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103D CONGRESS

1ST SESSION H.R. 1609

To amend title 10, United States Code, to change and clarify provisions

relating to the Department of Defense program for contracting with

small disadvantaged businesses and other entities, to require potential

defense contractors to certify compliance with equal opportunity requirements, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

APRIL 1, 1993

Mrs. COLLINS of Illinois introduced the following bill; which was referred to

the Committee on Armed Services

A BILL

To amend title 10, United States Code, to change and clarify

provisions relating to the Department of Defense program for contracting with small disadvantaged businesses

and other entities, to require potential defense contractors to certify compliance with equal opportunity requirements, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Department of Defense

5 Set Aside Enforcement Act of 1993’’.
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1 SEC. 2. FINDINGS.

2 The Congress finds the following:

3 (1) It has been a longstanding policy of the

4 Federal Government to assist in the development of

5 small business concerns owned and controlled by so6 cially and economically disadvantaged individuals.

7 (2) This affirmative action policy is deemed

8 necessary because of the existence of historical pat9 terns of discrimination in procurement contracting

10 that persist to this day against small disadvantaged

11 businesses owned by minority individuals and

12 against historically Black colleges and universities

13 and minority institutions.

14 (3) In order to overcome these persistent pat15 terns of discrimination, which serve to perpetuate

16 the economically disadvantaged status of minority

17 small business owners, the Federal Government has

18 created a large number of programs to enable small

19 disadvantaged business concerns to compete success20 fully for procurement contracts let by Federal agen21 cies.

22 (4) One of the most notable of these programs

23 was created by section 1207 of the National Defense

24 Authorization Act for Fiscal Year 1987, and was re25 cently codified as section 2323 of title 10, United

26 States Code, under the heading ‘‘Contract goal for
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1 small disadvantaged businesses and certain institu2 tions of higher education’’.

3 (5) Although the percentage share and dollar

4 value of contracts and subcontracts awarded to

5 small disadvantaged business concerns slowly in6 creases each year, the percent goal has never been

7 met either in prime contracts or in subcontracts,

8 with achievements of only 3.5 percent and 2.7 per9 cent, respectively, in fiscal year 1991.

10 (6) The failure to achieve the goals mandated

11 by section 2323 is due in part to insufficient out12 reach to small disadvantaged businesses that are po13 tential contractors or subcontractors with the De14 partment of Defense.

15 (7) Another factor in the failure to achieve the

16 section 2323 procurement goals is failure of prime

17 contractors to make adequate plans for subcontract18 ing with small disadvantaged business concerns and

19 failure of the Department of Defense to enforce

20 compliance with those plans.

21 (8) Greater commitment to the section 2323

22 procurement goals is required both on the part of

23 the Department of Defense and on the part of de24 fense prime contractors in order to overcome the
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1 manifest deficiencies in program management and

2 implementation.

3 SEC. 3. REQUIREMENTS RELATING TO SMALL DISADVAN4 TAGED BUSINESSES AND OTHER ENTITIES.

5 (a) 10 PERCENT REQUIREMENT UNDER SECTION

6 2323.—Section 2323 of title 10, United States Code, is

7 amended as follows:

8 (1) Subsection (a) is amended—

9 (A) by striking out ‘‘GOAL.—’’ and insert10 ing in lieu thereof ‘‘REQUIREMENT.—’’;

11 (B) in paragraph (1), by striking out ‘‘Ex12 cept as provided in subsection (d), a goal of 5

13 percent of the amount described in subsection

14 (b) shall be the objective of the Department of

15 Defense’’ and inserting in lieu thereof ‘‘Except

16 as provided in paragraph (4) of this subsection

17 and in subsection (d), 10 percent of the amount

18 described in subsection (b) shall be the require19 ment of the Department of Defense’’; and

20 (C) in paragraphs (2) and (3), by striking

21 out ‘‘5 percent goal’’ each place it appears and

22 inserting in lieu thereof ‘‘10 percent require23 ment’’.
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1 (2) Subsection (c)(1) is amended by striking

2 out ‘‘goal’’ and inserting in lieu thereof ‘‘require3 ment’’.

4 (3) Subsection (e) is amended—

5 (A) in paragraphs (2) and (3), by striking

6 out ‘‘5 percent goal’’ each place it appears and

7 inserting in lieu thereof ‘‘10 percent require8 ment’’; and

9 (B) by striking out ‘‘goal’’ each place it

10 appears and inserting in lieu thereof ‘‘require11 ment.

12 (4) Subsections (g) and (n) (as redesignated by

13 subsection (a)) are each amended by striking out

14 ‘‘goal’’ each place it appears and inserting in lieu

15 thereof ‘‘requirement’’.

16 (b) COMPLIANCE WITH CONTRACT REQUIREMENT BY

17 USE OF PREVIOUSLY ELIGIBLE ENTITIES.—Subsection

18 (a) of section 2323 of title 10, United States Code, is fur19 ther amended by adding at the end the following new para20 graph:

21 ‘‘(4) During the period beginning on October 1, 1993,

22 and ending on September 30, 2000, the Secretary of De23 fense may meet the 10 percent contract award require24 ment of this subsection during a fiscal year by awarding

25 up to half of the total dollar amount of the contracts to
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1 be awarded during such fiscal year to any entities that

2 meet either of the following criteria:

3 ‘‘(A) The entity was an entity described in sub4 paragraph (A) or (C) of paragraph (1) but is no

5 longer such an entity, by reason of size, as of the

6 date of the issuance of the solicitation for the con7 tract concerned.

8 ‘‘(B) The entity was a small business concern

9 eligible to receive contracts pursuant to section 8(a)

10 of the Small Business Act but is no longer so eligi11 ble, by reason of size, as of the date of the issuance

12 of the solicitation for the contract concerned.’’.

13 (c) DETERMINATION OF COMPLIANCE WITH CON14 TRACT REQUIREMENT.—(1) Section 2323 of title 10,

15 United States Code, is further amended—

16 (A) by redesignating subsections (i) and (j) as

17 subsections (o) and (p), respectively; and

18 (B) by inserting after subsection (h) the follow19 ing new subsection:

20 ‘‘(i) DETERMINATION OF COMPLIANCE WITH CON21 TRACT REQUIREMENT.—For purposes of determining

22 compliance with the requirement of subsection (a), the

23 Secretary of Defense may include only the amounts obli24 gated for prime contracts entered into by the Department

25 of Defense with entities described in subparagraphs (A)
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1 through (C) of subsection (a)(1). The Secretary may not

2 include amounts obligated by those or any other prime

3 contractors for subcontracts entered into with such enti4 ties.’’.

5 (2) Such section 2323 is further amended—

6 (A) in paragraphs (1) and (2) of subsection (a),

7 by striking out ‘‘and subcontracts’’ both places it ap8 pears;

9 (B) in subsection (e)(3), by striking out ‘‘or

10 subcontractors’’; and

11 (C) in subsection (f)(1), by striking out ‘‘or

12 subcontract’’.

13 (d) SUBCONTRACTING REQUIREMENT AND OTHER

14 PROVISIONS.—Section 2323 of title 10, United States

15 Code, is further amended by inserting after subsection (i)

16 (as added by subsection (c)) the following new subsections:

17 ‘‘(j) REQUIREMENT AND PLAN FOR SUBCONTRACT18 ING.—(1)(A) Each entity which enters into a contract

19 with the Department of Defense shall, in carrying out the

20 contract, spend at least 5 percent of the amount of the

21 contract for subcontracts with entities described in sub22 paragraphs (A) through (C) of subsection (a)(1) (herein23 after in this section referred to as ‘covered entities’).

24 ‘‘(B) The Secretary of Defense may not enter into

25 a contract with a potential contractor unless the potential
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1 contractor includes, with the contractor’s subcontracting

2 plan required by section 8(d) of the Small Business Act

3 (15 U.S.C. 637(d)), a plan that provides for complying

4 with the 5 percent requirement of this paragraph. Such

5 plan shall include a list of the subcontracts that have been

6 entered into contingent upon award of the prime contract

7 for an amount equal to at least 5 percent of such total

8 amount of the contract.

9 ‘‘(C) In calculating whether the 5 percent require10 ment of this paragraph is met, a contractor may include,

11 in the case of a subcontract with a covered entity for com12 pany-wide services to the contractor (rather than services

13 to the contractor related only to the defense contract), an

14 amount equal to the amount of the company-wide services

15 under the subcontract that are proportionately attrib16 utable to the services related to the defense contract.

17 ‘‘(2) The Secretary of Defense shall require each con18 tractor to submit to the Department of Defense—

19 ‘‘(A) within 30 days after award of the prime

20 contract, copies of fully executed contracts between

21 the contractor and its subcontractors;

22 ‘‘(B) every 120 days after the submission under

23 subparagraph (A), information on the status of each

24 subcontract, including a notification of any intention
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1 of the contractor to terminate or to replace a sub2 contractor; and

3 ‘‘(C) on each voucher submitted to the Depart4 ment of Defense, information on the payments due

5 to be paid to each of the subcontractors of the con6 tractor, either by the contractor or by the Depart7 ment of Defense pursuant to subsection (k).

8 ‘‘(3) After award of a prime contract, if the contrac9 tor competes, through sealed bid or competitive proposal,

10 for another contract with the Department of Defense, and

11 the Secretary determines that the contractor has not been

12 in compliance with the 5 percent spending requirement of

13 paragraph (1), the Secretary shall not award the other

14 contract to that contractor. If the contractor has not met

15 the 5 percent spending requirement at the end of any fis16 cal year during which the contract is in force, as evidenced

17 by an accurate and verifiable accounting of the contrac18 tor’s spending, the contractor shall submit to the Depart19 ment of Defense the following:

20 ‘‘(A) The names, addresses, phone numbers,

21 and type of business of the covered entities that the

22 contractor considered or solicited as subcontractors.

23 ‘‘(B) With respect to any covered entity listed

24 under subparagraph (A) that the contractor did not
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1 enter into a subcontract with, the reasons why the

2 contractor chose not to enter into a subcontract.

3 ‘‘(C) Information on how the contractor initi4 ated contact with the covered entities listed under

5 subparagraph (A), including how the entities came

6 to the attention of the contractor, such as through

7 small disadvantaged business lists, compilations,

8 computer databases, and other references used by

9 the contractor to find small disadvantaged busi10 nesses and other covered entities who are ready, will11 ing, and able to do business with that contractor.

12 ‘‘(D) A description of what the contractor plans

13 to do in the next fiscal year to bring itself into com14 pliance with the 5 percent requirement for participa15 tion of small disadvantaged business and other cov16 ered entities.

17 ‘‘(k) ENFORCEMENT OF PLAN FOR SUBCONTRACT18 ING.—(1) With respect to each prime contract subject to

19 the 5 percent spending requirement of subsection (j)(1),

20 the Secretary of Defense shall withhold 5 percent of the

21 total amount of the prime contract from the contractor.

22 The amount withheld shall be used by the Department of

23 Defense to make payments for work performed under the

24 prime contract directly to subcontractors of the prime con25 tractor who are entities described in subparagraphs (A)
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1 through (C) of subsection (a)(1). The Secretary of De2 fense shall prescribe regulations to administer this sub3 section not later than 180 days after the date of the enact4 ment of the Department of Defense Set Aside Enforce5 ment Act of 1993.

6 ‘‘(2) With respect to each prime contract subject to

7 the 5 percent spending requirement of subsection (j)(1),

8 the Secretary of Defense may not pay any amount for a

9 price adjustment of the contract unless the contractor is

10 in compliance with the spending requirement.

11 ‘‘(3) The administration of subsection (j) by a con12 tracting officer shall be a factor in the evaluation of the

13 performance of the contracting officer.

14 ‘‘(l) COMPOSITION OF LABOR FORCE.—(1)(A) Ex15 cept as provided in paragraph (2), with respect to any con16 tract to be entered into by the Department of Defense for

17 purposes of meeting the requirement of subsection (a) of

18 this section, an entity described in subparagraph (A), (B),

19 or (C) of subsection (a)(1) may not be awarded a contract

20 for such purposes unless the entity agrees that—

21 ‘‘(i) in the case of a contract for services (ex22 cept construction), at least 50 percent of the cost of

23 contract performance incurred for personnel shall be

24 expended for employees of the entity; and
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1 ‘‘(ii) in the case of a contract for procurement

2 of supplies (other than procurement from a regular

3 dealer in such supplies), the entity will perform work

4 for at least 50 percent of the cost of manufacturing

5 the supplies (not including the cost of materials).

6 ‘‘(B) The Secretary of Defense may decrease, by not

7 more than 10 percent, the percentage under clause (i) or

8 (ii) of subparagraph (A) if the Secretary determines that

9 such change is necessary to reflect conventional industry

10 practices among business concerns that are below the nu11 merical size standard for businesses in that industry cat12 egory.

13 ‘‘(C) The Secretary of Defense shall prescribe regula14 tions similar to those specified in subparagraph (A) to be

15 applicable to contracts for general and specialty construc16 tion and to contracts for any other industry category not

17 otherwise subject to the requirements of such subpara18 graph. The percentage applicable to any such requirement

19 shall be determined in accordance with subparagraph (B).

20 ‘‘(2) In lieu of meeting the requirements of paragraph

21 (1) for any contract to be entered into by the Department

22 of Defense for purposes of meeting the requirement of

23 subsection (a), an entity described in subparagraph (A),

24 (B), or (C) of subsection (a)(1) may agree that—
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1 ‘‘(A) in the case of a contract for services (ex2 cept construction), at least 75 percent of the cost of

3 contract performance incurred for personnel shall be

4 expended for employees of the entity or of other en5 tities described in subparagraph (A), (B), or (C) of

6 subsection (a)(1); and

7 ‘‘(B) in the case of a contract for procurement

8 of supplies (other than procurement from a regular

9 dealer in such supplies), the entity or other entities

10 described in subparagraph (A), (B), or (C) of sub11 section (a)(1) will perform work for at least 75 per12 cent of the cost of manufacturing the supplies (not

13 including the cost of materials).

14 ‘‘(m) RULE RELATING TO NON-MANUFACTURERS.—

15 (1) With respect to any contract to be entered into by the

16 Department of Defense for purposes of meeting the re17 quirement of subsection (a), an otherwise responsible busi18 ness concern that is in compliance with the requirements

19 of paragraph (2) shall not be denied the opportunity to

20 submit and have considered its offer for a procurement

21 contract for the supply of a product for purposes of meet22 ing the requirement of subsection (a) solely because such

23 concern is other than the actual manufacturer or proc24 essor of the product to be supplied under the contract.
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1 ‘‘(2) To be in compliance with the requirements re2 ferred to in paragraph (1), such a business concern

3 shall—

4 ‘‘(A) be primarily engaged in the wholesale or

5 retail trade;

6 ‘‘(B) be a small business concern under the nu7 merical size standard for the Standard Industrial

8 Classification Code assigned to the contract solicita9 tion on which the offer is being made;

10 ‘‘(C) be a regular dealer, as defined pursuant to

11 section 1(a) of the Act of June 30, 1936 (41 U.S.C.

12 35(a); popularly referred to as the Walsh-Healey

13 Public Contracts Act), in the product to be offered

14 the Department of Defense; and

15 ‘‘(D) represent that it will supply the product

16 of a domestic small business manufacturer or proc17 essor, unless a waiver of such requirement is grant18 ed—

19 ‘‘(i) by the Secretary of Defense, after re20 viewing a determination by the contracting offi21 cer that no small business manufacturer or

22 processor can reasonably be expected to offer a

23 product meeting the specifications (including

24 period for performance) required of an offeror

25 by the solicitation; or
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1 ‘‘(ii) by the Secretary of Defense for a

2 product (or class of products), after determin3 ing that no small business manufacturer or

4 processor is available to participate in the Fed5 eral procurement market.

6 ‘‘(n) DEFINITION.—In this section, the term ‘covered

7 entity’ means an entity described in subparagraph (A),

8 (B), or (C) of subsection (a)(1).’’.

9 (e) SMALL BUSINESS CONTRACT AWARDS.—Sub10 section (e)(5)(E) of section 2323 of title 10, United States

11 Code, is amended by adding at the end the following:

12 ‘‘Such efforts may include dividing up contracts for large

13 dollar amounts into contracts for smaller dollar

14 amounts.’’.

15 (f) OUTREACH.—The Secretary of Defense, acting

16 through the Defense Contract Administration Services re17 gions, shall increase outreach, through a variety of meth18 ods, to small disadvantaged businesses that are potential

19 contractors or subcontractors with the Department of De20 fense. The methods for increasing outreach shall include

21 the following:

22 (1) Contacting minority nonprofit organizations

23 and national and local business organizations that

24 represent minority and small disadvantaged busi25 nesses, to inform them, through briefings, printed
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1 listings, and other means, about opportunities for

2 small disadvantaged businesses to do business with

3 the Department of Defense.

4 (2) Directly contacting small disadvantaged

5 businesses that might be ready, willing, and able to

6 contract or subcontract with the Department of De7 fense. The businesses to be contacted could be found

8 through means such as compilations of small dis9 advantaged businesses, computer databases with in10 dices of such businesses, and small disadvantaged

11 business offices of each State and municipality in

12 which a contract with the Department of Defense

13 is entered into or performed.

14 SEC. 4. PRE-BID COMPLIANCE WITH EQUAL EMPLOYMENT

15 OPPORTUNITY REQUIREMENTS.

16 (a) IN GENERAL.—The Secretary of Defense shall re17 quire, as a condition for approval of a contract with the

18 Department of Defense, that the potential contractor pro19 vide documentation along with the bid for the contract cer20 tifying that the potential contractor is in compliance with

21 the equal opportunity clause in section 60–1.3 of title 41,

22 Code of Federal Regulations (as in effect on March 8,

23 1990).

24 (b) CERTIFICATION.—Certification required under

25 this section shall be conducted by an independent auditor
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1 meeting criteria approved under regulations promulgated

2 by the Director of the Office of Federal Contract Compli3 ance Programs (hereinafter in this section referred to as

4 the ‘‘Director’’) within 90 days after the date of the enact5 ment of this Act. Such certification shall include the re6 sults of on-site inspection by the auditor to determine the

7 requisite compliance and otherwise shall be in such form

8 and contain such information as the Director may require.

9 (c) COST OF AUDIT.—Each bid shall include the cost

10 of the audit required under this section under the pro11 jected costs of the contract.

12 (d) SUBCONTRACTOR COMPLIANCE.—Each potential

13 contractor shall require its subcontractors to provide self14 certified compliance reports as described in subsection (b)

15 to the potential contractor. The potential contractor shall

16 include such compliance reports with its bid.

17 (e) CERTIFICATION UPDATES.—At the end of each

18 12-month period during the term of any contract, an up19 date review of the contractor’s compliance during such pe20 riod shall be conducted by an independent auditor meeting

21 criteria approved under regulations promulgated by the

22 Director. Such update review may or may not be as com23 prehensive as the original certification audit described in

24 subsection (b).
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1 (f) ENFORCEMENT.—Enforcement of this section

2 shall be in accordance with subpart B of part 60–1 of title

3 41, Code of Federal Regulations (as in effect on March

4 8, 1990), except that in no case may a contractor or sub5 contractor be barred from award of a contract by reason

6 of non-compliance with this section for a period exceeding

7 four years.

8 (g) EFFECTIVE DATE.—This section shall apply with

9 respect to any contract entered into with the Department

10 of Defense after the 60-day period beginning on the date

11 of promulgation of regulations under subsection (b).

12 (h) REGULATIONS.—Not later than 180 days after

13 the date of the enactment of this Act, the Secretary of

14 Defense shall promulgate regulations to administer this

15 section.

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