I
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 require-
ments, 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 pro-
gram for contracting with small disadvantaged businesses
and other entities, to require potential defense contrac-
tors to certify compliance with equal opportunity require-
ments, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Department of Defense
Set Aside Enforcement Act of 1993’’.
SEC. 2. FINDINGS.
The Congress finds the following:
(1) It has been a longstanding policy of the
Federal Government to assist in the development of
small business concerns owned and controlled by so-
cially and economically disadvantaged individuals.
(2) This affirmative action policy is deemed
necessary because of the existence of historical pat-
terns of discrimination in procurement contracting
that persist to this day against small disadvantaged
businesses owned by minority individuals and
against historically Black colleges and universities
and minority institutions.
(3) In order to overcome these persistent pat-
terns of discrimination, which serve to perpetuate
the economically disadvantaged status of minority
small business owners, the Federal Government has
created a large number of programs to enable small
disadvantaged business concerns to compete success-
fully for procurement contracts let by Federal agen-
cies.
(4) One of the most notable of these programs
was created by section 1207 of the National Defense
Authorization Act for Fiscal Year 1987, and was re-
cently codified as section 2323 of title 10, United
States Code, under the heading ‘‘Contract goal for
small disadvantaged businesses and certain institu-
tions of higher education’’.
(5) Although the percentage share and dollar
value of contracts and subcontracts awarded to
small disadvantaged business concerns slowly in-
creases each year, the percent goal has never been
met either in prime contracts or in subcontracts,
with achievements of only 3.5 percent and 2.7 per-
cent, respectively, in fiscal year 1991.
(6) The failure to achieve the goals mandated
by section 2323 is due in part to insufficient out-
reach to small disadvantaged businesses that are po-
tential contractors or subcontractors with the De-
partment of Defense.
(7) Another factor in the failure to achieve the
section 2323 procurement goals is failure of prime
contractors to make adequate plans for subcontract-
ing with small disadvantaged business concerns and
failure of the Department of Defense to enforce
compliance with those plans.
(8) Greater commitment to the section 2323
procurement goals is required both on the part of
the Department of Defense and on the part of de-
fense prime contractors in order to overcome the
manifest deficiencies in program management and
implementation.
SEC. 3. REQUIREMENTS RELATING TO SMALL DISADVAN-
TAGED BUSINESSES AND OTHER ENTITIES.
(a) 10 PERCENT REQUIREMENT UNDER SECTION
2323.—Section 2323 of title 10, United States Code, is
amended as follows:
(1) Subsection (a) is amended—
(A) by striking out ‘‘GOAL.—’’ and insert-
ing in lieu thereof ‘‘REQUIREMENT.—’’;
(B) in paragraph (1), by striking out ‘‘Ex-
cept as provided in subsection (d), a goal of 5
percent of the amount described in subsection
(b) shall be the objective of the Department of
Defense’’ and inserting in lieu thereof ‘‘Except
as provided in paragraph (4) of this subsection
and in subsection (d), 10 percent of the amount
described in subsection (b) shall be the require-
ment of the Department of Defense’’; and
(C) in paragraphs (2) and (3), by striking
out ‘‘5 percent goal’’ each place it appears and
inserting in lieu thereof ‘‘10 percent require-
ment’’.
(2) Subsection (c)(1) is amended by striking
out ‘‘goal’’ and inserting in lieu thereof ‘‘require-
ment’’.
(3) Subsection (e) is amended—
(A) in paragraphs (2) and (3), by striking
out ‘‘5 percent goal’’ each place it appears and
inserting in lieu thereof ‘‘10 percent require-
ment’’; and
(B) by striking out ‘‘goal’’ each place it
appears and inserting in lieu thereof ‘‘require-
ment.
(4) Subsections (g) and (n) (as redesignated by
subsection (a)) are each amended by striking out
‘‘goal’’ each place it appears and inserting in lieu
thereof ‘‘requirement’’.
(b) COMPLIANCE WITH CONTRACT REQUIREMENT BY
USE OF PREVIOUSLY ELIGIBLE ENTITIES.—Subsection
(a) of section 2323 of title 10, United States Code, is fur-
ther amended by adding at the end the following new para-
graph:
‘‘(4) During the period beginning on October 1, 1993,
and ending on September 30, 2000, the Secretary of De-
fense may meet the 10 percent contract award require-
ment of this subsection during a fiscal year by awarding
up to half of the total dollar amount of the contracts to
be awarded during such fiscal year to any entities that
meet either of the following criteria:
‘‘(A) The entity was an entity described in sub-
paragraph (A) or (C) of paragraph (1) but is no
longer such an entity, by reason of size, as of the
date of the issuance of the solicitation for the con-
tract concerned.
‘‘(B) The entity was a small business concern
eligible to receive contracts pursuant to section 8(a)
of the Small Business Act but is no longer so eligi-
ble, by reason of size, as of the date of the issuance
of the solicitation for the contract concerned.’’.
(c) DETERMINATION OF COMPLIANCE WITH CON-
TRACT REQUIREMENT.—(1) Section 2323 of title 10,
United States Code, is further amended—
(A) by redesignating subsections (i) and (j) as
subsections (o) and (p), respectively; and
(B) by inserting after subsection (h) the follow-
ing new subsection:
‘‘(i) DETERMINATION OF COMPLIANCE WITH CON-
TRACT REQUIREMENT.—For purposes of determining
compliance with the requirement of subsection (a), the
Secretary of Defense may include only the amounts obli-
gated for prime contracts entered into by the Department
of Defense with entities described in subparagraphs (A)
through (C) of subsection (a)(1). The Secretary may not
include amounts obligated by those or any other prime
contractors for subcontracts entered into with such enti-
ties.’’.
(2) Such section 2323 is further amended—
(A) in paragraphs (1) and (2) of subsection (a),
by striking out ‘‘and subcontracts’’ both places it ap-
pears;
(B) in subsection (e)(3), by striking out ‘‘or
subcontractors’’; and
(C) in subsection (f)(1), by striking out ‘‘or
subcontract’’.
(d) SUBCONTRACTING REQUIREMENT AND OTHER
PROVISIONS.—Section 2323 of title 10, United States
Code, is further amended by inserting after subsection (i)
(as added by subsection (c)) the following new subsections:
‘‘(j) REQUIREMENT AND PLAN FOR SUBCONTRACT-
ING.—(1)(A) Each entity which enters into a contract
with the Department of Defense shall, in carrying out the
contract, spend at least 5 percent of the amount of the
contract for subcontracts with entities described in sub-
paragraphs (A) through (C) of subsection (a)(1) (herein-
after in this section referred to as ‘covered entities’).
‘‘(B) The Secretary of Defense may not enter into
a contract with a potential contractor unless the potential
contractor includes, with the contractor’s subcontracting
plan required by section 8(d) of the Small Business Act
(15 U.S.C. 637(d)), a plan that provides for complying
with the 5 percent requirement of this paragraph. Such
plan shall include a list of the subcontracts that have been
entered into contingent upon award of the prime contract
for an amount equal to at least 5 percent of such total
amount of the contract.
‘‘(C) In calculating whether the 5 percent require-
ment of this paragraph is met, a contractor may include,
in the case of a subcontract with a covered entity for com-
pany-wide services to the contractor (rather than services
to the contractor related only to the defense contract), an
amount equal to the amount of the company-wide services
under the subcontract that are proportionately attrib-
utable to the services related to the defense contract.
‘‘(2) The Secretary of Defense shall require each con-
tractor to submit to the Department of Defense—
‘‘(A) within 30 days after award of the prime
contract, copies of fully executed contracts between
the contractor and its subcontractors;
‘‘(B) every 120 days after the submission under
subparagraph (A), information on the status of each
subcontract, including a notification of any intention
of the contractor to terminate or to replace a sub-
contractor; and
‘‘(C) on each voucher submitted to the Depart-
ment of Defense, information on the payments due
to be paid to each of the subcontractors of the con-
tractor, either by the contractor or by the Depart-
ment of Defense pursuant to subsection (k).
‘‘(3) After award of a prime contract, if the contrac-
tor competes, through sealed bid or competitive proposal,
for another contract with the Department of Defense, and
the Secretary determines that the contractor has not been
in compliance with the 5 percent spending requirement of
paragraph (1), the Secretary shall not award the other
contract to that contractor. If the contractor has not met
the 5 percent spending requirement at the end of any fis-
cal year during which the contract is in force, as evidenced
by an accurate and verifiable accounting of the contrac-
tor’s spending, the contractor shall submit to the Depart-
ment of Defense the following:
‘‘(A) The names, addresses, phone numbers,
and type of business of the covered entities that the
contractor considered or solicited as subcontractors.
‘‘(B) With respect to any covered entity listed
under subparagraph (A) that the contractor did not
enter into a subcontract with, the reasons why the
contractor chose not to enter into a subcontract.
‘‘(C) Information on how the contractor initi-
ated contact with the covered entities listed under
subparagraph (A), including how the entities came
to the attention of the contractor, such as through
small disadvantaged business lists, compilations,
computer databases, and other references used by
the contractor to find small disadvantaged busi-
nesses and other covered entities who are ready, will-
ing, and able to do business with that contractor.
‘‘(D) A description of what the contractor plans
to do in the next fiscal year to bring itself into com-
pliance with the 5 percent requirement for participa-
tion of small disadvantaged business and other cov-
ered entities.
‘‘(k) ENFORCEMENT OF PLAN FOR SUBCONTRACT-
ING.—(1) With respect to each prime contract subject to
the 5 percent spending requirement of subsection (j)(1),
the Secretary of Defense shall withhold 5 percent of the
total amount of the prime contract from the contractor.
The amount withheld shall be used by the Department of
Defense to make payments for work performed under the
prime contract directly to subcontractors of the prime con-
tractor who are entities described in subparagraphs (A)
through (C) of subsection (a)(1). The Secretary of De-
fense shall prescribe regulations to administer this sub-
section not later than 180 days after the date of the enact-
ment of the Department of Defense Set Aside Enforce-
ment Act of 1993.
‘‘(2) With respect to each prime contract subject to
the 5 percent spending requirement of subsection (j)(1),
the Secretary of Defense may not pay any amount for a
price adjustment of the contract unless the contractor is
in compliance with the spending requirement.
‘‘(3) The administration of subsection (j) by a con-
tracting officer shall be a factor in the evaluation of the
performance of the contracting officer.
‘‘(l) COMPOSITION OF LABOR FORCE.—(1)(A) Ex-
cept as provided in paragraph (2), with respect to any con-
tract to be entered into by the Department of Defense for
purposes of meeting the requirement of subsection (a) of
this section, an entity described in subparagraph (A), (B),
or (C) of subsection (a)(1) may not be awarded a contract
for such purposes unless the entity agrees that—
‘‘(i) in the case of a contract for services (ex-
cept construction), at least 50 percent of the cost of
contract performance incurred for personnel shall be
expended for employees of the entity; and
‘‘(ii) in the case of a contract for procurement
of supplies (other than procurement from a regular
dealer in such supplies), the entity will perform work
for at least 50 percent of the cost of manufacturing
the supplies (not including the cost of materials).
‘‘(B) The Secretary of Defense may decrease, by not
more than 10 percent, the percentage under clause (i) or
(ii) of subparagraph (A) if the Secretary determines that
such change is necessary to reflect conventional industry
practices among business concerns that are below the nu-
merical size standard for businesses in that industry cat-
egory.
‘‘(C) The Secretary of Defense shall prescribe regula-
tions similar to those specified in subparagraph (A) to be
applicable to contracts for general and specialty construc-
tion and to contracts for any other industry category not
otherwise subject to the requirements of such subpara-
graph. The percentage applicable to any such requirement
shall be determined in accordance with subparagraph (B).
‘‘(2) In lieu of meeting the requirements of paragraph
(1) for any contract to be entered into by the Department
of Defense for purposes of meeting the requirement of
subsection (a), an entity described in subparagraph (A),
(B), or (C) of subsection (a)(1) may agree that—
‘‘(A) in the case of a contract for services (ex-
cept construction), at least 75 percent of the cost of
contract performance incurred for personnel shall be
expended for employees of the entity or of other en-
tities described in subparagraph (A), (B), or (C) of
subsection (a)(1); and
‘‘(B) in the case of a contract for procurement
of supplies (other than procurement from a regular
dealer in such supplies), the entity or other entities
described in subparagraph (A), (B), or (C) of sub-
section (a)(1) will perform work for at least 75 per-
cent of the cost of manufacturing the supplies (not
including the cost of materials).
‘‘(m) RULE RELATING TO NON-MANUFACTURERS.—
(1) With respect to any contract to be entered into by the
Department of Defense for purposes of meeting the re-
quirement of subsection (a), an otherwise responsible busi-
ness concern that is in compliance with the requirements
of paragraph (2) shall not be denied the opportunity to
submit and have considered its offer for a procurement
contract for the supply of a product for purposes of meet-
ing the requirement of subsection (a) solely because such
concern is other than the actual manufacturer or proc-
essor of the product to be supplied under the contract.
‘‘(2) To be in compliance with the requirements re-
ferred to in paragraph (1), such a business concern
shall—
‘‘(A) be primarily engaged in the wholesale or
retail trade;
‘‘(B) be a small business concern under the nu-
merical size standard for the Standard Industrial
Classification Code assigned to the contract solicita-
tion on which the offer is being made;
‘‘(C) be a regular dealer, as defined pursuant to
section 1(a) of the Act of June 30, 1936 (41 U.S.C.
35(a); popularly referred to as the Walsh-Healey
Public Contracts Act), in the product to be offered
the Department of Defense; and
‘‘(D) represent that it will supply the product
of a domestic small business manufacturer or proc-
essor, unless a waiver of such requirement is grant-
ed—
‘‘(i) by the Secretary of Defense, after re-
viewing a determination by the contracting offi-
cer that no small business manufacturer or
processor can reasonably be expected to offer a
product meeting the specifications (including
period for performance) required of an offeror
by the solicitation; or
‘‘(ii) by the Secretary of Defense for a
product (or class of products), after determin-
ing that no small business manufacturer or
processor is available to participate in the Fed-
eral procurement market.
‘‘(n) DEFINITION.—In this section, the term ‘covered
entity’ means an entity described in subparagraph (A),
(B), or (C) of subsection (a)(1).’’.
(e) SMALL BUSINESS CONTRACT AWARDS.—Sub-
section (e)(5)(E) of section 2323 of title 10, United States
Code, is amended by adding at the end the following:
‘‘Such efforts may include dividing up contracts for large
dollar amounts into contracts for smaller dollar
amounts.’’.
(f) OUTREACH.—The Secretary of Defense, acting
through the Defense Contract Administration Services re-
gions, shall increase outreach, through a variety of meth-
ods, to small disadvantaged businesses that are potential
contractors or subcontractors with the Department of De-
fense. The methods for increasing outreach shall include
the following:
(1) Contacting minority nonprofit organizations
and national and local business organizations that
represent minority and small disadvantaged busi-
nesses, to inform them, through briefings, printed
listings, and other means, about opportunities for
small disadvantaged businesses to do business with
the Department of Defense.
(2) Directly contacting small disadvantaged
businesses that might be ready, willing, and able to
contract or subcontract with the Department of De-
fense. The businesses to be contacted could be found
through means such as compilations of small dis-
advantaged businesses, computer databases with in-
dices of such businesses, and small disadvantaged
business offices of each State and municipality in
which a contract with the Department of Defense
is entered into or performed.
SEC. 4. PRE-BID COMPLIANCE WITH EQUAL EMPLOYMENT
OPPORTUNITY REQUIREMENTS.
(a) IN GENERAL.—The Secretary of Defense shall re-
quire, as a condition for approval of a contract with the
Department of Defense, that the potential contractor pro-
vide documentation along with the bid for the contract cer-
tifying that the potential contractor is in compliance with
the equal opportunity clause in section 60–1.3 of title 41,
Code of Federal Regulations (as in effect on March 8,
1990).
(b) CERTIFICATION.—Certification required under
this section shall be conducted by an independent auditor
meeting criteria approved under regulations promulgated
by the Director of the Office of Federal Contract Compli-
ance Programs (hereinafter in this section referred to as
the ‘‘Director’’) within 90 days after the date of the enact-
ment of this Act. Such certification shall include the re-
sults of on-site inspection by the auditor to determine the
requisite compliance and otherwise shall be in such form
and contain such information as the Director may require.
(c) COST OF AUDIT.—Each bid shall include the cost
of the audit required under this section under the pro-
jected costs of the contract.
(d) SUBCONTRACTOR COMPLIANCE.—Each potential
contractor shall require its subcontractors to provide self-
certified compliance reports as described in subsection (b)
to the potential contractor. The potential contractor shall
include such compliance reports with its bid.
(e) CERTIFICATION UPDATES.—At the end of each
12-month period during the term of any contract, an up-
date review of the contractor’s compliance during such pe-
riod shall be conducted by an independent auditor meeting
criteria approved under regulations promulgated by the
Director. Such update review may or may not be as com-
prehensive as the original certification audit described in
subsection (b).