69–010 

Calendar No. 287 

114TH CONGRESS REPORT " ! SENATE 2d Session 114–415 

THE SMALL BUSINESS SUBCONTRACTING 

TRANSPARENCY ACT OF 2015 

DECEMBER 20, 2016.—Ordered to be printed 

Filed, under authority of the order of the Senate of December 10 (legislative day, 

December 9), 2016 

Mr. VITTER, from the Committee on Small Business and 

Entrepreneurship, submitted the following 

R E P O R T 

[To accompany S. 2138] 

The Committee on Small Business and Entrepreneurship, to 

which was referred the bill (S. 2138) to amend the Small Business 

Act to improve the review and acceptance of subcontracting plans, 

and for other purposes, having considered the same, reports favorably thereon, with amendments, and recommends that the bill, as 

amended, do pass. 

I. INTRODUCTION

The Small Business Subcontracting Transparency Act of 2015 (S. 

2138) was introduced by Senator Vitter on October 6, 2015. 

During the markup of the bill, S. 2138 was approved unanimously by voice vote. 

II. HISTORY (PURPOSE & NEED FOR LEGISLATION)

Under current law, a contract awarded to an other-than-small 

business for more than $700,000 ($1.5 million for construction) 

must include a subcontracting plan. These plans must enumerate 

opportunities for small businesses to participate as subcontractors, 

and must assign both percentage and dollar value goals. If an 

other-than-small business fails to make a good faith effort to comply with the subcontracting plan, the government must collect liquidated damages from the contractor. However, the Small Business 

Administration’s (SBA) broad definition of ‘‘good faith efforts’’ 


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makes it difficult for a contracting officer to issue a notice that a 

large prime contractor has failed to make a good faith effort to 

comply with its subcontracting plan. Additionally, if a notice is 

issued, the threat of liquidated damages is empty for many prime 

contractors. In nearly 30 years, there are no records of a company 

paying these damages. 

GAO has repeatedly found that agencies are failing to discover 

whether contractors are meeting their obligations under their subcontracting plans, even on high profile contracts. In fact, agencies 

are failing to ensure that the required subcontracting reports are 

even filed. Instead, the House Small Business Committee received 

reports that prime contractors ensured a finding of good faith by 

sponsoring agency small business conferences—writing checks to 

agencies rather than writing subcontracts to small businesses. As 

a result, small businesses struggle to receive subcontracting opportunities. Without these plans, Congress and small businesses do 

not possess the data they need to discern whether the statutory 

and administrative goals are being met. Under these conditions, 

agencies will continue to take credit for vastly inflated subcontracting numbers. 

In a 2011 report, GAO reported that the greatest challenge to the 

program’s effectiveness was the Procurement Center Representatives’ (PCR) and Commercial Market Representatives’ (CMR) lack 

of authority to influence subcontracting. PCRs told GAO that they 

had no means to dispute agency procurements if contracting officers did not use their recommendations on subcontracting plans. 

PCRs and CMRs also said it was difficult to enforce prime contractor performance under subcontracting plans because determining that a contractor was not acting in good faith was difficult. 

GAO recommended that the statute be modified to allow PCRs to 

challenge contracts when the PCRs’ subcontracting recommendations were not adopted. This recommendation will require the contracting officer to listen to the PCR on subcontracting, and will 

serve to increase subcontracting goals and opportunities for small 

businesses. 

III. HEARINGS & ROUNDTABLES

In the 114th Congress: 

On October 6, 2015, the House Small Business Committee held 

a subcommittee hearing entitled, ‘‘Subpar Subcontracting: Challenges for Small Business Contractors.’’ The subcommittee heard 

testimonies from the SBA, the Acting Inspector General for the 

U.S. Department of Interior, Woman Impacting Public Policy, the 

National Defense Industrial Association, and the Association of 

General Contractors. The hearing addressed the challenges small 

businesses face with subcontracting, both when the small business 

is the prime contractor and when it is the subcontractor. Specifically, the Subcommittee looked at three issues: problems with laws 

intended to prevent pass-through contracts, the issue of large 

prime contractors not fulfilling their subcontracting plans, and 

problems with the systems designed to track subcontracting. 

IV. DESCRIPTION OF BILL

The bill requires the SBA to provide examples of activities that 

would be considered bad faith, as opposed to defining good faith, 


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so that contracting agencies and the SBA have concrete grounds to 

challenge contractor compliance for subcontracting plans. The bill 

provides clear direction on what should be considered a failure to 

act in good faith by prime contractors. Specifically, it states that 

by failing to file the necessary subcontracting reports, the contractor is in breach of contract. Additionally, this bill provides authority for a PCR or CMR to assess whether a proposed subcontracting plan provides the maximum practicable opportunity for 

small business concerns to participate. If the PCR or CMR believes 

that the plan does not provide sufficient opportunities for small 

business participation, the PCR or CMR is permitted to delay acceptance of the subcontracting plan for up to 30 days. However, if 

the PCR or CMR fails to reach an agreement with the contracting 

agency’s personnel on a plan to provide the maximum practicable 

opportunity; the bill provides that the disagreement shall be decided by the head of the contracting agency. 

V. COMMITTEE VOTE

In compliance with rule XXVI(7)(b) of the Standing Rules of the 

Senate, the following vote was recorded on October 7, 2015. 

A motion to adopt the Small Business Subcontracting Transparency Act, a bill to improve the review and acceptance of subcontracting plans, was approved unanimously by voice vote with the 

following Senators present: Vitter, Scott, Fischer, Gardner, Ernst, 

Enzi, Shaheen, Cantwell, Cardin, Booker, Hirono, and Peters. 

VI. COST ESTIMATE

In compliance with rule XXVI(11)(a)(1) of the Standing Rules of 

the Senate, the Committee estimates the cost of the legislation will 

be equal to the amounts discussed in the following letter from the 

Congressional Budget Office: 

OCTOBER 24, 2016. 

Hon. DAVID VITTER, Chairman, Committee on Small Business and Entrepreneurship, 

U.S. Senate, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for S. 2138, the Small Business 

Subcontracting Transparency Act of 2015. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Stephen Rabent. 

Sincerely, 

KEITH HALL. 

Enclosure. 

S. 2138—Small Business Subcontracting Transparency Act of 2015 

S. 2138 would authorize Small Business Administration (SBA) 

employees that review federal contracts to delay the acceptance of 

a subcontracting plan for up to 30 days if the plan fails to maximize the participation of small businesses. The bill also would require the SBA to issue regulations that provide guidance on how 

to comply with the requirement to maximize small business participation. CBO estimates that implementing S. 2138 would cost the 

SBA and other federal agencies $11 million over the 2017–2021 peVerDate Sep 11 2014 05:20 Dec 30, 2016 Jkt 069010 PO 00000 Frm 00003 Fmt 6659 Sfmt 6602 E:\HR\OC\SR415.XXX SR415

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riod. Such spending would be subject to the availability of appropriated funds. 

Based on an analysis of information from the SBA about the current review process for subcontracting plans, CBO estimates that 

implementing S. 2138 would require up to 18 additional SBA employees to undertake additional reviews of subcontracting plans 

from other federal agencies. After federal agencies have worked 

with the new review process for a few years, CBO expects the cost 

of implementing those reviews would decline significantly as agencies better accommodate small businesses into their subcontracting 

plans. CBO estimates that the additional work would cost $5 million over the 2017–2021 period. 

Implementing S. 2138 would require federal agencies to address 

weaknesses in subcontracting plans that could be subject to the 

proposed delays. On the basis of information from the SBA and the 

General Services Administration (GSA), CBO estimates that it 

would cost each of the 26 major federal agencies about $100,000 a 

year or a total of about $6 million over the 2017–2021 period to 

conduct more detailed reviews of subcontracting plans. CBO estimates that this spending would occur mainly in the first two years 

because the majority of delays and reviews would probably occur 

as contracting officers adapt to the new SBA standards. 

Enacting S. 2138 may change the behavior of contracting officers 

by encouraging them to select subcontracting plans they believe 

would be less likely to be subject to a delay imposed by the SBA. 

Those plans might have a higher or lower cost to the federal government than the plans they otherwise would select under current 

law. In 2015, the federal government spent $440 billion on contract 

awards. The costs or savings of selecting different contracts as a result of implementing S. 2138 could be substantial; however, CBO 

has no basis for estimating any such effects. 

Because the new subcontracting rules would affect agencies 

whose spending does not depend on annual appropriations, enacting S. 2138 would affect direct spending; therefore, pay-as-you-go 

procedures apply. Because most of those agencies can adjust the 

amounts they collect as operating costs change, CBO estimates that 

the net effect of any such spending by those agencies would be negligible. Enacting S. 2138 would not affect revenues. 

CBO estimates that enacting S. 2138 would not increase net direct spending or on-budget deficits in any of the four consecutive 

10-year periods beginning in 2026. 

S. 2138 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act and would 

not affect the budgets of state, local, or tribal governments. 

The CBO staff contact for this estimate is Stephen Rabent. The 

estimate was approved by H. Samuel Papenfuss, Deputy Assistant 

Director for Budget Analysis. 

VII. EVALUATION OF REGULATORY IMPACT

In compliance with rule XXVI(11)(b) of the Standing Rules of the 

Senate, it is the opinion of the Committee that no significant additional regulatory impact will be incurred in carrying out the provisions of this legislation. There will be no additional impact on the 

personal privacy of companies or individuals who utilize the services provided. 


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1GAO–11–549R, Improvements Needed to Help Ensure Reliability of SBA’s Performance Data 

on Procurement Center Representatives. 

VIII. SECTION-BY-SECTION ANALYSIS

Section 1. Title 

This Act may be cited as the ‘‘Small Business Subcontracting 

Transparency Act of 2015.’’ 

Section 2. Good faith compliance 

Currently, the Small Business Act provides that any contractor 

or subcontractor which fails to award small business subcontracts 

to the fullest extent consistent with the efficient performance of a 

contract, fails to cooperate in any studies or surveys as may be conducted by the SBA or relevant procuring agency, or fails to comply 

with its subcontracting plan shall be considered in material breach 

of contract and such breach may be considered in any past performance evaluation of the contractor. 

This provision adds that it will be considered material breach of 

contract if a contractor fails to submit required periodic reports or 

cooperate in any studies or surveys as may be required by the Federal agency or the SBA in order to determine the extent of compliance by the offeror or bidder with the relevant subcontracting plan. 

Section 3. Transparency in subcontracting goals 

Under current law, the SBA is authorized to review procuring 

agencies’ solicitations to determine the maximum practicable opportunity for small business concerns to participate as subcontractors in the performance of the contract resulting from the solicitation, and to submit advisory findings to the appropriate procuring 

agency. 

This provision removes the requirement that the Administration’s reported findings be treated as advisory in nature. 

Section 4. Improving subcontracting plans 

This subsection provides authority for a PCR or CMR to assess 

whether a proposed subcontracting plan provides the maximum 

practicable opportunity for small business concerns to participate. 

If the PCR or CMR believes that the plan does not provide sufficient opportunities for small business participation, the PCR or 

CMR is permitted to delay acceptance of the subcontracting plan 

for up to 30 days. However, if the PCR or CMR fails to reach an 

agreement with the contracting agency’s personnel on a plan to 

provide the maximum practicable opportunity; this subsection provides that the disagreement shall be decided by the head of the 

contracting agency. 

In a 2011 Report,1 GAO cited the PCRs’ and CMRs’ lack of authority to influence subcontracting opportunities as one of the 

greatest challenges to the effectiveness of the program. PCRs told 

GAO that they had no means to dispute agency procurements if 

contracting officers did not use their recommendations on subcontracting plans. PCRs and CMRs also said it was difficult to enforce 

prime contractor performance under subcontracting plans because 

determining that a contractor was not acting in good faith was difficult. GAO recommended that statute be modified to allow PCRs 


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2 13 C.F.R. § 125.3(d). 

to challenge contracts when the PCRs’ subcontracting recommendations were not adopted. This recommendation would force the contracting officer to listen to the PCR on subcontracting, and serve 

to increase subcontracting goals and opportunities for small businesses. 

Section 5. Defining good faith compliance 

This provision requires SBA’s Administrator to issue regulations 

providing examples of activities that would be considered a failure 

to make a good faith effort to comply with a contractor’s subcontracting plan. 

Currently, the Federal Acquisition Regulations (FAR) require 

that a contracting officer examine the totality of a contractor’s actions in determining whether a contractor failed to make a good 

faith effort to comply with its subcontracting plan. The FAR acknowledges that a contractor can make diligent efforts to identify 

and solicit offers from small businesses and fail to achieve its subcontracting goals. As such, the FAR provides the following examples of actions which may be considered as indicators of a failure 

to make a good faith effort: a failure to attempt to identify, contact, 

solicit, or consider for contract award small business, veteranowned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business or 

women-owned small business concerns; a failure to designate and 

maintain a company official to administer the subcontracting program and monitor and enforce compliance with the plan; a failure 

to submit the relevant subcontract reports; a failure to maintain 

records or otherwise demonstrate procedures adopted to comply 

with the plan; and the adoption of company policies or procedures 

that have as their objectives the frustration of the objectives of the 

plan. 

SBA’s regulations provide that a prime contractor can demonstrate that it has made a good faith effort in one of three ways: 

(1) by meeting its goals; (2) by overachieving in some categories to 

make up for an underachievement in other categories; or (3) by performing one or more of the following actions 2: 

i. Breaking out contract work items into economically feasible units, as appropriate, to facilitate small business participation; 

ii. Conducting market research to identify small business 

subcontractors and suppliers through all reasonable means, 

such as performing on-line searches on the System for Award 

Management (SAM), posting Notices of Sources Sought and/or 

Requests for Proposal on SBA’s SUB-Net, participating in 

Business Matchmaking events, and attending pre-bid conferences; 

iii. Soliciting small business concerns as early in the acquisition process as practicable to allow them sufficient time to submit a timely offer for the subcontract; 

iv. Providing interested small businesses with adequate and 

timely information about the plans, specifications, and requirements for performance of the prime contract to assist them in 

submitting a timely offer for the subcontract; 


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3 48 C.F.R. § 19.705–6(f). 

v. Negotiating in good faith with interested small businesses; 

vi. Directing small businesses that need additional assistance to SBA; 

vii. Assisting interested small businesses in obtaining bonding, lines of credit, required insurance, necessary equipment, 

supplies, materials, or services; 

viii. Utilizing the available services of small business associations; local, state, and Federal small business assistance offices; and other organizations; 

ix. Participating in a formal mentor-prote ́ge ́ program with 

one or more small-business prote ́ge ́s that results in developmental assistance to the prote ́ge ́s. 

This broad list makes it difficult for a contracting officer to issue 

a notice that a large prime contractor has failed to make a good 

faith effort to comply with its subcontracting plan. However, if such 

notice is issued, the contracting officer is then responsible for 

‘‘[i]nitiating action to assess liquidated damages.’’ 3

The threat of liquidated damages is empty for many prime contractors. In nearly 30 years, there is no record of any company paying these damages. 

By requiring the SBA to provide examples of bad faith, as opposed to defining good faith, contracting agencies and the SBA 

would have concrete grounds to challenge contractor compliance 

with their subcontracting plans. 

Æ 


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