House Report 112-731 - SUBCONTRACTING TRANSPARENCY AND RELIABILITY ACT OF 2012[House Report 112-731]
[From the U.S. Government Printing Office]


112th Congress                                            Rept. 112-731
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 1

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        SUBCONTRACTING TRANSPARENCY AND RELIABILITY ACT OF 2012

                                _______
                                

 December 27, 2012.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

     Mr. Graves of Missouri, from the Committee on Small Business, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 3893]

    The Committee on Small Business, to whom was referred the 
bill (H.R. 3893) to amend the Small Business Act with respect 
to subcontracting and insourcing, and for other purposes, 
having considered the same, report favorably thereon with an 
amendment and recommend that the bill, as amended, do pass.

                                CONTENTS

                                                                   Page
  I. Amendment........................................................1
 II. Purpose of the Bill and Summary..................................6
III. Background and the Need for Legislation..........................7
 IV. Hearings........................................................10
  V. Committee Consideration.........................................11
 VI. Committee Votes.................................................11
VII. Section-by-Section Analysis of H.R. 3893........................12
VIII.Unfunded Mandates...............................................14

 IX. New Budget Authority, Entitlement Authority, and Tax Expenditure14
  X. Oversight Findings..............................................15
 XI. Statement of Constitutional Authority...........................15
XII. Congressional Accountability Act................................15
XIII.Federal Advisory Committee Statement............................15

XIV. Statement of No Earmarks........................................15
 XV. Performance Goals and Objectives................................15
XVI. Changes in Existing Law Made by the Bill, as Reported...........15

                              I. Amendment

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Subcontracting 
Transparency and Reliability Act of 2012''.
  (b) Table of Contents.--

Sec. 1. Short title; table of contents.

                 TITLE I--LIMITATIONS ON SUBCONTRACTING

Sec. 101. Limitations on subcontracting.
Sec. 102. Penalties.
Sec. 103. Conforming amendments.
Sec. 104. Guidance.

                     TITLE II--SUBCONTRACTING PLANS

Sec. 201. Subcontracting plans.
Sec. 202. Notices of subcontracting opportunities.

                         TITLE III--INSOURCING

Sec. 301. Definitions relating to procurement protest system.
Sec. 302. Insourcing.

                 TITLE I--LIMITATIONS ON SUBCONTRACTING

SEC. 101. LIMITATIONS ON SUBCONTRACTING.

  The Small Business Act (15 U.S.C. 631 et seq.) is amended--
          (1) by redesignating section 45 as section 47; and
          (2) by inserting after section 44 the following:

``SEC. 45. LIMITATIONS ON SUBCONTRACTING.

  ``(a) In General.--If awarded a contract under section 8(a), 8(m), 
15(a), 31, or 36, a covered small business concern--
          ``(1) in the case of a contract for services, may not expend 
        on subcontractors more than 50 percent of the amount paid to 
        the concern under the contract;
          ``(2) in the case of a contract for supplies (other than from 
        a regular dealer in such supplies), may not expend on 
        subcontractors more than 50 percent of the amount, less the 
        cost of materials, paid to the concern under the contract;
          ``(3) in the case of a contract described in more than 1 of 
        paragraphs (1) through (4)--
                  ``(A) shall determine for which category of services 
                or supplies, described in 1 of paragraphs (1) through 
                (4), the greatest percentage of the contract amount is 
                awarded;
                  ``(B) shall determine the amount awarded under the 
                contract for that category of services or supplies; and
                  ``(C) may not expend on subcontractors, with respect 
                to the amount determined under subparagraph (B), more 
                than--
                          ``(i) 50 percent of that amount, if the 
                        category of services or supplies applicable 
                        under subparagraph (A) is described in 
                        paragraph (1); and
                          ``(ii) 50 percent of that amount, if the 
                        category of services or supplies applicable 
                        under subparagraph (A) is described in 
                        paragraph (2); and
          ``(4) in the case of a contract for supplies from a regular 
        dealer in such supplies, shall supply the product of a domestic 
        small business manufacturer or processor, unless a waiver of 
        such requirement is granted--
                  ``(A) by the Administrator, after reviewing a 
                determination by the applicable contracting officer 
                that no small business manufacturer or processor can 
                reasonably be expected to offer a product meeting the 
                specifications (including period for performance) 
                required by the contract; or
                  ``(B) by the Administrator for a product (or class of 
                products), after determining that no small business 
                manufacturer or processor is available to participate 
                in the Federal procurement market.
  ``(b) Similarly Situated Entities.--Contract amounts expended by a 
covered small business concern on a subcontractor that is a similarly 
situated entity shall not be considered subcontracted for purposes of 
determining whether the covered small business concern has violated a 
requirement established under subsection (a) or (d).
  ``(c) Modifications of Percentages.--
          ``(1) In general.--The Administrator may change, by rule 
        (after providing notice and an opportunity for public comment), 
        a percentage specified in paragraphs (1) through (4) of 
        subsection (a) if the Administrator determines that such change 
        is necessary to reflect conventional industry practices among 
        business concerns that are below the numerical size standard 
        for businesses in that industry category.
          ``(2) Uniformity.--A change to a percentage under paragraph 
        (1) shall apply to all covered small business concerns.
  ``(d) Other Contracts.--
          ``(1) In general.--With respect to a category of contracts to 
        which a requirement under subsection (a) does not apply, the 
        Administrator is authorized to establish, by rule (after 
        providing notice and an opportunity for public comment), a 
        requirement that a covered small business concern may not 
        expend on subcontractors more than a specified percentage of 
        the amount paid to the concern under a contract in that 
        category.
          ``(2) Uniformity.--A requirement established under paragraph 
        (1) shall apply to all covered small business concerns.
          ``(3) Construction projects.--The Administrator shall 
        establish, through public rulemaking, requirements similar to 
        those specified in paragraph (1) to be applicable to contracts 
        for general and specialty construction and to contracts for any 
        other industry category not otherwise subject to the 
        requirements of such paragraph. The percentage applicable to 
        any such requirement shall be determined in accordance with 
        paragraph (2).
  ``(e) Definitions.--In this section, the following definitions apply:
          ``(1) Covered small business concern.--The term `covered 
        small business concern' means a business concern that--
                  ``(A) with respect to a contract awarded under 
                section 8(a), is a small business concern eligible to 
                receive contracts under that section;
                  ``(B) with respect to a contract awarded under 
                section 8(m)--
                          ``(i) is a small business concern owned and 
                        controlled by women (as defined in that 
                        section); or
                          ``(ii) is a small business concern owned and 
                        controlled by women (as defined in that 
                        section) that is not less than 51 percent owned 
                        by 1 or more women who are economically 
                        disadvantaged (and such ownership is determined 
                        without regard to any community property law);
                  ``(C) with respect to a contract awarded under 
                section 15(a), is a small business concern;
                  ``(D) with respect to a contract awarded under 
                section 31, is a qualified HUBZone small business 
                concern; or
                  ``(E) with respect to a contract awarded under 
                section 36, is a small business concern owned and 
                controlled by service-disabled veterans.
          ``(2) Similarly situated entity.--The term `similarly 
        situated entity' means a subcontractor that--
                  ``(A) if a subcontractor for a small business 
                concern, is a small business concern;
                  ``(B) if a subcontractor for a small business concern 
                eligible to receive contracts under section 8(a), is 
                such a concern;
                  ``(C) if a subcontractor for a small business concern 
                owned and controlled by women (as defined in section 
                8(m)), is such a concern;
                  ``(D) if a subcontractor for a small business concern 
                owned and controlled by women (as defined in section 
                8(m)) that is not less than 51 percent owned by 1 or 
                more women who are economically disadvantaged (and such 
                ownership is determined without regard to any community 
                property law), is such a concern;
                  ``(E) if a subcontractor for a qualified HUBZone 
                small business concern, is such a concern; or
                  ``(F) if a subcontractor for a small business concern 
                owned and controlled by service-disabled veterans, is 
                such a concern.''.

SEC. 102. PENALTIES.

  Section 16 of the Small Business Act (15 U.S.C. 645) is amended by 
adding at the end the following:
  ``(g) Subcontracting Limitations.--
          ``(1) In general.--Whoever violates a requirement established 
        under section 45 shall be subject to the penalties prescribed 
        in subsection (d), except that, for an entity that exceeded a 
        limitation on subcontracting under such section, the fine 
        described in subsection (d)(2)(A) shall be treated as the 
        greater of--
                  ``(A) $500,000; or
                  ``(B) the dollar amount expended, in excess of 
                permitted levels, by the entity on subcontractors.
          ``(2) Monitoring.--Not later than 1 year after the date of 
        enactment of this subsection, the Administrator shall take such 
        actions as are necessary to ensure that an existing Federal 
        subcontracting reporting system is modified to notify the 
        Administrator, the appropriate Director of the Office of Small 
        and Disadvantaged Business Utilization, and the appropriate 
        contracting officer if a requirement established under section 
        45 is violated.''.

SEC. 103. CONFORMING AMENDMENTS.

  (a) HUBZones.--Section 3(p)(5) of the Small Business Act (15 U.S.C. 
632(p)(5)) is amended--
          (1) in subparagraph (A)(i) by striking subclause (III) and 
        inserting the following:
                                  ``(III) with respect to any 
                                subcontract entered into by the small 
                                business concern pursuant to a contract 
                                awarded to the small business concern 
                                under section 31, the small business 
                                concern will ensure that the 
                                requirements of section 45 are 
                                satisfied; and'';
          (2) by striking subparagraphs (B) and (C); and
          (3) by redesignating subparagraph (D) as subparagraph (B).
  (b) Entities Eligible for Contracts Under Section 8(a).--Section 8(a) 
of such Act (15 U.S.C. 637(a)) is amended by striking paragraph (14) 
and inserting the following:
          ``(14) Limitations on subcontracting.--A concern may not be 
        awarded a contract under this subsection as a small business 
        concern unless the concern agrees to satisfy the requirements 
        of section 45.''.
  (c) Small Business Concerns.--Section 15 of such Act (15 U.S.C. 644) 
is amended by striking subsection (o) and inserting the following:
  ``(o) Limitations on Subcontracting.--A concern may not be awarded a 
contract under subsection (a) as a small business concern unless the 
concern agrees to satisfy the requirements of section 45.''.

SEC. 104. REGULATIONS.

  Not later than 180 days after the date of enactment of this Act, the 
Administrator of the Small Business Administration shall issue guidance 
with respect to compliance with the changes made to the Small Business 
Act by the amendments in this Act, with opportunities for notice and 
comment.

                     TITLE II--SUBCONTRACTING PLANS

SEC. 201. SUBCONTRACTING PLANS.

  (a) Subcontracting Reporting Requirements.--
          (1) In general.--Section 8(d)(6) of the Small Business Act 
        (15 U.S.C. 637(d)(6)) is amended--
                  (A) by striking ``(6) Each subcontracting plan'' and 
                inserting the following:
          ``(6) Subcontracting plan requirements.--Each subcontracting 
        plan'';
                  (B) by amending subparagraph (E) to read as follows:
                  ``(E) assurances that the offeror or bidder will--
                          ``(i) submit--
                                  ``(I) not later than 180 days after 
                                the date on which performance under the 
                                applicable contract begins, and every 
                                180 days thereafter until contract 
                                performance ends, a report that 
                                describes all subcontracting activities 
                                under the contract during the preceding 
                                180-day period;
                                  ``(II) not later than 1 year after 
                                the date on which performance under the 
                                applicable contract begins, and 
                                annually thereafter until contract 
                                performance ends, a report that 
                                describes all subcontracting activities 
                                under the contract that have occurred 
                                before the date on which the report is 
                                submitted (except that, with respect to 
                                the Department of Defense and the 
                                National Aeronautics and Space 
                                Administration, a report under this 
                                subclause shall be submitted not later 
                                than 180 days after the date on which 
                                contract performance begins and every 
                                180 days thereafter until contract 
                                performance ends); and
                                  ``(III) not later than 30 days after 
                                the date on which performance under the 
                                applicable contract ends, a report that 
                                describes all subcontracting activities 
                                under the contract; and
                          ``(ii) cooperate with any study or survey 
                        required by the applicable Federal agency or 
                        the Administration to determine the extent of 
                        compliance by the offeror or bidder with the 
                        subcontracting plan;''; and
                  (C) by moving the margins for subparagraphs (A), (B), 
                (C), (D), and (F) 2 ems to the right (so that the align 
                with subparagraph (E), as amended by subparagraph (B) 
                of this paragraph).
          (2) Reporting system modification.--
                  (A) In general.--Not later than 1 year after the date 
                of enactment of this Act, the Administrator of the 
                Small Business Administration shall take such actions 
                as are necessary to ensure that the Federal 
                subcontracting reporting system to which covered 
                reports are submitted is modified to notify the 
                Administrator, the appropriate contracting officer, and 
                the appropriate Director of Small and Disadvantaged 
                Business Utilization if an entity fails to submit a 
                required covered report. If the Administrator does not 
                modify the subcontracting reporting system on or before 
                the date that is 1 year after the date of enactment of 
                this Act, the Administrator may not carry out or 
                establish any pilot program until the date the 
                Administrator modifies the reporting system.
                  (B) Covered report defined.--In this paragraph, the 
                term ``covered report'' means a report submitted in 
                accordance with assurances provided under section 
                8(d)(6)(E) of the Small Business Act (15 U.S.C. 
                637(d)(6)(E)).
  (b) Failure To Submit Subcontracting Reports as Breach of Contract.--
Section 8(d)(8) of such Act (15 U.S.C. 637(d)(8)) is amended--
          (1) by striking ``(8) The failure'' and inserting the 
        following:
          ``(8) Material breach.--The failure'';
          (2) in subparagraph (A) by striking ``subsection, or'' and 
        inserting ``subsection,'';
          (3) in subparagraph (B) by striking ``subcontract,'' and 
        inserting ``subcontract, or'';
          (4) by inserting after subparagraph (B) the following:
                  ``(C) assurances provided under paragraph (6)(E),''; 
                and
          (5) by moving the margins of subparagraphs (A), (B), and the 
        matter following subparagraph (B) 2 ems to the right.
  (c) Authority of Small Business Administration.--Section 8(d)(10) of 
such Act (15 U.S.C. 637(d)(10)) is amended--
          (1) by striking ``(10) In the case of'' and inserting the 
        following:
          ``(10) Authority of administration.--In the case of'';
          (2) in subparagraph (B) by striking ``, which shall be 
        advisory in nature,'';
          (3) in subparagraph (C) by striking ``, either on a contract-
        by-contract basis, or in the case contractors'' and inserting 
        ``as a supplement to evaluations performed by the contracting 
        agency, either on a contract-by-contract basis or, in the case 
        of contractors''; and
          (4) by moving the margins of subparagraphs (A) through (C) 2 
        ems to the right.
  (d) Appeals.--Section 8(d) of such Act (15 U.S.C. 637(d)) is amended 
by adding at the end the following:
          ``(13) Appeals.--
                  ``(A) In general.--If a procurement center 
                representative or commercial market representative 
                determines that a subcontracting plan required under 
                paragraph (4) or (5) fails to provide the maximum 
                practicable opportunity for covered small business 
                concerns to participate in the performance of the 
                contract to which the plan applies, such representative 
                may delay acceptance of the plan in accordance with 
                subparagraph (B).
                  ``(B) Process.--A procurement center representative 
                or commercial market representative who makes the 
                determination under subparagraph (A) with respect to a 
                subcontracting plan may delay acceptance of the plan 
                for a 30-day period by providing written notice of such 
                determination to appropriate personnel of the 
                contracting agency. Such notice shall include 
                recommendations for altering the plan to provide the 
                maximum practicable opportunity described in that 
                subparagraph.
                  ``(C) Disagreements.--If a procurement center 
                representative or commercial market representative 
                delays the acceptance of a subcontracting plan under 
                subparagraph (B) for a 30-day period and, during such 
                period, does not reach agreement with appropriate 
                personnel of the contracting agency to alter the plan 
                to provide the maximum practicable opportunity 
                described in subparagraph (A), the disagreement shall 
                be submitted to the head of the contracting agency by 
                the Administrator for a final determination.
                  ``(D) Covered small business concerns defined.--In 
                this paragraph, the term `covered small business 
                concerns' means small business concerns, qualified 
                HUBZone small business concerns, small business 
                concerns owned and controlled by veterans, small 
                business concerns owned and controlled by service-
                disabled veterans, small business concerns owned and 
                controlled by socially and economically disadvantaged 
                individuals, and small business concerns owned and 
                controlled by women.''.

SEC. 202. NOTICES OF SUBCONTRACTING OPPORTUNITIES.

  Section 8(k)(1) of the Small Business Act (15 U.S.C. 637(k)(1)) is 
amended by striking ``in the Commerce Business Daily'' and inserting 
``on the appropriate Federal Web site (as determined by the 
Administrator)''.

SEC. 203. REGULATIONS.

  Not later than 180 days after the date of enactment of this Act, the 
Administrator of the Small Business Administration shall issue guidance 
with respect to the changes made to the Small Business Act, with 
opportunity for notice and comment.

                         TITLE III--INSOURCING

SEC. 301. DEFINITIONS RELATING TO PROCUREMENT PROTEST SYSTEM.

  (a) Protest.--Section 3551(1) of title 31, United States Code, is 
amended by adding at the end the following:
                  ``(F) Conversion of a function that is being 
                performed by a small business concern to performance by 
                a Federal employee.''.
  (b) Interested Party.--Section 3551(2) of such title is amended--
          (1) in subparagraph (A) by striking ``and'' at the end;
          (2) in subparagraph (B) by striking the period at the end and 
        inserting ``; and''; and
          (3) by adding at the end the following:
                  ``(C) with respect to a conversion described in 
                paragraph (1)(F), means a small business concern (as 
                that term is defined in section 3(a) of the Small 
                Business Act) whose economic interest would be affected 
                by the conversion.''.

SEC. 302. INSOURCING.

  The Small Business Act (15 U.S.C. 631 et seq.), as amended by this 
Act, is further amended by inserting after section 45 the following:

``SEC. 46. INSOURCING.

  ``A Federal agency may only convert a function that is being 
performed by a small business concern to performance by a Federal 
employee if--
          ``(1) the agency has made publicly available, after providing 
        notice and an opportunity for public comment, the procedures of 
        the agency with respect to decisions to convert a function 
        being performed by a small business concern to performance by a 
        Federal employee; and
          ``(2) the procedures described in paragraph (1) include that 
        all decisions described in such paragraph are reviewed by any 
        appropriate--
                  ``(A) Office of Small and Disadvantaged Business 
                Utilization; and
                  ``(B) procurement center representative.''.

                      II. Purpose and Bill Summary

    The purpose of H.R. 3893, the ``Subcontracting Transparency 
and Reliability Act of 2012,'' is to amend the Small Business 
Act (the Act)\1\ to impose additional limitations on the 
ability of small businesses that obtain contracts through 
preferences established in the Act to subcontract the 
performance of that work to large businesses. By changing basis 
on which the limitations on subcontracting by small business 
concerns are calculated from cost to price, the bill will 
promote firms' ability to comply with subcontracting 
limitations. At the same time, this legislation also recognizes 
the need to penalize those who engage in improper 
subcontracting by imposing additional penalties on those who 
attempt to circumvent these limitations.
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    \1\Originally, title II of the Act of July 30, 1953, c. 282, 67 
Stat. 232 was designated as the Small Business Act of 1953. A plethora 
of amendments in subsequent Congresses led to a rewrite in 1958. Pub. 
L. No. 85-536, Sec. 1, 72 Stat. 384 (1958). The Act is codified at 15 
U.S.C. Sec. Sec. 631-657q.
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    Further, to improve the subcontracting plans that large 
business prime contractors must submit with their bids, H.R. 
3893 amends the reporting of subcontracting actions taken by 
the large prime contractors by requiring more accurate 
information. Finally, the legislation imposes additional 
restraints on the ability of the federal government to transfer 
work performed under contract by private entities and transfer 
it to federal employees by a process known as ``insourcing.''

                       III. Need For Legislation

    In FY 2010, approximately $536 billion were awarded as 
federal prime contracts, of which at least $210 billion 
ultimately went to subcontractors. The Act iterates Congress's 
belief in the importance of small business participation in 
federal prime contracts and the resultant subcontracts. 
Therefore, when a small business receives a set aside or sole 
source contract under the auspices of the Act contracting 
programs, the government has a vested interest in ensuring that 
the small business performs a significant portion of the work. 
Otherwise, the small business could pass through the work to a 
large contractor, thereby defeating the purpose of the Act. 
Consequently, Sections 3(p)(A)(i)(III), 8(a)(14) and 15(o) of 
the Act each impose restrictions on the amount of work a 
business may subcontract on a set aside contract.
    Small businesses face two issues in making a good faith 
effort to comply with the restrictions on pass-through 
contracting, First, there problems with the cost-based 
accounting required by the Act, and second there are issues 
concerning classification of the contracts themselves.
    First, there are the inherent challenges with cost-based 
accounting. Take for example, the case of a service contract. 
Pursuant to section 15(o)(1)(A) of the Act, at least 50 percent 
of the cost of contract performance incurred for personnel must 
be spent on employees of the prime contractor. However, that 
requires that the prime contractor have a cost-based accounting 
system, something that few small businesses and almost no 
commercial companies use. The Federal Acquisition Regulation 
(FAR) specifically exempts most small businesses from employing 
cost accounting systems, because they are considered a barrier 
to entry for small firms.\2\ Even if a prime contractor has a 
cost accounting system, the firm must have access to each 
subcontractor's personnel costs if the firm is to correctly 
calculate 50 percent of the cost of contract performance 
incurred for personnel.
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    \2\48 C.F.R. Sec. 30.000.
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    Unfortunately, even for cost accounting standards compliant 
contracts, the subcontractor is not required to give its cost 
information to the prime contractor, because the information is 
considered too sensitive. Instead, subcontractors are permitted 
to provide cost and pricing data in a sealed envelope that is 
transmitted to the contracting officer (CO). However, this data 
pass-through will not work when examining limitation on 
subcontracting, as the prime contractor needs access to the 
cost data to track its own compliance. The small firm that 
wants to comply is therefore left making guesses and estimates 
regarding its subcontractors costs.
    The second challenge faced by small businesses is that the 
current statutory scheme assumes that contracts are either for 
goods or services. While this is sometimes the case, an 
increasing number of small businesses are receiving contracts 
as value added resellers, or for contracts that encompass the 
provision of goods and services. Neither the Act nor the 
implementing regulations give small firms guidance on how to 
comply in these scenarios.
    H.R. 3893 clarifies the limitation on subcontracting and 
puts in place a usable standard to ease small businesses 
ability to comply with the law. Specifically, by changing the 
standard from cost to price and allowing the Small Business 
Administration (SBA) to promulgate rules which recognize the 
differences between certain industries, tools are being 
provided to ensure ease of compliance.
    However, due to the challenges and complexities of 
complying with limitations on subcontracting, firms 
occasionally, rather than acting in good faith, utilized the 
complexity to their advantage while defrauding and harming 
legitimate small businesses. In this scenario, the issue is 
that tracking compliance with the limitation on subcontracting 
provisions is complicated, time consuming, and bears little 
advantage for the typical COs. Merely easing the ability to 
comply with the subcontracting limitations does not itself 
solve the problem. Therefore, this legislation provides 
penalties for those firms who violate these limitations.
    Furthermore, the Executive branch has a nonstatutory goal 
of awarding 35.9 percent of all dollars subcontracted from 
federal prime contracts to small businesses.\3\ It also has 
statutory goals of awarding 5 percent of subcontracted dollars 
to Women-Owned Small Businesses (WOSBs) and Small Disadvantaged 
Businesses (SDBs) firms, and 3 percent to Service-Disabled 
Veteran-Owned Small Businesses (SDVOSBs) and Historically 
Underutilized Business Zone (HUBZone) small businesses. To 
achieve these goals, a contract awarded to an other-than-small 
business for more than $650,000 must include a subcontracting 
plan enumerating the opportunities for small businesses to 
participate as subcontractors and the plan must assign both 
percentage and dollar value goals to these opportunities.\4\ 
The failure of an other-than-small business to make a good 
faith effort to comply with the subcontracting plan is supposed 
to result in the government collecting liquidated damages from 
the contractor.\5\ The SBA Procurement Center Representative 
(PCR),\6\ when available, provides an opinion to the CO on the 
appropriate subcontracting goals, and then the Commercial 
Market Representative (CMR)\7\ and CO assume responsibility for 
post award compliance with the subcontracting plan.
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    \3\SBA, Governmentwide 2010 Small Business Procurement Scorecard 
(2011). Interestingly, in 2003, the goal was 40 percent, and in 1978, 
this Committee amended the Act, H. Rep. No. 95-949 at 5 (1978), to 
address the fact that small businesses were receiving only 37.5 percent 
of subcontract dollars--1.6 percent more than the current goal. SBA, 
Goaling Guidelines for the Small Business Preference Programs for Prime 
and Subcontract Federal Procurement Goals and Achievements 6 (2003).
    \4\15 U.S.C. Sec. 637(d).
    \5\Id. at Sec. 637(d)(5). The damages are calculated as the actual 
dollar amount by which the contractor failed to achieve each 
subcontracting goal. 48 C.F.R. Sec. 19.705-7.
    \6\According to the SBA, PCRs ``increase the small business share 
of Federal procurement awards by initiating small business set-asides, 
reserving procurements for competition among small business firms; 
providing small business sources to Federal buying activities; and 
counseling small firms. In addition, PCRs advocate for the breakout of 
items for full and open competition to affect savings to the Federal 
Government.'' SBA, Government Contracting Field Staff Directory (2011) 
(hereinafter Field Staff Directory) available at http://www.sba.gov/
content/government-contracting-field-staff-directory.
    \7\CMRs also assist small businesses seeking subcontracts through 
counseling and matchmaking. Id.
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    Firms with subcontracting plans are required to submit 
semi-annual individual contract reports, a report within 30 
days of contract completion, and summary subcontracting reports 
annually, except that the Department of Defense (DoD) and the 
National Aeronautics and Space Administration (NASA) require 
summary reports semi-annually. These reports are submitted 
using the Electronic Subcontracting Reporting System (ESRS). 
Compliance with the subcontracting goal is reflected in past 
performance reports on prime contractors.\8\ However, given the 
sheer number of other-than-small prime contractors and the fact 
that there are fewer than 35 full and part time CMRs,\9\ it is 
unsurprising that in FY 2006, the SBA Office of the Inspector 
General (OIG) found that CMRs monitored less than half of the 
2,200 largest prime contractors.\10\
---------------------------------------------------------------------------
    \8\48 C.F.R. Sec. 19.704.
    \9\The average CMR is responsible for 90 to 200 prime contractors. 
GAO, Improvements Needed to Help Ensure Reliability of SBA's 
Performance Data on Procurement Center Representatives 2 GAO-11-549 
(2011).
    \10\SBA OIG, Review of SBA's Subcontracting Assistance Program, 
2007 (No. 7-33).
---------------------------------------------------------------------------
    In order to aid small businesses in receiving 
subcontracting opportunities and promote compliance with 
requirements to submit subcontracting plans, this legislation 
allows PCRs and CMRs ability to review subcontracting plans 
ensuring the maximum practicable opportunity for small business 
concerns to participate. The CMRs and PCRs are then permitted 
to protest those plans that do not represent the maximum 
practicable utilization of small businesses as subcontractors.
    Additionally, the Act requires that prime contractors 
publish any subcontracting opportunities over $10,000 through a 
publication known as Commerce Business Daily (CBD).\11\ At the 
time this provision was added, CBD also reported all prime 
contract opportunities. On January 1, 2002, CBD was replaced by 
Federal Business Opportunities (FBO)--a website that provides 
all prime contract opportunities over $25,000. SBA introduced 
Subcontracting Network (SUB-Net), which was intended to replace 
the subcontracting function of the CBD. Unfortunately, SUB-Net 
has never been fully adopted. Furthermore, the FAR does not 
even mention SUB-Net, so it remains unclear how prime 
contractors would be required to use the system. Due to this, 
H.R. 3893 requires that federal subcontracting opportunities 
are being posted on an appropriate federal website that widens 
the dissemination of prime contractor subcontracting 
opportunities.
---------------------------------------------------------------------------
    \11\15 U.S.C. Sec. 637(d)(8)(k).
---------------------------------------------------------------------------
    Finally, this bill seeks to ensure transparency in the 
insourcing process. Insourcing is the process by which the 
federal government transfers work performed under contract by 
private entities to federal employees. Much of the debate 
regarding insourcing focuses on which work should be performed 
by government employees and which work may be performed by 
private entities. The Constitution of the United States vests 
the executive power in the President,\12\ foresees certain 
duties that should be restricted to government.\13\ However, it 
was understood that not all functions of government need be 
carried out by federal employees, but that contractors could 
provide some goods and services.\14\ Yet there has always 
remained a question as to when work should be performed by 
federal employees and when it should be performed by 
contractors. It is accepted that work which is inherently 
governmental should be performed by federal employees.\15\ 
There remains a debate concerning what is inherently 
governmental and how work not inherently governmental should be 
performed.
---------------------------------------------------------------------------
    \12\U.S. Const. art. II, Sec. 1, cl. 1.
    \13\See, e.g., U.S. Const. art. II, Sec. 2-3; U.S. Const. art. I, 
Sec. 8.
    \14\See, e.g., R.R. Co. v. Peniston, 85 U.S. 5 (1873) (Contractor 
provided services to government); Reeside v. Walker, 52 U.S. 272 (1851) 
(plaintiff was heir to contractor who delivered the mail for the 
Federal government); U.S. Const. art. I, Sec. 8 (Congress has the power 
to spend).
    \15\31 U.S.C. Sec. 501 (note).
---------------------------------------------------------------------------
    The most recent attempt to address this issue was the 
Omnibus Appropriations Act (OAA) of 2009.\16\ Pursuant to the 
2009 OAA, each civilian agency was required to publish 
insourcing guidance by mid-July of 2009. However, three years 
later, that guidance has not been made publicly available. 
According to the GAO, agencies were waiting for final guidance 
from Office of Federal Procurement Policy (OFPP) before issuing 
their own guidelines, so that the insourcing documents are 
consistent.\17\ However, the OFPP guidance was published on 
September 12, 2011\18\ yet agency specific guidance has not yet 
been made public. This does not mean that agencies have not 
been insourcing, simply that there is no guidance publicly 
available to the small businesses whose work is being 
insourced.
---------------------------------------------------------------------------
    \16\Omnibus Appropriations Act, 2009 [hereinafter 2009 OAA] Pub. L. 
No. 111-8, Sec. 736, 126 Stat. 524 (2009).
    \17\GAO, Insourcing Guidelines 2 (GAO-10-58R) (Oct. 6, 2009).
    \18\Performance of Inherently Governmental and Critical Functions, 
76 Fed. Reg. 56227 (Sept. 12, 2011).
---------------------------------------------------------------------------
    To promote transparency and ensure that the unique nature 
of small business concerns are examined during an insourcing 
decision, H.R. 3893 allows small firms to protest the 
insourcing of their contract as well as requiring that an 
Agency must publish the procedures for converting the function 
previously contracted to a small business concern have a notice 
and comment period before insourcing that contract. 
Additionally, the decisions must be reviewed by a PCR or the 
agency's Office of Small and Disadvantaged Business Utilization 
to ensure small business concerns are being appropriately 
addressed.

                              IV. Hearings

    In the 112th Congress, the Committee held three hearings to 
address subcontracting and insourcing. One was conducted by the 
Subcommittee on Contracting and Workforce at a hearing entitled 
``Insourcing Gone Awry: Outsourcing Small Business Jobs'' on 
June 23, 2011. At this hearing, the Subcommittee examined the 
implementation of the Administration's insourcing policies and 
the effect of these policies on small businesses. Specifically, 
five issues were discussed: the lack of transparency in the 
insourcing process; inconsistencies in the cost studies used to 
justify insourcing; the prohibition on public-private 
competitions when insourcing; the lack of standing for small 
businesses that wish to challenge agency insourcing decision; 
and the role of the SBA in insourcing.
    The second hearing, also conducted by the Subcommittee on 
Contracting and Workforce was entitled ``Subpar Subcontracting: 
Challenges for Small Business Contractors'' on October 6, 2011. 
At this hearing, the Subcommittee examined issues with the 
limitation on subcontracting requirements; noncompliance with 
subcontracting plans; and duplicative government contracting 
systems which fail to support enforcement or compliance.
    The third hearing was held by the Subcommittee on 
Investigations, Oversight and Regulation on October 27, 2011 
and entitled ``Misrepresentation and Fraud: Bad Actors in the 
Small Business Procurement Programs.'' The Subcommittee 
examined whether there are sufficient monitoring mechanisms in 
place to detect fraud and misrepresentation related to 
limitations on subcontracting.

                       V. Committee Consideration

    The Committee on Small Business met in open session, with a 
quorum being present, on March 7, 2012, and ordered H.R. 3893 
reported, as amended, to the House by a roll call vote of 11 to 
7 at 3:27 pm. During the markup, two amendments were offered, 
and one amendment was adopted while the other amendment was 
rejected. Disposition of the amendments is addressed below and 
is based on the order amendments were filed with the Clerk of 
the Committee and not necessarily in the order that they were 
considered at the markup.
    Amendment Number One filed by Mr. Mulvaney (R-SC) allows 
the Administrator to set appropriate limitations on 
subcontracting for construction contracts, and clarifies that 
the insourcing provisions only apply to small businesses. 
Amendment Number One was adopted by a voice vote at 3:16 pm.
    Amendment Number Two filed by Ms. Clarke (D-NY) strikes 
sections 301 and 302 related to insourcing. Amendment Number 
Two failed by a voice vote at 3:26 pm.

                          VI. Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the recorded 
votes on the motion to report the legislation and amendments 
thereto. No recorded votes were taken in consideration of H.R. 
3893.

                         Amendment to H.R. 3893


               Offered by Mr. Mulvaney of South Carolina


  Page 2, beginning on line 13, strike ``(except 
construction)''.

  Strike page 2, line 17, and all that follows through page 3, 
line 7, and redesignate provisions accordingly.

  Page 4, strike line 5 and all that follows through line 12, 
and redesignate provisions accordingly.

  Page 6, insert after line 3 the following:

          (3) Construction projects.--The Administrator shall 
        establish, through public rulemaking, requirements 
        similar to those specified in paragraph (1) to be 
        applicable to contracts for general and specialty 
        construction and to contracts for any other industry 
        category not otherwise subject to the requirements of 
        such paragraph. The percentage applicable to any such 
        requirement shall be determined in accordance with 
        paragraph (2).

  Page 18, line 2, strike ``private sector entity'' and insert 
``small business concern''.

  Page 18, line 12, strike ``includes any'' and insert ``means 
a''.

                         Amendment to H.R. 3893


                   Offered by Ms. Clarke of New York


  Beginning on page 17, line 18, strike all that follows 
through the end of the bill, and redesignate provisions 
accordingly.

             VII. Section-by-Section Analysis of H.R. 3893


          SECTION-BY-SECTION ANALYSIS OF H.R. 3893 AS AMENDED

Section 1. Short Title; Table of Contents

    This section provides that the bill may be cited as the 
``Subcontracting Transparency and Reliability Act of 2012.''

                 TITLE I--LIMITATIONS ON SUBCONTRACTING

Section 101. Limitations on Subcontracting

    This section amends the Small Business Act by changing the 
limitations on subcontracting by small business concerns from 
cost to price and by allowing, in case of a contract that 
combines services, construction or supplies, the limitation on 
subcontracting to be determined by the category that is the 
greatest percentage of the contract amount. Currently, these 
limitations are addressed in sections 8(a), 8(m), 15(a), 31, or 
36 of the Act. H.R. 3893 instead consolidates these into a new 
section 45. This addresses confusion by slight inconsistencies 
in the language of each individual section.
    Section 45 then limits subcontracting based on the price of 
the contract rather than the costs incurred by the contractor. 
Specifically, for service contracts, prime contractors are 
limited to expending 50 percent of the amount paid under the 
contract.
    This section also would require that amounts expended by a 
covered small business concern on a subcontractor that is a 
similarly situated entity shall not be used in the 
determination of the subcontracting limitations. This will 
allow small businesses to pursue larger contracts, and 
encourage the formation of small business teams.
    Additionally this section allows the Administrator to 
modify the subcontracting limitation percentage by rule with 
public notice and comment period is needed to reflect industry 
changes. The Administrator has previously done so for 
construction and specialty construction firms, where standard 
industry practice is to subcontract a much higher percentage of 
work. The Administrator is directed to continue these variances 
for general and specialty construction, and to adopt similar 
practices for industries where additional subcontracting is 
required.

Section 102. Penalties

    This section amends section 16 of the Act by establishing 
penalties for anyone who violates the subcontracting 
limitations established in section 45 as added by this bill. An 
entity that exceeds the limitation on subcontracting will be 
fined either $500,000 or the dollar amount expended to the 
subcontractor in excess of permitted levels, whichever is 
greater.

Section 103. Conforming Amendments

    This section makes conforming amendments to the Act in 
order to incorporate the changes made by section 101. 
Specifically, the limitation in subcontracting provisions in 
sections 8, 15, 31 and 36 are replaced with references to 
section 45.

Section 104. Regulations

    This section requires the Administrator to issue 
implementing regulations no later than 180 days after the date 
of passage of H.R. 3893. The regulations must be promulgated 
pursuant to notice and comment rulemaking.

                     TITLE II--SUBCONTRACTING PLANS

Section 201. Subcontracting Plans

            Subsection (a)--Subcontracting Reporting Requirements
    This subsection amends section 8(d) of the Act to require 
an offeror or bidder responding to a federal solicitation to 
submit a subcontracting report every 6 months during contract 
performance, an annual subcontracting report during 
performance, and a summary report within 30 days of the end of 
the contract. This is a codification of the reporting 
requirements currently in use. As DoD and NASA currently 
require an additional semiannual report, this requirement was 
also retained for contractors at those agencies.
    This subsection also requires the offeror or bidder to 
cooperate with any federal survey or study to determine the 
extent of compliance with the subcontracting plan. 
Additionally, it provides for modification of the federal 
subcontracting reporting system by the Administrator, so that 
the system will notify appropriate the appropriate federal 
employees if a contractor fails to submit a required report. If 
the modification to the reporting system is not completed 
within the first year after passage of H.R. 3893, this 
subsection prohibits the Administrator from establishing or 
carrying out any pilot program.
            Subsection (b)--Failure to Submit Subcontracting Reports as 
                    a Breach of Contract
    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.

Section 202. Notices of Subcontracting Opportunities

    This section amends section 8(k) of the Act to require that 
notices of small business contracting opportunities to be 
posted on an appropriate federal website. This is necessary as 
the Act currently requires publication in the CBD, which has 
been defunct for a decade. The Administrator is given 
discretion to determine the appropriate replacement website, 
but the website should be one that provides for maximal 
dissemination of opportunities available to small businesses 
seeking subcontracts.

Section 203. Regulations

    This section requires the Administrator promulgate 
regulations implementing H.R. 3893 within 180 days of passage.

                         TITLE III--INSOURCING

Section 301. Definitions Relating to Procurement Protest System

    This section amends section 3551(1) of title 31 to allow 
include any small business concern whose contract is being 
insourced or whose economic interests will be affected to 
protest the agency's decision at GAO. This is comparable to the 
protection already provided under section 3557 of title 31 to 
federal employees whose functions are being converted to 
performance by a private company.

Section 302. Insourcing

    This section would amend the Act by adding a new section 
46. The new section requires that, prior to insourcing work 
currently performed by a small business, the agency insourcing 
the work must publish by notice and comment rulemaking its 
procedures for determining which functions to convert. Further, 
the procedures must provide for the review of any insourcing 
decisions involving a small business by the appropriate Office 
of Small and Disadvantaged Business Utilization and PCR.

                        VIII. Unfunded Mandates

    H.R. 3893 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act, Pub. 
L. No. 104-4, and would impose no costs on state, local or 
tribal governments.

          IX. New Budget Authority, Entitlement Authority and 
                            Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House, the Committee provides the following opinion and 
estimate with respect to new budget authority, entitlement 
authority and tax expenditures. The Committee has not received 
an estimate of new budget authority contained in the cost 
estimate prepared by the Director of the Congressional Budget 
Office pursuant to Sec. 402 of the Congressional Budget Act of 
1974. However, the Committee believes that the cost of 
implementing H.R. 3893 should be less than $1 million. This 
amount should allow for SBA to modify its subcontracting 
reporting systems to allow for improved reporting and 
notification. All other costs contained herein would be handled 
under existing levels of appropriations for agency salary and 
expenses.

                         X. Oversight Findings

    In accordance with clause 2(b)(1) of rule X of the Rules of 
the House, the oversight findings and recommendations of the 
Committee on Small Business with respect to the subject matter 
contained in H.R. 3893 are incorporated into the descriptive 
portions of this report.

               XI. Statement of Constitutional Authority

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
authority for this legislation in Art. I, Sec. 8, cls. 1, 3, 
and 18 and Art. IV, Sec. 3, cl. 2 of the Constitution of the 
United States.

                 XII. Congressional Accountability Act

    H.R. 3893 does not relate to the terms and conditions of 
employment or access to public services or accommodations 
within the meaning of Sec. 102(b)(3) of Pub. L. No. 104-1.

             XIII. Federal Advisory Committee Act Statement

    H.R. 3893 does not establish or authorize the establishment 
of any new advisory committees as that term is defined in the 
Federal Advisory Committee Act, 5 U.S.C. App. 2.

                     XIV. Statement of No Earmarks

    Pursuant to clause 9 of rule XXI, H.R. 3893 does not 
contain any congressional earmarks, limited tax benefits or 
limited tariff benefits as defined in subsections (d), (e) or 
(f) of clause 9 of rule XXI of the Rules of the House.

                  XV. Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House, the Committee establishes the following performance-
related goals and objectives for this legislation:

          H.R. 3893 includes a number of provisions designed to 
        improve compliance with limitations on subcontracting 
        found in the Small Business Act, ensure compliance with 
        reporting subcontracting plans, and promote 
        transparency for insourcing the work of small business 
        concerns.

       XVI. Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                           SMALL BUSINESS ACT




           *       *       *       *       *       *       *
  Sec. 3. (a) * * *

           *       *       *       *       *       *       *

  (p) Definitions Relating to HUBZones.--In this Act:
          (1) * * *

           *       *       *       *       *       *       *

          (5) Qualified hubzone small business concern.--
                  (A) In general.--A HUBZone small business 
                concern is ``qualified'', if--
                          (i) the small business concern has 
                        certified in writing to the 
                        Administrator (or the Administrator 
                        otherwise determines, based on 
                        information submitted to the 
                        Administrator by the small business 
                        concern, or based on certification 
                        procedures, which shall be established 
                        by the Administration by regulation) 
                        that--
                                  (I) * * *

           *       *       *       *       *       *       *

                                  [(III) with respect to any 
                                subcontract entered into by the 
                                small business concern pursuant 
                                to a contract awarded to the 
                                small business concern under 
                                section 31, the small business 
                                concern will ensure that--
                                          [(aa) in the case of 
                                        a contract for services 
                                        (except construction), 
                                        not less than 50 
                                        percent of the cost of 
                                        contract performance 
                                        incurred for personnel 
                                        will be expended for 
                                        its employees or for 
                                        employees of other 
                                        HUBZone small business 
                                        concerns;
                                          [(bb) in the case of 
                                        a contract for 
                                        procurement of supplies 
                                        (other than procurement 
                                        from a regular dealer 
                                        in such supplies), not 
                                        less than 50 percent of 
                                        the cost of 
                                        manufacturing the 
                                        supplies (not including 
                                        the cost of materials) 
                                        will be incurred in 
                                        connection with the 
                                        performance of the 
                                        contract in a HUBZone 
                                        by 1 or more HUBZone 
                                        small business 
                                        concerns; and
                                          [(cc) in the case of 
                                        a contract for the 
                                        procurement by the 
                                        Secretary of 
                                        Agriculture of 
                                        agricultural 
                                        commodities, none of 
                                        the commodity being 
                                        procured will be 
                                        obtained by the prime 
                                        contractor through a 
                                        subcontract for the 
                                        purchase of the 
                                        commodity in 
                                        substantially the final 
                                        form in which it is to 
                                        be supplied to the 
                                        Government; and]
                                  (III) with respect to any 
                                subcontract entered into by the 
                                small business concern pursuant 
                                to a contract awarded to the 
                                small business concern under 
                                section 31, the small business 
                                concern will ensure that the 
                                requirements of section 45 are 
                                satisfied; and

           *       *       *       *       *       *       *

                  [(B) Change in percentages.--The 
                Administrator may utilize a percentage other 
                than the percentage specified in item (aa) or 
                (bb) of subparagraph (A)(i)(III), if the 
                Administrator determines that such action is 
                necessary to reflect conventional industry 
                practices among small business concerns that 
                are below the numerical size standard for 
                businesses in that industry category.
                  [(C) Construction and other contracts.--The 
                Administrator shall promulgate final 
                regulations imposing requirements that are 
                similar to those specified in items (aa) and 
                (bb) of subparagraph (A)(i)(III) on contracts 
                for general and specialty construction, and on 
                contracts for any other industry category that 
                would not otherwise be subject to those 
                requirements. The percentage applicable to any 
                such requirement shall be determined in 
                accordance with subparagraph (B).]
                  [(D)] (B) List of qualified small business 
                concerns.--The Administrator shall establish 
                and maintain a list of qualified HUBZone small 
                business concerns, which list shall, to the 
                extent practicable--
                          (i) * * *

           *       *       *       *       *       *       *

  Sec. 8. (a)(1) * * *

           *       *       *       *       *       *       *

  [(14)(A) A concern may not be awarded a contract under this 
subsection as a small business concern unless the concern 
agrees that--
          [(i) in the case of a contract for services (except 
        construction), at least 50 percent of the cost of 
        contract performance incurred for personnel shall be 
        expended for employees of the concern; and
          [(ii) in the case of a contract for procurement of 
        supplies (other than procurement from a regular dealer 
        in such supplies), the concern will perform work for at 
        least 50 percent of the cost of manufacturing the 
        supplies (not including the cost of materials).
  [(B) The Administrator may change the percentage under clause 
(i) or (ii) of subparagraph (A) if the Administrator determines 
that such change is necessary to reflect conventional industry 
practices among business concerns that are below the numerical 
size standard for businesses in that industry category. A 
percentage established under the preceding sentence may not 
differ from a percentage established under section 15(o).
  [(C) The Administration shall establish, through public 
rulemaking, requirements similar to those specified in 
subparagraph (A) to be applicable to contracts for general and 
specialty construction and to contracts for any other industry 
category not otherwise subject to the requirements of such 
paragraph. The percentage applicable to such requirement shall 
be determined in accordance with subparagraph (B), except that 
such a percentage may not differ from a percentage established 
under section 15(o) for the same industry category.]
  (14) Limitations on Subcontracting.--A concern may not be 
awarded a contract under this subsection as a small business 
concern unless the concern agrees to satisfy the requirements 
of section 45.

           *       *       *       *       *       *       *

  (d)(1) * * *

           *       *       *       *       *       *       *

  [(6) Each subcontracting plan]
  (6) Subcontracting plan requirlements.--Each subcontracting 
plan required under paragraph (4) or (5) shall include--
          (A) percentage goals for the utilization as 
        subcontractors of small business concerns, small 
        business concerns owned and controlled by veterans, 
        small business concerns owned and controlled by 
        service-disabled veterans, qualified HUBZone small 
        business concerns, small business concerns owned and 
        controlled by socially and economically disadvantaged 
        individuals, and small business concerns owned and 
        controlled by women;
          (B) the name of an individual within the employ of 
        the offeror or bidder who will administer the 
        subcontracting program of the offeror or bidder and a 
        description of the duties of such individual;
          (C) a description of the efforts the offeror or 
        bidder will take to assure that small business 
        concerns, small business concerns owned and controlled 
        by veterans, small business concerns owned and 
        controlled by service-disabled veterans, qualified 
        HUBZone small business concerns, small business 
        concerns owned and controlled by socially and 
        economically disadvantaged individuals, and small 
        business concerns owned and controlled by women will 
        have an equitable opportunity to compete for 
        subcontracts;
          (D) assurances that the offeror or bidder will 
        include the clause required by paragraph (2) of this 
        subsection in all subcontracts which offer further 
        subcontracting opportunities, and that the offeror or 
        bidder will require all subcontractors (except small 
        business concerns) who receive subcontracts in excess 
        of $1,000,000 in the case of a contract for the 
        construction of any public facility, or in excess of 
        $500,000 in the case of all other contracts, to adopt a 
        plan similar to the plan required under paragraph (4) 
        or (5);
          [(E) assurances that the offeror or bidder will 
        submit such periodic reports and cooperate in any 
        studies or surveys as may be required by the Federal 
        agency or the Administration in order to determine the 
        extent of compliance by the offeror or bidder with the 
        subcontracting plan;]
          (E) assurances that the offeror or bidder will--
                  (i) submit--
                          (I) not later than 180 days after the 
                        date on which performance under the 
                        applicable contract begins, and every 
                        180 days thereafter until contract 
                        performance ends, a report that 
                        describes all subcontracting activities 
                        under the contract during the preceding 
                        180-day period;
                          (II) not later than 1 year after the 
                        date on which performance under the 
                        applicable contract begins, and 
                        annually thereafter until contract 
                        performance ends, a report that 
                        describes all subcontracting activities 
                        under the contract that have occurred 
                        before the date on which the report is 
                        submitted (except that, with respect to 
                        the Department of Defense and the 
                        National Aeronautics and Space 
                        Administration, a report under this 
                        subclause shall be submitted not later 
                        than 180 days after the date on which 
                        contract performance begins and every 
                        180 days thereafter until contract 
                        performance ends); and
                          (III) not later than 30 days after 
                        the date on which performance under the 
                        applicable contract ends, a report that 
                        describes all subcontracting activities 
                        under the contract; and
                  (ii) cooperate with any study or survey 
                required by the applicable Federal agency or 
                the Administration to determine the extent of 
                compliance by the offeror or bidder with the 
                subcontracting plan;
          (F) a recitation of the types of records the 
        successful offeror or bidder will maintain to 
        demonstrate procedures which have been adopted to 
        comply with the requirements and goals set forth in 
        this plan, including the establishment of source lists 
        of small business concerns, small business concerns 
        owned and controlled by veterans, small business 
        concerns owned and controlled by service-disabled 
        veterans, qualified HUBZone small business concerns, 
        small business concerns owned and controlled by 
        socially and economically disadvantaged individuals, 
        and small business concerns owned and controlled by 
        women; and efforts to identify and award subcontracts 
        to such small business concerns; and

           *       *       *       *       *       *       *

  [(8) The failure]
  (8) Material Breach.--The failure of any contractor or 
subcontractor to comply in good faith with--
          (A) the clause contained in paragraph (3) of this 
        [subsection, or] subsection,
          (B) any plan required of such contractor pursuant to 
        the authority of this subsection to be included in its 
        contract or [subcontract,] subcontract, or
          (C) assurances provided under paragraph (6)(E),
        shall be a material breach of such contract or 
        subcontract.

           *       *       *       *       *       *       *

  [(10) In the case of]
  (10) Authority of Administration.--In the case of contracts 
within the provisions of paragraphs (4), (5), and (6), the 
Administration is authorized to--
          (A) assist Federal agencies and businesses in 
        complying with their responsibilities under the 
        provisions of this subsection, including the 
        formulation of subcontracting plans pursuant to 
        paragraph (4);
          (B) review any solicitation for any contract to be 
        let pursuant to paragraphs (4) and (5) to determine the 
        maximum practicable opportunity for small business 
        concerns, small business concerns owned and controlled 
        by veterans, small business concerns owned and 
        controlled by service-disabled veterans, qualified 
        HUBZone small business concerns, small business 
        concerns owned and controlled by socially and 
        economically disadvantaged individuals, and small 
        business concerns owned and controlled by women to 
        participate as subcontractors in the performance of any 
        contract resulting from any solicitation, and to submit 
        its findings[, which shall be advisory in nature,] to 
        the appropriate Federal agency; and
          (C) evaluate compliance with subcontracting plans[, 
        either on a contract-by-contract basis, or in the case 
        contractors] as a supplement to evaluations performed 
        by the contracting agency, either on a contract-by-
        contract basis or, in the case of contractors having 
        multiple contracts, on an aggregate basis.

           *       *       *       *       *       *       *

  (13) Appeals.--
          (A) In general.--If a procurement center 
        representative or commercial market representative 
        determines that a subcontracting plan required under 
        paragraph (4) or (5) fails to provide the maximum 
        practicable opportunity for covered small business 
        concerns to participate in the performance of the 
        contract to which the plan applies, such representative 
        may delay acceptance of the plan in accordance with 
        subparagraph (B).
          (B) Process.--A procurement center representative or 
        commercial market representative who makes the 
        determination under subparagraph (A) with respect to a 
        subcontracting plan may delay acceptance of the plan 
        for a 30-day period by providing written notice of such 
        determination to appropriate personnel of the 
        contracting agency. Such notice shall include 
        recommendations for altering the plan to provide the 
        maximum practicable opportunity described in that 
        subparagraph.
          (C) Disagreements.--If a procurement center 
        representative or commercial market representative 
        delays the acceptance of a subcontracting plan under 
        subparagraph (B) for a 30-day period and, during such 
        period, does not reach agreement with appropriate 
        personnel of the contracting agency to alter the plan 
        to provide the maximum practicable opportunity 
        described in subparagraph (A), the disagreement shall 
        be submitted to the head of the contracting agency by 
        the Administrator for a final determination.
          (D) Covered small business concerns defined.--In this 
        paragraph, the term ``covered small business concerns'' 
        means small business concerns, qualified HUBZone small 
        business concerns, small business concerns owned and 
        controlled by veterans, small business concerns owned 
        and controlled by service-disabled veterans, small 
        business concerns owned and controlled by socially and 
        economically disadvantaged individuals, and small 
        business concerns owned and controlled by women.

           *       *       *       *       *       *       *

  (k) Notices of Subcontracting Opportunities.--
          (1) In general.--Notices of subcontracting 
        opportunities may be submitted for publication [in the 
        Commerce Business Daily] on the appropriate Federal Web 
        site (as determined by the Administrator) by--
                  (A) * * *

           *       *       *       *       *       *       *

  Sec. 15. (a) * * *

           *       *       *       *       *       *       *

  [(o)(1) A concern may not be awarded a contract under 
subsection (a) as a small business concern unless the concern 
agrees that--
          [(A) in the case of a contract for services (except 
        construction), at least 50 percent of the cost of 
        contract performance incurred for personnel shall be 
        expended for employees of the concern; and
          [(B) in the case of a contract for procurement of 
        supplies (other than procurement from a regular dealer 
        in such supplies), the concern will perform work for at 
        least 50 percent of the cost of manufacturing the 
        supplies (not including the cost of materials).
  [(2) The Administrator may change the percentage under 
subparagraph (A) or (B) of paragraph (1) if the Administrator 
determines that such change is necessary to reflect 
conventional industry practices among business concerns that 
are below the numerical size standard for businesses in that 
industry category.
  [(3) The Administration shall establish, through public 
rulemaking, requirements similar to those specified in 
paragraph (1) to be applicable to contracts for general and 
specialty construction and to contracts for any other industry 
category not otherwise subject to the requirements of such 
paragraph. The percentage applicable to any such requirement 
shall be determined in accordance with paragraph (2).]
  (o) Limitations on Subcontracting.--A concern may not be 
awarded a contract under subsection (a) as a small business 
concern unless the concern agrees to satisfy the requirements 
of section 45.

           *       *       *       *       *       *       *

  Sec. 16. (a) * * *

           *       *       *       *       *       *       *

  (g) Subcontracting Limitations.--
          (1) In general.--Whoever violates a requirement 
        established under section 45 shall be subject to the 
        penalties prescribed in subsection (d), except that, 
        for an entity that exceeded a limitation on 
        subcontracting under such section, the fine described 
        in subsection (d)(2)(A) shall be treated as the greater 
        of--
                  (A) $500,000; or
                  (B) the dollar amount expended, in excess of 
                permitted levels, by the entity on 
                subcontractors.
          (2) Monitoring.--Not later than 1 year after the date 
        of enactment of this subsection, the Administrator 
        shall take such actions as are necessary to ensure that 
        an existing Federal subcontracting reporting system is 
        modified to notify the Administrator, the appropriate 
        Director of the Office of Small and Disadvantaged 
        Business Utilization, and the appropriate contracting 
        officer if a requirement established under section 45 
        is violated.

           *       *       *       *       *       *       *


SEC. 45. LIMITATIONS ON SUBCONTRACTING.

  (a) In General.--If awarded a contract under section 8(a), 
8(m), 15(a), 31, or 36, a covered small business concern--
          (1) in the case of a contract for services, may not 
        expend on subcontractors more than 50 percent of the 
        amount paid to the concern under the contract;
          (2) in the case of a contract for supplies (other 
        than from a regular dealer in such supplies), may not 
        expend on subcontractors more than 50 percent of the 
        amount, less the cost of materials, paid to the concern 
        under the contract;
          (3) in the case of a contract described in more than 
        1 of paragraphs (1) through (4)--
                  (A) shall determine for which category of 
                services or supplies, described in 1 of 
                paragraphs (1) through (4), the greatest 
                percentage of the contract amount is awarded;
                  (B) shall determine the amount awarded under 
                the contract for that category of services or 
                supplies; and
                  (C) may not expend on subcontractors, with 
                respect to the amount determined under 
                subparagraph (B), more than--
                          (i) 50 percent of that amount, if the 
                        category of services or supplies 
                        applicable under subparagraph (A) is 
                        described in paragraph (1); and
                          (ii) 50 percent of that amount, if 
                        the category of services or supplies 
                        applicable under subparagraph (A) is 
                        described in paragraph (2); and
          (4) in the case of a contract for supplies from a 
        regular dealer in such supplies, shall supply the 
        product of a domestic small business manufacturer or 
        processor, unless a waiver of such requirement is 
        granted--
                  (A) by the Administrator, after reviewing a 
                determination by the applicable contracting 
                officer that no small business manufacturer or 
                processor can reasonably be expected to offer a 
                product meeting the specifications (including 
                period for performance) required by the 
                contract; or
                  (B) by the Administrator for a product (or 
                class of products), after determining that no 
                small business manufacturer or processor is 
                available to participate in the Federal 
                procurement market.
  (b) Similarly Situated Entities.--Contract amounts expended 
by a covered small business concern on a subcontractor that is 
a similarly situated entity shall not be considered 
subcontracted for purposes of determining whether the covered 
small business concern has violated a requirement established 
under subsection (a) or (d).
  (c) Modifications of Percentages.--
          (1) In general.--The Administrator may change, by 
        rule (after providing notice and an opportunity for 
        public comment), a percentage specified in paragraphs 
        (1) through (4) of subsection (a) if the Administrator 
        determines that such change is necessary to reflect 
        conventional industry practices among business concerns 
        that are below the numerical size standard for 
        businesses in that industry category.
          (2) Uniformity.--A change to a percentage under 
        paragraph (1) shall apply to all covered small business 
        concerns.
  (d) Other Contracts.--
          (1) In general.--With respect to a category of 
        contracts to which a requirement under subsection (a) 
        does not apply, the Administrator is authorized to 
        establish, by rule (after providing notice and an 
        opportunity for public comment), a requirement that a 
        covered small business concern may not expend on 
        subcontractors more than a specified percentage of the 
        amount paid to the concern under a contract in that 
        category.
          (2) Uniformity.--A requirement established under 
        paragraph (1) shall apply to all covered small business 
        concerns.
          (3) Construction projects.--The Administrator shall 
        establish, through public rulemaking, requirements 
        similar to those specified in paragraph (1) to be 
        applicable to contracts for general and specialty 
        construction and to contracts for any other industry 
        category not otherwise subject to the requirements of 
        such paragraph. The percentage applicable to any such 
        requirement shall be determined in accordance with 
        paragraph (2).
  (e) Definitions.--In this section, the following definitions 
apply:
          (1) Covered small business concern.--The term 
        ``covered small business concern'' means a business 
        concern that--
                  (A) with respect to a contract awarded under 
                section 8(a), is a small business concern 
                eligible to receive contracts under that 
                section;
                  (B) with respect to a contract awarded under 
                section 8(m)--
                          (i) is a small business concern owned 
                        and controlled by women (as defined in 
                        that section); or
                          (ii) is a small business concern 
                        owned and controlled by women (as 
                        defined in that section) that is not 
                        less than 51 percent owned by 1 or more 
                        women who are economically 
                        disadvantaged (and such ownership is 
                        determined without regard to any 
                        community property law);
                  (C) with respect to a contract awarded under 
                section 15(a), is a small business concern;
                  (D) with respect to a contract awarded under 
                section 31, is a qualified HUBZone small 
                business concern; or
                  (E) with respect to a contract awarded under 
                section 36, is a small business concern owned 
                and controlled by service-disabled veterans.
          (2) Similarly situated entity.--The term ``similarly 
        situated entity'' means a subcontractor that--
                  (A) if a subcontractor for a small business 
                concern, is a small business concern;
                  (B) if a subcontractor for a small business 
                concern eligible to receive contracts under 
                section 8(a), is such a concern;
                  (C) if a subcontractor for a small business 
                concern owned and controlled by women (as 
                defined in section 8(m)), is such a concern;
                  (D) if a subcontractor for a small business 
                concern owned and controlled by women (as 
                defined in section 8(m)) that is not less than 
                51 percent owned by 1 or more women who are 
                economically disadvantaged (and such ownership 
                is determined without regard to any community 
                property law), is such a concern;
                  (E) if a subcontractor for a qualified 
                HUBZone small business concern, is such a 
                concern; or
                  (F) if a subcontractor for a small business 
                concern owned and controlled by service-
                disabled veterans, is such a concern.

SEC. 46. INSOURCING.

  A Federal agency may only convert a function that is being 
performed by a small business concern to performance by a 
Federal employee if--
          (1) the agency has made publicly available, after 
        providing notice and an opportunity for public comment, 
        the procedures of the agency with respect to decisions 
        to convert a function being performed by a small 
        business concern to performance by a Federal employee; 
        and
          (2) the procedures described in paragraph (1) include 
        that all decisions described in such paragraph are 
        reviewed by any appropriate--
                  (A) Office of Small and Disadvantaged 
                Business Utilization; and
                  (B) procurement center representative.
  Sec. [45.] 47. All laws and parts of laws inconsistent with 
this Act are hereby repealed to the extent of such 
inconsistency.
                              ----------                              


                      TITLE 31, UNITED STATES CODE



           *       *       *       *       *       *       *
SUBTITLE III--FINANCIAL MANAGEMENT

           *       *       *       *       *       *       *


CHAPTER 35--ACCOUNTING AND COLLECTION

           *       *       *       *       *       *       *


                SUBCHAPTER V--PROCUREMENT PROTEST SYSTEM

Sec. 3551. Definitions

  In this subchapter:
          (1) The term ``protest'' means a written objection by 
        an interested party to any of the following:
                  (A) * * *

           *       *       *       *       *       *       *

                  (F) Conversion of a function that is being 
                performed by a small business concern to 
                performance by a Federal employee.
          (2) The term ``interested party''--
                  (A) with respect to a contract or a 
                solicitation or other request for offers 
                described in paragraph (1), means an actual or 
                prospective bidder or offeror whose direct 
                economic interest would be affected by the 
                award of the contract or by failure to award 
                the contract; [and]
                  (B) with respect to a public-private 
                competition conducted under Office of 
                Management and Budget Circular A-76 with 
                respect to the performance of an activity or 
                function of a Federal agency, or a decision to 
                convert a function performed by Federal 
                employees to private sector performance without 
                a competition under Office of Management and 
                Budget Circular A-76, includes--
                          (i) * * *
                          (ii) any one individual who, for the 
                        purpose of representing the Federal 
                        employees engaged in the performance of 
                        the activity or function for which the 
                        public-private competition is conducted 
                        in a protest under this subchapter that 
                        relates to such public-private 
                        competition, has been designated as the 
                        agent of the Federal employees by a 
                        majority of such employees[.]; and
                  (C) with respect to a conversion described in 
                paragraph (1)(F), means a small business 
                concern (as that term is defined in section 
                3(a) of the Small Business Act) whose economic 
                interest would be affected by the conversion.

           *       *       *       *       *       *       *


                                  
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