House Report 112-728 - CONTRACTING OVERSIGHT FOR SMALL BUSINESS JOBS ACT OF 2012[House Report 112-728]
[From the U.S. Government Printing Office]


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:
  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.
---------------------------------------------------------------------------
    \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, 72m Stat, 384 (1958). The Act is codified at 15 
U.S.C. Sec. Sec. 631-657q.
    \2\18 U.S.C. Sec. 1001-40.
---------------------------------------------------------------------------
    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.

                       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\
---------------------------------------------------------------------------
    \3\15 U.S.C. Sec. 644(a).

    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 non-manufacturer 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 Government 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\
---------------------------------------------------------------------------
    \4\GAO, HUBZone Program: SBA's Control Weaknesses Exposed the 
Government to Fraud and Abuse (2008) (GAO-08-964T).
    \5\GAO, 8(A) Program: Fourteen Ineligible Firms Received $325 
Million in Sole-Source and Set-Aside Contracts (2010) (GAO-10-425).
---------------------------------------------------------------------------
    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:
---------------------------------------------------------------------------
    \6\Small Business Jobs Act of 2010, Pub. L. No. 111-240, Sec. 1341, 
124 Stat. Sec. Sec. 2504, 2543 (2010).

          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\
---------------------------------------------------------------------------
    \7\Id.

    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\
---------------------------------------------------------------------------
    \8\SAM is the official federal registry of prospective federal 
contractors, and allows contracting officers to conduct market research 
regarding capabilities.
    \9\GAO, 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).
---------------------------------------------------------------------------
    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 `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\
---------------------------------------------------------------------------
    \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/wp-dyn/content/article/2010/
09/30/AR2010093007348.html?sid=ST2010092907225.
    \11\Letter 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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \13\13 CFR Sec. 121.103(f).
---------------------------------------------------------------------------
    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 
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.''



                              ----------                              


    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.
                              ----------                              



             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. Sec. 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 Sec. 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 determining 
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.
---------------------------------------------------------------------------
    \14\13 CFR Sec. 121.103(a)(5).
---------------------------------------------------------------------------
    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 letters 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.
---------------------------------------------------------------------------
    \15\Pub. Law 104-121, 110 Stat. 847.
    \16\Id. at Sec. 212.
---------------------------------------------------------------------------

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 Service. 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. Sec. Sec. 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 Sec. 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 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 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.
    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, Sec. 8, cls. 1, 3, 
and 18 and Art. IV, Sec. 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 Sec. 102(b)(3) of Pub. L. No. 104-1.

             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.

           *       *       *       *       *       *       *


Sec. 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;
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.

           *       *       *       *       *       *       *

  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--
          (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) [on 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.

           *       *       *       *       *       *       *


                                  
