DOE Contracting: Improved Program Management Could Help Achieve Small Business Goal
Published: 2006-04-07T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Federal policy requires that small businesses receive the maximum practicable opportunity for providing goods and services to federal agencies through prime contracts--direct contracts between the government and a contractor. The Department of Energy (DOE) buys more than $20 billion in goods and services annually. GAO was asked to (1) discuss DOE's key efforts to increase small business prime contracting opportunities and (2) identify the management challenges DOE faces in improving its small business prime contracting performance. In addition to these objectives GAO is providing information on the management of small business programs by other federal agencies that either share certain characteristics with DOE's largest program offices or that have components that share certain characteristics with these offices.
section_title: What GAO Found
paragraphs: Key DOE efforts to increase small business prime contracting have included identifying more contracting opportunities for small businesses, expanding small business development and outreach activities, and increasing program management and oversight. The department has had some success in redirecting to small businesses portions of contracts to manage large DOE facilities, as well as in securing additional small business prime contracting opportunities from the department's other contracts. As a result, the total dollars awarded annually as prime contracts to small businesses have increased, and the share of procurement dollars awarded to small business in 2005 was DOE's second highest ever. Despite these gains, however, DOE was unable to meet its small business prime contracting goal in 4 of the past 5 years. DOE faces two key management challenges to improving its small business program. Addressing these challenges will bring DOE's small business program more in line with the practices associated with high-performing organizations and with principles contained in the Government Performance and Results Act. Specifically, DOE has not defined the concrete steps necessary to enable it to achieve its prime contracting goal and does not collect sufficient information to effectively assess its small business program efforts, identify problems, and implement changes that could further increase small business prime contracting. Other federal agencies with missions or agency components with missions similar to DOE periodically comprehensively evaluate their programs to determine effectiveness, identify problems and make changes intended to improve performance. GAO obtained information from the following three agencies: the National Aeronautics and Space Administration, the Department of the Army (U.S. Army Corps of Engineers), and the Department of Health and Human Services (Centers for Disease Control and Prevention).

section_title: Letter
paragraphs: The federal government spends nearly $300 billion annually to obtain  goods and services ranging from military aircraft to office supplies, from  nuclear waste storage to grounds keeping. While most of these purchases  are through contracts with large businesses, the federal government’s  policy is to contract with small businesses to the maximum extent  feasible. Among other things, directing federal funds to small businesses  can increase competition and contribute to the economic well-being of the  nation. The Small Business Act, as amended by the Small Business  Reauthorization Act of 1997 requires that the federal government, as a  whole, award at least 23 percent of federal prime contracting dollars to  small businesses annually. The Small Business Administration, which  oversees the federal small business program, negotiates an appropriate  individual prime contracting goal with each federal agency, including the  Department of Energy (DOE). The specific percentage goal varies from  agency to agency, depending upon agency program missions, procurement  requirements, and past procurement history. Both the Federal Acquisition  Regulation and DOE-specific acquisition regulations govern the  administration of the department’s procurements. In addition, DOE has  issued internal guidance in the form of acquisition letters, secretarial  memoranda, and other communications to outline additional small  business requirements. Broadly, these requirements direct procurement  officials to contract with small businesses unless specific and limited  circumstances prevent doing so. For example, an exemption from small  business prime contracting requirements is allowed if capable small  businesses cannot be found to perform the needed work at a fair price.
DOE is the largest civilian contracting agency in the federal government,  with procurements of approximately $22.8 billion for fiscal year 2005, or  more than 90 percent of its annual budget. DOE relies primarily on “facility  management contractors”—traditionally large businesses and  universities—to manage operations at sites across the country. These  contractors maintain the nation’s nuclear weapons stockpile, clean up  radioactive and hazardous wastes, and conduct complex scientific  research, among other activities. According to DOE, in fiscal year 2005, the  department paid 87 percent of its procurement dollars to 43 facility  management contracts. Given the broad scope and complexity of the work  conducted, many of these contracts are for hundreds of millions of dollars  annually, with four contracts exceeding $1 billion annually. The remaining  13 percent of DOE’s procurement dollars were awarded through contracts  with nonfacility management contractors, many of them small businesses,  for things like legal services and facility design and construction activities.
The administration of DOE’s small business program spans several  different organizational units. DOE’s Office of Small and Disadvantaged  Business Utilization (referred to in this report as DOE’s Small Business  Office) is responsible for establishing small business policy and  implementing the department’s small business program, including  engaging in small business outreach and business development activities  and encouraging the department to meet its small business contracting  goal. DOE’s Office of Procurement and Assistance Management and the  Office of Acquisition and Supply Management of the National Nuclear  Security Administration (NNSA) set overall procurement policy and are  responsible for ensuring that these policies are followed by procurement  officials and contracting officers throughout the department. In addition,  these offices coordinate with DOE’s Small Business Office in setting small  business policy. The NNSA and DOE program offices such as the Office of  Science and the Office of Environmental Management determine their  procurement needs and identify small business contracting opportunities.  Small business contacts in each program office support the small business  activities within their respective organizational units.
In 1999, a change in federal procurement policy affected how DOE set its  annual small business prime contracting goal and measured its  achievement. Prior to the change, federal policy allowed DOE to include  the small business subcontracts of its large facility management  contractors when developing its goal and calculating its small business  prime contracting achievement. This prior policy, which applied only to  DOE, reflected a view that the facility management contractors were  acting as surrogates for the department and, therefore, the subcontracts  were equivalent to DOE prime contracts. In 1999, the Office of Federal  Procurement Policy changed the policy so that DOE could not include the  subcontracts issued by facility management contractors when developing  small business prime contracting goals or when calculating actual  achievements. Given this decision, DOE’s small business prime  contracting goal was adjusted downward from 18 percent in 1999 to 5  percent in 2000. DOE’s fiscal year 2006 goal for small business prime  contracting is 5.5 percent of its total contracting dollars.
In 2004, we testified that DOE had and would continue to have difficulty  meeting its near-term and long-term small business prime contracting  goals but was taking steps to improve results, including enhancing its  small business outreach efforts and assessing facility management  contracts up for renewal to identify work that might be redirected to small  businesses. For this report, you asked us to (1) provide an update on  DOE’s key efforts to increase small business prime contracting  opportunities and the results of these efforts to date and (2) identify the  management challenges DOE faces in improving its small business prime  contracting performance. In addition to these two objectives, at your  request, we are providing information on the management of small  business programs by other federal agencies that either share certain  characteristics with DOE’s largest program offices or that have  components that share certain characteristics with these offices.
To evaluate DOE’s key small business efforts and their results to date, we  reviewed federal regulations, DOE guidance and management directives  concerning small business prime contracting, departmentwide and  program-specific small business plans, and budget documents. We  reviewed DOE contract data from the Federal Procurement Data System,  the federal government’s repository of information regarding the nature  and value of contract awards, as well as from a DOE-specific procurement  database. In addition, we reviewed the activities of the DOE Small  Business Office and the small business prime contracting activities at  NNSA and DOE’s Offices of Environmental Management and of Science,  which collectively account for the bulk of DOE’s prime contracting. In  conducting these reviews, we interviewed DOE small business,  procurement, and program officials.
To identify the management challenges DOE faces in improving its small  business prime contracting performance, we compared the management  practices of DOE’s small business program with established management  principles. We interviewed DOE small business and procurement officials  and reviewed program guidance, management directives, and program  performance plans to determine the current practices supporting the DOE  small business program. We compared and contrasted these practices with  general management principles embodied in the Government Performance  and Results Act of 1993 and literature regarding effective management  practices at federal agencies.
In addition, to illustrate some of the ways in which other federal agencies  approach the management of their small business programs, we obtained  information on the practices of the small business offices at three other  agencies that either share certain characteristics with DOE or that have  agency components that share certain characteristics with DOE: the  National Aeronautics and Space Administration (NASA), the Department  of the Army (U.S. Army Corps of Engineers), and the Department of  Health and Human Services (Centers for Disease Control and Prevention).  Although DOE is unique in relying on facility management contractors to  accomplish much of its mission, the chosen comparison agencies or  agency components are similar enough to DOE to provide useful insight  within the context of their small business programs. We selected these  three agencies because each has annual procurement activity on a scale as  large, or larger, than the three DOE program offices examined in this  study, and each agency has consistently been able to award a larger  proportion of its procurement dollars to small businesses than has DOE.  Additionally, like DOE, these agencies or their components that we visited  must consider public safety and national security concerns to execute  sound procurement decisions. Finally, these agencies or their relevant  components have missions that share similarities with those of the DOE  program offices we examined. For instance, both the U.S. Army Corps of  Engineers and DOE’s Office of Environmental Management have  environmental cleanup as a key component of their mission. Basic  scientific research is central to the missions of both the Department of  Health and Human Services’ Centers for Disease Control and Prevention  and DOE’s Office of Science. NASA, like DOE, employs large firms to carry  out facility management contracts, although to a much lesser extent. We  interviewed small business, contracting, and procurement officials and  staff from these agencies, and reviewed program planning and guidance  documentation. We conducted our work between February 2005 and  March 2006 in accordance with generally accepted government auditing  standards.
subsections: section_title: Background
paragraphs: DOE has more than 50 major sites in 35 states where the department  carries out its varied missions, including developing, maintaining, and  securing the nation’s nuclear weapons capability, cleaning up the nuclear  and hazardous wastes resulting from long-term weapons production, and  conducting basic energy and scientific research and development. This  work is overseen primarily by DOE’s largest program offices—the NNSA,  the Office of Environmental Management, and the Office of Science—and  is primarily carried out though facility management contracts. DOE has a  workforce of 16,000 federal employees; the department relies on the more  than 100,000 employees of its contractors to manage its facilities and  achieve its missions.
DOE’s contracts with small businesses occur in several different ways.  First, small businesses receive direct contracts from a portion of DOE’s  procurement outlays that are not awarded as facility management  contracts. Second, small businesses may compete for and receive facility  management contracts. Historically, small businesses have not performed  these contracts, though in a few cases small businesses have won such  contracts after DOE identified ways to limit the contract’s scope of work.  Third, small businesses receive subcontracts from DOE’s prime  contractors. In 2004, approximately 17.5 percent of facility management  contract dollars went to small businesses as subcontracts. Subcontracts,  however, do not count toward achieving DOE’s small business prime  contracting goal.
Advocacy responsibilities for small business contracting rest primarily  with a small business office—usually called the Office of Small and  Disadvantaged Business Utilization—at each executive-branch agency. In  general, officials in these small business offices are responsible for  negotiating an annual small business prime contracting goal with the Small  Business Administration (SBA), establishing each agency’s small business  policy and guidance, coordinating agencies’ small business outreach  efforts, and monitoring small business performance with respect to the  goal. Within DOE, the department’s Office of Procurement and Assistance  Management and NNSA’s Office of Acquisition and Supply Management  also play important supporting roles in promoting small business prime  contracting. These offices establish overall department procurement  policy and prepare more specific guidance to reflect contracting  requirements consistent with federal acquisition regulations. These  procurement offices also maintain data on DOE’s prime contracts,  including annual obligations to small businesses, and work with the Small  Business Office staff to monitor small business performance and  implement small business policies. DOE’s program offices are responsible  for identifying small business prime contracting opportunities and  providing contracting oversight. The SBA calculates DOE’s annual small  business prime contracting achievement using data from the Federal  Procurement Data System–Next Generation, a governmentwide  procurement database that is administered by the General Services  Administration.
section_title: DOE Efforts to Increase Contracts with Small Businesses Have Had Partial Success
paragraphs: DOE’s efforts to increase its prime contracts with small businesses have  increased the department’s total expenditures on small business prime  contracts since 2001. However, the increases were not sufficient to  achieve the department’s small business prime contracting goal in 4 of the  past 5 years.
subsections: section_title: Key Efforts to Increase Small Business Contracts Focused on Expanding Contracting Opportunities, Finding More Qualified Small Businesses, and Improving Program Management and Oversight
paragraphs: DOE’s approach to increasing its prime contracting with small businesses  focused on three main areas: (1) identifying more contracting  opportunities for small businesses, (2) expanding small business  development and outreach activities to create a larger pool of qualified  small businesses, and (3) improving program management and oversight.
subsections: section_title: Identifying More Contracting Opportunities for Small Businesses
paragraphs: DOE’s effort to increase the opportunities for small businesses to win  contracts with the department included restructuring or “breaking out”  portions of projects historically conducted by the department’s facility  management contractors and redirecting that work to small businesses,  modifying procurement strategies to expand opportunities for small  businesses, and continuing to emphasize the award of nonfacility  management contracts to small businesses.
To redirect portions of projects traditionally performed under facility  management contracts, DOE’s Office of Environmental Management  identified nine such projects that it believed could be reserved for  competition among small businesses as prime contracts. These prime  contracts, summarized in table 1, are collectively worth about $745  million, and many involve multiyear environmental cleanup, construction,  and facility operations activities that are essential to the mission of this  office. As of September 2005, the Office of Environmental Management  had successfully awarded seven of these contracts and obligated about  $266 million. In December 2005, this office awarded an eighth small  business contract, the second at Paducah, Kentucky. In December 2005,  the Office of Environmental Management cancelled the ninth contract,  which involved the Fast Flux Test Facility procurement at Hanford,  Washington, due to budgetary constraints and the need to focus resources  on more important projects.
In comparison with the Office of Environmental Management, NNSA and  the Office of Science identified relatively fewer procurements that could  be redirected from their facility management laboratory contracts and set  aside for small businesses. NNSA and Office of Science procurement  officials said that redirecting work from facility management contracts to  small businesses was not a priority in their programs because removing  mission-related work from the contractors managing the laboratories  could diminish the department’s ability to ensure the work at these  laboratories is effectively accomplished. However, these officials were  trying to identify mission-related work that could be moved from facility  management contracts to small business contracts when a compelling  “business case” could be made for doing so. For example, in 2004 NNSA  awarded a contract to a small business for design, construction, and  integration services for radiation sensors. These services were previously  provided under the Sandia National Laboratories facility management  contract. This award has an overall value of $80 million, of which $71.5  million had been obligated through the end of fiscal year 2005. In addition,  NNSA and the Office of Science recently collaborated with the Office of  Environmental Management to develop a small business information  technology contract to provide services at the three DOE facilities in Oak  Ridge, Tennessee. DOE plans to award this approximately $130 million  contract in fiscal year 2006. These information technology services are  currently being performed by three large businesses as subcontractors to  the facility management contractors at the Oak Ridge sites. Science is also  considering breaking out select small business subcontracts from the  Thomas Jefferson National Accelerator Facility contract and awarding  these as prime contracts.
To further expand opportunities for small businesses, DOE also modified  procurement strategies. Its two efforts in this area were led by the Office  of Environmental Management and NNSA. These two efforts were as  follows:  In 2004, the Office of Environmental Management established “indefinite  delivery/indefinite quantity” contracts in which it preapproved 8 large and  14 small businesses to provide services on environmental cleanup and  deactivation, demolition, and removal of facilities on an as-needed basis.  These contracts authorize a maximum of $800 million in total contract  task orders through 2009. Through fiscal year 2005, almost $24 million in  task orders had been issued, all of which went to small businesses.  Officials cited a variety of possible reasons for the limited use of this  contract mechanism so far, including contract officers’ unfamiliarity with  implementation procedures and security issues surrounding  administration of the contracts.
An NNSA initiative—known as the “tri-lab initiative”—involved combining  procurements common to the Sandia, Lawrence Livermore, and Los  Alamos national laboratories, such as facility security, maintenance  services and computer hardware, and purchasing of goods and services  from small business suppliers. According to NNSA, most of the targeted  procurements were for support services, such as temporary staff, rather  than direct mission laboratory work. The three laboratories initially  estimated that as much as $187 million in procurements could be  redirected to small businesses in fiscal year 2005, with a goal of $300  million by 2007. However, before NNSA could fully take advantage of any  potential benefits, the initiative was canceled. According to NNSA  officials, the cancellation was primarily due to congressional concerns  regarding the potential impact on the department’s ability to ensure that  the laboratories’ projects are effectively accomplished, as well as concerns  that some small businesses could lose existing laboratory subcontracts if  NNSA awarded the work as new prime contracts through the tri-lab  initiative.
Finally, DOE’s efforts to expand contracting opportunities included  continuing to emphasize the importance of directing nonfacility  management contracts to small businesses. DOE procurement officials  said that nonfacility management contracts issued by the department are  reserved for small businesses whenever possible. Exceptions would  involve situations in which only a large business supplier was available,  such as for utilities. Between fiscal years 2001 and 2004, the percentage of  these contracts awarded to small businesses increased from 48.7 percent  (753 out of 1,546 contracts) to 53.0 percent (831 out of 1,569 contracts). In  fiscal year 2004, small businesses received 61 percent ($282 million) of the  total dollars spent on these new nonfacility management contracts.
section_title: Expanding Small Business Development and Outreach Activities
paragraphs: DOE has attempted to increase its use of small businesses by increasing  the pool of small businesses willing and able to provide goods and services  to the department. This effort has involved a variety of business  development and outreach activities, including establishing a small  business advisory team with participation by small businesses, pairing  large and small businesses as mentors and protégés to assist in developing  small businesses’ capabilities, and periodically hosting small business  conferences to discuss upcoming contracting opportunities and to help  small businesses understand the intricacies of the federal procurement  process. DOE contends that many of these activities will help to expand  both prime contracts and subcontracts with small businesses.
The extent to which these efforts contribute to DOE’s small business  prime contracting achievements is generally unclear. For example,  regarding the pairing of small and large businesses in DOE’s mentor- protégé program, since 2002 the number of business pairs has increased  from 5 to 48, but only one participating small business has subsequently  received a prime contract from DOE. Similarly, while attendance at DOE’s  annual small business conference has increased since 2004, and the  feedback DOE collects from participants is generally positive, DOE does  not know the extent to which the conferences have led to small businesses  receiving prime contracts.
In addition to these DOE-wide efforts managed by the Small Business  Office, the Offices of Environmental Management and Science, as well as  NNSA also pursue small business development and outreach activities,  including attending small business conferences, managing a mentor- protégé program, and providing other training support for small  businesses. For example, NNSA conducts biweekly outreach to small  businesses by inviting interested small businesses to meet with NNSA  procurement officials to discuss their capabilities and learn of upcoming  procurement opportunities. NNSA has held 318 of these sessions between  March 2002 and January 2006. Nine small businesses attending one or  more of the sessions have obtained 25 DOE prime contracts worth about  $66 million. Also, Sandia National Laboratory, which primarily conducts  work for NNSA, runs its own mentor-protégé program that intends to build  the long-term capacity of small businesses.
section_title: Improving Program Management and Oversight
paragraphs: To strengthen DOE’s management and oversight of its small business  program, the Small Business Office took the following main actions:  In 2002, it began quarterly reviews of the prime contracting achievements  of each program office. These reviews are intended to track the  department’s progress toward meeting its overall small business goal and  to communicate results to program office officials and the Secretary of  Energy.
In 2004, it attempted to improve coordination among the department’s  small business, procurement, and program offices by establishing the  Advance Planning Acquisition Team. The team includes officials from  these DOE offices and intends to collectively review upcoming  procurements, identify potential small business contracting opportunities,  and exchange information on promising practices for improving DOE’s  small business achievements.
In 2004, it began to review all contracts over $3 million not reserved for  small businesses to determine if small business opportunities had been  adequately considered.
The department, however, does not collect data that indicate the extent to  which these efforts have directly or indirectly affected DOE’s small  business prime contracting achievement. Therefore, the impact of these  efforts is unclear.
section_title: Despite Increasing Its Contracting with Small Businesses, DOE Prime Contracting Achievement Continues to Fall Short of Its Annual Goal
paragraphs: Despite DOE’s efforts to strengthen its small business program, the  department has not achieved its small business prime contracting goal in 4  of the past 5 years. Table 2 shows that DOE’s procurement dollars  awarded to small businesses as prime contracts increased steadily during  the 5-year period, and the amount nearly doubled between fiscal years  2001 and 2005. However, except for fiscal year 2003, DOE failed to meet  its annual small business prime contracting goal, falling short by more  than $120 million each year.
To some degree, DOE’s small business prime contracting achievements  have been limited because the department’s small business prime  contracting achievements occurred primarily from procurements that  were directed to nonfacility management contracts, which have been a  declining portion of DOE’s overall procurement outlays. Between fiscal  years 2001 and 2005, more than 98 percent of the approximately $4 billion  DOE obligated to prime contracts with small businesses went to  nonfacility management contracts. Only since fiscal year 2005 did DOE  direct facility management contracts to small businesses—$41.8 million  for infrastructure and remediation activities at Portsmouth and $6.4  million for infrastructure activities at Paducah. At the time of our review,  DOE had obligated $2.7 million to the Paducah remediation facility  management contract, which was awarded in December 2005. During this  time period, DOE’s facility management contracts were taking an ever- increasing share of total procurement dollars. In 2001, DOE obligated  about $14.8 billion to its facility management contracts, which was about  80 percent of total procurements that year. In 2005, DOE obligated $19.8  billion to its facility management contracts, which was about 87 percent of  the department’s total procurement outlays.
In analyzing DOE’s inability to meet its small business prime contracting  achievement goal, it is also worth noting that the program offices we  reviewed—the Offices of Environmental Management, and Science, and  NNSA—accounted for slightly less than half of the approximately $948  million in small business prime contracting achievements in fiscal year  2005 despite having responsibility for almost 90 percent of DOE’s total  procurement dollars. According to preliminary data from DOE’s Small  Business Office, in 2005 the Office of Environmental Management directed  about $198 million, or 2.9 percent of its procurement dollars to small  businesses; NNSA directed $237 million, or 2.6 percent; and the Office of  Science directed about $30 million, or 1.1 percent. In contrast, more than  half of DOE’s fiscal year 2005 contracting with small businesses originated  from the DOE offices that are collectively responsible for only 10 percent  of the department’s total procurement dollars. These offices include, for  example, the Office of Fossil Energy and Office of Energy Efficiency and  Renewable Energy. These smaller program offices within DOE directed  about $469 million, or 21 percent, of their procurement dollars to small  business prime contracts, slightly more than the combined small business  prime contracts at the Offices of Environmental Management, and Science  and NNSA. However, DOE’s other program offices are responsible for  substantially fewer multimillion dollar facility management contracts than  the Offices of Environmental Management, and Science and NNSA.
section_title: Two Key Management Challenges Hinder DOE’s Efforts to Further Improve Its Small Business Contracting Performance
paragraphs: DOE faces two management challenges in further improving its small  business prime contracting performance. First, although DOE negotiates  an annual small business prime contracting goal, it has not identified  concrete steps—referred to as program objectives—that are expected to  contribute in a specific measurable way to achieving its goal. Second, it  does not use performance information to evaluate and improve program  performance. Both types of practices are commonly associated with high- performing organizations and are consistent with principles contained in  the Government Performance and Results Act. More specific information  on these model practices and DOE’s comparative practices can be found  in table 3.
subsections: section_title: DOE Has Not Effectively Detailed How It Will Achieve Its Small Business Prime Contracting Goal
paragraphs: Although DOE negotiates a small business prime contracting goal each  year—5.5 percent in fiscal year 2005—DOE has not specified the concrete  steps the department will take to achieve its small business prime  contracting goal or how progress toward that goal can be measured. In a  literature review of the practices of high-performing organizations, we  found that such organizations often define specific program objectives  indicating how the organization intends to achieve its goals. These  objectives are measurable and are focused on the specific results an  organization wishes to achieve. Well-defined objectives help an  organization gauge its progress in achieving its programmatic goal.
While DOE’s small business strategic plan identifies a number of  activities—which the department refers to as “objectives”— that the  department believes will contribute toward achieving its goal, these  objectives do not lay out what it specifically expects to accomplish from  each activity or establish a way to measure if these activities are indeed  advancing it toward its goal. Among the “objectives” the department has  identified are maintaining a procurement forecast, conducting a small  business breakout study of facility management contracts, and conducting  a mentor-protégé program. DOE has not indicated how these actions are  intended to contribute to achieving its small business prime contracting  goal, and thus how the success of these actions should be measured. For  example, for the mentor-protégé program, the department has not laid out  the number or value of small business prime contracts it expects to result  from the program.
In addition, the department has not established program objectives for  those key departmental efforts holding the greatest promise to increase  the department’s small business prime contracting. For example, DOE  currently sets aside prime contracts for small businesses from two  categories of procurements: nonfacility management contracts and facility  management contracts. Yet, the department has not specified the extent to  which each of these types of procurements should contribute towards  achievement of DOE’s small business prime contracting goal or how the  success of DOE’s efforts to set aside small business contracts in these  areas might be assessed. For example, 61 percent of obligations to new  nonfacility management contracts went to small businesses in 2004.  However, only 28 percent of the total obligations for nonfacility  management contracts went to small businesses. Whether or not DOE has  been successful in reserving such contracts for small businesses and  whether the department’s efforts should be further improved are unclear.  Defining an appropriate objective regarding the small business awards for  nonfacility management contracts could increase DOE’s understanding of  its efforts in this area and provide a much clearer means of assessing its  progress.
Similarly, the department has not established an objective for the extent to  which DOE might create small business opportunities from facility  management contracts. As discussed earlier, the proportion of  procurements associated with facility management contracts has been  increasing. Generally, the department has begun to recognize that to  further increase its small business prime contracting performance over the  long term, it may be necessary to increase the small business opportunities  redirected from facility management contracts. Furthermore, Congress  recently required DOE to study the feasibility of changes to facility  management contracts so that additional small business prime contracting  opportunities might be provided. To date, the Office of Environmental  Management has led the department’s effort in redirecting such contracts  to small businesses by setting aside a number of small business  opportunities culled from facility management contracts. Other program  offices have done so to a lesser degree or have plans to do so in the future  but have not yet awarded those contracts. As DOE continues to consider  what small business opportunities it is reasonably able to draw from  facility management contracts, establishing a program objective would  encourage the department to maximize these opportunities.
section_title: DOE Does Not Use Performance Information to Evaluate and Improve Program Performance
paragraphs: DOE does not systematically analyze the performance of its small business  program to determine the effectiveness of specific activities or policies in  advancing its goal, although the department does collect some  performance information. DOE’s main effort to collect and analyze  performance information consists of tracking the proportion of total  procurement dollars going to small businesses as prime and subcontracts  at both the agencywide level and the program office level. The prime  contracting data are tracked quarterly. Additionally, the Small Business  Office collects information on a few of its small business development and  support activities, such as attendance at and participants’ views on the  quality of small business conferences. Also, DOE’s procurement office  collects and tracks aggregate data on the extent to which facility  management and nonfacility management contracts have been awarded to  small businesses and whether such contracts involve multiyear  agreements.
DOE does not, however, collect sufficient information to provide the  department with insight on whether or how specific policies or processes  should be changed to further increase small business prime contracting.  For example, as noted earlier, DOE’s policy is to set aside for small  businesses all new nonfacility management contracts to the extent  possible; in fiscal year 2004, about half of all new nonfacility management  contracts were awarded to small businesses and half were not. However,  the department does not require procurement staff to report the reasons  that contracts have not been awarded to small businesses. The Federal  Procurement Data System allows agencies to report several reasons for  nonawards that include the following: no known small business source; a  small business was solicited but did not make an offer; and a known small  business source existed, but no offer was solicited. Such information  might help DOE assess if staff are having difficulty identifying small  businesses capable of performing DOE contracts, if small businesses are  having problems preparing offers, or if time constraints are limiting staff  efforts to solicit offers from small businesses, for example. A senior  procurement analyst with DOE’s Office of Procurement and Assistance  Management said the department does not collect this type of information  because it has not viewed it as useful. However, high-performing  organizations regularly collect and analyze performance data to develop  information on the effectiveness of their efforts—determining whether or  not these efforts are achieving the desired results.
In addition, many high-performing organizations also conduct periodic  program reviews or audits to identify systemic problems and determine  what adjustments to policy or practice should be made to improve  performance over the long run. While the department does conduct some  limited assessments of the small business efforts carried out by the  individual program offices, these assessments do not routinely result in  documented plans for improved long-term performance. For example,  DOE’s procurement office requires program offices to periodically review  compliance with overall federal acquisition regulations, including specific  requirements regarding small business prime contracting. But according to  the manager of this effort, these limited compliance reviews have not  identified problems with any program office’s small business practices  that have required corrective action. In addition, DOE’s Small Business  Office conducts an informal assessment of a program office’s efforts to  meet its small business prime contracting goal when that office does not  achieve its goal. However, the Small Business Office officials said they  tend to focus on near-term obstacles that the program office faces in  awarding small business contracts rather than on systematically evaluating  the program office’s management of its small business prime contracting  efforts. Problems identified often include such things as bid protests and  delayed appropriations that impede the award of anticipated small  business contracts. Similarly, any planned corrective action tends to focus  on a program office’s ability to identify additional contracting  opportunities for small businesses in the near-term, rather than on  programmatic changes that might improve performance over the long- term. Furthermore, because the assessment is informal, it is not  documented, leaving the Small Business Office without a written plan that  can be used to hold a program office accountable for achieving results.  Thus, when the department’s three largest program offices appeared  unable to meet their small business prime contracting goals in fiscal year  2005—leaving DOE short of its 5.5 percent small business goal—the  department had little information to fully account for the shortfall or  systematically determine a course of possible corrective action to make  program improvements.
section_title: Other Federal Agencies Use Formal Program Evaluation to Guide Changes in Their Small Business Programs
paragraphs: The small business management practices employed by federal agencies  having a mission or agency component with a mission similar to DOE’s  provide examples of strategies for small business program evaluation and  continuous improvement. Unlike at DOE, each agency is required to use  performance information gained from periodic program reviews to help  identify and direct program improvement efforts. We did not assess the  specific small business practices employed by these agencies to determine  if they were effective or the impact these practices may have had upon  their small business prime contracting. However, over time, these  agencies and the components we visited have awarded a greater share of  their procurement dollars to small businesses and more often met their  prime contracting goals than has DOE.
In general, the small business programs at the three agencies we visited  carry out activities similar to those conducted by DOE. As with all federal  agencies, procurements are subject to the requirements of the Small  Business Act and the Federal Acquisition Regulation, which together  require small business contracting procedures and set-asides meant to  ensure small businesses are afforded maximum practicable opportunities  for federal prime contracts. As such, each small business office has a role  in articulating and establishing agency small business contracting policy,  as well as conducting small business outreach and development activities.  As at DOE, these agencies, their components that we visited, or both, also  promote the use of small businesses among agency contracting and  procurement staff, train agency staff on federal and agency small business  contracting requirements, maintain databases of potential small business  vendors, and track and report small business accomplishments,  periodically reporting results to senior agency officials.
In contrast to DOE, however, NASA, the Department of the Army, and the  Department of Health and Human Services use formal program evaluation  to guide programmatic changes. In conjunction with the Office of  Procurement, the NASA small business office performs a comprehensive  review of NASA’s procurement offices on a rotating three-year basis. The  purpose of the audit is to ensure that the small business program is being  appropriately implemented and to bring to management’s attention issues  that hinder progress toward agency goals. This review also examines how  well the small business goals are being met, what the major impediments  to small business utilization are, and what steps can be taken to improve  small business usage within the procurement center. A recent review of  NASA’s Kennedy Space Center found that occasionally small business  specialists found it difficult to balance their procurement and small  business work duties and recommended some organizational changes that  would help staff surmount such difficulties. Another recent review of the  Goddard Space Flight Center identified a strained relationship between  the SBA’s procurement center representative, who assesses NASA  procurements for small business opportunities, and procurement center  staff. The review recommended mediation from the Small Business  Administration regional office to improve that relationship. In addition, the  Goddard review also included a recommendation to further reinforce the  importance of small businesses to NASA by having newly-hired staff and  some others participate in an internal training course sponsored by the  NASA small business office. According to NASA small business officials,  this course is intended to show that the use of innovative and technically  competent small businesses make business sense for NASA, regardless of  the particular small business contracting goal, and can contribute  substantially to the agency’s ability to achieve its scientific mission. The  Director of NASA’s small business office said that one of the main  functions of his office staff is ensuring that program and procurement  officials throughout the agency understand the business and mission  benefits of contracting with small businesses.
Similarly, the Department of the Army is subject to an annual small  business program review by the Department of Defense (DOD) small  business office, in which the Army must be evaluated on a number of  factors that are both qualitative and quantitative, such as whether the  organization has been able to meet its internal prime contracting goal,  whether its performance has improved over the prior year, and the quality  of organization’s small business improvement plan. If DOD officials are  unsatisfied with the performance rating earned by the Army, the head of  the organization may be required to implement a performance  improvement plan, which must be reviewed with senior department  officials in the Office of the Under Secretary for Acquisition, Technology,  and Logistics. Army officials said they believe that elevating these  concerns to a higher department level helps ensure problems are  corrected. In addition, the Army is required to outline a minimum of three  program improvement initiatives it intends to pursue during the year.  These initiatives must include implementation milestones and criteria for  assessing whether the initiatives have been successful. For example, in  2004, the Army identified an initiative to establish the policies and  procedures of the Army-managed mentor-protégé program. This initiative  ultimately led to a number of policy changes, an independent Army  mentor-protégé program, and a workshop to help small businesses  understand how to develop a formal mentor-protégé agreement with a  DOD prime contractor.
Although the Army requires its subordinate organizations to report small  business prime contracting progress annually, which is substantially less  often than such performance is tracked at DOE, the Army evaluates the  small business program performance of each subordinate Army  organization, including the U.S. Army Corps of Engineers, by conducting  comprehensive performance audits at least once every 3 years. These  comprehensive audits of Army small business programs are intended to  generate a program improvement plan to address any deficiencies  identified during the audit. Deficiencies that require corrective action must  be reported to the Secretary of the Army. Army officials said they believe  that yearly performance reviews and a periodic comprehensive evaluation  together help ensure that needed programmatic changes are implemented.
The Department of Health and Human Services also employs program  evaluations with the aim of producing small business program  improvements. Health and Human Services is in the initial stage of using  the agencywide balanced scorecard, an evaluation framework Health and  Human Services uses to assess its performance in a number of diverse  areas, to periodically evaluate its small business program. Part of this  effort includes surveying a wide range of small business program  stakeholders—agency employees, customers, and vendors—to determine  both the quality and quantity of services provided not only by Health and  Human Services’ small business office, but also by the small business  specialists assigned to operational divisions, such as the Centers for  Disease Control and Prevention. To determine the effectiveness of the  agency’s small business program, these surveys target questions for the  different stakeholders. For instance, employees of the operational  divisions are asked how well small business specialists are supporting  their procurement efforts, whether they understand small business  contracting requirements, and how much the small business specialists are  involved in advanced acquisition planning, among other things. The agency  also surveys potential small business contractors on the quality of support  they receive from small business specialists, in particular whether staff  has sufficiently explained how to do business with Health and Human  Services, whether they have been adequately informed of contracting  opportunities, and whether they have received help resolving problems  with solicitation issues. Health and Human Services intends to aggregate  results and provide a descriptive statistical analysis, using the data to drive  the small business program’s continuous improvement efforts. For  example, the results are intended to help determine if additional program  oversight, such as program audits or on-site monitoring, is necessary.  Health and Human Services intends for this evaluation to be conducted  once every 2 years. Each operational division, including the Centers for  Disease Control, must subsequently prepare a summary report that  identifies needed changes, a plan to address any performance areas  requiring improvement, and target dates for completing improvements.  This report must be submitted to Health and Human Services’  management and appropriate agency stakeholders.
section_title: Conclusions
paragraphs: DOE has made progress since 2001 not only in increasing the total dollars  it awards to small businesses, but also in increasing the share of its  procurement dollars awarded to such businesses. Nonetheless, it has been  able to achieve its annual small business prime contracting goal just once  in the last 5 years. DOE’s performance as well as its future potential in this  area is clearly constrained by the department’s traditional reliance on a  limited group of large firms and universities to manage high-cost projects  in which public safety and national security are important concerns.  Moreover, the share of the department’s procurement dollars going to  such projects is increasing, whereas the share going to projects more  commonly performed by small businesses is declining. These  circumstances create hurdles for DOE that other federal agencies do not  face.
In spite of these circumstances, DOE has made substantial efforts to  improve its small business prime contracting performance. However, the  department has not accompanied these efforts with a clear understanding  of how they affect prime contracting performance, which efforts are  working well and which are not, and what changes might be made to  improve the effectiveness of these efforts. If DOE can combine its small  business improvement efforts with a clear strategy for achieving its annual  goal, with performance information that indicates its efforts are effective,  and with program evaluations that help to identify problems and lead the  department to address them, DOE can more credibly demonstrate that— even if it continues to fall short of its prime contracting goal—-it has done  all it possibly can to give small businesses the maximum practicable  opportunity to contract with the department.
section_title: Recommendations for Executive Action
paragraphs: To improve DOE’s management of its small business prime contracting  program and to help ensure that small businesses receive the maximum  practicable opportunity for DOE prime contracts, we recommend the  Secretary of Energy direct the Office of Small and Disadvantaged Business  Utilization, the Office of Procurement and Assistance Management, and  the NNSA Office of Acquisition and Supply Management to jointly  establish a systematic, organized, and disciplined approach to achieving  the department’s small business goal. Such an approach should include the  following three steps:    Define small business program objectives that collectively identify the  steps or approach DOE intends to take to reach its annual prime  contracting goal. These objectives should focus on the specific results the  department intends to achieve, should clearly contribute directly to DOE’s  prime contracting performance, and should be measurable so that  progress can be determined.
Identify, collect, and analyze performance information that will allow the  department to determine whether the small business program activities it  carries out are achieving the desired results.
Periodically conduct a comprehensive evaluation of the department’s and  program offices’ small business programs to determine if changes are  needed and use these assessments to guide improvement efforts.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Department of Energy for review  and comment. In written comments, the Director of the Office of Small  and Disadvantaged Business Utilization stated that DOE concurred with  findings and recommendations and was taking steps to further improve its  small business efforts. For example, DOE stated it would take further  steps to identify the approach it will take to reach its annual prime  contracting goal, to better assess the effectiveness of its existing small  business efforts and identify areas of improvement, and conduct periodic  evaluations of the department’s small business programs. However, DOE  expressed concern that we did not fully appreciate the department’s  management and operating contract business model, especially in making  comparisons to the small business programs at other federal agencies. The  report does recognize that the use of large facility management  contractors to perform much of DOE’s work has constrained the  department’s ability to contract with small businesses. The report also  recognizes that other federal agencies do not face a similar constraint. We  believe the comparisons we made between DOE and other agencies are  appropriate because we compared key management practices of each  agency’s small business program, which are not dependent on the  particular business model used to accomplish the agency’s mission.  Furthermore, in selecting the three federal agencies to contrast with  DOE’s small business program, our intent was to provide information on  specific small business practices that differed somewhat from DOE’s own  practices and that might provide examples for DOE as it continues its  improvement efforts. DOE also provided technical comments on the draft  report, which we incorporated as appropriate.
We are sending copies of this report to the Secretary of Energy and the  Administrator of the NNSA. We will also make copies available to others  upon request. This report will be available at no charge on the GAO Web  site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  at (202) 512-3841 or aloisee@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Staff who made key contributions to this report are listed in  appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to (1) provide an update on the Department of  Energy’s (DOE) key efforts to increase small business prime contracting  opportunities and the results of these efforts to date and (2) identify the  management challenges DOE faces in improving its small business prime  contracting performance. In addition to these objectives, we are providing  information on the management of small business programs by other  federal agencies that either share certain characteristics with DOE’s  largest program offices or that have components that share certain  characteristics with these offices.
To conduct our work, we interviewed DOE headquarters and program  office officials,as well as representatives from the Small Business  Administration (SBA), and collected and analyzed data from federal and  DOE procurement databases. We also interviewed officials from the small  business offices at the Department of Defense, the Department of the  Army, the Department of Health and Human Services, and the National  Aeronautics and Space Administration (NASA).
To gain an understanding of DOE’s key small business management efforts  and results to date, we obtained and reviewed DOE policy guidance and  management directives concerning small business prime contracting,  including internal memoranda, small business and procurement guidance,  agencywide and program-specific small business plans, budget documents,  and other related documents. To further gain an understanding of the DOE  Small Business Office and Office of Procurement and Assistance  Management roles and responsibilities with regard to small business prime  contracting, we reviewed the Federal Acquisition Regulation, as well as  the DOE-specific supplement to these regulations. We also interviewed  DOE officials in the Small Business Office and small business officials  from the department’s program offices, as well as officials in the Office of  Procurement and Assistance Management and their counterparts at the  National Nuclear Security Administration (NNSA). We also interviewed  officials at SBA to learn about federal small business policy, how small  business goals are established with the federal agencies, how they ensure  the federal government meets these goals, and what role they have in  overseeing small business activities nationwide.
To determine DOE’s small business prime contracting achievement for  fiscal years 2001 through 2004, we reviewed SBA’s federal goals report. To  determine DOE’s small business prime contracting achievement for fiscal  year 2005, and to determine expenditures to date toward specific  contracts, we relied on the Federal Procurement Data System—Next  Generation (FPDS-NG), the federal government’s repository of  information regarding the nature and value of federal procurement  actions. This database contains detailed information on government  contract actions over $25,000 and summary data for procurements of less  than $25,000. We have previously issued reports critical of the reliability,  accuracy, and completeness of FPDS-NG data and the data of its  predecessor system and remain concerned about some aspects of the data  system. However, based on the following measures, we determined that  the data of interest were sufficiently reliable for the purposes of this  report. We interviewed DOE officials and officials from the General  Services Administration, the agency responsible for the FPDS-NG system,  to determine the steps taken to ensure accuracy and completeness of  procurement data in FPDS-NG. In addition to FPDS-NG, we also used data  taken from a DOE-specific procurement database, called the Procurement  and Assistance Data System and maintained by DOE’s Office of  Procurement and Assistance Management, to determine fiscal year 2005  prime contracting achievements for DOE’s largest program offices: the  Office of Environmental Management, the Office of Science, and NNSA. As  appropriate, we converted dollar values to constant 2005 dollars using  Gross Domestic Product price indices from the Bureau of Economic  Analysis.
To identify the main challenges DOE faces in improving its small business  prime contracting performance, we reviewed the management practices of  DOE’s small business program and compared these against established  management principles identified in select literature from leading  organizations on effective management practices at federal agencies. For  example, we reviewed guidance published by the Governmental  Accounting Standards Board, the National Academy of Public  Administration, and the IBM Center for the Business of Government,  regarding effective management practices. We also reviewed prior GAO  reports concerning managing for results, as well as the Government  Performance and Results Act of 1993. We also reviewed program guidance,  management directives, including DOE internal guidance entitled  Managing Critical Management Improvement Initiatives, and program  performance plans to determine the current practices supporting the DOE  small business program. To gain a further understanding of DOE’s small  business management efforts, we also interviewed DOE Small Business  Office officials and staff, and DOE Procurement Office officials.
To provide information on how other federal agencies address small  business program management challenges, we obtained information on  the practices of the small business offices of three other agencies that  either share certain characteristics with DOE or have component  organizations that share characteristics with DOE: the National  Aeronautics and Space Administration, the Department of the Army (U.S.  Army Corps of Engineers), and the Department of Health and Human  Services (Centers for Disease Control and Prevention). We selected these  agencies because each has annual procurement activity on a scale as large  as or larger than the three DOE offices examined in this study and each  agency has been able to award a larger share of its procurement dollars to  small business than has DOE. Additionally, like DOE, these agencies must  consider public safety and national security concerns to execute sound  procurement decisions. See table 4 for a comparison of each agency’s 2004  total procurements and small business prime contracting achievement  information. Finally, these agencies were chosen to reflect the complexity  of the varied missions at DOE. Both the U.S. Army Corps of Engineers and  DOE’s Office of Environmental Management have environmental cleanup  as a key component of their missions; scientific research conducted by the  Centers for Disease Control and Prevention is similar in scope and  complexity to that conducted by DOE’s Office of Science; and both the  NNSA and NASA have highly technical and complex missions.
To provide information on the small business program management and  oversight at these agencies, we obtained and reviewed documentation of  agency-specific procurement regulations, small business and procurement  policy guidance, management memoranda, small business strategic plans,  budget documents, and other related documentation. In addition, we  interviewed cognizant officials at each agency concerning this  information. We did not assess the specific small business practices of  these agencies to determine if they were effective. Instead, we obtained  information on small business program activities to identify practices that  somewhat differed from DOE’s practices and that could serve as examples  DOE might want to consider as it further seeks to improve its prime  contracting performance. Although the examples we highlight in this  report are consistent with established management principles, we did not  determine if these practices, as implemented by the federal agencies we  visited, have had a direct impact on their small business prime contracting.
The Department of Defense maintains a small business office for each  major component of the agency, and the operations of each are overseen  by the Department of Defense’s small business office. Therefore, we  interviewed small business officials in the small business offices at the  Department of Defense, the Department of the Army, and the U.S. Army  Corps of Engineers. The Department of Health and Human Services, in  contrast, has a central agencywide small business office that is supported  by a small business specialist in each of its 11 operating divisions, such as  Centers for Disease Control and Prevention. Therefore, we interviewed  small business officials from the department’s small business office, as  well as the small business specialist and procurement officials at the  Centers for Disease Control. NASA’s small business office is similarly  centralized, so we conducted interviews with officials from this office  only.
We conducted our work between February 2005 and March 2006 in  accordance with generally accepted government auditing standards.
section_title: Appendix II: Comments from the Department of Energy
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, William R. Swick, Assistant  Director; Doreen Feldman; Kevin Jackson; Carolyn Kirby; Michael L.  Krafve; Harry Medina; Dominic Nadarski; Cynthia Norris; John W.  Stambaugh; Stan Stenersen; and Virginia Vanderlinde made key         contributions to this report.