29–006 

112TH CONGRESS REPT. 112–728 " ! HOUSE OF REPRESENTATIVES 2d Session Part 1 

CONTRACTING OVERSIGHT FOR SMALL BUSINESS JOBS 

ACT OF 2012 

DECEMBER 21, 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. 4206] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Small Business, to whom was referred the bill 

(H.R. 4206) to amend the Small Business Act to provide for increased penalties for contracting fraud, and for other purposes, 

having considered the same, report favorably thereon with amendments and recommend that the bill as amended do pass. 

CONTENTS 

Page 

I. Amendment ................................................................................................. 1 

II. Purpose of the Bill and Summary ............................................................. 2 

III. Background and the Need for Legislation ................................................ 3 

IV. Hearings ....................................................................................................... 5 

V. Committee Consideration ........................................................................... 5 

VI. Committee Votes ......................................................................................... 6 

VII. Section-by-Section Analysis of H.R. 4206 .................................................. 10 

VIII. Congressional Budget Cost Estimate ........................................................ 15 

IX. Unfunded Mandates .................................................................................... 16 

X. New Budget Authority, Entitlement Authority, and Tax Expenditures 16 

XI. Oversight Findings ...................................................................................... 16 

XII. Statement of Constitutional Authority ...................................................... 16 

XIII. Congressional Accountability Act .............................................................. 16 

XIV. Federal Advisory Committee Statement ................................................... 17 

XV. Statement of No Earmarks ........................................................................ 17 

XVI. Performance Goals and Objectives ............................................................ 17 

XVII. Changes in Existing Law Made by the Bill, as Reported ........................ 17 

I. AMENDMENT

The amendments (stated in terms of the page and line numbers 

of the introduced bill) are as follows: 


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1Originally, 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, § 1, 72m Stat, 384 (1958). The Act is codified at 15 U.S.C. 

§§ 631–657q. 2 18 U.S.C. § 1001–40. 

Page 2, line 25, strike ‘‘relating to the following section:’’ and insert ‘‘relating to section 1040 the following:’’. 

Page 3, line 6, insert ‘‘LIMITATION ON LIABILITY.—’’ after ‘‘(3)’’. 

Page 4, line 6, insert after the period the following: ‘‘On the date 

that the Administrator issues the compliance guide under this section, the Administrator shall also issue a version of the compliance 

guide translated into Spanish and such translation may be provided in digital form by the Administrator.’’. 

Page 7, line 5, strike ‘‘16(d)(2)’’ and insert ‘‘16(d)(2)(C)’’. 

Page 7, line 6, strike ‘‘645(d)(3)’’ and insert ‘‘645(d)(2)(C)’’. 

II. PURPOSE AND BILL SUMMARY

The purpose of H.R. 4206, the ‘‘Contracting Oversight for Small 

Business Jobs Act of 2012,’’ is to amend the Small Business Act 

(the Act) 1 and the criminal code relating to false statements 2 in 

order to reduce fraud within small business contracting by increasing penalties, while enhancing transparency and protecting small 

business owners making a good faith effort to comply with complicated contracting and size rules. The Small Business Administration (SBA) oversees six small business preferential contracting 

programs. Under current law, if a company commits fraud within 

the SBA’s contracting programs there is little recourse; as the cost 

to prosecute outweighs the recovery amount. This bill resolves this 

discrepancy by increasing penalties from $250,000 to $1,000,000 or 

twice the value of the fraudulently obtained contract, whichever is 

greater, thereby ensuring it is cost-effective for the government to 

prosecute these bad actors. 

This legislation also recognizes the need for increased transparency in the suspension and debarment process. H.R. 4206 requires the SBA to publish the standard operating procedures for 

suspension and debarment delineating how the agency will conduct 

suspensions and debarments. This bill also requires SBA to submit 

an annual report to the House Small Business Committee and the 

Senate Small Business and Entrepreneurship Committee on suspension and debarment actions taken by the SBA during the preceding year. Additionally, this bill provides a statutory framework 

for the Office of Hearings and Appeals to decide which businesses 

are truly small. 

H.R. 4206 further recognizes that many small business owners in 

attempting to comply with the complex regulations found in federal 

contracting may inadvertently misrepresent themselves. The bill 

provides a safe harbor provision, which protects a small business 

owner from these fraud provisions if the firm relied in good faith 

on a licensed attorney’s written opinion. 


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3 15 U.S.C. § 644(a). 

III. NEED FOR LEGISLATION

The Act iterates Congress’s belief in the importance of small 

business participation in federal prime contracts and the resultant 

subcontracts. Specifically, the Act directs that: 

To effectuate the purpose of this Act, small-business concerns within the meaning of this Act shall receive any 

award or contract or any part thereof, and be awarded any 

contract for the sale of Government property, as to which 

it is determined by the Administration and the contracting 

procurement or disposal agency (1) to be in the interest of 

maintaining or mobilizing the Nation’s full productive capacity, (2) to be in the interest of war or national defense 

programs, (3) to be in the interest of assuring that a fair 

proportion of the total purchase and contracts for property 

and services for the Government in each industry category 

are placed with small-business concerns, or (4) to be in the 

interest of assuring that a fair proportion of the total sales 

of Government be made to small-business concerns.3

To effectuate these objectives, Congress has enacted six different 

contract programs overseen by the SBA’s Office of Government 

Contracting and Business Development. Each of these programs 

has a statutory goal associated with it, related to the percentage 

of prime contract dollars the government should award to qualifying firms each year. These programs are the Small Business Contracting Program, Historically Underutilized Business Zone 

(HUBZone) Small Business Program, Women-Owned Small Business (WOSB) program, 8(a) Business Development (8(a)) program, 

Small Disadvantaged Business (SDB) programs, and the Service 

Disabled Veteran-Owned Small Business (SDVOSB) programs. 

Fraud in the small business contracting results in three types of 

harms. First, there is the loss to small businesses. Legitimate small 

businesses are negatively affected by bad actors who seek to take 

advantage of these programs. When contracts go to firms that do 

not qualify for, or which are not following the rules associated with, 

a contracting program, legitimate firms are denied the right to perform on a contract. Second, there is loss to the government. When 

firms that misrepresent themselves as small businesses receive 

contracts, the government’s statutory procurement goals are 

skewed. Bad actors also harm the reputations of legitimate small 

businesses, so contracting officers are more reluctant to use these 

programs, which in turn results in less competition and a less vibrant industrial base. Finally, the American people suffer because 

firms that misrepresent their status may not need to hire new employees, undermining the job creating power of legitimate small 

businesses. 

In small business procurement programs, there are six reoccurring types of fraud: misrepresentations of size, program specific 

misrepresentations, pass-through contracts, violations of the nonmanufacturer rule, incorrect assignment of size standards to contracts, and recurring acts of bribery and kickbacks. Notably over 

the past few years, these types of fraud within small business contracting have become more pervasive. For example, in a 2008 GovVerDate Mar 15 2010 07:20 Dec 28, 2012 Jkt 029006 PO 00000 Frm 00003 Fmt 6659 Sfmt 6602 E:\HR\OC\HR728P1.XXX HR728P1

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4GAO, HUBZone Program: SBA’s Control Weaknesses Exposed the Government to Fraud and 

Abuse (2008) (GAO–08–964T). 5GAO, 8(A) Program: Fourteen Ineligible Firms Received $325 Million in Sole-Source and SetAside Contracts (2010) (GAO–10–425). 6Small Business Jobs Act of 2010, Pub. L. No. 111–240, § 1341, 124 Stat. §§ 2504, 2543 (2010). 

7 Id. 

8SAM is the official federal registry of prospective federal contractors, and allows contracting 

officers to conduct market research regarding capabilities. 9GAO, Service-Disabled Veteran-Owned Small Business Program: Case Studies Show Fraud 

and Abuse Allowed Ineligible Firms to Obtain Millions of Dollars in Contracts, 4–5 (2010) 

(GAO–10–108). 

ernment Accountability Office (GAO) report, GAO was able to successfully certify four bogus firms, and easily identified ten firms in 

Washington, DC that did not meet the program requirements but 

still received over $100 million in contracts.4 Likewise, GAO was 

able to obtain certification for one bogus 8(a) firm, although three 

other bogus applicants were rejected based on capacity rather than 

on their fraudulent status, and GAO found 14 firms received $325 

million in set-aside and sole-source contracts through the 8(a) program even though the firms were not eligible for the 8(a) program.5

In an attempt to address these problems, the Small Business 

Jobs Act of 2010 (Jobs Act) created a presumption of loss when 

firms engage in this type of conduct.6 In pertinent part, the Jobs 

Act stated: 

In every contract, subcontract, cooperative agreement, 

cooperative research and development agreement, or grant 

which is set aside, reserved, or otherwise classified as intended for award to small business concerns, there shall be 

a presumption of loss to the United States based on the 

total amount expended on the contract, subcontract, cooperative agreement, cooperative research and development 

agreement, or grant whenever it is established that a business concern other than a small business concern willfully 

sought and received the award by misrepresentation.7

However, when applying this provision, agencies are still offsetting the harm to the government by the value of the goods or services received. As a contracting officer is not allowed to award a contract under the small business programs unless the contracting officer believes the government is paying a fair and reasonable price, 

the value of the contract completely offsets the statutory presumption of loss. 

Additionally, for the 8(a) and HUBZone programs, a firm can 

only be listed in the System for Award Management (SAM) as a 

participant if they have been certified by SBA, but this certification 

does not necessarily indicate that the firm is meeting the program 

requirements.8 In self-certification programs, the possibility of 

abuse is even higher. For example, GAO ‘‘identified 10 case-study 

examples of firms that did not meet SDVOSB program eligibility 

requirements [but which] received approximately $100 million in 

SDVOSB contracts, and over $300 million in additional dollars of 

8(a), HUBZone, and non-SDVOSB federal government contracts.’’ 9

Further in 2010, a Washington Post expose ́ drew attention to additional fraud within small business contracting. In one instance, 

it was revealed that the large subcontractor, a firm called GTSI, 

would ‘‘lead the work and receive 99.5 percent of the revenue, even 

though it was a subcontractor and MultimaxArray was the 


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10 Robert O’Harrow, In Deals between Alaska Corporation and D.C. Area Contractor, A Disconnect, Washington Post, October 1, 2010, available at http://www.washingtonpost.com/wpdyn/content/article/2010/09/30/AR2010093007348.html?sid=ST2010092907225. 11Letter from Michael Chodos, Suspension and Debarment Official, SBA, to Scott W. Friedlander, President and Chief Executive, GTSI Corporation (October 10, 2011) available at http:// 

www.govexec.com/pdfs/100510rb1b.pdf. 12 Robert O’Harrow, Audit: Army, Interior Broke Law by Awarding Contract to Alaska Native 

Corporation, Washington Post, August 17, 2011. 1313 CFR § 121.103(f). 

‘prime.’ ’’ 10 In another, a large firm negotiated to receive 75 percent 

of the profits on over $166 million in set-aside task orders under 

a Department of Homeland Security indefinite delivery, indefinite 

quantity (ID/IQ) contract, and SBA later found that the small business prime contractor ‘‘had little to no involvement in the performance of contracts.’’ 11 Likewise, US2, a small business with only 

$73,000 in revenue and run from the owner’s living room, was 

awarded an Army sole-source contract for $250 million.12

Despite these reports, the majority of small business owners are 

law-abiding citizens who attempt to comply with complicated size 

standards and contracting rules. In some cases, the misrepresentation can be a good-faith error. For example, a company may not understand that it could be affiliated with another firm based on 

identity of interest, such as the other firm being owned by a sibling. Thus, two unrelated businesses could be considered affiliated 

by SBA, and their combined receipts and employees could place 

them above the relevant size standard.13

Due to the challenges cited previously, legislation that balances 

the concerns of legitimate small business owners with the need to 

combat fraud throughout the SBA’s small business contracting programs is necessary. In order for the small business programs to accomplish their statutory goals of promoting a healthy industrial 

base and increasing competition, particularly among small firms, 

the programs must operate in a transparent manner that minimizes the risk of fraud and misrepresentation. In doing so, this will 

free legitimate small businesses to innovate, create jobs, and increase competition. 

IV. HEARINGS

During the 112th Congress, the Subcommittee on Investigations, 

Oversight and Regulations held a hearing related to matters addressed by H.R. 4206. The hearing was entitled ‘‘Misrepresentation 

and Fraud: Bad Actors in the Small Business Procurement Programs,’’ and held on October 27, 2011. The Subcommittee examined 

whether there are sufficient monitoring mechanisms in place to detect fraud and misrepresentation, and how these processes could be 

improved. 

V. COMMITTEE CONSIDERATION

The Committee on Small Business met in open session, with a 

quorum being present, on March 22, 2012, and ordered H.R. 4206 

reported, as amended, to the House by a voice vote at 11:25 am. 

During the markup, one amendment and a perfecting amendment 

were offered. Both the amendment and the perfecting amendment 

were adopted. Disposition of the amendments is addressed below 

and is based on the order amendments were filed with the Clerk 


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of the Committee and not necessarily in the order that they were 

considered at the markup. 

Amendment Number One filed by Ms. Hahn (D–CA) requires 

that any Small Business Compliance Guide issued under this section also be made available in Spanish. Amendment Number One 

was adopted by a roll call vote of 12 to 11 at 11:17 a.m. 

A perfecting Amendment to Amendment Number One filed by 

Mr. Cicilline (D–RI) requires such translation be provided in digital 

form by the Administrator. The perfecting amendment was adopted 

by a roll call vote of 14 to 9 at 11:21 a.m. 

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. 

AMENDMENT TO H.R. 4206 OFFERED BY MS. HAHN OF CALIFORNIA

Page 4, line 6, insert after the period the following: ‘‘On the date 

that the Administrator issues the compliance guide under this section, the Administrator shall also issue a version of the compliance 

guide translated into Spanish.’’ 


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COMMITTEE ON SMALL BUSINESS 

HR4206 

DATE: 3/22/2012 

ROLLCALL: 2 

AMENDMENT NUMBER: 1 

VOTE: 12 (AYE) 11 (NO) 

MEMBER 

Mr. GRAVES, Chairman 

Dr. BARTLETT 

Mr. CHABOT 

Mr. KING 

Mr. COFFMAN 

Mr. MULVANEY 

Mr. TIPTON 

Mr. LANDRY 

Ms. HERRERA BEUTLER 

Mr. WEST 

Mrs. ELLMERS 

Mr. WALSH 

Mr. BARLETT A 

Mr. HANNA 

Mr. SCHILLING 

Ms. VELAZQUEZ, Ranking 

Member 

Mr. SCHRADER 

Mr. CRITZ 

Ms. CLARKE 

Ms. CHU 

Mr. CICILLINE 

Mr. RICHMOND 

Ms. HAHN 

Mr. PETERS 

Mr. OWENS 

Mr. KEATING 

TOTALS 

AYE NO PRESENT 

X 

X 

X 

X 

X 

X 

X 

X 

=X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

12 11 

NOT 

VOTING 

X 

X 

X 
8 

Perfecting Amendment to Amendment 1 to H.R. 4206 Offered by 

Mr. Cicilline of Rhode Island 

Add after Spanish: 

and such translation may be provided in digital form by the Administrator. 


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COMMITTEE ON SMALL BUSINESS 

HR 4206 

DATE: 3/22/2012 

ROLLCALL: 1 

AMENDMENT NUMBER: Perfecting Amendment to Amendment 1 

VOTE: 14 (A YE) 9 (NO) 

MEMBER AYE NO PRESENT 

Mr. GRAVES, Chairman X 

Dr. BARTLETT X 

Mr. CHABOT X 

Mr. KING 

Mr. COFFMAN X 

Mr. MULVANEY X 

Mr. TIPTON X 

Mr. LANDRY 

Ms. HERRERA BEUTLER X 

Mr. WEST X 

Mrs. ELLMERS X 

Mr. WALSH X 

Mr. BARLETTA X 

Mr. HANNA X 

Mr. SCHILLING X 

Ms. VELAZQUEZ, Ranking 

Member X 

Mr. SCHRADER X 

Mr. CRITZ X 

Ms. CLARKE X 

Ms. CHU X 

Mr. CICILLINE X 

Mr. RICHMOND 

Ms. HAHN X 

Mr. PETERS X 

Mr. OWENS X 

Mr. KEATING X 

TOTALS 14 9 

NOT 

VOTING 

X 

X 

X 
10 

VII. SECTION-BY-SECTION ANALYSIS OF H.R. 4206 

SECTION-BY-SECTION ANALYSIS OF H.R. 4206 AS AMENDED

Section 1—Short title 

This section provides that the bill may be cited as the ‘‘Contracting Oversight for Small Business Jobs Act of 2012’’ 

Section 2—Increased penalties for fraud 

Subsection (a)—In General 

Subsection (a) adds a new Section 1041 to the Title 18 of the 

United States Code. Section 1001 of Title 18 imposes penalties on 

anyone who et seq. The False Statements Act currently imposes 

penalties on anyone who: 

(1) falsifies, conceals, or covers up by any trick, scheme, or 

device a material fact; 

(2) makes any materially false, fictitious, or fraudulent statement or representation; or 

(3) makes or uses any false writing or document knowing the 

same to contain any materially false, fictitious, or fraudulent 

statement or entry; 

The penalties for a violation are fines of up to $250,000 or imprisonment up to 5 years per violation. 

To encourage the Department of Justice (DOJ) to prosecute small 

business fraud cases, this bill adds a new penalty to Title 18 (to 

be codified at 18 U.S.C. § 1041) prohibiting misrepresentation of 

status as a small business concern.’’ The new section clarifies that 

if a false statement is made regarding a concern’s small business 

status or compliance with the provisions of the Small Business Act 

(the Act), and the statement is intended to help the concern win, 

keep or perform on a federal contract, additional penalties will 

apply. Specifically, the entity making the false statement will be 

fined the greater of $1,000,000 or twice the contract value in addition to the standard penalties. This penalty should not be offset by 

the value of the goods or services received, and should thus more 

than cover the cost of enforcement. 

Subsection (b)—Technical Amendment 

Subsection (b) adds the new Section 1041 to the table of contents 

for the chapter. 

Section 3–Safe harbor for good faith compliance efforts 

Subsection (a)—Small Business Fraud 

Section 16(d) of the Act currently imposes penalties on those who 

misrepresent themselves as a small business concern or subcategory thereof. However, the determination of which businesses 

are small is not always a simple process. While SBA assigns a size 

standard to each industry, a firm must also be independently 

owned and operated in order to be considered small. These ownership and control issues are addressed in a great deal of detail in 

13 CFR § 121.103, which addresses whether two firms are affiliated; that is, do they have enough overlap in ownership and control 

to be considered jointly for purposes of size. However, determining 

affiliation may sometimes be more art than science, since ‘‘[i]n deVerDate Mar 15 2010 07:20 Dec 28, 2012 Jkt 029006 PO 00000 Frm 00010 Fmt 6659 Sfmt 6602 E:\HR\OC\HR728P1.XXX HR728P1

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14 13 CFR § 121.103(a)(5). 

termining whether affiliation exists, SBA will consider the totality 

of the circumstances, and may find affiliation even though no single factor is sufficient to constitute affiliation.’’ 14 Unfortunately, 

SBA will not offer advisory opinions on matters of size and affiliation. 

Consequently, a firm may not be able to have absolute certainty 

whether or not it is small. Stronger penalties could have the unintended consequence of dissuading legitimate small businesses in a 

complicated but legitimate business arrangement from pursuing 

contracting opportunities. As this bill insists on greater enforcement of the Act as relates to fraud, it is not the intention of the 

Committee to unnecessarily frighten those firms in a gray area 

when determining affiliation, only to encourage them to proceed 

thoughtfully. 

Therefore, the bill adds a new paragraph (3) to Section 16(d). 

This new paragraph clarifies that a firm may protect itself against 

any allegations of bad faith behavior by obtaining a written advisory opinion from outside counsel. Such an opinion letter will establish that the firm is attempting to comply, thus allowing firms 

to thoughtfully explore and address affiliation issues while still 

pursuing opportunities. Concerns have been raised that this will be 

a tax on small businesses, and that all small firms will feel compelled to provide such a letter. 

While such an argument has a patina of logic, removing the 

sheen shows that argument to be false. Most small businesses do 

not operate in a manner that calls into question the complex and 

opaque affiliation rules. Thus, most small businesses will have no 

reason to obtain a safe-harbor opinion. No negative inference can 

be drawn from a failure to have sought outside counsel’s opinion, 

so there should not be any compulsion. Likewise, some have raised 

a fear of ‘‘opinion mills’’—attorneys happy to provide anyone with 

an opinion letter stating that a representation is reasonable. However, since these cases will be adjudicated before the Office of 

Hearings and Appeals or a federal court, any attorney engaging in 

such behavior is putting their license and livelihood at risk. Furthermore, clients receiving advice contrary to the law will always 

have the ability to bring a malpractice suit against their attorney. 

Thus, the risk of these ‘‘opinion mills’’ is minimal. 

Subsection (b)—Misrepresentation of Status 

The same concerns raised by subsection (a) apply to the new section 1041 added by this bill. Therefore, the new section 1041 also 

includes a safe harbor for those acting in reliance on a written advisory opinion letter from outside counsel. However, the safe harbor 

does not apply to paragraph (1) of the new section 1041(a), because 

it would be impossible to have an attorney’s opinion stating that 

is reasonable to falsify their status as a small business. 

Subsection (c)—Regulations 

The Administrator is instructed to issue regulations implementing the changes in subsection (b) within 270 days of enactment of this bill, and is instructed to define the elements of an adequate advisory opinion. This should insure that these opinion letVerDate Mar 15 2010 07:20 Dec 28, 2012 Jkt 029006 PO 00000 Frm 00011 Fmt 6659 Sfmt 6602 E:\HR\OC\HR728P1.XXX HR728P1

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15Pub. Law 104–121, 110 Stat. 847. 16 Id. at § 212. 

ters contain enough specificity to make them useful tools for the 

small businesses soliciting them and to prevent the aforementioned 

‘‘opinion mill’’ issue. It is expected that these regulations would require a detailed examination of the concern’s structure and practices as relates to the relevant provisions of law, that such a letter 

would not contradict any firm-specific opinions issued by SBA, and 

that the opinions would be of limited duration. 

Subsection (c)—Small Business Compliance Guide 

Pursuant to the Small Business Regulatory Enforcement Fairness Act of 1996, 15 the Administrator is instructed to issue a small 

entity compliance guide within 270 days of enactment of this bill. 

This guide must also be translated into Spanish and may be provided in digital format by the Administrator. This guide should 

help concerns assess whether they are a small business. Any firm 

acting in reliance on such a guide is entitled to use it as evidence 

of the reasonableness or appropriateness of any actions.16 This 

should also help small businesses avoid needing to obtain an outside counsel’s opinion in most situations. 

Section 4—Office of Hearings and Appeals 

Subsection (a)—Chief Hearing Officer 

While not acknowledged in the Act, SBA has an office known as 

the Office of Hearings and Appeals (OHA). This office makes determinations of size status, program eligibility, and hears other administrative law matters for the Administrator. Section 4 formally 

establishes OHA, first by creating the role of Chief Hearing Officer 

(CHO) in Section 4(b)(1) of the Act. Currently, this role is filled by 

an Associate Administrator, so this should not add any additional 

costs. The bill clarifies that the CHO is the head of OHA. 

Subsection (b)—Office of Hearings and Appeals Established 

in Administration 

Section 5 of the Act is amended to add a new subsection (i) which 

establishes OHA. In paragraph (1) of Section 5(i), the bill instructs 

this new office to impartially hear matters entitled to a hearing on 

the record as set forth in the Administrative Procedure Act. Additionally, OHA is formally recognized as the home of the Freedom 

of Information Act and Privacy Act Office. 

In paragraph (2) of Section 5(i), the qualifications and duties of 

the CHO are delineated. The CHO must be a licensed attorney, 

and may not be a political appointee. The CHO is to be a member 

of the Senior Executive Service the highest grade of civil servants 

aside from those confirmed by the Senate. The CHO will serve as 

the Chief Administrative Law Judge, and be responsible for the operations and management of OHA. The CHO is allowed to use alternative dispute resolution to resolve cases. 

Paragraph (3) addresses the principal employees of OHA, the administrative law judges. They, too, are required to be licensed attorneys, and are to be Senior Level employees. This is a level of 

civil servant above the general schedule employee, but without the 

management responsibilities inherent in the Senior Executive ServVerDate Mar 15 2010 07:20 Dec 28, 2012 Jkt 029006 PO 00000 Frm 00012 Fmt 6659 Sfmt 6602 E:\HR\OC\HR728P1.XXX HR728P1

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ice. Current administrative judges and administrative law judges 

will be retained as administrative law judges upon enactment of 

this bill, and they will each have the ability to conduct hearings 

and render decisions in accordance with 5 U.S.C. §§ 554, 556 and 

557. This conveys the ability to administer oaths, take testimony, 

and other functions inherent to administrative appeals. The use of 

the term ‘‘administrative law judge’’ does not connote that these individuals are necessarily appointed pursuant to § 3105 of Title V, 

United States Code. Rather it refers to their function as adjudicators for the Administrator, i.e., the generic term for individuals 

under the Administrative Procedures Act who conduct hearings to 

avoid the appearance of bias that would occur if other agency personnel conducted the hearing. The use of administrative law judges 

existed long before any use of the term in federal personnel hiring 

law. 

As these functions and individuals already exist within the SBA, 

so this bill should not incur any costs. Instead, this bill formalizes 

and recognizes the important work OHA does to deter and identify 

fraud and misrepresentation in the small business programs. 

Section 5—Requirement fraudulent businesses be suspended or 

debarred 

Suspension and debarment are the processes by which the federal government determines that an individual or company is not 

sufficiently responsible to do business with, and declares the individual or entity ineligible for the award of new contracts. Suspension occurs with the determination is not permanent, such as when 

an investigation is being conducted, or an indictment issued but no 

conviction has resulted. Debarment is disqualification for a set period of time after the offense has been definitively proven. 

Subsection (a)—In General 

Section 16(d)(2) of the Act currently permits suspension and debarment of firms or individuals who have misrepresented their size 

status or eligibility for a program of the SBA. However, it only allows suspension or debarment if the misrepresentation ‘‘indicates a 

lack of business integrity that seriously and directly affects the 

present responsibility to perform any contract awarded by the 

[f]ederal [g]overnment or a subcontract under such a contract.’’ 

As a consequence, in their October 27, 2011, testimony, the Inspectors Generals (IGs) stated that suspension and debarment are 

not used as deterrent or punishments for many bad actors abusing 

the small business programs. As an analogy, they explained that 

any firm that mislabels a product as ‘‘Made in America’’ is subject 

to potential suspension and debarment. This may be because they 

lack business integrity, or because they lack appropriate quality 

control, or a number of other reasons the government uses when 

weighing whether a firm is presently responsible. However, in 

cases of small business misrepresentation, only one potential reason for suspension or debarment is permitted, which binds the 

hands of those seeking to protect the government. 

Therefore, the bill removes the requirement that the misrepresentation establish a lack of business integrity, and instead provides an evidentiary standard. For suspension, the standard is adequate evidence, since it will allow the government to quickly but 


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temporarily address fraud. However, for debarment, the standard 

is the more stringent preponderance of the evidence. This change 

should prove a powerful deterrent while not harming those who 

make good faith errors. 

Subsection (b)—Revision to the FAR 

The Federal Acquisition Regulation (FAR) provides regulatory 

guidance for suspension and debarment. Therefore, the bill instructs the Federal Acquisition Regulatory Counsel to update the 

FAR with 270 days of enactment, in keeping with the changes 

made in the bill. 

Subsection (c)—Publication of Procedures Regarding Suspension and Debarment 

Subsection (d)—Required Regulations 

While the FAR provides the general framework for suspension 

and debarment, each agency has its own procedures for implementation. This provision instructs the Administrator to publish the 

SBA’s suspension and debarment standard operating procedures 

and the name and contact information for the suspension and debarment official on the SBA website within 270 days of enactment. 

The bill also instructs the Administrator to issue regulations within 270 days that define the evidentiary threshold of adequate evidence used for suspension. 

Section 6—Annual report on suspensions and debarments proposed 

by Small Business Administration 

Subsection (a)—Report Requirement 

Subsection (a) requires the Administrator to annually report to 

the Committee on Small Business and the Committee on Small 

Business and Entrepreneurship on all suspension and debarment 

actions taken within the preceding year. 

Subsection (b)—Matters Covered 

The report required by subsection (a) must include the number 

of contractors proposed for suspension or debarment, the agency or 

office originating the proposal, the reasons for the proposal, the results of the proposal, the reason for the results, and which proposal 

were referred to the IG or the Department of Justice. These requirements are included because the IGs indicated that many cases 

are referred for suspension or debarment, but only three contractors have been suspended or debarred in the last several years. 

This discrepancy may be appropriate, but deserves the Committee’s 

oversight and may lead to further refinements of the suspension 

and debarment provisions. Subsection (b) provides that the report 

may redact the names of any firms or individuals in order to protect an ongoing investigation. 

Section 7—Sense of Congress 

When OHA hears cases on size, it compiles a record that should 

illuminate whether the concern before it acted reasonably. Therefore, it is the sense of Congress that SBA employees award that a 

firm acted unreasonable should refer such cases to the IG or the 

Department of Justice. It is expected that the individuals making 


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the referrals would be employees of the Office of Government Contracting and Business Development or a similar entity. 

VIII. CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Washington, DC, May 9, 2012. 

Hon. SAM GRAVES, Chairman, Committee on Small Business, 

House Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 4206, the Contracting 

Oversight for Small Business Jobs Act of 2012. 

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

to provide them. The CBO staff contact is Susan Willie. 

Sincerely, 

DOUGLAS W. ELMENDORF. 

Enclosure. 

H.R. 4206—Contracting Oversight for Small Business Jobs Act of 

2012 

H.R. 4206 would increase the monetary penalty for firms that 

misrepresent their status as a small business concern in order to 

obtain government contracts; the bill provides a safe harbor from 

the penalty, however, if a firm can show that it relied on the opinion of an outside attorney when asserting that it is a small business. The bill also would codify the organization of the Office of 

Hearings and Appeals, an independent office within the Small 

Business Administration (SBA) and would require the SBA to prepare a new report for the Congress detailing actions taken each 

year to suspend or exclude firms from opportunities to win government contracts. Finally, the bill would change the standard to determine when a firm should be suspended or excluded from receiving government contracts for misrepresenting its size. 

Basel on information from the SBA, CBO estimates that implementing the provisions of H.R. 4206 would cost less than $500,000 

in any year and about $2 million over the 2013–2017 period, assuming appropriation of the necessary amounts. That amount 

would be used for additional staff resources to develop new regulations and to handle the additional workload that the new rules 

would create. 

Pay-as-you-go procedures apply to this legislation because it 

would affect direct spending and revenues. The federal government 

could collect more criminal penalties if H.R. 4206 is enacted; such 

penalties are recorded as revenues, deposited in the Crime Victims 

Fund, and later spent. Based on collections of penalties for similar 

violations under current law, CBO expects that any additional revenues and direct spending under this bill would have no net effect 

on the budget. 

H.R. 4206 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. 


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The CBO staff contact for this estimate is Susan Willie. The estimate was approved by Theresa Gullo, Deputy Assistant Director 

for Budget Analysis. 

IX. UNFUNDED MANDATES

H.R. 4206 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. 

X. 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 does not adopt as its own the estimate of new 

budget authority contained in the cost estimate prepared by the Director of the Congressional Budget Office (CBO) pursuant to 402 of 

the Congressional Budget Act of 1974. CBO estimates that implementing the provisions of H.R. 4206 will cost about $2 million over 

five years. Since SBA already has an Office of Hearings and Appeals, this codification will add no new expenses. Recoveries on any 

fraud prosecutions resulting from this legislation will cover the cost 

of litigation. Therefore, the only additional costs will be preparing 

reports and promulgating regulations. Such costs, the Committee 

believes, would be handled under existing levels of appropriations 

for agency salary and expenses. However, the costs will be incurred 

are simply opportunity costs, as current personnel will need to 

prioritize revising plans and promulgating regulations. Thus, the 

Committee does not believe that any additional appropriations will 

be necessary to implement this legislation. 

XI. 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. 4206 are incorporated into the descriptive portions 

of this report. 

XII. 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, § 8, cls. 1, 3, and 18 and Art. IV, § 3, cl. 2 of 

the Constitution of the United States. 

XIII. CONGRESSIONAL ACCOUNTABILITY ACT

H.R. 4206 does not relate to the terms and conditions of employment or access to public services or accommodations within the 

meaning of § 102(b)(3) of Pub. L. No. 104–1. 


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XIV. FEDERAL ADVISORY COMMITTEE ACT STATEMENT

H.R. 4206 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. 

XV. STATEMENT OF NO EARMARKS

Pursuant to clause 9 of rule XXI, H.R. 4206 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. 

XVI. 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. 4206 includes a number of provisions designed to improve the competitive viability of small businesses by reducing 

fraud, enhance small business contracting oversight, and to improve agency compliance with the Small Business Act. 

XVII. 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): 

TITLE 18, UNITED STATES CODE 

* * * * * * * 

PART I—CRIMES 

* * * * * * * 

CHAPTER 47—FRAUD AND FALSE STATEMENTS 

Sec. 

1001. Statements or entries generally. 

* * * * * * * 

1041. Misrepresentation of status as a small business concern. 

* * * * * * * 

§ 1041. Misrepresentation of status as a small business concern 

(a) IN GENERAL.—Whoever knowingly— 

(1) falsifies, conceals, or covers up by any trick, scheme, or device a material fact; 

(2) makes any materially false, fictitious, or fraudulent statement or representation; or 

(3) makes or uses any false writing or document, including 

electronically, knowing the same to contain any materially 

false, fictitious, or fraudulent statement or entry; 


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concerning status as a small business concern or compliance with 

the requirements of the Small Business Act in an effort to obtain, 

retain, or complete a federal government contract shall be fined 

$1,000,000 or in a sum equal to twice the amount or value of goods 

or services under the contract or order, whichever is greater, imprisoned not more than 5 years, or both. 

(b) EXCEPTION.—This section shall not apply to any conduct in 

violation of paragraph (2) or (3) of subsection (a) if the defendant 

acted in reliance on a written advisory opinion from a licensed attorney who is not an employee of the defendant. 

SMALL BUSINESS ACT 

* * * * * * * 

SEC. 4. (a) * * * 

(b)(1) The management of the Administration shall be vested in 

an Administrator who shall be appointed from civilian life by the 

President, by and with the advice and consent of the Senate, and 

who shall be a person of outstanding qualifications known to be familiar and sympathetic with small business needs and problems. 

The Administrator shall not engage in any other business, vocation, or employment than that of serving as Administrator. In carrying out the programs administered by the Small Business Administration including its lending and guaranteeing functions, the 

Administrator shall not discriminate on the basis of sex or marital 

status against any person or small business concern applying for 

or receiving assistance from the Small Business Administration, 

and the Small Business Administration shall give special consideration to veterans of the Armed Forces of the United States and 

their survivors or dependents. The President also may appoint a 

Deputy Administrator, by and with the advice and consent of the 

Senate. The Administrator is authorized to appoint Associate Administrators (including the Associate Administrator specified in 

section 201 of the Small Business Investment Act of 1958) to assist 

in the execution of the functions vested in the Administration. One 

such Associate Administrator shall be the Associate Administrator 

for Veterans Business Development, who shall administer the Office of Veterans Business Development established under section 

32. One of the Associate Administrators shall be designated at the 

time of his appointment as the Associate Administrator for Minority Small Business and Capital Ownership Development who shall 

be an employee in the competitive service or in the Senior Executive Service and a career appointee and shall be responsible to the 

Administrator for the formulation and execution of the policies and 

programs under sections 7(j) and 8(a) of this Act which provide assistance to minority small business concerns. One such Associate 

Administrator shall be the Associate Administrator for International Trade, who shall be the head of the Office of International 

Trade established under section 22. One shall be designated at the 

time of his or her appointment as the Chief Hearing Officer, who 

shall head and administer the Office of Hearings and Appeals within the Administration. 

* * * * * * * 


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SEC. 5. (a) * * * 

* * * * * * * 

(i) OFFICE OF HEARINGS AND APPEALS.— 

(1) IN GENERAL.—There is established in the Administration 

an Office of Hearings and Appeals— 

(A) to impartially decide such matters, where Congress 

designates that a hearing on the record is required or 

which the Administrator designates by regulation or otherwise; and 

(B) which shall contain the Administration’s Freedom of 

Information/Privacy Acts Office. 

(2) CHIEF HEARING OFFICER.—The Chief Hearing Officer shall 

be a career member of the Senior Executive Service and an attorney duly licensed by any State, commonwealth, territory, or 

the District of Columbia. 

(A) DUTIES.—The Chief Hearing Officer shall— 

(i) serve as the Chief Administrative Law Judge; and 

(ii) be responsible for the operation and management 

of the Office of Hearings and Appeals, pursuant to the 

rules of practice established by the Administrator. 

(B) ALTERNATIVE DISPUTE RESOLUTION.—The Chief Hearing Officer may also assign a matter for mediation or other 

means of alternative dispute resolution. 

(3) ADMINISTRATIVE LAW JUDGES.— 

(A) IN GENERAL.—An administrative law judge shall be 

an attorney duly licensed by any State, commonwealth, territory, or the District of Columbia. 

(B) CONDITIONS OF EMPLOYMENT.—(i) An administrative 

law judge shall serve in the excepted service as an employee 

of the Administration under section 2103 of title 5, United 

States Code, and under the supervision of the Chief Hearing Officer. 

(ii) Administrative law judge positions shall be classified 

at Senior Level, as such term is defined in section 5376 of 

title 5, United States Code. 

(iii) Compensation for administrative law judge positions 

shall be set in accordance with the pay rates of section 5376 

of title 5, United States Code. 

(C) TREATMENT OF CURRENT PERSONNEL.—An individual 

serving as a Judge in the Office of Hearings and Appeals 

(as that position and office are designated in section 

134.101 of title 13, Code of Federal Regulations (as in effect 

on January 1, 2012)) on the effective date of this subsection 

shall be considered as qualified to be and redesignated as 

administrative law judges. 

(D) POWERS.—An administrative law judge shall have 

the authority to conduct hearings in accordance with sections 554, 556, and 557 of title 5, United States Code. 

* * * * * * * 

SEC. 16. (a) * * * 

* * * * * * * 

(d)(1) * * * 

(2) Any person who violates paragraph (1) shall— 


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(A) * * * 

* * * * * * * 

(C) be subject to suspension and debarment as specified in 

subpart 9.4 of title 48, Code of Federal Regulations (or any successor regulation) øon the basis that such misrepresentation 

indicates a lack of business integrity that seriously and directly 

affects the present responsibility to perform any contract 

awarded by the Federal Government or a subcontract under 

such a contract¿ if the misrepresentation is established by a 

preponderance of the evidence (in the case of debarment) or adequate evidence (in the case of suspension); and 

* * * * * * * 

(3) LIMITATION ON LIABILITY.—This subsection shall not 

apply to any conduct in violation of subsection (a) if the defendant acted in reliance on a written advisory opinion from a licensed attorney who is not an employee of the defendant. 

* * * * * * * 

Æ 


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