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99–445 2016

HOTLINE TRUTHS: ISSUES RAISED BY RECENT 

AUDITS OF DEFENSE CONTRACTING 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CONTRACTING AND 

WORKFORCE 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

FEBRUARY 25, 2016 

Small Business Committee Document Number 114–046 

Available via the GPO Website: www.fdsys.gov 

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Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

STEVE CHABOT, Ohio, Chairman 

STEVE KING, Iowa 

BLAINE LUETKEMEYER, Missouri 

RICHARD HANNA, New York 

TIM HUELSKAMP, Kansas 

CHRIS GIBSON, New York 

DAVE BRAT, Virginia 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa 

STEVE KNIGHT, California 

CARLOS CURBELO, Florida 

MIKE BOST, Illinois 

CRESENT HARDY, Nevada 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

YVETTE CLARK, New York 

JUDY CHU, California 

JANICE HAHN, California 

DONALD PAYNE, JR., New Jersey 

GRACE MENG, New York 

BRENDA LAWRENCE, Michigan 

ALMA ADAMS, North Carolina 

SETH MOULTON, Massachusetts 

MARK TAKAI, Hawaii 

KEVIN FITZPATRICK, Staff Director 

EMILY MURPHY, Deputy Staff Director for Policy 

JAN OLIVER, Deputy Staff Director for Operation 

BARRY PINELES, Chief Counsel 

MICHAEL DAY, Minority Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Richard Hanna ................................................................................................ 1 

Hon. Mark Takai ..................................................................................................... 2 

WITNESSES 

Mr. Michael Roark, Assistant Inspector General for Contract Management 

and Payments, Office of the Inspector General, Department of Defense, 

Alexandria, VA ..................................................................................................... 3 

Mr. Chuck Spence, President, Association of Procurement Technical Assistance Centers, Salt Lake City, UT ....................................................................... 5 

APPENDIX 

Prepared Statements: 

Mr. Michael Roark, Assistant Inspector General for Contract Management and Payments, Office of the Inspector General, Department of 

Defense, Alexandria, VA .............................................................................. 16 

Mr. Chuck Spence, President, Association of Procurement Technical Assistance Centers, Salt Lake City, UT .......................................................... 20 

Questions and Answers for the Record: 

Question to Mr. Michael Roark from Representative Knight and Response 

from Mr. Michael Roark ............................................................................... 28 

Additional Material for the Record: 

None. 

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(1) 

HOTLINE TRUTHS: ISSUES RAISED BY 

RECENT AUDITS OF DEFENSE CONTRACTING 

THURSDAY, FEBRUARY 25, 2016 

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, SUBCOMMITTEE ON CONTRACTING AND WORKFORCE, Washington, DC. 

The Subcommittee met, pursuant to call, at 10:00 a.m., in Room 

2360, Rayburn House Office Building. Hon. Richard Hanna [chairman of the Subcommittee] presiding. 

Present: Representatives Hanna, Kelly, and Takai. 

Chairman HANNA. Good morning. The hearing will come to 

order. 

The Small Business Act contains important protections for small 

companies that provide services to our men and women in uniform. 

Existing law ensures that we have a vibrant community of small 

contractors ready to provide innovative and cost-effective solutions. 

However, if the statutory provisions of the Small Business Act are 

not observed, those benefits are lost. While this Subcommittee 

hears many stories of waste, fraud, and abuse in the small business prime contracting and subcontracting programs, fear of reprisal from contractors makes it hard to document and quantify 

those damages. Today, we are going to hear or learn about what 

happens when a hotline complaint was filed with the Department 

of Defense Office of the Inspector General alleging abuse of the 

small business prime contracting and subcontracting programs. 

While the two audits we will discuss today do not themselves 

represent evidence of a widespread problem, they do document 

anecdotally what we hear and should not be dismissed as complaints from unsuccessful offerors. There are real problems facing 

small business contractors. The Marine Corps documented failure 

to comply with statutory requirements concerning the approval and 

oversight of small business and subcontracting plans has resulted 

in significant harm to the small business community. Continue to 

fail to provide mandatory oversight of small business subcontracting plans has had real consequences. It allows bad actors to 

overpromise and underdeliver and small business subcontracting 

opportunities. It harms complainants responsible for companies as 

those who overpromised often receive an advantage when their offers are evaluated. It hurts small business that we do not receive 

the opportunity to compete with other subcontractors. It undermines the industrial base as there are fewer sources of supply. It 

means higher prices, less competition, and less innovation. It 

means that our warfighters do not always get the best product or 

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solution. Finally, a few small business subcontractors ultimately 

translate into fewer small business contractors, less competition, 

and less innovation. 

I hope today’s witnesses will be able to help us understand what 

has occurred and what is occurring and what it means for small 

contractors. I also hope that we can explore this through the proposal of H.R. 4341, the Defending America’s Small Contractors Act 

of 2016. 

I now yield to Ranking Member Takai for his opening statement. 

Mr. TAKAI. Thank you, Mr. Chairman. Thank you for holding 

this hearing today. 

Each year the Federal Government spends almost half a trillion 

dollars on goods and services for its daily operations. Recognizing 

the importance of maintaining a varied and strong industrial base 

to support these needs, it has long been the policy of Congress to 

ensure the fair proportion of these purchases, whether they be for 

prime contracts or subcontracts, be awarded with small businesses. 

In some areas, there has been success in awarding contracts to 

small firms. In fiscal year 2014, small primes received over $90 billion, amounting to almost 25 percent of the contracting dollars. As 

a result, the government again met its small business contracting 

goal, and based on preliminary reports, it appears this goal was 

achieved in fiscal year 2015 as well. However, prime contracting is 

only one part of the equation to becoming successful in the Federal 

marketplace. For many businesses, subcontracts are just as vital. 

These opportunities serve as an entry point for firms to the Federal 

marketplace. Subcontracts are a way for firms to increase their capacity enough to eventually serve as prime contractors. They also 

help small businesses gain valuable insight into what is required 

when the Federal Government is your client. 

Recognizing the importance of subcontracts, the Small Business 

Act requires the SBA to set goals for subcontracting dollars awarded to small businesses, yet the Committee has seen the government-wide goal lowered from 36 percent in 2012 and 2013, to just 

over 34 percent in 2014. Despite the decrease, the goal is still not 

being met, with only 33 percent of the subcontracting dollars 

awarded to small firms. 

But even these numbers are deceiving, as the percentage is 

based only on the subcontracting dollars reported, so it is unfortunately not surprising to see the results of the DOD IG’s audits at 

the center of our hearing today. Prime contractors are not reporting 

their subcontracting dollars, and contracting officers are not holding these firms accountable for their subcontracting goals. Even 

more egregious is the fact that some primes were awarded contracts without a subcontracting plan at all. This is simply unacceptable. 

I am further concerned that the deficiencies found by the audits 

are not limited to these Marine offices. With a contracting office in 

Hawaii, I am particularly interested to hear from the witnesses 

how widespread these problems are within the Marine Corps. I am 

particularly concerned with the decrease in subcontracts being let 

to 8(a) companies, both competitively or direct awards by programming offices nationwide. We have seen subcontracts that have been 

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3 

historically let within the 8(a) pool curtained and moved to another 

contracting vehicle in which most small businesses do not qualify. 

This Committee has continually heard from firms working with 

other agencies that it is becoming increasingly difficult to find subcontracting opportunities as primes take on more of the work themselves. Agencies and contracting officers must do better to ensure 

that small businesses have access to these opportunities. We know 

that subcontracting is an important part of not only our industrial 

base but overall economy. Subcontracts spread the benefits of a 

Federal contract further into many communities, creating jobs and 

increasing economic development. 

It is my hope that this Subcommittee can continue to look into 

the decline in subcontracting to determine what can be done to fix 

the system, hold prime contractors accountable to their goals, and 

open up more Federal opportunities to small businesses. I thank all 

of the witnesses for being here today and I yield back. 

Thank you, Mr. Chair. 

Chairman HANNA. Thank you. 

If other members have opening statements prepared, I ask they 

submit them for the record. 

Without objection, so ordered. 

You know the basics. You have 5 minutes but we will be, you 

know, we want to hear what you have to say, so we will be lenient. 

Our first witness today is Mr. Michael Roark, the Assistant Inspector General for Contracting Management and Payment Office, 

Inspector General Department of Defense. Our second witness is 

Mr. Chuck Spence, President of the Association of Procurement 

Technical Assistance Centers. For your benefit it is called PTAC. 

She is a wonder with acronyms. She has acronyms for acronyms; 

right? 

Anyway, thank you for being here. Mr. Roark, you may begin. 

STATEMENTS OF MICHAEL ROARK, ASSISTANT INSPECTOR 

GENERAL, CONTRACTING MANAGEMENT AND PAYMENT OFFICE, INSPECTOR GENERAL DEPARTMENT OF DEFENSE; 

CHUCK SPENCE, PRESIDENT OF THE ASSOCIATION OF PROCUREMENT TECHNICAL ASSISTANCE CENTERS 

STATEMENT OF MICHAEL ROARK 

Mr. ROARK. Good morning, Chairman Hanna, and Ranking 

Member Takai, and distinguished members of the Subcommittee. 

Thank you for the opportunity to appear before you today to discuss our two audits of Marine Corps small business contracting. 

We initiated the two audits based on a Defense hotline complaint 

alleging that the Marine Corps Regional Contracting Office, National Capital Region, or RCO-NCR, and the Marine Corps Systems 

Command, or MCSC, did not ensure that small businesses were 

awarded a sufficient number of contracts and did not hold large 

prime contractors accountable for meeting small business subcontracting goals. 

Our objectives for the two audits were to determine whether 

RCO-NCR and MCSC provided small businesses the opportunity to 

be awarded prime contracts and held prime contractors accountable 

for meeting small business subcontracting goals. During the audits, 

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we reviewed a total of 86 contracts valued at approximately $1.6 

billion of the 766 contracts valued at approximately $3.3 billion 

that RCO-NCR and MCSC awarded to other than small businesses 

in fiscal years 2011, 2012, and 2013. 

Overall, we found in the two audits that RCO-NCR and MCSC 

generally provided small businesses with the opportunity to compete for prime contracts. However, contracting officials did not ensure that prime contractors provided small businesses adequate 

subcontracting opportunities. 

First, regarding opportunities provided to small businesses to 

compete for contracts, RCO-NCR and MCSC generally provided 

small businesses with the opportunity to compete for prime contracts. At RCO-NCR, contracting officials conducted market research and advertised solicitations for 19 contracts, while MCSC 

did the same for 21 contracts that we reviewed. After sending request for information to identify the companies capable of providing 

services and receiving responses from both large and small businesses, contracting officials and small business representatives 

from both RCO-NCR and MCSC determined whether small businesses demonstrated that they possessed the knowledge and capabilities to perform the requirement. For 20 RCO-NCR and 16 

MCSC contracts we reviewed that were awarded a sole source, both 

commands prepared justifications using other than full and open 

competition as allowed by the FAR. 

Second, I will discuss whether small businesses received subcontracting opportunities. RCO-NCR and MCSC contracting officials 

did not ensure that prime contractors provided small businesses 

with adequate subcontracting opportunities. Specifically, RCO-NCR 

contracting officials did not ensure that prime contractors provided 

small businesses with adequate subcontracting opportunities for six 

of the seven contracts we reviewed. Specifically, RCO-NCR contracting officials awarded four contracts without requiring a subcontractor contracting plan, or with a subcontracting plan that did 

not include small business subcontracting goals. Two contracts 

which had a subcontracting plan with small business goals but contracting officials did not monitor whether the contractor met the 

goals. 

These problems occurred because RCO-NCR did not have policies 

and procedures for evaluating and approving subcontracting plans 

or for monitoring contractor compliance with those plans. MCSC 

contracting officials did not ensure that prime contractors provided 

small businesses with adequate subcontracting opportunities for 12 

of the 19 prime contracts that we reviewed. Specifically, MCSC 

contracting officials did not track compliance with small business 

subcontracting goals for four contracts. They did not determine 

why large businesses were not meeting their small business subcontracting goals for two contracts, and they awarded six contracts 

without subcontracting plans or the required determination and 

approval. In addition, MCSC contracting officials awarded two 

prime contracts with commercial subcontracting plans without 

verifying whether the plans had been approved by a contracting officer. 

These problems occurred because MCSC did not have adequate 

internal guidance for awarding contracts with subcontracting plans 

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or for administering the subcontracting plans. Additionally, MCSC 

did not implement effective internal review procedures for approving and administering the subcontracting plans. 

On our two reports, we made a total of 13 recommendations to 

RCO-NCR and MCSC to address the deficiencies identified during 

the audits. Specifically, we made four recommendations to RCONCR and the command has implemented all the recommendations. 

We made nine recommendations to MCSC and the command 

agreed with each recommendation and is currently in the process 

of completing corrective actions. 

This concludes my statement, and I would be happy to answer 

any questions you may have for me on our two audits. 

Chairman HANNA. Thank you. 

Mr. Spence? 

STATEMENT OF CHUCK SPENCE 

Mr. SPENCE. Thank you, Chairman Hanna, Ranking Member 

Takai, and distinguished members of the Subcommittee. Thank you 

for this opportunity to respond to reports from the DOD’s Office of 

the Inspector General regarding failures to hold large prime contractors accountable for meeting small business subcontracting 

goals. 

I am Chuck Spence. I am the Deputy Director of the Utah PTAC, 

and I am the President of the Association of Procurement Technical 

Assistance Centers. UPTAC is the professional organization that 

represents 98 PTAC programs throughout the United States. 

PTACs assist local small businesses at little or no cost, preparing 

them to become capable government contractors. Last year, we 

helped over 60,000 small businesses when government contracts 

and subcontracts at the value of $12 billion, so we are pleased to 

report that our ROI is pretty strong. 

In addition to helping small businesses secure prime contractors, 

PTACs are deeply engaged in subcontracting issues. Not only do we 

help small businesses identify subcontracting opportunities, connect with and market to prime contractors, and generally become 

procurement-ready subcontractors, we are often contacted by 

primes for assistance with developing subcontracting plans and locating small business vendors. Every day we confront with our clients the challenges of the subcontracting environment. 

My testimony today reflects input from some of our most experienced procurement professionals. We are not at all surprised by the 

OIG findings. We suspect that the problems identified that Mr. 

Roark mentioned, the lack of adequate policies, insufficient training for contracting officials, and failure to monitor compliance are 

common across Federal agencies, because the root causes are not 

unique. These root causes are an unrealistic overreliance on contracting officers to protect the interests of small businesses with insufficient support and resources to do so, in an environment with 

little meaningful incentive for contractors to comply with subcontracting requirements. The consequence is likely a widespread loss 

of subcontracting opportunities for our small businesses. 

We applaud Chairman Chabot, Ranking Member Vela ́zquez, and 

the House Small Business Committee for the ambitious effort to 

address these issues through H.R. 4341. The bill’s comprehensive 

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approach to clarifying the language and definitions of contracting 

provisions in the Small Business Act is much needed. 

I would like to comment on a number of provisions of this legislation that we think are particularly relevant. The Acquisitions 

Workforce is enormous, disparate, and often overworked. It is little 

wonder that enforcing small business contracting requirements 

might be prone to neglect. SBA Procurement Center representatives and commercial market representatives play a critical role enabling increased opportunities for small businesses and we believe 

that this Committee is absolutely right to expand and clarify those 

responsibilities. Providing PCRs the authority to review any solicitations for a contract or task order, providing PCRs the authority 

to review any solicitations for a contract or task order, clearly articulating the responsibilities of commercial market representatives 

with regard to subcontracting, and allowing both PCRs and CMRs 

to delay up to 30 days the acceptance of subcontracting plans if 

they fail to provide maximum opportunities for small businesses 

are very important steps and we, the PTAC, enthusiastically support them. 

We are concerned, however, about the level of effectiveness that 

can reasonably be expected from PCRs and CMRs if their ranks are 

not sufficient to do the job. SBA has just 27 CMRs and 48 PCRs 

to service the entire country. PCRs and CMRs can help avoid subcontracting program failures, such as those discussed in the OIG 

reports. More importantly, increasing their presence would raise 

the visibility of and attention to subcontracting issues across the 

board, a fundamental first step toward increasing opportunities for 

small businesses. 

We encourage you to take whatever action is within your power 

to support increasing the size of the PCR and CMR workforce to 

maximize their effectiveness government-wide. 

Lack of enforcement of subcontracting requirements is a particular frustration among our small business clients, and we are 

pleased that H.R. 4341 adds teeth by making failure to comply 

with reporting requirements a material breach to be reflected in 

past performance evaluations. Perhaps more important is the stipulation that the SBA provide examples of what would constitute 

failure to make a good faith effort to comply. We hope that a rigorous test is developed. 

On another note, meeting subcontracting goals would be easier 

if prime contractors had a meaningful stake in their achievement. 

Finding incentives or disincentives that give primes a clear competitive interest in providing small business opportunities could 

help shift the balance. 

Finally, I must address H.R. 4341’s requirements that the SBA 

provide a list of resources for education and assistance on compliance with contracting regulations. We wholeheartedly agree that 

many small contractors need such help, but I would be remiss if 

I failed to highlight that this is exactly the sort of assistance provided every day by 600-plus procurement professionals in 300 offices in every state in the nation. We hope that the SBA will feature PTACs prominently in this list. 

In conclusion, UPTAC members believe that there is a tremendous potential for increasing small business contracting opportuniSBREP-219 with DISTILLER

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ties, and we are very pleased to see the proactive, comprehensive 

effort represented in H.R. 4341. Thank you. 

Chairman HANNA. Mr. Roark, you mentioned that you had 13 

different recommendations, four have been adopted, nine are being 

reviewed for potential adoption, I assume. Do you feel comfortable 

ticking off those? 

Mr. ROARK. Yes. I can start with the first report on RCO-NCR, 

which was about 11 months ago now, so we have had a little bit 

more of a time period to track the recommendations. In that report 

we made four recommendations. Two were on instituting policies 

and procedures and those were implemented by RCO-NCR in August of 2015. So that is completed. 

Chairman HANNA. What was the nature of those? 

Mr. ROARK. We recommended that they establish policy to require contracting officers to obtain subcontracting plans from the 

contractors when required, and we also, in the second recommendation, recommended that they establish policy to require contracting 

officers to verify that contractors submit these small business contracting reports in eSRS as required. So they instituted policy on 

both of those in August, and we obtained that and we closed out 

those recommendations. 

Chairman HANNA. Any other, let’s see, 11? 

Mr. ROARK. Yeah, the third recommendation in the RCO-report 

was to increase proficiency and background knowledge for contracting personnel to understand their FAR 19 requirements, and 

command did hold the training class and provided us with the 

slides and the roster that that did take place. So we closed that 

recommendation. 

Our fourth recommendation was to determine whether contractors—we asked RCO-NCR to determine whether contractors for two 

contracts made good faith efforts to meet small business subcontracting goals in their subcontracting plans, and if not, determine 

whether or not liquidated damages could be imposed against the 

contractors. And RCO-did conduct that review. They came back 

with a response that noted that they found out through further 

analysis that the contractors did submit initial subcontracting 

plans but they were not made a part of the contract file. After reviewing the plans, NCR concluded that both contracts did make a 

good faith effort to fulfill their subcontracting goals, so therefore, 

they will not collect any liquidated damages. So what I am planning to do as a follow-up effort to that is just to obtain more information from the Marine Corps and from NCR to determine the 

basis for that decision. 

In the second report, Marine Corps Systems Command, we only 

issued that report a little over 3 months ago, so there not as much 

time has gone by there. We made a total of nine recommendations. 

Two of them were regarding transferring files from one contracting 

officer to another to make sure that there is no loss of the files 

there, and we also recommended that the command establish a 

storage location where they can store contracts for review later if 

necessary. 

One of those suspense dates on the first recommendation was in 

December of 2015, and we got an update from the Marine Corps 

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plete that in March of 2016. The other one, the second recommendation on establishing a storage location, the suspense date 

for that is January of 2017. So still a ways to go on that one. 

In finding B of the Marine Corps Systems Command Report, we 

had a total of seven recommendations. The first two were on, 

again, very similar on whether liquidated damages could be assessed. Those responses from the command are due in April of 

2016. We had four recommendations in establishing policies and 

procedures very similar to the previous report, and for three of 

those four, the suspense dates were in November of 2015; however, 

the command notified us that the new suspense date is now April 

of 2016. 

The final recommendation on training, again, to increase proficiency for contracting officials with FAR 19 requirements, their 

completion date on that was targeted for September of 2016. So 

that is still a few more months to go before that suspense date. 

Chairman HANNA. Do you have a sense that Mr. Roark is on 

the mark on these? I mean, is there a theme there that you recognize from your work? 

Mr. SPENCE. No, I think he is exactly on the mark. I think 

what we are most impressed with with 4341 is that this is finally 

putting some teeth into the compliance of these regulations and 

policies and procedures, so we absolutely agree. 

Chairman HANNA. Thank you. 

Mr. Takai? 

Mr. TAKAI. Thank you, Mr. Chairman. 

Mr. Roark, during the course of the audit, you evaluated contracts that were not set aside for small businesses and you found 

that in many cases there were justifications or market research 

supporting the decision not to award to a small business. Did your 

office take an in-depth look at these conclusions to determine their 

validity, or was it simply a check to ensure that the right paperwork was in the file? 

Mr. ROARK. We did conduct an analysis of the documents that 

were in the contract files. We did not just accept the paper being 

in the file as being in the file as the final answer. We did scrutinize 

it. And so we really looked at three different areas. We wanted to 

take a close look at what each command did for market research 

to go out and determine what contractors or how many contractors 

could potentially fulfill the requirement, and in both cases we saw 

that the commands did this primarily through RFIs or requests for 

information. So we did analyze those documentations for each contract that was in the file, or the respective contract files for those. 

We also took a look at advertising, how they advertised the solicitation. We it posted on FedBizOpps and other websites to make it 

known to potential, both large and small contractors so that they 

were aware of this procurement? And we saw that they did do that. 

Regarding the sole source contracts, we did review the justifications that were listed in the file to determine whether or not they 

did cite a valid FAR exception. We did not just take the justification at face value; we did scrutinize it. 

Mr. TAKAI. Thank you. 

Mr. Spence, prior to award, large prime contractors are required 

to submit subcontracting plans for review. If the contracting officer 

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finds them to be inadequate, they can actually decide not to award 

the contract to the business. In your experience, how often are contracts not awarded due to inadequate subcontracting plans? 

Mr. SPENCE. That is a very difficult question to answer. It is 

difficult to quantify it because PTACs, generally speaking, are not 

privy to that information. We just do not have access to the information. However, I would like to provide some anecdotal information. In my preparations for this hearing I spoke to a contracting 

officer of over 30 years. He is no longer a contracting officer, and 

he had this to say to answer your question, Mr. Takai, and I quote, 

‘‘If a prime contractor is performing well, I do not’’—meaning the 

contracting officer—’’I do not want to rock the boat and risk diluting the workflow with subcontractors.’’ That was alarming to me, 

but he said that is the reality. He said, ‘‘A better way to encourage 

and provide an incentive for prime contractors to be in compliance 

with their subcontracting plan and submit an individual subcontracting report into the electronic subcontracting reporting system, 

known as eSRS, is to give them a poor rating in the PPIRS, the 

Past Performance Information Retrieval System, if they are not in 

compliance with their subcontracting plan and goals. A poor rating 

in the PPIRS system may adversely affect their future proposal 

scores, and he felt that was the better way to address that subcontracting plan issue.’’ 

Okay, thank you. 

Mr. TAKAI. Mr. Roark, you found that the contract review checklist used at the Marine Corps Systems Command did not have 

steps included to verify that subcontracting plans, when required, 

are approved. Could you conclude whether all offices use the same 

checklist or whether they individually determine if all the required 

steps in a procurement are made? 

Mr. ROARK. So in our two audits we reviewed two contracting 

offices, RCO-NCR and MCSC, and we found that each of the commands used different methods, different checklists, if you will, so 

they were not working off the same checklist. 

Mr. TAKAI. Okay. Having said that, would a more uniform system make it easier for contracting officers to comply with these 

subcontracting requirements? 

Mr. ROARK. I think that having only looked at two contracting 

offices, it would be difficult to make that broad of a conclusion 

across the entire Marine Corps, across all of DOD. I think we 

would need to do more work on that before we were able to make 

that conclusion, but I do think you raise an interesting point that 

I think we could keep in mind in the future. 

Mr. TAKAI. Okay, thank you. Thank you, Mr. Chair. 

Chairman HANNA. Mr. Kelly? 

Mr. KELLY. Thank you, Mr. Chairman and ranking member, 

and thank you witnesses for being here. 

Just going back real quick to Congressman Takai’s question, Mr. 

Spence made a comment about the PPIR system and using that to 

give low ratings to subcontractors in order to keep them out. And 

I would like your response to that, please, Mr. Roark. 

Mr. ROARK. So the DOD hotline that we received that we based 

these two audits on alleged that commands were not providing adequate opportunities for small businesses to compete for contracts 

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and that prime contractors were not providing small businesses 

with adequate subcontracting opportunities. We really stuck very 

tightly to those two items that were in the hotline, and so we did 

not review past performance as part of these two audits. They were 

not part of the scope of what we did. 

Mr. KELLY. I would just say that that is very disconcerting that 

people would play with the ratings of subcontractors and order, so 

that is something that I probably would look into because that is 

important that we not have people artificially rating in the system 

to keep people out. Which kind of brings me to my next point. 

This Committee is focused on making sure that the data in SBA 

reports is accurate, and accurate information reporting is important not only to small businesses that want an opportunity to contract with the Federal Government, but also plays a role in the 

budgetary decisions that this body of Congress makes. Mr. Roark, 

I understand that your office found instances of contracting officials 

at both the National Capital Region (NCR) and the Marine Corps 

Systems Command, miscoding the size of small business contractors. Were you able to get information on why these businesses 

were miscoded, and was it a lack of training or not having the information to properly code them? 

Mr. ROARK. During our two audits we found for RCO-NCR 

there were a total of 11 contracts that were miscoded, and for 

MCSC it was a total of 43 contracts. So in all, it was 54 contracts 

that we were aware of. In each case, these were contracts that 

were listed as other than small businesses in the system, although 

they were really awarded to small businesses. So it was pretty consistent results there that we were not putting the right code in in 

each of those cases to recognize that those contracts were awarded 

to small businesses. When we asked the question as to why that 

occurred, we heard a lot of human errors. In the FPDS, you really 

have two options to pick from, either small business or other than 

small business, and it was just a matter of human error in selecting the wrong field. 

Mr. KELLY. How much of that human error do you—I guess, 

how much do you think that is lack of training or lack of the people 

who are inputting the data and the people who are out there determining who gets the contract, how much is just a lack of training 

so that they are going out there and doing this without the proper 

training to start with? 

Mr. ROARK. Well, I think we made recommendations to increase 

awareness and proficiency through training. We also took a twoprong approach to also recommend policy and procedure issues, so 

I would probably say it is both of those. 

Mr. KELLY. Then just very briefly, Mr. Spence, would you also 

weigh in the importance of having accurate information when they 

judge our small business, small contractors and their 

competiveness, what you have seen and how that affects you? 

Mr. SPENCE. Well, obviously, to have accurate information is 

critical, and we would hope that with Mr. Roark’s recommendations that the training, additional training that hopefully the contracting officers, PCRs, and CMRs would receive because of this 

audit would be in place and would correct those types of problems. 

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Mr. KELLY. I thank both of you witnesses again for being here, 

and Mr. Chairman, thank you for having this meeting. And I yield 

back. 

Chairman HANNA. Mr. Roark, the MCSC’s suspense date is slipping from November-December to March-April. Anything you want 

to say about that? I am just curious why that is. 

Mr. ROARK. So after a report is issued, we have a follow-up 

process that we enter into to ensure that the recommendations are 

addressed and that the suspense dates are met. It is a combination 

of the audit team who conducts the audit, and we have follow-up 

specialists as well. So this is a normal process that any report goes 

through, and normally about 6 months after the final report is 

issued is when we become a little bit more aggressive in checking 

on the progress that has been made over that 6 month period. 

However, in this case, we asked the Marine Corps for an update 

at about the 3 month mark, and they provided their response to 

me on February 20, so just a few days ago, and four of the nine 

recommendations their suspense dates did slide from either November or December of 2015 to March or April of 2016. 

Chairman HANNA. Okay. 

Mr. ROARK. But I would say that they did provide narrative explanations, and it did appear that they were taking action. It was 

just an extension. 

Chairman HANNA. Of the prime contractors that you identified 

that had a problem, were you able to go back in time and look at 

previous contracts that they had done to see if this is somehow systemic among those people that you identified who have essentially 

done something wrong? Were you able to go back? Did you go back? 

Mr. ROARK. That was not part of the scope of our audit to go 

back and look at what a contractor had done in the past. 

Chairman HANNA. It might be helpful though? I mean, especially with 4341 where you have an opportunity to have, as you 

said, some teeth. You know, liquidated damages. Have you ever assessed and received liquidated damages for any problems that you 

know of? 

Mr. ROARK. These are the first two reports that I have ever 

issued that had liquidated damages in them, and I think it will be 

interesting over the next few months to see the response from the 

Marine Corps on the documentation that they took into consideration to make the decision on the RCO-NCR instance, and then for 

the recommendations in the Marine Corps Systems Command Report, their suspense date on those is April of 2016, so I will be eagerly awaiting their response on this. 

Mr. SPENCE. Chairman Hanna, if I may respond to that. When 

I spoke to this contracting officer, he made the following quote. ‘‘In 

his 30 years as a contracting officer, he has never seen liquidated 

damages enforced.’’ I think that is one of the problems we have. We 

have a compliance tool here, but yet, because it is very difficult to 

provide the evidence that they are not acting in a good faith effort 

makes it difficult to go after liquidated damages. And in his experience, he just has never seen that used. That is a problem. 

Chairman HANNA. My encyclopedia over here. 1982 is the last 

time. 

Mr. SPENCE. Wow, well, okay, that verifies it. 

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Chairman HANNA. Let me ask you a more nuanced question, 

anybody. Mr. Roark, you kind of deal with these people. You have 

a sense of a few phone calls you got. It sounds like this is a very 

systemic, or potentially the Marine Corps is relatively small compared to DOD at large, right? So is it a stretch to extrapolate that 

this could be, as you indicated, a huge problem that is just not 

being, I mean, you were lucky. In a couple cases you identified, 

these people who are misquoted were actually still small businesses, so there was not a real problem. But how do you feel about 

that? Anybody? 

Mr. ROARK. Well, I think it is difficult, as you said, to extrapolate results from two reports on two Marine Corps contracting offices to the larger, the department. I think that we would have to 

do more work in that area, more audits to start to put those multiple data points up there to draw some of those conclusions. But 

I do think that that is something worth considering moving forward. 

Chairman HANNA. Mr. Spence? 

Mr. SPENCE. I would not throw the baby out with the 

bathwater on this. The system is working. Do there need to be 

tweaks? Yes. Most importantly as we have mentioned here is that 

we need teeth, we need more enforcement, and that is why my testimony had to do with providing more PCRs and more CMRs. Apparently, the contracting officers, for whatever reasons, are not 

paying as close attention to those subcontracting plans. So I think 

if we were able to provide more resources to that, that would be 

a huge step forward. 

Chairman HANNA. Do you think though it is just a matter of 

not regarding it as an important part of the function? I mean, they 

are out there to get a job done; right? Put out a request for proposal, hire a company. And so the aspect of it that might be for minorities or small business falls to the wayside? 

Mr. SPENCE. Contracting officers are, by nature, kind of risk 

averse. They make a procurement and they award a contract and 

they want to see the work performed. Sometimes their fear is if we 

move that down to a subcontracting plan to subcontractors, that 

workflow may be interrupted. And because there is no teeth in the 

enforcement, they kind of get away with that. I think if we put 

some teeth into that enforcement, give them the incentives, give 

them the time, give them the resources to ensure that there is subcontracting plans and that the goals are being met, I think that 

would resolve much of the problem. 

Chairman HANNA. The problem is all of this is supposed to be 

done in advance. 

Mr. SPENCE. That is correct. Yes. 

Chairman HANNA. If the job is ongoing and they have not done 

their homework or have not done their due diligence, then almost 

by definition they put themselves in jeopardy as contracting officers 

because it is their fault. 

Mr. SPENCE. Yes. I agree. I agree. 

Chairman HANNA. Mr. Takai? Thank you. 

Mr. TAKAI. Thank you, Mr. Chair. 

I wanted to follow up on your questioning. I know that Mr. 

Roark, in terms of the IG, it is very difficult to extrapolate in terms 

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of how pervasive this problem is outside the Marine Corps. But let 

me ask you, Mr. Spence, the question is, you know, there are other 

branches in the military besides the Marine Corps. What do you 

think about the other branches? How pervasive is this issue? 

Mr. SPENCE. Again, it is difficult for me to say because I am 

not, you know, I have not audited the reports. That is not the 

PTAC role. But again, I would think, and certainly hope, and I 

think evidence suggests that for the most part, these contracts are 

going forward. We know that small businesses are getting the subcontracting awards. We just think that with some tweaks and with 

some enforcement, more opportunities can be afforded to those 

small business subcontractors. 

Mr. TAKAI. I agree. The question, I think that was the question 

that we were trying to ask. 

To both of you, the audits revealed that in a variety of cases, 

prime contractors were failing to file their subcontracting reports. 

Can either of you tell me, based on your experience, what in the 

system allows this and how can we fix this problem? 

Mr. SPENCE. One suggestion I would make with regards to the 

use of technology, with the Electronic Subcontracting Reporting 

System, maybe we can get a sharp programmer in there to make 

some modifications to provide an automated notice of failure to 

comply with reporting compliance. Because right now, the contracting officers, it is their job to acknowledge receipt of that report 

that the prime contractor puts in it. But if they do not check it, 

then nothing gets done and we do not know about that. So I am 

hoping that if we could automate some type of a notice of failure 

to comply, that might be very helpful. But short of that, it is the 

contracting officer’s responsibility to acknowledge receipt of that report. 

Mr. TAKAI. Mr. Roark? 

Mr. ROARK. I think that contracting officer involvement is very 

important. I think that was the common thread that we identified 

in both audits that even though there are system prompts and so 

forth to give you notification, being engaged and verifying that the 

reports are actually submitted and then verifying that the reports 

are actually monitored and reviewed I think is probably the more 

important aspect of that. 

Mr. TAKAI. Okay, and maybe for both of you, procurement center representatives (PCRs) and commercial market representatives 

(CMRs) are charged with ensuring that small businesses are afforded subcontracting opportunities. Is there any evidence that 

these advocates were involved in the contracting process at either 

of these audited offices for Mr. Roark? For Mr. Spence, any comments as well? 

Mr. ROARK. I am not familiar with the titles of the two positions 

that you discussed. Are you referring to like small business office 

personnel? 

Mr. TAKAI. Yes. 

Mr. ROARK. Okay. 

Mr. TAKAI. PCRs and CMRs. 

Mr. ROARK. At both RCO-NCR and MCSC, we did meet with, 

interview, and gather information from the small business office 

personnel. We did see in both commands that they were involved, 

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working side by side with the contracting personnel to review the 

information that came in from the request for information from 

both large and small businesses, and so we did see that as a positive step, that they were engaged and working with the contracting 

officials. 

Mr. TAKAI. Okay. Ranking member, as I mentioned, there are 

only 27 CMRs, and their job is, one of their main duties is to look 

for subcontracting compliance and counsel with small businesses 

regarding subcontracting opportunities. If there are only 27 of 

them, a lot of work is going to be missed. That is why it is PTAC’s 

recommendation that that number be increased. 

Mr. TAKAI. Okay. And I guess if you can just explain how does 

their involvement help in this process? 

Mr. SPENCE. Well, again, short of a contracting officer, and that 

is their primary responsibility, but because of perhaps being overworked and understaffed, that might fall to the CMRs. And again, 

it is their responsibility, if you look in their job description, to look 

for subcontracting opportunities, to counsel with those subcontractors and to ensure compliance, and we think if we increased that 

that would resolve the problem, or at least in part. 

Chairman HANNA. Thank you very much. You are both well 

prepared, and I am grateful for your time. I want to thank you, of 

course, for being here. 

If there are no further questions. 

As I have said before, given that hundreds of billions of dollars 

in Federal contracts are at stake each year, ensuring that small 

businesses have the opportunity to compete for Federal prime and 

subcontracts is key. Failure to meet the mandatory small business 

subcontracting requirements in prime contracts speaks volumes to 

the small business community. Failure of this nature calls the 

overall acquisition process into question. Seeing that agencies are 

not able to meet minimum requirements for contract award and administration, it also makes it clear that Congress needs to pass the 

reforms included, as you said, in 4341. I look forward to future reports from DOD IG, and hope that other agency IGs will also begin 

reviewing subcontracting compliance. You are both in a great position to help this Committee going forward. We do not need to have 

a hearing to hear from you. And I would suggest that if you have 

an opportunity, Mr. Roark, to really put some teeth into this. It is 

amazing that hundreds of billions of dollars since 1982, and there 

has been not a single case of liquidated damages, that is amazing 

in and of itself. I think you have an opportunity to help small business. You both do just by following through with the jobs that you 

already have. So if you see something in 4341 that you would like 

us to alter or tweak a little bit, I would ask you both to give us 

a call and we can amend things. 

Go ahead. 

Mr. SPENCE. Chairman Hanna, I think in 4341, it calls for the 

SBA to—I do not know what the right word is—to develop some 

system or procedure to help. When a contracting officer says that 

they have made a good faith effort, I think it stipulates that the 

SBA, to find some procedure to look at that and to determine 

whether or not they really actually have made a good faith effort. 

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15 

And I think if the SBA can be charged to do that and hold them 

accountable, I think that will be very helpful. 

Chairman HANNA. We have some difficulty with that from time 

to time. And you had mentioned earlier about electronic reporting 

being automatic. 

Mr. SPENCE. Yes. 

Chairman HANNA. That was in the National Defense Reauthorization Act of 2013. So there is an example of the difficulty associated with things. So we will look into that also. 

I ask unanimous consent that members have 5 legislative days 

to submit statements and supporting material for the record. 

Without objection, I want to thank you again, so ordered. 

This hearing is adjourned. 

[Whereupon, at 10:47 a.m., the subcommittee was adjourned.] 

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A P P E N D I X 

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Insert offset folio 16 here 99445.001
17 

1 Report No. DODIG-2016-019, ‘‘Small Business Contracting at Marine Corps Systems Command Needs Improvement,’’ November 10, 2015, and DODIG-015-095, ‘‘Small Business Contracting Practices at Marine Corps at Regional Contracting Office—National Capital Region 

Needs Improvement,’’ March 20, 2015. 

Good morning Chairman Hanna, Ranking Member Takai, and 

distinguished members of the Subcommittee. Thank you for the opportunity to appear before you today to discuss our two audits of 

Marine Corps small business contracting.1

We initiated the two audits based on a Defense hotline complaint 

alleging that the Marine Corps Regional Contracting Office-National Capital Region (RCO-NCR) and the Marine Corps Systems 

Command (MCSC) did not ensure small businesses were awarded 

a sufficient number of contracts and did not hold large prime contractors accountable for meeting small business subcontracting 

goals. 

Background 

RCO-NCR is responsible for providing procurement and contracting support for the acquisition of supplies and services for the 

Marine Corps in 13 states, primarily in support of commands located near Washington, D.C. MCSC is responsible for providing research, development, and acquisition of equipment, information 

systems, training systems, and weapon systems to satisfy all approved material requirements of the Marine Corps. 

Our objectives for the two audits were to determine whether 

RCO-NCR and MCSC provided small businesses the opportunity to 

be awarded prime contracts, and held prime contractors accountable for meeting small business subcontracting goals. During the 

audits, we reviewed a total of 86 contracts (valued at approximately $1.6 billion) of 766 contracts (valued at approximately $3.3 

billion) that RCO-NCR and MCSC awarded to other than small 

businesses in Fiscal Years 2011, 2012, and 2013. 

Overall, we found that RCO-NCR and MCSC generally provided 

small businesses with the opportunity to compete for prime contracts; however, contracting officials did not ensure that prime contractors provided small businesses adequate subcontracting opportunities. We made a total of 13 recommendations to RCO-NCR and 

MCSC to address the deficiencies identified during the two audits. 

Opportunity Provided to Small Business to Compete for 

Contracts 

For both audits, we reviewed contracts that were not awarded to 

small businesses to determine whether small businesses were provided the opportunity to compete for those contracts. RCO-NCR 

and MCSC generally provided small businesses with the opportunity to compete for prime contracts. At RCO-NCR, contracting officials conducted market research and advertised solicitations for 

19 contracts (valued at $239.2 million) while MCSC did the same 

for 21 contracts (valued at $1.2 billion). After sending requests for 

information to identify companies capable of providing services and 

receiving responses for both large and small business, contracting 

officials and small business representatives from RCO-NCR and 

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2FAR Part 6, ‘‘Competition Requirements,’’ Subpart 6.3, ‘‘Other Than Full and Open Competition,’’ 6.302, ‘‘Circumstances Permitting Other Than Full and Open Competition.’’ 

MCSC determined whether small businesses demonstrated that 

they possessed the knowledge and capabilities to perform the requirement. 

When only one responsible source exists, and no other supplies 

and services will meet agency requirements, the Federal Acquisition Regulation (FAR) 2 permits contracting without providing full 

and open competition. RCO-NCR awarded 20 contracts (valued at 

$14.3 million) and MCSC awarded 16 contracts (valued at $79.4 

million) as sole-source contracts to other than small businesses. For 

the contracts awarded as sole source, RCO-NCR and MCSC prepared justification using exceptions to other than full and open 

competition allowed by the FAR. 

Ensuring Small Business Receive Subcontracting Opportunities 

RCO-NCR and MCSC contracting officials did not ensure that 

prime contractors provided small businesses adequate subcontracting opportunities. Specifically, RCO-NCR contracting officials 

did not ensure that prime contractors provided small businesses 

with adequate subcontracting opportunities for 6 (valued at $848.2 

million) of 7 contracts (valued at $871 million) reviewed. Specifically, RCO-NCR contracting officials awarded: 

• four contracts, valued at $58.2 million, either without requiring a subcontracting plan or with a subcontracting plan 

that did not include small business subcontracting goals; and 

• two contracts, valued at $790 million, which had subcontracting plans with small business subcontracting goals, but 

contracting officials did not monitor whether the contractor 

met the goals. 

Those problems occurred because RCO-NCR did not have policies 

and procedures for evaluating and approving subcontracting plans 

or for monitoring contractor compliance with subcontracting plans. 

In addition, the RCO-NCR Director stated that contracting officials 

did not evaluate and approve subcontracting plans or hold prime 

contractors accountable for meeting small business subcontracting 

goals because the contracting office and the Small Business Office 

at RCO-NCR were understaffed and overworked. 

MCSC contracting officials did not ensure prime contractors provided small businesses with adequate subcontracting opportunities 

for 12 (valued at $222.1 million) of 19 prime contracts (valued at 

$1.3 billion) reviewed. Specifically, MCSC contracting officials: 

• did not track compliance with small business subcontracting goals for four contracts with individual subcontracting 

plans, 

• did not determine why large businesses were not meeting 

their small business subcontracting goals on two ongoing contracts with individual subcontracting plans, and 

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• awarded six contracts without subcontracting plans or the 

required determination and approval. 

In addition, MCSC contracting officials awarded two prime contracts, valued at $421.9 million, with commercial subcontracting 

plans without verifying whether the plans had been approved by a 

contracting officer. 

Those problems occurred because MCSC did not have adequate 

internal guidance for awarding contracts with subcontracting plans 

and for administering subcontracting plans. Additionally, MCSC 

did not implement effective internal review procedures for approving and administering subcontracting plans. 

Status of Recommendations 

In our two reports, we made 13 recommendations to RCO-NCR 

and MCSC to improve small business contracting procedures. Specifically, we recommended that RCO-NCR provide training to contracting officers on their responsibilities for evaluating and administering subcontracting plans, establish policy requiring contacting 

officials to obtain adequate subcontracting plans from prime contractors and verify that prime contractors submit subcontracting 

reports to the Electronic Subcontracting Reporting System, and determine whether liquidated damages may be recovered on two contracts. RCO-NCR has fully implemented all recommendations. 

We recommended that MCSC determine whether the contractors 

for the six specified contracts made a good-faith effort to meet their 

subcontracting goals, and if not, whether liquidated damages may 

be imposed against the contractor; establish guidance for contracting officers for reviewing, approving, and administering subcontracting plans; and train contracting officials on their responsibilities for evaluating and administering subcontracting plans. 

MCSC agreed with each recommendation, and is in the process of 

completing corrective actions. 

Conclusion 

RCO-NCR and MCSC generally provided small businesses adequate opportunities to be awarded prime contracts. However, RCONCR and MCSC contracting officials did not ensure that prime contractors provided small businesses adequate subcontracting opportunities. We made recommendations to RCO-NCR and MCSC to 

improve procedures for administering subcontracting plans submitted by prime contractors. This concludes my statement and I 

would be happy to answer any questions you may have regarding 

our two audits. 

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1 Based upon statistics voluntarily reported to APTAC by 83 of the 98 Procurement Technical 

Assistance Centers. 

Testimony of 

Chuck Spence, President 

Association of Procurement Technical 

Assistance Centers (APTAC) 

To the U.S. House of Representatives Committee on Small Business 

Subcommittee on Contracting and the Workforce 

‘‘Hotline Truths: Issues Raised by Recent Audits of Defense 

Contracting’’ 

February 25, 2016 

Chairman Hanna, Ranking Member Takai and distinguished 

Members of the Subcommittee, thank you for this opportunity to 

respond to recent reports from the U.S. Department of Defense’s 

Office of the Inspector General that found that specific contracting 

officials with the Regional Contracting Office—National Contracting Region (RCO-NCR) and the Marine Corps System Command (MSCS) did not hold large prime contractors accountable for 

meeting small business subcontracting goals. I am privileged to 

speak before you on behalf of the Association of Procurement Technical Assistance Centers and the small businesses across the country that we serve. 

My name is Chuck Spence. I am Deputy Director of the Utah 

PTAC and President of the Association of Procurement Technical 

Assistance Centers—APTAC—which is the professional organization of the 98 PTACs nationwide. 

As you may know, the Procurement Technical Assistance Program was created by Congress in 1985 to help small businesses 

compete for federal, state and local government contracts. It is 

funded and administered through the Defense Logistics Agency and 

supported by state or local governments, educational institutions, 

and non-profits which must provide a non-federal funding match of 

up to 50% to be eligible for a PTAC Cooperative Agreement award. 

Our purpose is to assist local small businesses at little or no cost 

by preparing them to become capable government contractors, on 

the belief that a broad base of small business suppliers provides 

the highest quality and best value to our government agencies and 

at the same time creates a strong and vibrant economic base for 

our communities. Last year we helped over 57,000 small businesses 

win government contracts and subcontracts valued at over $12 billion.1

In addition to our work helping small business secure prime contracts, PTACs are deeply engaged with subcontracting issues. Not 

SBREP-219 with DISTILLER

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only do we help small businesses identify subcontracting opportunities, connect with and market to prime contractors, and generally 

become responsible, ‘‘procurement ready’’ subcontractors, we are 

often contacted by large primes for assistance with developing subcontracting plans and locating small business vendors with the specific capabilities needed to meet their requirements. Every day, we 

confront with our clients the challenges of the subcontracting environment. My testimony today reflects input from some of our most 

experienced procurement professionals. I am privileged to share 

their insights in the hope they will support your efforts to improve 

opportunities for our nation’s small business contractors. 

We are not surprised by the OIG findings in response to Defense 

Hotline allegations. On the contrary, we suspect that the problems 

identified—lack of adequate policies for requiring subcontracting 

plan submissions and reports, insufficient training for contracting 

officials regarding their responsibilities for evaluating and administering subcontracting plans, and failure to monitor compliance 

with subcontracting plans—are common across all federal agencies, 

because the root causes are not unique. From our perspective, at 

the heart of not only the circumstances described in the OIG reports, but agency subcontracting failures generally is an unrealistic 

overreliance on contracting officers to protect the interests of small 

businesses through faithful enforcement of FAR Subpart 19.7 with 

insufficient support and resources to do so. The consequence is likely a widespread loss of opportunities for small businesses. 

We applaud Chairman Chabot, Ranking Member Vela ́zquez, and 

the House Small Business Committee for the ambitious effort to 

address these issues through HR. 4341, The Defending America’s 

Small Contractors Act of 2016. The bill’s comprehensive approach 

to clarifying the language and definitions of contracting provisions 

in the Small Business Act—as well as promoting greater transparency in goaling and accountability in execution—is much needed. I’d like to comment on a number of provisions of this robust legislation that we think are particularly relevant. 

Advocates for Small Businesses 

The acquisitions workforce is an enormous, disparate, often overworked, and continuously shifting body. Their top priority is the 

procurement of goods and services to meet agency requirements in 

the most cost-effective manner possible so as to deliver value to the 

taxpayer. They are increasingly pressured to more effectively harness innovation and technology to better serve their end-users, 

while addressing new challenges such as cyber-threats. It is little 

wonder that understanding and enforcing small business subcontracting requirements might be prone to neglect—as is evidenced 

in the OIG reports. 

SBA Procurement Center Representatives (PCRs) and Commercial Market Representatives (CMRs) play a critical role enabling increased opportunities for small businesses, and the Committee is 

right to expand and clarify their responsibilities. Providing PCRs 

the authority to review ‘‘any solicitation for a contract or task 

order,’’ clearly articulating the responsibilities of Commercial MarSBREP-219 with DISTILLER

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2SBA, Office of the Inspector General, Review of SBA’s Subcontracting Assistance Program, 

Audit Report No. 7-33 (Washington, D.C.: Sept. 28, 2007). 3Small Business Administration: Agency Should Assess Resources Devoted to Contracting and 

Improve Several Processes in the 8(a) Program, GAO-09-16 (Nov. 21, 2008). 

ket Representatives with regard to subcontracting, and allowing 

both PCRs and CMRs to delay acceptance of subcontracting plans 

if they fail to provide maximum practicable opportunities for small 

businesses are very important steps in empowering these officials 

to advocate on behalf of small businesses, and we enthusiastically 

support them. 

We are concerned, however, about the level of effectiveness that 

can reasonably be expected from PCRs and CMRs if their ranks are 

not sufficient to do the job. A review of the SBA’s CMR Directory 

at https://www.sba.gov/content/cmr-directory and PCR Directory at 

https://www.sba.gov/content/pcr-directory indicates that SBA has 

just 27 CMRs, 6 PCR Area Directors and 48 PCRs to service the 

entire country. An SBA Office of Inspector General Report in FY 

2006 found that CMRs monitored less than half of the 2,200 largest 

prime contractors 2. In a 2008 report, the GAO noted that the 59 

PCRs on staff at the time were acknowledged to be not a sufficient 

number to fulfill their mission 3. 

We believe that the need for these experts/advocates has grown 

and become more urgent—and are glad to see the Committee’s support for them in H.R. 4341. But we’d like to encourage you to also 

take whatever action is within your power to support increasing 

the size of the PCR and CMR workforce to maximize their effectiveness government-wide. Taking the OIG Hotline reports as examples: PCRs might have been instrumental in helping the RCONCR and MCSC develop subcontracting policies and train acquisition staff as called for in the reports. Active involvement by CMRs 

might have brought to light and corrected failures to properly monitor subcontracting plan compliance before they resulted in Hotline 

complaints. The work of these professionals can directly address 

the deficiencies noted if they are sufficiently staffed. 

Post-award Compliance Resources 

We particularly note the Bill’s requirements that the SBA make 

available—to a number of entities including the PTACs—‘‘a list of 

resources for small business concerns seeking education and assistance on compliance with contracting regulations (including Federal 

Acquisition Regulations) after award of a contract or subcontract.’’ 

We agree that supporting the ability of small firms to perform successfully is essential to small business contracting programs. While 

we welcome attention to the issue, we believe that PTACs are perhaps the most extensive resource available for just such education 

and assistance. With over 600 procurement professionals in 300 offices in every state of the nation, the District of Columbia and the 

territories of Puerto Rico and Guam, our charge clearly includes 

working with small businesses on post-award compliance issues, 

and we do so regularly. Most PTAC counselors have extensive—and 

ongoing—FAR training. We hope that the SBA will feature PTACs 

prominently on this list of resources, but also encourage PCRs, 

CMRs, OSDBU officers and prime contractors to refer small busiSBREP-219 with DISTILLER

23 

ness contractors to the PTACs, so that we can help them fully understand the requirements of their contracts and subcontracts, allowing them to successfully comply. We ask that the Committee remember that the PTACs can be a valuable resource in this regard. 

Good Faith Compliance 

We are pleased to see that fulfilling reporting requirements is 

being added to the list of items for which a prime contractor’s failure to comply can be deemed a material breach reflected in past 

performance evaluations, and even more so the stipulation that 

SBA provide examples of activities that would be considered a failure to ‘‘make a good faith effort to comply’’. We hope that the SBA 

will use a fair but rigorous test; the current standard provides no 

incentive for primes to make extra efforts to include small businesses. 

Past Performance 

The ‘‘Pilot Program to Provide Opportunities for Qualified Subcontractors to Obtain Past Performance Ratings’’ addresses the critical need for small businesses to compile a record of experience to 

be competitive for prime contracts. We are particularly glad to see 

that the structure provides for the contingencies of non-response or 

disagreement between the contracting officer, the prime contractor, 

and the subcontractor. Our only concern about this provision is 

whether the additional administrative responsibilities will be attended to in a timely manner (as proscribed), particularly given the 

shortage of CMRs, whose participat8ion is integral to the program. 

GAO Review of the SBA’s Office of Government Contracting and Business Development 

A significant impediment to small business contractors is the 

complexity and redundancy of the various small business certification programs. The current conundrum with regard to the 

Woman-owned Small Business program only underscores the challenges of SBA certification processes from the perspective of both 

agency and small business. Small business concerns that are eligible to participate in more than one program (ie: a Woman ServiceDisabled Veteran-owned small business operating in a HUBZone), 

faces overlapping but inconsistent requirements that can be overwhelming for a small firm. Simplifying and unifying the certification processes could go a long way toward bringing more eligible 

small firms into the government marketplace. Consequently, we 

are pleased to see the call for a Comptroller General study to identify ways in which SBA contracting programs and operations could 

operate more efficiently and consistently. We very much look forward to the report and would be pleased to provide input if appropriate. 

Additional Issues 

While not addressed directly in H.R. 4341, there are a few additional issues that we believe could be helpful in creating an environment that would support greater participation of small busiSBREP-219 with DISTILLER

24 

nesses in government procurement. I offer them here for your consideration as you contemplate future actions regarding small business contracting. 

Technology 

We believe that significant gains can be accomplished by better 

harnessing the technology systems associated with government 

contracting and subcontracting to automate certain functions and 

further increase transparency, especially in regard to compliance 

with subcontracting requirements under FAR 19.7. Compliance can 

only be enforced when failure to comply is known. The current necessity for busy contracting officers to proactively and manually 

monitor subcontracting compliance creates an administrative burden that may be a major factor in their failures to do so. 

Strategic modification and integration of eSRS, FSRS, and other 

contracting data systems could provide to contracting officers and 

CMRs automated notices of failures to comply with eSRS reporting 

requirements, allowing officials to take immediate action with the 

contractor to spur compliance. Such a notification system could 

well have remedied—or even prevented—some of the deficiencies 

noted in the ‘‘Hotline’’ reports. In general, leveraging technology to 

make it as easy as possible for officials to enforce subcontracting 

compliance is likely to deliver the most effective enforcement. 

Careful development of these data systems could also serve to 

improve public access to subcontracting data, with potentially a 

tremendous impact on small business access to subcontracting opportunities. Specific suggestions from some of our PTAC Members 

are included in Appendix A. 

Motivating Prime Contractors 

Meeting agency subcontracting goals would be much easier if 

prime contractors had a meaningful stake in their achievement. As 

noted above, there is currently no real incentive to comply with 

subcontracting requirements, and the enforcement of compliance 

via the assessment of liquidated damages has proven ineffective, as 

no firm has ever been penalized under it. 

Finding alternative incentives (or disincentives) to prime contractor compliance could shift the balance by giving primes a clear 

competitive interest in providing and protecting small business opportunities. One of our PTAC members, Jeff Cuskey of the Montana PTAC, has put forth some suggestions in this regard for your 

consideration. They are included in Appendix B. 

Conclusion 

APTAC members believe there is a tremendous amount of room 

for increasing small business subcontracting opportunities, and we 

are happy to see the proactive, comprehensive effort by Chairman 

Chabot, Ranking Member Vela ́zquez and the House Small Business 

Committee through The Defending America’s Small Contractors Act 

of 2016. Along with the important changes outlined in the Bill, we 

hope that sufficient personnel and technology resources can be 

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dedicated to effectively execute these critical programs, and we encourage the exploration of means to provide large prime contractors 

a clear interest in creating more opportunities for small business 

as well. 

Thank you. 

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APPENDIX A 

APTAC Member Suggestions for Technology System Enhancement 

to Support Small Business Subcontractors 

• Provide for subcontracting opportunities to be posted well in 

advance of a prime contractor’s selection of teaming partners and 

proposal or quote deadlines. Generally, a small business will not 

have much success becoming a subcontractor if they wait until the 

government solicitation is posted on FEDBIZOPS (FBO.Gov) since 

the turnaround time for a prime contractor to submit their proposals or quotes may be relatively short. 

• Make subcontracting plan information publicly available upon 

prime contract award, which would allow small business subcontractors themselves, who have arguably the most powerful interest in effective subcontracting programs, to participate in policing the compliance of primes. 

• Modify the ESRS reporting requirements to include a requirement that prime contractors update their SBA Subcontracting Directory data whenever any of the required 11 subcontracting plan 

elements change. 

• Make ESRS data accessible to the public, turning the system 

into a ‘‘Dynamic Subcontract Plan Search (DSCPS)’’ database with 

search functionalities similar to SBA’s Small Business Dynamic 

Search (DSBS) database. This could replace the current minimally 

functional Subcontracting Opportunities Directory and become the 

primary searchable data base for subcontract plans and subcontract plan points of contact. To enhance search capabilities, FAR 

19.704(a)(3) could be revised to include the principal NAICS, PSC 

and FSC codes and associated key words—in addition to the current requirement of a description—related to the products and/or 

services to be subcontracted. 

• Modify SUB-Net to include: (1) more non-construction related 

subcontract opportunities, (2) a means to further refine search results, (3) a way to filter out or eliminate advertisement postings 

and (4) the ability to export the file to an Excel CSV file to facilitate additional data sorting. 

• Improve data fields in the Federal Procurement Data System 

(FPDS) to include original solicitation number and a meaningful 

description of the items acquired or the purpose of the contract action/modification. This would allow advanced searches within 

FPDS to locate products/services of interest to the small business. 

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Appendix B 

Suggestions for Alternate Incentives/Disincentives for Prime Contractors to Maximize Small Business Subcontract Opportunities 

Provided by Jeff Cuskey, Montana PTAC 

(1) Provide monetary incentives for awarding subcontracts to 

qualified HUBZone or other targeted small business concerns (i.e., 

establish a HUBZone Incentive Program that would be similar to 

the current DoD Indian Incentive Program). 

(2) Provide a price preference to large prime contractors that 

meet or exceed their negotiated small business plan goals. To reduce the administrative burden associated with such a program, 

the SBA could be required to issue an annual goaling report on all 

large prime contractors that were required to file subcontracting 

plans during the report year. Those large prime contractors that 

meet or exceeded their subcontract plan goals for the year would 

be afforded a ten percent price preference over large business 

offerors that did not meet their subcontract plan goals during the 

report period. The price preference could go on indefinitely if the 

prime continued to meet or exceed their annual subcontract plan 

goals in subsequent years. This approach would not require additional direct budget outlays, however SBA would most likely need 

additional resources to implement the program. The subcontract 

plan goaling reports should be posted publicly on SBA’s website. 

(3) Include the requirement to perform subcontract plan goal 

management and performance assessments in FAR Subpart 44.3 as 

part of Contractor Purchasing Systems Reviews (CPSRs). The current language at FAR 44.303(g) requires a review of the contractor’s ‘‘planning, award, and postaward management of major subcontract programs,’’ however this language does not require the review of a large prime contractor’s subcontract plan management 

and performance. In addition to adding this requirement, the Subcommittee should consider requiring the withdrawal of a large 

prime contractor’s purchasing system whenever the prime contractor has failed to meet its subcontract plan goals two years in 

a row. This ‘‘enforcement’’ approach and ‘‘penalty’’ provides a potentially feasible and enforceable alternative to assessing liquidated 

damages, as it would not be subject to the current stringent requirement to prove the contractor failed to act in ‘‘good faith’’. 

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