  Putting traditional defense contractors at a competitive disadvantage could deny DOD access to those companies with the most experience working on defense products, potentially depriving the military of access to leading defense-related research and technology  Other observers argue that the cost share as currently structured is appropriate: traditional defense contractors hold a significant competitive edge in their understanding of, and have the systems in place to manage, traditional contracts  In contrast, nontraditional and small businesses, which generally cannot compete with the traditional defense contractors, need the exemption from the cost-share requirement to be able to work with DOD  These observers also argue that traditional contractors are awarded the majority of dollars obligated to OTs, proving how difficult it is for nontraditional suppliers to break into the defense marketplace  Additionally, traditional contractors could avoid the cost-sharing requirement by teaming with a nontraditional contractor  DOD has not effectively tracked data on cost sharing  A 2017 report to Congress indicated that in FY2016 DOD obligated $1 billion for prototype agreements and received $68 million in cost-share contributions  A CRS review found numerous concerns with the data underlying the report, and with DOD's analytical conclusions  See Appendix C for further discussion  A number of analysts and industry officials have raised concerns that DOD could use OTs to avoid competitions, as OTs are exempt from the Competition in Contracting Act  According to statute, follow-on production using other transaction authority can only be awarded if the underlying R&D agreement was competed  In addition, 10 U S C  2371b states that "to the maximum extent practicable" OTs must be competed  Determining whether OTs are being used to circumvent competition requires a two-step analysis: 1  Are OTs competed less often that traditional contracts? 2  Is there a benefit to these OTs being competed? Available FPDS-NG data suggest that DOD is broadly complying with 10 U S C  2371b's competition mandate  Between FY2013 and FY2017, approximately 89% of all new OT prototype agreements were competed in some fashion  Many observers and analysts believe that OT agreements can be executed substantially faster, sometimes in a matter of weeks, compared to the months or years it typically takes to execute traditional contracts  Based in part on this belief, some officials and analysts are touting OTs as a new model for conducting acquisitions and the answer to many of the problems in defense acquisition  These analysts argue that in a world of increasingly fast technology development, DOD acquisitions must go faster or risk being left behind  Many acquisition professionals argue that OT contracts are not inherently faster than traditional contracting; instead, they are executed faster because they are not encumbered by the reviews, protests, and bureaucratic layers that have been overlaid on traditional contracting  According to these officials, OTs take just as long as traditional contracts if the same execution and oversight processes are applied  And because all terms are negotiable, complex negotiations could make OTs take longer to execute than traditional contracts that have required, nonnegotiable conditions  The Other Transactions Guide states The OT award process will not always be faster than the traditional procurement processes and sometimes can be as long or longer  The speed of award is tied to many factors, many of which are internal to the organization  DOD has not tracked data on the relative time it takes to execute OTs vs  traditional contracts, making it impossible to objectively assess these claims  Analysts and officials generally agree that the workforce plays a critical role in determining the success or failure of an acquisition  Because there are fewer predefined requirements, OTs can be more difficult to negotiate than traditional contracts, putting DOD at greater risk of not getting what it wants at a reasonable price  The complexity and difficulty of negotiations is particularly high when there are intellectual property/patent rights issues, as is the case with most OTs  Given these challenges, OTs often require more experienced and capable government representatives to ensure implementation of agreements that are in the government's best interest  Some analysts question the extent to which the workforce is sufficiently trained and equipped to negotiate OTs  In response to this concern, in the FY2018 NDAA, Congress required workforce education and training for OTs, and required DOD to establish a cadre of intellectual property experts to advise, assist, and provide resources to program offices that are developing intellectual property strategies for contracts and agreements (see Appendix A )  DOD officials acknowledge that more training and education is required  Given the complexity of OTs and the limited extent to which they are used, some analysts and industry officials suggested that there may be a benefit to establishing a centralized office within DOD responsible for executing or overseeing all other transaction agreements  Such a structure could help ensure that those members of the acquisition workforce engaged in other transactions are sufficiently experienced, trained, and qualified  A number of analysts have argued that DOD should take steps to improve its use of OTs  Many of these analysts have suggested that data are not consistently and accurately tracked, regulations and guidance on when and how to use OTs are vague or insufficient, and the workforce is not sufficiently prepared to effectively use OTs  A number of officials have acknowledged these shortcomings and DOD is reportedly taking steps to address them  For example, in December 2018, DOD issued an updated Other Transactions Guide , a comprehensive guide containing best practices, case studies, and a clarification of myths related to other transaction authorities  In addition, Defense Acquisition University developed new course materials addressing OTs and is working to expand its offerings of relevant training and classes  However, numerous acquisition officials question whether it is possible, or even desirable, to try to quickly implement training aimed at preparing the thousands of DOD acquisition officials to execute OTs  Some of these officials have suggested it might be appropriate to only allow a limited and vetted number of acquisition professionals to be OT agreements officers  Some argue that OTs are just one "tool in the tool box," appropriate for only specific types of contracts, and should not be used to avoid the statutory and regulatory framework or to try to accelerate the process just for the sake of speed  Others have suggested that OTs should be used to cut through bureaucracy, speed up the acquisition process, avoid regulations and bid protests, and perhaps eventually supplant the regular FAR-based contracting process  Given the benefits and risks associated with OTs, questions for Congress include the following: 1  To what extent and in what circumstances do the potential benefits of OTs in terms of cost, schedule, and added capabilities outweigh concerns over potential fraud, waste, abuse, diminished oversight, and other public policy objectives? 2  Should OT authorities be extended further, curtailed, or maintained? The FY2019 NDAA required DOD to submit a report annually through 2021, summarizing DOD's use of OTs, including organizations involved; number of transactions; amounts of payments; and purpose, description, and status of projects  The NDAA also required the Defense Innovation Unit to submit a report to Congress, to include the number of traditional and nontraditional defense contractors with DOD contracts or other transactions resulting directly from the unit's initiatives  The conference report for the FY2019 defense appropriations bill included language expressing the conferees' "[concern] with the lack of transparency surrounding the employment of OTA, particularly for follow-on production " The conferees directed DOD to provide quarterly reports to the House and Senate appropriations committees listing each active OT, and to include additional information for each agreement  The conferees also directed GAO to review DOD's use of OTs to determine whether the "employment of this authority conforms to applicable statutes and guidelines, to include the identification of any potential conflicts " GAO was also required to report on the extent to which OTs have been used since FY2016  The multitude of reporting requirements, and the questionable reliability of the available data, raise a number of questions that Congress may wish to explore, such as the following: 1  To what extent, if any, should the current reporting requirements be consolidated to create a more streamlined and consistent flow of information to Congress? 2  What specific data does Congress need in these reports to effectively conduct oversight? For example, what percentage of research OTs result in prototype projects and follow-on production? 3  To what extent are the data sufficiently reliable, and will such data be easily retrievable in the future, to allow Congress to conduct effective, timely, and ongoing oversight? If the data are not sufficiently reliable or accessible in the future, what other data collection and tracking methods could Congress mandate to ensure ongoing access to reliable data? 4  How are OTs being used? Where and when in the acquisition lifecycle is the authority being used? To what extent is the requirements process being circumvented when DOD awards an OT follow-on production contract for a major system? One analyst suggested that "no efficiency is lost if only the most able personnel are authorized to procure and administer" OT agreements and further argued that expanding the use of OTs would increase the training costs by expanding the number of people who can "weave complex agreements in a relatively unstructured environment " Congress may consider whether DOD should establish an acquisition innovation lab or center of excellence responsible for overseeing, executing, and approving all OTs across the department  Such a lab or center could be staffed and supported by a cadre of professionals with experience across the acquisition lifecycle who have a willingness and ability to embrace new ideas and rethink existing practices  Alternatively, such labs or centers could be established in the military departments  Having centers in each organization could allow for consideration of the different missions and business approaches of the departments and help educate the workforce on a more systematic basis  Proponents argue that such an office would help ensure that only experienced and capable officials, with the appropriate training, use OT authorities  Such an office could also help protect against layering internal DOD policies and bureaucracies onto OTs by placing OTs outside of the traditional bureaucratic acquisition process  Proponents could further argue that such an office could better propagate best practices and ensure that OTs are used appropriately and are consistent with guidance and legislation  Having a single office responsible for executing or approving all OTs could also help ensure more timely and accurate information, giving Congress more visibility into DOD's use of other transaction authorities  To the extent that a single, high-level official is responsible for managing and overseeing all OTs, Congress might wish to consider repealing or modifying existing statutory approval requirements  If such an office was able to provide timely and accurate information, Congress might also consider some of the current reporting requirements unnecessary, and may choose to repeal some of the reporting requirements  Opponents of such a proposal argue that centralizing OTs would have the opposite effect, increasing bureaucracy by adding yet another office within DOD  Opponents also argue that such an office could make it more time-consuming to get a project underway and may discourage program offices from attempting or suggesting OTs  Some also argue that a single office may not have the resources to execute and approve agreements in a timely manner, and would inhibit spreading expertise on how to execute OT agreements more broadly across the acquisition workforce  Even proponents who might in theory support establishing such an office could raise significant concerns regarding how such an office would function in practice  A number of alternative options could be pursued to address concerns raised by opponents of establishing a centralized office  Some of these alternative options include the following: Granting such an office primary, but not exclusive, authority to execute OTs  For example, agreement officers specifically authorized to do so could execute OTs, with the centralized office conducting a peer review  Under this construct, the office could also be charged with providing information and expertise/consulting services on the use of OTs to program offices contemplating using the authorities  Establishing centers within each military department, with a designated office in OSD serving a coordinating function (with nondelegable approval authority residing in the military department office designated for OTs)  Creating the office as a pilot program for three years, to help DOD manage OTs until such time as the workforce becomes more experienced and proficient in using these agreements  Appendix A  Legislative History Other transaction authority first appeared in the National Aeronautics and Space Act of 1958  Since then, Congress has extended OT authorities to 11 federal agencies and a number of other federal offices (see Appendix B for information on other federal entities with similar authorities)  This appendix traces the legislative history of OT authorities and select related statutes applicable to DOD  To read the full text of the three statutory provisions related to OTs (10 U S C  2371, 2371b, and 2373), see Appendix D   National Aeronautics and Space Act of 1958 (P L  85-568) Creation of Other Transaction Authority On July 29, 1958 President Dwight D  Eisenhower signed into law the National Aeronautics and Space Act (P L  85-568), which established the National Aeronautics and Space Administration (NASA)  The purpose of the act included the expansion of human knowledge, preservation of the role of the United States as a leader in space science and technology, and pursuing the most effective utilization of the scientific and engineering resources of the United States  Section 203(b)(5) of the Space Act provided NASA the authority (emphasis added) to enter into and perform such contracts, leases, cooperative agreements, or other transactions as may be necessary in the conduct of its work and on such terms as it may deem appropriate, with any instrumentality of the United States     or with any person, firm, association, corporation, or educational institution  To the maximum extent practicable and consistent with the accomplishments of the purpose of this Act, such contracts, leases, agreements, and other transactions shall be allocated by the Administrator in a manner which will enable small-business concerns to participate equitably and proportionately in the conduct of the work of the Administration  Intellectual Property Rights The Space Act specifically addressed NASA's "property rights in inventions " Section 305 stated that any invention made in the performance of any work under any contract is the exclusive property of the United States "unless the Administrator waives all or any part of the rights " This was true even when the person who created the invention "was not employed or assigned to perform research, development, or exploratory work, but the invention is nevertheless related to the contract" and was made during working hours, or with a contribution of the government  The act granted the Administrator wide latitude to "waive all or any part of the rights of the United States under this section" if doing so was deemed to be in the best interests of the United States  When such rights were waived, NASA retained an irrevocable, nonexclusive, nontransferable royalty-free license by or on behalf of the United States  National Defense Authorization Act for FY1990 & FY1991 ( P L  101-189 ) The FY1990 & FY1991 NDAA granted DARPA temporary authority to enter into "cooperative agreements and other transactions" for the purpose of conducting advanced research projects  The statute clarified that OTs should only be used when "the use of standard contracts or grants is not feasible or appropriate " Congress restricted funding for OTs and cooperative agreements to $25 million of appropriated funds for FY1990 and FY1991, and set the authority to expire on September 30, 1991  Cost Sharing The FY1990 & FY1991 NDAA permitted OTs (or cooperative agreements) to include a clause requiring a person or entity to make payments to DOD as a condition of receiving support under the agreement  Such funds were to be merged into an account dedicated to supporting DARPA advanced research projects using cooperative agreements and other transactions  The act required, to the extent practicable, that funds provided by the government not exceed the total amount provided by the other parties to the project  According to the Senate report, one of the intents of the cost-sharing provision was to permit DARPA to "recoup the fruits of such arrangements, when there is a 'dual use' potential for commercial application" and to reinvest the funds to develop other technologies  Reporting Requirements The FY1990 & FY1991 NDAA required DOD to submit an annual report on the use of OTs and cooperative agreements, to include a description of each agreement and the technologies involved, the potential military and commercial utility of the technology, the reasons a contract or grant was not feasible to support the research, and the amount of payments, if any, received by the federal government under the agreement  National Defense Authorization Act for FY1991 ( P L  101-510 ) Section 244 increased the funds authorized for cooperative agreements and OTs from $25 million to $50 million  However, no such funding was appropriated  Reporting and Notification Requirements The conference report required DOD to submit to Congress a report listing the cooperative agreements and consortia intended to be used in FY1991-1992  The conference report also required DOD to provide the armed services and appropriations committees 30 days' notice prior to DOD signing a cooperative agreement or agreement with a consortia under OT authority  The Senate report focused on consortia as a method to pool resources, share research among numerous participants, and promote critical dual-use technology  Department of Defense Appropriations Act, 1992 ( P L  102-172 ) Limitations on the Use of OTs Section 8113A of P L  102-172 placed temporary limitations on the use of agreements undertaken pursuant to 10 U S C  2371: Section 8113A limited the use of OTs and cooperative agreements exclusively to DARPA (to the exclusion of the rest of DOD) for FY1992  Section 8113A limited DARPA to obligating or expending no more than $37 5 million in FY1992 for cooperative agreements or OTs undertaken pursuant to 10 U S C  2371  Section 8113A further established that no more than $75 million could be obligated or expended by DARPA in FY1992 for DOD dual-use critical technology partnerships  National Defense Authorization Act for FY1992 & FY1993 ( P L  102-190 ) Expanded Authority Section 826 extended other transaction authority to the military departments, and established separate fund accounts in each department for cost sharing  Section 826 also repealed the sunset for cooperative agreements and OTs, making the authorities permanent  Section 821 authorized DOD to enter into cooperative and other transaction agreements to develop critical dual-use technologies as set forth in the Defense Critical Technologies Plan  According to the Senate report   

ground_truth: Small business size standards are of congressional interest because they have a pivotal role in determining eligibility for Small Business Administration (SBA) assistance as well as federal contracting and, in some instances, tax preferences. Although there is bipartisan agreement that the nation's small businesses play an important role in the American economy, there are differences of opinion concerning how to define them. The Small Business Act of 1953 (P.L. 83-163, as amended) authorized the SBA to establish size standards to ensure that only small businesses receive SBA assistance. The SBA currently uses two types of size standards to determine SBA program eligibility: industry-specific size standards and alternative size standards based on the applicant's maximum tangible net worth and average net income after federal taxes. The SBA's industry-specific size standards determine program eligibility for firms in 1,036 industrial classifications in 23 sub-industry activities described in the 2017 North American Industry Classification System (NAICS). The size standards are based on one of four measures: (1) number of employees, (2) average annual receipts in the previous three (may soon be the previous five) years, (3) average asset size as reported in the firm's four quarterly financial statements for the preceding year, or (4) a combination of number of employees and barrel per day refining capacity. Overall, about 97% of all employer firms qualify as small under the SBA's size standards. These firms represent about 30% of industry receipts. The SBA conducts an analysis of various economic factors, such as each industry's overall competitiveness and the competitiveness of firms within each industry, to determine its size standards. However, in the absence of precise statutory guidance and consensus on how to define small, the SBA's size standards have often been challenged, typically by industry representatives seeking to increase the number of firms eligible for assistance and by Members concerned that the size standards may not adequately target assistance to firms that they consider to be truly small. This report provides a historical examination of the SBA's size standards and assesses competing views concerning how to define a small business. It also discusses P.L. 111-240, the Small Business Jobs Act of 2010, which authorized the SBA to establish an alternative size standard using maximum tangible net worth and average net income after federal taxes for both the 7(a) and 504/CDC loan guaranty programs; established, until the SBA acted, an interim alternative size standard for the 7(a) and 504/CDC programs of not more than $15 million in tangible net worth and not more than $5 million in average net income after federal taxes (excluding any carry-over losses) for the two full fiscal years before the date of the application; and required the SBA to conduct a detailed review of not less than one-third of the SBA's industry size standards every 18 months beginning on the new law's date of enactment (September 27, 2010) and ensure that each size standard is reviewed at least once every five years. P.L. 112-239, the National Defense Authorization Act for Fiscal Year 2013, which directed the SBA not to limit the number of size standards and to assign the appropriate size standard to each NAICS industrial classification. This provision addressed the SBA's practice of limiting the number of size standards it used and combining size standards within industrial groups as a means to reduce the complexity of its size standards and to provide greater consistency for industrial classifications that have similar economic characteristics. P.L. 114-328, the National Defense Authorization Act for Fiscal Year 2017, which authorizes the SBA to establish different size standards for agricultural enterprises using existing methods and appeal processes. Previously, the small business size standard for agricultural enterprises was set in statute as having annual receipts not in excess of $750,000. P.L. 115-324, the Small Business Runway Extension Act of 2018, which directs federal agencies proposing a size standard (and, based on report language accompanying the act, presumably the SBA as well) to use the average annual gross receipts from at least the previous five years, instead of the previous three years, when seeking SBA approval to establish a size standard based on annual gross receipts. Legislation introduced during recent Congresses (including H.R. 33, the Small Business Regulatory Flexibility Improvements Act of 2017, and its Senate companion bill, S. 584, during the 115th Congress) to authorize the SBA's Office of Chief Counsel for Advocacy to approve or disapprove a size standard requested by a federal agency for purposes other than the Small Business Act or the Small Business Investment Act of 1958. The SBA's Administrator currently has that authority.

prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 2.



Report 2:  the United States tends to underinvest in dual-use technologies  National security requirements alone often do not justify major DOD support, and market prospects alone often appear to be too long-term or high risk to justify US industry carrying the entire development burden     The committee encourages use of cooperative agreements and other transactions in lieu of grants or contracts     The provision would require that at least 50 percent of funding over the life of a partnership derive from non-federal sources but would allow for a smaller industry share at the start  The conference report stated that the partnerships should focus on programs that fit into the security needs within DARPA  The conference report also stated that OTs are appropriate for those cases where the "regulations applicable to the allocation of patent and data rights under the procurement statutes may not be appropriate to partnership arrangements in certain cases " National Defense Authorization Act for FY1993 ( P L  102-484 ) Cost Sharing Section 4221 established 10 U S C  2511, which required DOD to establish cooperative arrangements with industry, educational institutions, federal labs, and other entities, to pursue research, development, and application of dual-use technologies  The section authorized DOD to use grants, contracts, cooperative agreements, or OTs to create these partnerships, and that the Federal government should not contribute more than 50% of the costs related to projects under this authority  National Defense Authorization Act for FY1994 ( P L  103-160 ) Expanded Authority Section 827 established 10 U S C  2358, which gave the Secretary of Defense and the Secretaries of the military departments the authority to conduct basic, advanced, and applied research through the use of contracts, cooperative agreements, grants, and OTs  Previously, OTs were only authorized for advanced research  Prototype Authorities Section 845 granted DARPA the authority to use OTs for prototype projects directly related to weapons or weapon systems proposed to be acquired by DOD  Section 845 required that "to the maximum extent practicable," prototypes be competitively awarded  This authority was set to terminate after three years  Section 845 remained as a note to 10 U S C  2371 until separately codified as 10 U S C  2371b in the FY2016 NDAA ( P L  114-92 )  Federal Acquisition Streamlining Act of 1994 ( P L  103-355 ) Section 1301 redesignated the language in 10 U S C  2358 (granting the authority to use OTs) to 10 U S C  2371  Reporting Requirements Section 1301 also required DOD to submit an annual report to the armed services committees, to include a general description of the other transactions, including the technologies involved in the research, the potential military and, if any, commercial utility of such technologies, the reasons for not using a contract or grant to provide support for such research, and the amount of payments, if any, received during the fiscal year pursuant to a clause in the other transactions and to what accounts such payments were credited  National Defense Authorization Act for FY1997 ( P L  104-201 ) Section 203 required that a senior DOD official be designated in OSD, and that the officials' sole responsibility be developing policy related to, and ensuring implementation of, DOD's dual-use technology program  This section authorized DOD to use OTs (as well as contracts, cooperative agreements, and grants) for dual-use projects only if the project "is entered into through the use of competitive procedures " Section 743 granted DOD the authority to use OTs to conduct research on Gulf War Syndrome, to determine its relationship to possible exposures of members of the Armed Forces to chemical warfare agents and hazardous materials, and the use of inoculations and new drugs  Expanded Prototype Authorities Section 804 amended Section 845 of the FY1994 NDAA by extending to the military departments and officials designated by the Secretary of Defense, the authority to use OTs for certain prototype projects  This authority, originally granted solely to DARPA and set to expire after three years, was given a new termination date of September 30, 1999  Reporting Requirements Section 267 modified elements of the annual report to the armed services committees  National Defense Authorization Act for FY1998 ( P L  105-85 ) Section 832 amended 10 U S C  2371 by clarifying that certain information submitted to DOD (i e  a proposal, business plan, technical information) be protected from disclosure pursuant to 5 U S C  552 for a period of five years  Strom Thurmond National Defense Authorization Act for FY1999 ( P L  105-261 ) Section 241 extended the sunset day for the authority to use OTs for prototypes from September 30, 1999, to September 30, 2001  Section 817 amended Section 2371 of Title 10, United States Code, clarifying that information submitted by outside parties in cooperative agreements for basic, applied, and advanced research is protected from disclosure under Section 552 of Title 5, United States Code  Department of Defense Appropriations Act, 1999 ( P L  105-262 ) While the enacted FY1999 defense appropriations bill ( P L  105-262 ) did not include legislative language addressing OTs, H Rept  105-591 , which accompanied the House-reported version of H R  4103 , included language expressing the House Appropriations Committee's "serious reservations" regarding the Air Force's then-proposed use of an OT agreement—instead of a contract— to develop the Evolved Expendable Launch Vehicle (EELV) program  The committee noted that "under [OTs] traditional safeguards which protect the government's interest in large acquisition programs are largely absent," and required the Under Secretary of Defense for Acquisition, Technology, and Logistics (now the Under Secretary of Defense for Acquisition and Sustainment) and the DOD Inspector General to certify to the congressional defense committees that the use of an OT was appropriate for the EELV program, and that "adequate safeguards exist[ed] to protect the government's interest and monitor program performance " National Defense Authorization Act for FY2000 ( P L  106-65 ) Section 801 required that for prototypes using OT authorities, DOD ensure that GAO, under its audit authority, have access to records relating to other transaction prototype agreements exceeding $5 million  Section 801 allowed for a waiver to GAO access and exempted entities that over the last year have not entered into an agreement with DOD that provided for audit access by a government entity  According to the Senate report: Senior DOD officials have sought legislation to extend other transaction authority to production contracts  Under current authority, there is some debate about whether GAO has audit access to other transactions  As the size, costs, and complexity of programs being funded using other transactions increases, the committee wants to ensure that the GAO has audit access in relation to the higher levels of spending and added risks  Reporting Requirements The Senate report also addressed reporting requirements and congressional intent to review the use of OTs  The report stated the following: The committee is assessing the utility of other transaction prototype authority  The statement of managers accompanying the Strom Thurmond National Defense Authorization Act of 1999 directed the Secretary of Defense to report on the use of this authority to the congressional defense committees, no later than March 1, 1999  In addition, both the Department of Defense Inspector General and the General Accounting Office are reviewing the use of other transaction prototype authority and will report to Congress in the coming year  The committee is interested in the extent that new commercial firms are entering the DOD marketplace through the use of other transaction authority, as well as the degree of cost sharing between the government and non-federal government parties  The committee is also interested in any lessons learned from the broad exemptions to federal law provided by other transaction authority  For example, other transactions are exempt from the Competition in Contracting Act, Truth in Negotiations Act, Contract Disputes Act, Antikickback Act of 1986, Procurement Integrity Act, Service Contract Act, Buy American Act, and chapter 137 of title 10, United States Code  Questions have been raised about whether the government's interest is adequately protected in the absence of the applicability of these statutes  Conversely, advocates of the view that the government should take advantage of the flexibility of other transactions have championed proposals to extend other transaction authority to production  The committee directs the Secretary of Defense to provide a new report that updates information in the March 1999 report on the use of other transaction prototype authority to the congressional defense committees by February 1, 2000  National Defense Authorization Act for FY2001 ( P L  106-398 ) Limitations on the Use of OTs Section 803 limited the use of OTs for prototype projects to only those circumstances when at least one nontraditional defense contractor significantly participates in the project, one-third of the total cost of the project is paid out of funds provided by parties to the transaction other than the federal government, or the senior procurement executive determines in writing that exceptional circumstances justify use of an OT  Nontraditional defense contractor was defined as an entity that for a period of one year has not entered into or performed "any contract that is subject to full coverage under the cost accounting standards" or "any other contract in excess of $500,000 to carry out prototype projects or to perform basic, applied, or advanced research projects for a Federal agency, that is subject to the Federal Acquisition Regulation '' Section 803 also extended the authority to use OTs for prototypes from September 30, 2001, to September 30, 2004  According to the Senate report, the intent of using OTs for prototypes is to attract companies that typically do not do business with the Department of Defense and encourage cost sharing and experimentation in potentially more efficient ways of doing business with traditional defense contractors  Other transaction authority is an important acquisition tool that can facilitate the incorporation of commercial technology into military weapon systems  In an environment where, in many areas, commercial technology is now more advanced than defense technology, it is imperative that the Department continue to have the flexibility to use innovative contractual instruments that provide access to this technology  There are, however, improvements that can be made in managing and overseeing these contractual arrangements  Section 804 clarified the extent of GAO's access to records in instances where the party in question has only done business with the government in the preceding year through an OT or cooperative agreement  National Defense Authorization Act for FY2002 ( P L  107-107 ) Expanded Authority—Follow-on Production Section 822 of the FY2002 NDAA granted DOD the authority to award a follow-on production contract for prototype projects when at least one-third of the total cost of the prototype project is to be paid out of funds provided by non-federal government sources  Under this authority, such a follow-on contract could be awarded without competition if the prototype project was successfully completed, the number of units in the production contract does not exceed the number of units specified in the underlying prototype agreement, and the price for each unit does not exceed the price specified in the underlying transaction  Department of Defense and Emergency Supplemental Appropriations for Recovery from and Response to Terrorist Attacks on the United States Act, 2002 ( P L  107-117 ) Establishment of Army Venture Capital Initiative (AVCI) Section 8150 designated $25 million of the FY2002 funds made available for Army Research, Development, Test, and Evaluation (RDT&E) to be made available to the Secretary of the Army for the purpose of funding a venture capital investment corporation established pursuant to 10 U S C  2371  A 2014 RAND report stated that OT authorities were used only to form the AVCI, and were not used to acquire products or services: "While OT authorities were used to form [AVCI] itself, any volume of the Army's purchase of products and services from [AVCI] companies is conducted under the FAR " National Defense Authorization Act for FY2004 ( P L  108-136 ) Expanded Authority Section 847 of the FY2004 NDAA extended the authority to use an OT for developing prototypes to improve weapons or weapon systems currently in use by the Armed Forces  Previously, such authority was restricted to prototypes "directly relevant to weapons or weapon systems proposed to be acquired or developed" by DOD  Section 847 also established a pilot program for transitioning prototypes to follow-on contracts for production for nontraditional defense contractors  Under the pilot program, such a follow-on contract could be treated as a commercial item or an item developed with both federal and private sector funds (for purposes of negotiating intellectual property rights)  The pilot program was restricted to contracts with nontraditional defense contractors, where the value of the contract does not exceed $50 million (approximately $70 million in FY2018 dollars), and that are firm-fixed price or fixed price with economic adjustment  The pilot program was set to sunset September 30, 2008  Section 1441 authorized any agency that engages in basic, applied, or advanced research and development projects that facilitated defense against or recovery from terrorism or nuclear, biological, chemical, or radiological attack to exercise the same general authority given to DOD as found in 10 U S C  2371 (including for prototype projects)  Reporting Requirements Section 1031 sunset the annual reporting requirement for OT after the report covering FY2006 was submitted  National Defense Authorization Act for FY2006 ( P L  109-163 ) Restricted Authority and Notification Requirements Section 212 of the FY2006 NDAA directed the Army to procure the Future Combat System using contract procedures set forth in part 15 of the Federal Acquisition Regulation, in lieu of an OT  Section 823 extended ethics requirements to OT prototype authority and required the congressional defense committees be notified in writing at least 30 days before such authority is exercised  Certification Requirements Section 823 also amended Section 845 of the FY1994 NDAA, requiring a written determination by a senior procurement executive for other transaction prototype projects estimated between $20 million and $100 million, and for a written determination by the Under Secretary of Defense for Acquisition, Technology, and Logistics for prototype projects that exceed $100 million  According to the Senate report: Section 845 was intended to be used for limited prototype projects, particularly those in which the Department seeks to engage nontraditional defense contractors that may be averse to the requirements imposed by a standard Department procurement contract  For this reason, the statement of managers accompanying the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 (Public Law 105–261) states: The conferees continue to believe that the section 845 authority should only be used in the exceptional cases where it can be clearly demonstrated that a normal contract or grant will not allow sufficient access to affordable technologies  The conferees are especially concerned that such authority not be used to circumvent the appropriate management controls in the standard acquisition and budgeting process  …  The committee does not believe that the $20 9 billion agreement entered between the Army and the Lead Systems Integrator for the FCS program is consistent with the language and intent of section 845 authority  Section 845 authority is intended to be used for limited prototype projects, particularly those in which the Department of Defense seeks to engage nontraditional defense contractors that may be averse to the requirements imposed by a standard Department contract  Department of Defense Appropriations Act, 2007 ( H R  5631 ) Reporting Requirement The FY2007 defense appropriations bill ( P L  109-289 ) did not include language addressing OTs  The conference report ( H Rept  109-676 ) included language expressing the conferees' "[concern] with the continued use of OTA contracts by the Missile Defense Agency," as such contracts "lack the customary safeguards found under FAR-based contracts for organizational conflict of interest, truth in negotiations and submission of cost and pricing data " The conferees "strongly encourage[d]" the Missile Defense Agency to convert "large development and procurement contracts using OTA to FAR-based contracts," and directed the Missile Defense Agency to submit a report to the congressional defense committees on the use of OTs, to include the number, value, and justification for the use of such agreements  National Defense Authorization Act for FY2008 ( P L  110-181 ) Section 823 extended the authority for prototype projects for five more years, from September 30, 2008, to September 30, 2013  National Defense Authorization Act for FY2009 ( P L  110-417 ) Section 822 required DOD to issue guidance on rights in technical data under non-FAR agreements, including OTs  Section 822 also required that appropriate provisions relating to rights in technical data be included in non-FAR agreements, consistent with policy guidance  This requirements is in statute at 10 U S C  2320 note  Section 824 expanded the scope of the pilot program for transition to follow-on contracts for certain prototype projects to include research projects carried out under 10 U S C  2371  Authority to use the pilot program, set to expire September 30, 2008, was extended to September 30, 2010  Section 874 required OT data be included in the Federal Procurement Data System  National Defense Authorization Act for FY2011 ( P L  111-383 ) Section 866 changed the definition of nontraditional defense contractor, conforming the definition to that found in 10 U S C  2302(9)  National Defense Authorization Act for FY2013 ( P L  112-239 ) Section 863 extended the authority for using OTs for prototype projects from September 30, 2013, to September 30, 2018  Carl Levin and Howard P  "Buck" McKeon National Defense Authorization Act for FY2015 ( P L  113-291 ) Expanded Authority Section 812 expanded the authority to use OT for prototypes, to include those "directly related to enhancing the mission effectiveness of military personnel and the supporting platforms, systems, components, or materials proposed to be acquired or developed by the Department of Defense, or to improvement of platforms, systems, components, or materials in use by the Armed Forces " Prior to the FY2015 NDAA, OTs could only be used for prototypes relating to weapons or weapon systems proposed to be developed, or for the improvement of weapons or weapon systems currently in use  Reporting Requirements Section 1071 repealed the reporting requirement language found in 10 U S C  2371, relating to OTs for research projects  National Defense Authorization Act for FY2016 ( P L  114-92 ) Until the FY2016 NDAA, the prototyping and follow-on production authority established in Section 845 of the FY1994 NDAA (as amended) was found in 10 U S C  2371 note  Section 815 of the FY2016 NDAA simultaneously repealed Section 845 of the FY1994 NDAA and put the repealed language into the newly created 10 U S C  2371b  The FY2016 NDAA also modified 2371b by making the authority permanent  Expanded Authority and Small Business The authorities in Section 2371b were expanded to allow their use when "all significant participants in the transaction other than the Federal government are small businesses or nontraditional contractors" and when the agency determines that using an OT would expand the defense supply base in a manner that could not be accomplished through a contract  Section 815 eased the restriction on follow-on production contracts or transactions  Section 815 amended the definition of a nontraditional defense contractor found in 10 U S C  2302 to be an entity that is not currently performing, and for one year prior to an OT has not performed on any contract or subcontract that is subject to full coverage under the cost accounting standards pursuant to Section 1502 of Title 41, U S C  Section 815 also required DOD to update its guidance to reflect changes in the statute  The conference report stated that Congress believed OTs are an attractive option for firms and organizations that do not usually participate in government contracting due to typical overhead burdens and the "one size fits all" rules governing defense acquisition  The report also stated that OTs could support DOD's effort to access new sources of technological innovation, specifically with Silicon Valley startup firms and small commercial firms  National Defense Authorization Act for FY2018 ( P L  115-91 ) Expanded Authority Section 216 of the FY2018 NDAA authorized nonprofit research institutions to enter into OTs with DOD for prototype projects  Section 862 amended 10 U S C  2358, granting the Secretary of Defense and the military departments the authority to pursue basic research, applied research, advanced research, and development projects under the OT authorities granted in Sections 2371 and 2371b of Title 10  Workforce Section 802 required DOD to establish a cadre of intellectual property experts to advise, assist, and provide resources to program offices who are developing intellectual property strategies for contracts and agreements  Section 863 required training and education for personnel involved in OTs and other innovative contracting methods  Certification Requirements and Small Business Section 864 adjusted the language of the statute to state that the dollar threshold relates to the specific transaction for a prototype project and not for the value of the entire project  Section 864 defined a transaction for follow-on production to include "all individual prototype sub-projects awarded under the transaction to a consortium of United States industry and academic institutions " Section 864 also increased the dollar thresholds for required approvals and defined the term small business to include small businesses under Section 9 of the Small Business Act to ensure that companies participating in the Small Business Innovation Research and Small Business Technology Transfer programs were considered small businesses for the purposes of the cost-sharing requirements  Miscellaneous Section 867 required the Secretary of Defense to establish a preference for OTs in the "execution of science and technology and prototyping programs " Section 1711 required DOD to carry out a pilot program to "assess the feasibility and advisability of increasing the manufacturing capability of the defense industrial base " Pursuant to the pilot, Section 1711 authorized DOD to use OTs to support production capabilities in small and medium-sized manufacturers  John S  McCain National Defense Authorization Act for FY2019 ( P L  115-232 ) Section 211 of the FY2019 NDAA clarified that follow-on production of a prototype or subproject within a consortium may occur if the individual prototype or subproject is complete; all projects associated with the consortium do not need to be completed before follow-on production of a specific prototype  Expanded Authority The FY2019 NDAA authorized the use of OTs to develop enhanced personal protective equipment (Section 226) and to carry out research under the Explosive Ordnance Disposal Defense Program (Section 311)  Reporting Requirements Section 244 required the Defense Innovation Unit to submit a report to Congress, to include the number of traditional and nontraditional defense contractors with DOD contracts or other transactions resulting directly from the unit's initiatives  Section 873 required DOD to submit an annual report through 2021, summarizing DOD's use of OTs, including organizations involved; number of transactions; amounts of payments; and purpose, description, and status of projects  Department of Defense Appropriations Act, 2019 ( P L  115-245 ) Reporting Requirements While the enacted FY2019 defense appropriations bill did not include legislative language addressing OTs, the conference report included language expressing the conferees' "[concern] with the lack of transparency surrounding the employment of OTA, particularly for follow-on production " The conferees directed DOD to provide quarterly reports to the House and Senate appropriations committees listing each active OT, and to include the following information on each agreement: funding military service or DOD component; major command (if applicable); contracting activity; appropriation title; budget line item; minimum and maximum award value; vendor; obligations and expenditures to date; product service code; period of performance; and indication if the OT agreement included an option for follow-on production (with a description of the scope of anticipated follow-on production)  The conferees also directed GAO to review DOD's use of OTs to determine whether the "employment of this authority conforms to applicable statutes and guidelines, to include the identification of any potential conflicts " GAO was also required to report on the extent to which OTs have been used since FY2016  Notification Requirements The House report to accompany H R  6157 acknowledged OTs as an "important tool to provide flexibility and agility for cutting-edge research and development projects and prototypes " However, the report stated its concern "with the lack of transparency on the use of OTA authority for follow-on production procurements," and directed that no funds could be obligated or expended for a follow-on production contract or a transaction carried out under 10 U S C  2371b, until 30 days after the Secretary of Defense provides the congressional defense committees with a notification of the proposed contract or transaction, to include a justification of why an OT is being used for production  Appendix B  Non-DOD Federal Agencies with Agency-Wide OT or Related Authorities A number of agencies have varying other transaction or similar authorities, as reflected in Table B-1   The table below is not a comprehensive or definitive listing of every federal government entity with OT or related authorities  In some instances, offices, agencies, commissions, and other federal government entities have OT or related authorities that are only associated with certain programs or projects, such as the National Institutes of Health (which has OT authority for such specific activities such as the National Heart, Blood Vessel, Lung, and Blood Diseases and Blood Resources Program [42 U S C  §285b-3] and the Cures Acceleration Network [42 U S C  §287a])  Appendix C  Reliability of Data on Other Transactions All data have imperfections and limitations  FPDS-NG data can be used to identify broad trends and produce rough estimates, or to gather information about specific contracts  Some observers say that despite their shortcomings, FPDS-NG data are substantially more comprehensive than what is available in most other countries in the world  Understanding the limitations of government procurement data—including knowing when, how, and to what extent to rely on data—can help policymakers incorporate FPDS-NG data more effectively into their decisionmaking process  FPDS-NG OT Data Quality and Accuracy Issues Decisionmakers should be cautious when using data from FPDS-NG to develop policy or otherwise draw conclusions, especially with respect to OTs  In some cases, the data themselves may not be reliable  In other instances, a query for particular data may return differing results, depending on the parameters and timing of the analysis  In particular, all DOD data entered into FPDS-NG are subject to a 90-day delay, and updates to "data, including new actions, modifications, and corrections are made on a regular basis," which could result in changes to "data     for current and/or prior fiscal years " Inconsistencies in FPDS-NG Data Within FPDS-NG, two primary collections of obligation data exist: one associated with standard government procurement contracts or modifications to such contracts, and the other associated with prototype OT agreements or modifications to such agreements  FPDS-NG's collection of prototype OT data allows for the input of additional data elements—such as nongovernment dollars associated with cost-share prototype OT agreements—not included in FPDS-NG's collection of standard government procurement contract data  More consequentially, FPDS-NG's prototype OT data include two similar data elements that allow users to identify the fiscal year a prototype OT agreement was signed or modified  One, labeled in the database as "Fiscal Year," appears to allow users entering data into the system to manually assign a fiscal year to a transaction  FPDS-NG users entering data into the system appear to have interpreted this data element in various, conflicting ways  For example, a Department of the Air Force OT agreement was signed in February 2016 for the development of rocket propulsion system prototypes under the Evolved Expendable Launch Vehicle (EELV) program  FPDS-NG records an obligation of $115 million in FY2020 for this agreement  Fiscal law bars DOD from obligating money now for future fiscal years that have not yet occurred  The second, labeled "Contract Fiscal Year," appears to be based on the date the prototype OT agreement was signed or modified  See Table C-1 for a comparison of the "Fiscal Year" and "Contract Fiscal Year" elements for selected new prototype OT agreements signed between FY2013 and FY2017  If a user selects the Fiscal Year data element when attempting to review high-level data on recent trends in the use of prototype OT agreements within DOD—such as the total amount obligated for prototype OT agreements on an annual basis—that user will obtain a substantially different result than if he or she selects the Contract Fiscal Year data element for a similar analysis  See Table C-2 for a comparison of action obligations and nongovernment contributions using the Fiscal Year and Contract Fiscal Year data elements for new prototype OT agreements signed between FY2013 and FY2017  DOD OT Data Analysis Methodological Issues in Congressional Reports A March 2017 report to Congress entitled "An Assessment of Cost-Sharing in Other Transaction Agreements for Prototype Projects," completed by the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics indicated that In FY2016, DOD obligated (Note: Two outliers in 2016 excluded) $1 billion in section 2371b awards and received $68 million in cost-share contributions after excluding two significant trend outliers  DOD cited FPDS-NG as the source for its analysis, and defined the "significant trend outliers" excluded as "two $40 million OTAs with total cost-share of $270 million," likely referring to two DARPA prototype OT agreements conducted on a cost-share basis initiated in FY2016  However, a CRS analysis of the same FPDS-NG data identified numerous inconsistencies in DOD's methodological approach  Recreation of DOD Methodology Specifically, DOD appears to have conducted its analysis using the "Fiscal Year" data element referenced in this report's discussion of FPDS-NG OT data quality and accuracy issues, which would attribute some prototype OT activities to the wrong fiscal year for the purposes of comparative trend analysis  DOD also compared two disparate transaction types: the reported "$1 billion in Section 2371b awards" includes all action obligations associated with ongoing prototype OT activities in FY2016, including transactions associated with prototype OT indefinite delivery contracts, while the "$68 million in cost-share contributions" includes only cost-share contributions associated with new prototype OT agreements  If DOD used the "Contract Fiscal Year" data element, excluded the identified "trend outliers," and focused on all action obligations and cost-share contributions associated with ongoing prototype OT activities, it would have found instead that the department obligated $1 4 billion for prototype OT agreements in FY2016, with an additional $313 5 million in cost-share contributions from the private sector  On the other hand, if DOD used the "Contract Fiscal Year" data element, excluded the identified "trend outliers," and focused on only action obligations and cost-share contributions associated with new prototype OT agreements, it would have found instead that the department obligated $400 million for prototype OT agreements in FY2016, with an additional $272 1 million in cost-share contributions from the private sector  Appendix D  Other Transaction Authority Statutes 10 U S C  §2371  Research projects: transactions other than contracts and grants (a) ADDITIONAL FORMS OF TRANSACTIONS AUTHORIZED — The Secretary of Defense and the Secretary of each military department may enter into transactions (other than contracts, cooperative agreements, and grants) under the authority of this subsection in carrying out basic, applied, and advanced research projects  The authority under this subsection is in addition to the authority provided in Section 2358 of this title to use contracts, cooperative agreements, and grants in carrying out such projects  (b) EXERCISE OF AUTHORITY BY SECRETARY OF DEFENSE — In any exercise of the authority in subsection (a), the Secretary of Defense shall act through the Defense Advanced Research Projects Agency or any other element of the Department of Defense that the Secretary may designate  (c) ADVANCE PAYMENTS — The authority provided under subsection (a) may be exercised without regard to Section 3324 of Title 31  (d) RECOVERY OF FUNDS — (1) A cooperative agreement for performance of basic, applied, or advanced research authorized by Section 2358 of this title and a transaction authorized by subsection (a) may include a clause that requires a person or other entity to make payments to the Department of Defense or any other department or agency of the Federal Government as a condition for receiving support under the agreement or other transaction  (2) The amount of any payment received by the Federal Government pursuant to a requirement imposed under paragraph (1) may be credited, to the extent authorized by the Secretary of Defense, to the appropriate account established under subsection (f)  Amounts so credited shall be merged with other funds in the account and shall be available for the same purposes and the same period for which other funds in such account are available  (e) CONDITIONS — (1) The Secretary of Defense shall ensure that- (A) to the maximum extent practicable, no cooperative agreement containing a clause under subsection (d) and no transaction entered into under subsection (a) provides for research that duplicates research being conducted under existing programs carried out by the Department of Defense; and (B) to the extent that the Secretary determines practicable, the funds provided by the Government under a cooperative agreement containing a clause under subsection (d) or a transaction authorized by subsection (a) do not exceed the total amount provided by other parties to the cooperative agreement or other transaction  (2) A cooperative agreement containing a clause under subsection (d) or a transaction authorized by subsection (a) may be used for a research project when the use of a standard contract, grant, or cooperative agreement for such project is not feasible or appropriate  (f) SUPPORT ACCOUNTS — There is hereby established on the books of the Treasury separate accounts for each of the military departments and the Defense Advanced Research Projects Agency for support of research projects and development projects provided for in cooperative agreements containing a clause under subsection (d) and research projects provided for in transactions entered into under subsection (a)  Funds in those accounts shall be available for the payment of such support  (g) EDUCATION AND TRAINING —The Secretary of Defense shall— (1) ensure that management, technical, and contracting personnel of the Department of Defense involved in the award or administration of transactions under this section or other innovative forms of contracting are afforded opportunities for adequate education and training; and (2) establish minimum levels and requirements for continuous and experiential learning for such personnel, including levels and requirements for acquisition certification programs  (h) REGULATIONS — The Secretary of Defense shall prescribe regulations to carry out this section  (i) Protection of Certain Information From Disclosure -(1) Disclosure of information described in paragraph (2) is not required, and may not be compelled, under Section 552 of Title 5 for five years after the date on which the information is received by the Department of Defense  (2)(A) Paragraph (1) applies to information described in subparagraph (B) that is in the records of the Department of Defense if the information was submitted to the Department in a competitive or noncompetitive process having the potential for resulting in an award, to the party submitting the information, of a cooperative agreement for performance of basic, applied, or advanced research authorized by Section 2358 of this title or another transaction authorized by subsection (a)  (B) The information referred to in subparagraph (A) is the following: (i) A proposal, proposal abstract, and supporting documents  (ii) A business plan submitted on a confidential basis  (iii) Technical information submitted on a confidential basis  10 U S C  §2371b  Authority of the Department of Defense to carry out certain prototype projects (a) AUTHORITY — (1) Subject to paragraph (2), the Director of the Defense Advanced Research Projects Agency, the Secretary of a military department, or any other official designated by the Secretary of Defense may, under the authority of Section 2371 of this title, carry out prototype projects that are directly relevant to enhancing the mission effectiveness of military personnel and the supporting platforms, systems, components, or materials proposed to be acquired or developed by the Department of Defense, or to improvement of platforms, systems, components, or materials in use by the armed forces  (2) The authority of this section- (A) may be exercised for a transaction (for a prototype project) that is expected to cost the Department of Defense in excess of $100,000,000 but not in excess of $500,000,000 (including all options) only upon a written determination by the senior procurement executive for the agency as designated for the purpose of Section 1702(c) of Title 41, or, for the Defense Advanced Research Projects Agency or the Missile Defense Agency, the director of the agency that- (i) the requirements of subsection (d) will be met; an d (ii) the use of the authority of this section is essential to promoting the success of the prototype project; and (B) may be exercised for a transaction (for a prototype project) that is expected to cost the Department of Defense in excess of $500,000,000 (including all options) only if- (i) the Under Secretary of Defense for Acquisition, Technology, and Logistics determines in writing that- (I) the requirements of subsection (d) will be met; an d (II) the use of the authority of this section is essential to meet critical national security objectives; and (ii) the congressional defense committees are notified in writing at least 30 days before such authority is exercised  (3) The authority of a senior procurement executive or director of the Defense Advanced Research Projects Agency or Missile Defense Agency under paragraph (2)(A), and the authority of the Under Secretary of Defense for Acquisition, Technology, and Logistics under paragraph (2)(B), may not be delegated  (b) EXERCISE OF AUTHORITY — (1) Subsections (e)(1)(B) and (e)(2) of such Section 2371 shall not apply to projects carried out under subsection (a)  (2) To the maximum extent practicable, competitive procedures shall be used when entering into agreements to carry out projects under subsection (a)  (c) COMPTROLLER GENERAL ACCESS TO INFORMATION — (1) Each agreement entered into by an official referred to in subsection (a) to carry out a project under that subsection that provides for payments in a total amount in excess of $5,000,000 shall include a clause that provides for the Comptroller General, in the discretion of the Comptroller General, to examine the records of any party to the agreement or any entity that participates in the performance of the agreement  (2) The requirement in paragraph (1) shall not apply with respect to a party or entity, or a subordinate element of a party or entity, that has not entered into any other agreement that provides for audit access by a Government entity in the year prior to the date of the agreement  (3) (A) The right provided to the Comptroller General in a clause of an agreement under paragraph (1) is limited as provided in subparagraph (B) in the case of a party to the agreement, an entity that participates in the performance of the agreement, or a subordinate element of that party or entity if the only agreements or other transactions that the party, entity, or subordinate element entered into with Government entities in the year prior to the date of that agreement are cooperative agreements or transactions that were entered into under this section or Section 2371 of this title  (B) The only records of a party, other entity, or subordinate element referred to in subparagraph (A) that the Comptroller General may examine in the exercise of the right referred to in that subparagraph are records of the same type as the records that the Government has had the right to examine under the audit access clauses of the previous agreements or transactions referred to in such subparagraph that were entered into by that particular party, entity, or subordinate element  (4) The head of the contracting activity that is carrying out the agreement may waive the applicability of the requirement in paragraph (1) to the agreement if the head of the contracting activity determines that it would not be in the public interest to apply the requirement to the agreement  The waiver shall be effective with respect to the agreement only if the head of the contracting activity transmits a notification of the waiver to Congress and the Comptroller General before entering into the agreement  The notification shall include the rationale for the determination  (5) The Comptroller General may not examine records pursuant to a clause included in an agreement under paragraph (1) more than three years after the final payment is made by the United States under the agreement  (d) APPROPRIATE USE OF AUTHORITY — (1) The Secretary of Defense shall ensure that no official of an agency enters into a transaction (other than a contract, grant, or cooperative agreement) for a prototype project under the authority of this section unless one of the following conditions is met: (A) There is at least one nontraditional defense contractor or nonprofit research institution participating to a significant extent in the prototype project  (B) All significant participants in the transaction other than the Federal Government are small businesses (including small businesses participating in a program described under Section 9 of the Small Business Act (15 U S C  638)) or nontraditional defense contractors  (C) At least one third of the total cost of the prototype project is to be paid out of funds provided by sources other than other than the Federal Government  (D) The senior procurement executive for the agency determines in writing that exceptional circumstances justify the use of a transaction that provides for innovative business arrangements or structures that would not be feasible or appropriate under a contract, or would provide an opportunity to expand the defense supply base in a manner that would not be practical or feasible under a contract  (2) (A) Except as provided in subparagraph (B), the amounts counted for the purposes of this subsection as being provided, or to be provided, by a party to a transaction with respect to a prototype project that is entered into under this section other than the Federal Government do not include costs that were incurred before the date on which the transaction becomes effective  (B) Costs that were incurred for a prototype project by a party after the beginning of negotiations resulting in a transaction (other than a contract, grant, or cooperative agreement) with respect to the project before the date on which the transaction becomes effective may be counted for purposes of this subsection as being provided, or to be provided, by the party to the transaction if and to the extent that the official responsible for entering into the transaction determines in writing that- (i) the party incurred the costs in anticipation of entering into the transaction; and (ii) it was appropriate for the party to incur the costs before the transaction became effective in order to ensure the successful implementation of the transaction  (e) Definitions —In this section: (1) The term "nontraditional defense contractor" has the meaning given the term under Section 2302(9) of this title  (2) The term "small business" means a small business concern as defined under Section 3 of the Small Business Act (15 U S C  632)  (f) FOLLOW-ON PRODUCTION CONTRACTS OR TRANSACTIONS — (1) A transaction entered into under this section for a prototype project may provide for the award of a follow-on production contract or transaction to the participants in the transaction  A transaction includes all individual prototype subprojects awarded under the transaction to a consortium of United States industry and academic institutions  (2) A follow-on production contract or transaction provided for in a transaction under paragraph (1) may be awarded to the participants in the transaction without the use of competitive procedures, notwithstanding the requirements of Section 2304 of this title, if - (A) competitive procedures were used for the selection of parties for participation in the transaction; and (B) the participants in the transaction successfully completed the prototype project provided for in the transaction  (3) Contracts and transactions entered into pursuant to this subsection may be awarded using the authority in subsection (a), under the authority of Chapter 137 of this title, or under such procedures, terms, and conditions as the Secretary of Defense may establish by regulation  (g) AUTHORITY TO PROVIDE PROTOTYPES AND FOLLOW-ON PRODUCTION ITEMS AS GOVERNMENT-FURNISHED EQUIPMENT — An agreement entered into pursuant to the authority of subsection (a) or a follow-on contract or transaction entered into pursuant to the authority of subsection (f) may provide for prototypes or follow-on production items to be provided to another contractor as Government-furnished equipment  (h) APPLICABILITY OF PROCUREMENT ETHICS REQUIREMENTS — An agreement entered into under the authority of this section shall be treated as a Federal agency procurement for the purposes of Chapter 21 of Title 41  10 U S C  §2373  Procurement for experimental purposes (a) AUTHORITY — The Secretary of Defense and the Secretaries of the military departments may each buy ordnance, signal, chemical activity, transportation, energy, medical, space-flight, and aeronautical supplies, including parts and accessories, and designs thereof, that the Secretary of Defense or the Secretary concerned considers necessary for experimental or test purposes in the development of the best supplies that are needed for the national defense  (b) PROCEDURES — Purchases under this section may be made inside or outside the United States and by contract or otherwise  Chapter 137 of this title applies only when such purchases are made in quantities greater than necessary for experimentation, technical evaluation, assessment of operational utility, or safety or to provide a residual operational capability 
Report 2:  14 ); reduce the pay of Members of Congress (for example, H R  1786 and H R  5539 ); and prohibit pay for Members of Congress during a lapse in appropriations resulting in a government shutdown (for example, H R  1789 , H R  1794 , H R  2214 , H R  4852 , H R  4870 , and S  2327 )  Legislation was introduced in the 114 th Congress to prohibit adjustments in pay (for example, H R  109 and H R  302 ); repeal the automatic pay adjustment provision (for example, H R  179 , H R  513 , H R  688 , H R  1585 , and S  17 ); change the procedure by which pay for Members of Congress is adjusted or disbursed by linking it to congressional actions or economic indicators, including the passage of a budget resolution or existence of a deficit (for example, H Con Res  27 , S Con Res  11 , H R  92 , H R  110 , H R  174 , H R  187 , H R  3757 , H R  4814 , H R  4476 , and S  39 ); reduce the pay of Members of Congress (for example, H R  179 and H R  688 ); and prohibit or reduce pay for Members of Congress during a lapse in appropriations resulting in a government shutdown (for example, S  2074 , H R  3562 , H R  2023 , and H R  1032 )  The House budget resolution for FY2016, H Con Res  27 , included a policy statement that Congress should agree to a concurrent budget resolution each year by April 15, and if not, congressional salaries should be held in escrow (Section 819)  The statement proposed that salaries would be released from the escrow account either when a chamber agrees to a concurrent resolution on the budget or the last day of the Congress, whichever is earlier  The House agreed to this resolution on March 25, 2015, and no further action was taken  The Senate agreed to its resolution on the FY2016 budget, S Con Res  11 , on March 27, 2015, without this language  The conference report for S Con Res  11 —agreed to in the House on April 30 and in the Senate on May 5, 2015—contains a "Policy Statement on 'No Budget, No Pay'" (Section 6216), which refers to actions by the House  Legislation was introduced in the 113 th Congress to prohibit adjustments in pay (for example, H R  54 , H R  243 , H R  636 , S  18 , S  30 ); repeal the automatic pay adjustment provision (for example, H R  134 , H R  150 , H R  196 , S  65 , and H R  398 ); change the procedure by which pay for Members of Congress is adjusted or disbursed by linking it to congressional actions or economic indicators, including passage of a budget resolution or reaching the debt limit (for example, H R  108 , H R  167 , H R  284 , H R  308 , H R  310 , H R  325 , H R  372 , H R  397 , H R  396 , H R  522 , H R  593 , H R  1884 , H R  2335 , H R  3234 , S  18 , S  30 , and S  263 ); reduce the pay of Members of Congress (for example, H R  37 , H R  150 , H R  391 , H R  396 , H R  398 , and H R  1467 ); prohibit pay for Members of Congress during a lapse in appropriations resulting in a government shutdown (for example, H R  3160 , H R  3215 , H R  3224 , H R  3234 , and H R  3236 ); and apply any sequester to Member pay (for example, S  436 , H R  1181 , H R  1478 , and H R  2677 )  H R  325 , which (1) included language holding congressional salaries in escrow if a concurrent resolution on the budget was not agreed to by April 15, 2013, and (2) provided for a temporary extension of the debt ceiling through May 18, 2013, was introduced on January 21, 2013  Salaries would have been held in escrow for Members in a chamber if that chamber had not agreed to a concurrent resolution by that date  Salaries would have been released from the escrow account either when that chamber agreed to a concurrent resolution on the budget or the last day of the 113 th Congress, whichever was earlier  H R  325 was agreed to in the House on January 23, 2013, and the Senate on January 31, 2013  It was enacted on February 4, 2013 ( P L  113-3 )  Both the House and Senate agreed to a budget resolution prior to that date, however, and salaries were not held in escrow  H R  807 , the Full Faith and Credit Act, was introduced in the House on February 25, 2013  The bill would have prioritized certain payments in the event the debt reaches the statutory limit  An amendment, H Amdt  61 , was offered on May 9, 2013, that would clarify that these obligations would not include compensation for Members of Congress  It was agreed to the same day  The bill passed the House on May 13, 2013  No further action was taken in the 113 th Congress  The House-passed version of H J Res  59 , the Continuing Appropriations Resolution, 2014, also contained a provision addressing actions by the Secretary of the Treasury in the event that the debt limit is reached and not raised  The provision (Section 138) would, in part, prohibit borrowing to provide pay for Members of Congress in the event that the debt reaches the statutory limit prior to December 15, 2014  The bill passed the House on September 20, 2013  It was enacted on December 26, 2013, without this section  Legislation was introduced in the 112 th Congress to repeal the automatic pay adjustment provision (for example, S  133 , S  148 , H R  187 , H R  235 , H R  246 , H R  343 , H R  431 , H R  3673 ); change the procedure by which pay for Members of Congress is adjusted or disbursed by linking it to other action or economic indicators (for example, H R  124 , H R  172 , H R  236 , H R  994 , H R  1454 , H R  3136 , H R  3565 , H R  3774 , H R  3799 , H R  3883 , H R  4036 , H R  6438 , S  1442 ); reduce the pay of Members of Congress (for example, H R  204 , H R  270 , H R  335 , H R  1012 , H R  4399 ); otherwise alter or restrict pay for Members under certain conditions (for example, H R  6108 ); and freeze Member pay (for example, S  1931 , S  1936 , S  2065 , S  2079 , S  2210 , H R  3858 , H R  6474 , H R  6720 , H R  6721 , H R  6722 )  Legislation was also introduced in the 112 th Congress that would have affected Member pay in the event of a lapse of appropriations resulting in a government shutdown  These included H R  819 , H R  1255 , H R  1305 , H Con Res  56 , and S  388   The Senate passed S  388 on March 1, 2011  The bill would have prohibited Members of the House and Senate from receiving pay, including retroactive pay, for each day that there is a lapse in appropriations or the federal government is unable to make payments or meet obligations because of the public debt limit  The House passed H R  1255 on April 1, 2011  The bill would have prohibited the disbursement of pay to Members of the House and Senate during either of these situations  No further action was taken on either bill  On April 8, 2011, the Speaker of the House issued a "Dear Colleague" letter indicating that in the event of a shutdown, Members of Congress would continue to be paid pursuant to the Twenty-Seventh Amendment to the Constitution, which as stated above, states: "No law, varying the compensation for the services of the Senators and Representatives, shall take effect, until an election of Representatives shall have intervened"—although Members could elect to return any compensation to the Treasury  Additional legislation to prohibit any Member pay adjustment in 2013 was introduced but not enacted in the 112 th Congress, including the following: Section 5421(b)(1) of H R  3630 , as introduced in the House, would have prohibited any adjustment for Members of Congress prior to December 31, 2013  Section 706 of the motion to recommit also contained language freezing Member pay  On December 13, 2011, the motion to recommit failed (183-244, roll call #922), and the bill passed the House (234-193, roll call #923)  The House-passed version of the bill was titled the "Middle Class Tax Relief and Job Creation Act of 2011 " The Senate substitute amendment, which did not address pay adjustments, passed on December 17  It was titled the "Temporary Payroll Tax Cut Continuation Act of 2011 " The bill was enacted on February 22, 2012 ( P L  112-96 ), without the pay freeze language  H R  3835 , introduced on January 27, 2012, also would have extended the pay freeze for federal employees, including Members of Congress, to December 31, 2013  This bill passed the House on February 1, 2012  H R  6726 , introduced on January 1, 2013, would have extended the pay freeze for federal employees, including Members of Congress, to December 31, 2013  This bill passed the House on January 2, 2013  Table 1 provides a history of the salaries of Members of Congress since 1789  For each salary rate, both the effective date and the statutory authority are provided  Table 2 provides information on pay adjustments for Members since 1992, which was the first full year after the Ethics Reform Act that Representatives and Senators received the same salary  The table provides the projected percentage changes under the formula based on the Employment Cost Index and the actual percentage adjustment  The differences between the projected and actual Member pay adjustments resulted from the enactment of legislation preventing the increase (adjustments for 1994, 1995, 1996, 1997, 1999, 2007, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, and 2019); limits on the percentage increase of Member pay because of the percentage increase in GS base pay (adjustments for 1994, 1995, 1996, 1998, 1999, 2001, 2003, 2007, 2008, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, and 2019); and a combination of the above  In some years, the percentage adjustment for Member pay would have been lowered to match the percentage adjustment in GS base pay if Congress had not passed legislation denying the adjustment (adjustments for 1994, 1995, 1996, 1999, 2007, 2010, 2011, 2013, 2014, 2015, 2016, 2017, 2018, and 2019)  If Members of Congress had received every adjustment prescribed by the ECI formula since 1992, and the 2 U S C  §4501 limitation regarding the percentage base pay increase for GS employees remained unchanged, the 2019 salary would be $210,900  Table 3 lists the laws which have previously delayed or prohibited Member pay adjustments, the dates these laws were enacted, and the text of the provision  While many of the bills in this list are appropriations bills, a prohibition on Member pay adjustments could be included in any bill, or be introduced as a separate bill  Figure 1 , which follows, shows the salary of Members of Congress in current and constant (inflation adjusted) dollars since 1992  It shows that Member salaries, when adjusted for inflation, decreased 15% from 2009 until 2019 

ground_truth: The Department of Defense (DOD) obligates more than $300 billion annually to buy goods and services, and to support research and development. Most of these acquisitions are governed by procurement statutes and regulations found in Title 10 (and parts of other select titles) of the United States Code, the Federal Acquisition Regulation (FAR), and the Defense Federal Acquisition Regulation Supplement. Under certain circumstances, DOD can enter into an other transaction (OT) agreement instead of a traditional contract. OT agreements are generally exempt from federal procurement laws and regulations. These exemptions grant government officials the flexibility to include, amend, or exclude contract clauses and requirements that are mandatory in traditional procurements (e.g., termination clauses, cost accounting standards, payments, audit requirements, intellectual property, and contract disputes). OT authorities also grant more flexibility to structure agreements in numerous ways, including joint ventures; partnerships; consortia; or multiple agencies joining together to fund an agreement encompassing multiple providers. Other transaction agreements are legally binding contracts; they are referred to as agreements to distinguish them from the traditional procurement contracts governed by the FAR and procurements laws. Other transaction authorities are set forth in two sections of law: 10 U.S.C. 2371—granting authority to use OTs for basic, applied, and advanced research projects. 10 U.S.C. 2371b—granting authority to use OTs for prototype projects and follow-on production. Under this authority, a prototype project can only be conducted if at least one nontraditional defense contractor significantly participates in the project; all significant participants are small businesses or nontraditional defense contractors; at least one-third of the total cost of the prototype project is provided by nongovernment participants; or the senior procurement acquisition official provides a written justification for using an OT. Follow-on production can only be conducted when the underlying prototype OT was competitively awarded, and the prototype project was successfully completed. OTs have the potential to provide significant benefits to DOD, including attracting nontraditional contractors with promising technological capabilities to work with DOD, establishing a mechanism to pool resources with other entities to facilitate development of, and obtain, state-of-the-art dual-use technologies, and offering a unique mechanism for DOD to invest in, and influence the direction of, technology development. A number of analysts warn that along with the potential benefits come significant risks, including potentially diminished oversight and exemption from laws and regulations designed to protect government and taxpayer interests. In FY2017, DOD obligated $2.1 billion on prototype OT agreements, representing less than 1% of contract obligations for the year. However, the use of OTs is expected to grow at a rapid pace, due in part to recent statutory changes expanding other transaction authorities. A number of analysts and officials have raised concerns that if DOD uses OTs in ways not intended by Congress—or is perceived to abuse the authority—Congress could clamp down on the authority. Generally, DOD lacks authoritative data that can be used to measure and evaluate the use of other transaction authorities.