Manufacturing Extension Partnership: Most Federal Spending Directly Supports Work with Manufacturers, but Distribution Could Be Improved
Published: 2014-03-27T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Manufacturing plays a key role in the U.S. economy. Congress established the MEP program in NIST in 1988. The program's objectives are to enhance productivity and technological performance and to strengthen the global competitiveness of target manufacturing firms, namely small and medium-sized U.S.-based firms. Under this program, NIST partners with 60 nonfederal organizations called MEP centers. The centers, located in 50 states and Puerto Rico, help target firms develop new customers and expand capacity, among other things. NIST awards federal funding to centers under annually renewed cooperative agreements, subject to the centers providing matching funds and receiving a positive performance evaluation.
The Consolidated and Further Continuing Appropriations Act, 2013, mandated GAO to report on MEP program administrative efficiency, which relates to funding provided to centers. This report (1) describes, over the past 5 years, how NIST spent federal MEP program funds and (2) examines the basis for NIST's cooperative agreement award spending. To conduct this work, GAO analyzed obligations data, reviewed relevant legislation and policies, and interviewed NIST officials.
section_title: What GAO Found
paragraphs: Of the approximately $608 million spent by the Department of Commerce's (Commerce) National Institute of Standards and Technology (NIST) in fiscal years 2009 through 2013 on the Manufacturing Extension Partnership (MEP) program, NIST used most of the funds to directly support MEP centers. Specifically, NIST spent about $495 million on awards to centers and spent the rest on contracts, staff, agency-wide overhead charges, and other items, some of which NIST considered direct support and some of which NIST considered administrative spending. Although NIST is not required to track, and has not historically tracked, administrative spending, NIST officials told GAO the agency developed definitions of direct support and administrative spending in fiscal year 2013 in response to congressional interest, then conducted an analysis of fiscal year 2013 federal MEP program spending using those definitions. NIST defines direct support spending as spending that directly supports the MEP center system's work with manufacturing firms, such as awards to centers or contracts to train MEP center staff on how to quickly assess innovative ideas for new products. NIST considers all other spending to be administrative, including spending on performance evaluations for MEP centers or on agency-wide overhead fees that pay for facilities operations and maintenance at the NIST campus. Using these definitions, NIST estimated that about 88.5 percent of federal MEP program spending in fiscal year 2013 was for direct support, and the remaining 11.5 percent was for administration.
NIST's spending on cooperative agreement awards is based on the historical amount awarded to each center when it was established. This took into account each center's identification of target manufacturing firms in its service area—including characteristics such as business size, industry types, product mix, and technology requirements—and its costs of providing services to those firms. However, because NIST made the awards on an incremental basis to individual centers serving different areas over a period of more than 15 years, NIST's awards did not take into account variations across service areas in the demand for program services—a function of the number and characteristics of target firms—or variations across service areas in costs of providing services. NIST's cooperative agreement award spending is, therefore, inconsistent with the beneficiary equity standard. This standard—commonly used to design and evaluate funding formulas—calls for funds to be distributed in a way that takes these variations into account so that centers can provide the same level of services to each target manufacturing firm, according to its needs. Because NIST did not account for these variations across service areas, NIST's cooperative agreement award spending may not allow centers to provide the same level of services to target manufacturing firms, according to their needs. NIST officials told GAO that an analysis they recently conducted showed wide variation across centers in the relationship between their cooperative agreement award amounts and the number of target manufacturing firms in their service areas. NIST officials told GAO they are exploring ways to revise NIST's cooperative agreement award spending to take into account variations across service areas in the number of target manufacturing firms, among other factors. The officials discussed various options they are considering, but they did not identify an option they had agreed to implement or a timeline for decision making and implementation.
section_title: What GAO Recommends
paragraphs: GAO recommends that Commerce's spending on cooperative agreement awards be revised to account for variations across service areas in demand for program services and in MEP centers' costs of providing services. Commerce agreed with GAO's recommendation.

section_title: Letter
paragraphs: Manufacturing plays a key role in the U.S. economy. According to the  Bureau of Economic Analysis, manufacturing generated $1.9 trillion in  gross domestic product (GDP)—or almost 12 percent of total U.S. GDP— in 2012, the most recent year for which data are available. In addition, the  manufacturing sector employed almost 12 million workers in July 2013  according to the Bureau of Labor Statistics. To support U.S.  manufacturing, Congress has established a variety of tax preferences,  subsidies, and other programs, including the Hollings Manufacturing  Extension Partnership (MEP) program. The MEP program was authorized  by the Omnibus Trade and Competitiveness Act of 1988 and is  administered by the Department of Commerce’s National Institute of   The program’s objectives are to  Standards and Technology (NIST).enhance the productivity and technological performance and to  strengthen the global competitiveness of target manufacturing firms,  namely small and medium-sized manufacturing firms (with fewer than 500  employees) based in the United States, helping these firms create and  retain jobs.
According to the 2013 General Terms and Conditions of the program, NIST is to conduct  a performance evaluation annually that focuses on each center’s alignment with the  program’s overall objectives, resource expenditures, activities planned for the next year,  and any proposed changes to the center’s budget, among other things. The results of this  evaluation are to be incorporated into the center’s project plan or budget. In every other  year this evaluation takes the form of an independent Merit Review Panel, in which private  experts—not connected with the center being reviewed—assess the center’s  performance. also awarded competitive grants to some MEP centers in recent years in  addition to their annual cooperative agreement funding.
This engagement responds to a mandate in the explanatory statement  accompanying the Consolidated and Further Continuing Appropriations  Act, 2013 directing GAO to report to the House and Senate  Appropriations Committees, Subcommittees on Commerce, Justice,  Science, and Related Agencies on the extent to which the MEP program  achieves administrative efficiencies, which relates to funding provided to  centers. Our objectives for this review were to (1) describe, over the past  5 years, how NIST spent federal MEP program funds and (2) examine the  basis for NIST’s cooperative agreement award spending.
To describe how NIST spent federal MEP program funds over the past 5  years, we obtained and analyzed obligations data from NIST for fiscal  years 2009 through 2013. For the purposes of this report, we are  measuring spending based on obligations. We interviewed  knowledgeable agency officials about the sources of the data and the  controls NIST had in place to maintain the integrity of the data, and we  determined that the data were sufficiently reliable for the purposes of our  report. We also reviewed a NIST analysis of fiscal year 2013 spending  that estimated the amount NIST spent for direct support of the MEP  center system’s work with manufacturing firms and the amount NIST  spent for administration. We interviewed agency officials about the  analysis and independently reviewed their determinations of  administrative and direct support spending, and we determined the  resulting estimates were sufficiently reliable for the purposes of our  report. In addition, we reviewed relevant laws—including the MEP  program’s enabling legislation, implementing regulations, and annual  appropriations—and program policies and procedures concerning how  NIST spends the federal program funds. We also reviewed relevant  documents, such as strategic plans, performance reports, budget  justifications, and excerpts of contracts, and we interviewed NIST officials  about how they spent the funds. To examine the basis for NIST’s  cooperative agreement award spending, we interviewed NIST officials  and reviewed MEP program data for fiscal years 2009 through 2013 to  determine how NIST establishes cooperative agreement awards. We  reviewed all federal funding opportunity announcements for the  establishment of MEP center cooperative agreements published since the  program’s inception, which define the criteria used to establish  cooperative agreement awards. We assessed NIST’s basis for  cooperative agreement award spending against equity standards from  social science research for designing and evaluating funding formulas.
We conducted this performance audit from July 2013 to March 2014 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The MEP program traces its origins to the Manufacturing Technology   which was established by NIST’s predecessor, the  Centers Program,National Bureau of Standards (NBS). In July 1988, NBS published the  first of 12 federal funding opportunity announcements that have been  issued to date for the establishment of MEP centers.announcement led to the establishment of the first 3 centers in 1989, as  part of an initial pilot program. By 1990, NBS had become NIST, and the  agency published the second federal funding opportunity announcement  for the establishment of two additional centers, bringing the total number  of centers to 5. In 1992, NIST announced a federal funding opportunity for  2 more centers, bringing the total to 7. The number of centers grew  rapidly thereafter, with a nationwide network of 44 centers in place by  1995. NIST has since added to its network and, as of 2013, has 60  centers that cover all 50 states and Puerto Rico. Appendix I provides a list  of the 60 MEP centers.
The original legislation authorizing the MEP program emphasized the  transfer of advanced technologies developed within NIST and other  federal laboratories to small and medium-sized manufacturing firms. As  we reported in 1991, however, the centers soon found that firms primarily  needed proven, not advanced, technologies because advanced  technologies were generally expensive, untested, and too complex to be  practical for most small manufacturing firms. a key mandate of the program was not realistically aligned with the basic  needs of most small manufacturing firms. In recognition of this situation,  NIST reoriented the program to focus on basic technologies that  permitted firms to improve their competitive position. By the time we  reported on the program in 1996, centers were providing a wide range of  business services, including helping companies solve individual  manufacturing problems, obtain training for their workers, create  We reported, therefore, that  marketing plans, and upgrade their equipment and computers.
GAO, Technology Transfer: Federal Efforts to Enhance the Competitiveness of Small  Manufacturers, GAO/RCED-92-30 (Washington, D.C.: Nov. 22, 1991).
Next Generation Strategy and, in December 2008, NIST released its  current strategic plan referred to by that name. The plan articulates  NIST’s new vision for the program as a catalyst for accelerating  manufacturing’s transformation into a “more efficient and powerful engine  of innovation driving economic growth and job creation.” The plan also  defines the program’s mission: “to act as a strategic advisor to promote  business growth and connect manufacturing firms to public and private  resources essential for increased competitiveness and profitability.” The  plan focuses the program’s activities around the following five strategic  areas:
Continuous Improvement. This area includes enhancing  manufacturing firms’ productivity and freeing up their capacity to  provide them a stable foundation to pursue innovation and growth  through services and programs that target manufacturing plant  efficiencies.
Technology Acceleration. This area includes developing tools and  services to bring new product and process improvement opportunities  to manufacturing firms, accelerating firms’ opportunities to leverage  and adopt technology, connecting firms with technology opportunities  and solutions, and making available a range of product development  and commercialization assistance services.
Supplier Development. This area includes developing and delivering  the national capacity, tools, and services needed to put suppliers in a  position to thrive in existing and future global supply chains.
Sustainability. This area includes helping companies gain a  competitive edge by reducing environmental costs and impact by  developing new environmentally focused materials, products, and  processes to gain entry into new markets.
Workforce. This area includes developing and delivering training and  workforce assistance to manufacturing firms, as well as expanding  partnerships and collaborations to develop and deliver tools and  services to foster the development of progressive managers and  entrepreneurial CEOs.
MEP centers work with manufacturing firms to plan and implement  projects in these and other areas. For example, in 2011, the Delaware  Valley Industrial Resource Center (DVIRC)—a MEP center in  Pennsylvania—worked with a manufacturing firm in Hatfield,  Pennsylvania, on a continuous improvement project when the company  faced price increases from its vendors it did not want to pass on to its  customers. DVIRC trained company staff on methods to achieve  efficiencies and helped identify areas for improvement in the company’s  production process, resulting in increased productivity and reduced  inventory levels that allowed the company to save space and lower costs,  as reported by the manufacturing firm. Similarly, the Texas MEP center  worked with a manufacturing firm in El Paso, Texas, on a sustainability  project in 2013. The MEP center and the firm partnered with New Mexico  State University’s Institute for Energy and the Environment on an  economy, energy, and environment (E3) project that included training and  an effort to identify inefficiencies in the manufacturing process. As a result  of this partnership, the firm reported saving 40,000 gallons of water and  reducing solid waste by 56 tons, among other accomplishments.
NIST has recently begun developing a new strategic planning process for  the MEP program to update its Next Generation Strategy. According to  NIST officials, the process will include extensive participation by  stakeholders, including MEP centers. NIST expects to implement the  planning process through the spring of 2014 and release an updated  strategic plan shortly after the planning process is complete.
The program has also evolved in its matching fund requirements. The  program as originally implemented provided federal funding to reimburse  each $1 of nonfederal contributions with no more than $1 of federal  funding—referred to as a 1:1 cost share—for the first 3 years that a  center operated. For the fourth year of operation, every $3 of nonfederal  contributions were reimbursed with $2 of federal funding—referred to as a  3:2 cost share. For the fifth and sixth years of operation, every $2 of  nonfederal contributions were reimbursed with $1 of federal funding— referred to as a 2:1 cost share. Under the original legislation, federal  funding was scheduled to end once a center had operated for 6 years.  The 6-year federal funding limit was temporarily suspended by the fiscal  year 1997 and 1998 appropriations acts and was eliminated in 1998 when  Congress passed legislation changing the program to, among other  things, provide for continued federal funding and set the cost share at 2:1  for all centers that had been in operation for at least 6 years.
section_title: Most of the $608.3 Million NIST Spent on the MEP Program in Fiscal Years 2009 through 2013 Directly Supported MEP Centers
paragraphs: NIST spent $608.3 million in federal funding on the MEP program in fiscal  years 2009 through 2013 and used most of these funds to directly support  MEP centers and their work with manufacturing firms. Specifically, NIST  spent $494.6 million on cooperative agreement awards and competitive  grant awards to MEP centers, which NIST considers to be direct support.  NIST spent $78 million for contracts, and for NIST staff salaries and  benefits, some of which NIST considers direct support and some  administrative spending. The remaining $35.7 million was spent for  agency-wide overhead charges and travel, training, performance awards,  and other items, all of which NIST considers administrative spending.  NIST defines direct support as spending that directly supports the MEP  center system’s work with manufacturing firms, such as awards to centers  or spending on training for MEP center staff. NIST considers all other  spending to be administrative, including spending on performance  evaluations of centers and on agency-wide overhead charges that pay for  facilities operations and maintenance at the NIST campus.
NIST is not required to track, and historically has not tracked,  administrative spending, but NIST officials told us the agency developed  its definitions of direct support and administrative spending in fiscal year  2013 in response to congressional interest. It then conducted an analysis  of fiscal year 2013 federal MEP program spending using those definitions.  NIST estimated that about 88.5 percent of federal MEP program spending  in fiscal year 2013 was for direct support, and the remaining 11.5 percent  was administrative. (See fig. 2.)
It is not possible to determine whether NIST’s amount of administrative  spending is appropriate because there is no standard definition of  administrative spending for federal programs. In addition, conducting the  analysis using different definitions could produce different results.
There is no standard definition of administrative expenses for federal  programs. Executive Order 12837, issued on February 10, 1993,  called on the Director of the Office of Management and Budget  (OMB) to establish a definition of administrative expenses for  agencies, but OMB did not develop a definition. Definitions and  reporting of administrative expenses vary across public and private  entities depending on their mission, priorities, services, clients, and  on the purposes for which management needs the information.
subsections: section_title: Spending on MEP Center Cooperative Agreements
paragraphs: NIST spent $471 million on MEP center cooperative agreement awards in  fiscal years 2009 through 2013. NIST considers all of this spending direct  support. Federal funds for center cooperative agreements can be used by  MEP centers for capital and operating and maintenance expenses. As  stated earlier, these funds are awarded contingent on each MEP center  meeting its cost-share requirement and having positive performance  evaluations. NIST officials told us that spending on cooperative  agreements and spending on staff salaries and benefits are NIST’s top  spending priorities.
section_title: Spending on MEP Center Competitive Grants
paragraphs: In fiscal years 2009 through 2013, NIST spent $23.6 million on awards to  centers that were granted on a competitive basis. These awards are  made in addition to cooperative agreement awards. The bulk of these  awards went to two competitive grant programs; about $12.7 million was  awarded to MEP centers through the Expansion of Services Cooperative  Agreement Recipients (E-CAR) competition, and about $7.3 million was  awarded through the Tool Development Cooperative Agreement  Recipients (T-CAR) competition. NIST also awarded a small amount  through grant competitions conducted under two other programs: the  Advanced Manufacturing Jobs and Innovation Accelerator Challenge, and  the Energy-Efficient Buildings Hub project.the competitive grants that it awarded under the four programs encourage  projects in the five strategic areas identified in the MEP program’s  strategic plan. For example, NIST awards to MEP centers through the E- CAR competition funded 14 projects designed to integrate two or more of  the five strategic areas, and NIST awards through the T-CAR competition  funded 8 projects aimed at addressing the new and emerging needs of  manufacturing firms in any of the strategic areas.
section_title: Spending on Contracts
paragraphs: In fiscal years 2009 through 2013, NIST spent $45.9 million on contracts  for goods or services, some of which directly supported MEP centers and  some of which were administrative. Of the $8 million spent on such  contracts in fiscal year 2013, NIST estimated that it spent $5 million on  direct support contracts and $3 million on administrative contracts. The  contracts that NIST considered direct support in fiscal year 2013 were for  training and support for MEP centers on tools that centers could use to  assist manufacturing firms, or for work with centers on implementing MEP  initiatives. For example, NIST awarded a $3.7 million contract to  International Management and Consulting, LLC, to provide training for  MEP center staff on innovation engineering, which NIST describes as a  business support service that informs companies how to quickly assess  innovative ideas resulting in new business models, processes, and  products. The training is intended to help MEP center staff provide  guidance in these areas to clients. Contracts that NIST considered  administrative in fiscal year 2013 were for services related to performance  evaluations of MEP centers, telephone and mobile broadband,  information technology (IT), and other products and services.
According to NIST officials, some of these contracts helped the program  meet legal requirements, such as for services related to performance  evaluations of MEP centers, which are required by the program’s  enabling legislation and implementing regulations. Other contracts  supported areas of the program’s strategic plan, such as the contracts for  MEP center staff training. Finally, some of the contracts were for  operational functions, such as the contracts for telephone and mobile  broadband and IT. NIST staff told us the program is currently reviewing all  large direct support contracts with the intent of reducing contract  spending and directing more funds to MEP centers. They expect the  review to be complete in spring 2014.
section_title: Spending on Staff Salaries and Benefits
paragraphs: NIST spent $32.1 million on staff salaries and benefits in fiscal years  2009 through 2013. As of fiscal year 2013, NIST employed 55 staff under  the MEP program. According to NIST’s definitions, some of its staff  directly supported MEP centers, and some were administrative. In fiscal  year 2013, NIST estimated that it spent $2.9 million on direct support  staff, and $4.4 million on administrative staff. As shown in figure 3, the  direct support staff worked in NIST’s strategic partnerships team, as well  as in its program development and system operations offices for the MEP  program. In NIST’s 2013 analysis of administrative spending, NIST  considered the strategic partnerships and program development staff to  be entirely dedicated to directly supporting MEP centers, and the system  operations staff to be half dedicated to directly supporting MEP centers  and half dedicated to program administration. NIST considered the other  six units and teams in the MEP program to be dedicated to program  administration, including the Director and the administration and finance  team. NIST officials told us that they increased spending for staff salaries  and benefits during the past 5 years, in part to return the program’s  staffing level to that before substantial budget cuts in fiscal year 2004.  New hiring focused on staff with expertise in areas of the program’s  strategic plan, according to these officials.
NIST spent $30.6 million in federal MEP program funds in fiscal years  2009 through 2013 on agency-wide overhead required by NIST. NIST  considers this spending to be administrative. NIST does not receive an  appropriation for the costs of agency-wide general administration; instead  it levies surcharges on programs to pay overhead costs, including the  operation and maintenance of facilities, grants management, and mail  distribution.
section_title: Spending on Travel, Training, Performance Awards, and Other Items
paragraphs: NIST spent the remainder of its federal funds—$5.1 million in fiscal years  2009 through 2013—on travel, training, staff performance awards, and  other items. NIST considers all of this spending to be administrative.  According to NIST’s travel tracking spreadsheet, fiscal year 2013 travel  included participation in on-site panel reviews of MEP centers,  attendance at MEP center board meetings, and attendance at meetings  with state and federal partners, among other things. Officials told us  training funds are used for continuing education and professional training  for MEP program staff, as opposed to training for MEP center staff. For  example, some program staff hold professional credentials, such as a  Contracting Officer Technical Representative, which require periodic  training to be maintained. Performance award spending is used for  discretionary bonuses and cash awards paid to MEP program staff for  performance and to NIST staff outside the program, such as legal  counsel, for exemplary support of the program.
Table 1 summarizes the spending described above.
section_title: NIST’s Cooperative Agreement Award Spending Is Inconsistent with Beneficiary Equity
paragraphs: NIST’s spending on cooperative agreement awards is based on the  historical amount awarded to each center when it was established. This  took into account each center’s identification of target manufacturing firms  in its service area—including characteristics such as business size,  industry types, product mix, and technology requirements—and its costs  of providing services to those manufacturing firms. However, because  NIST made the awards on an incremental basis to individual centers  serving different areas over a period of more than 15 years, NIST’s  awards to individual centers did not take into account variations across  different service areas in the demand for program services—a function of  the number and characteristics of target manufacturing firms—or  variations across different service areas in costs of providing services.  NIST’s cooperative agreement award spending is, therefore, inconsistent   This standard—which is commonly  with the beneficiary equity standard.used in social science research to design and evaluate funding  formulas—calls for funds to be distributed in a way that takes these  variations into account so that centers can provide the same level of  services to each target manufacturing firm, according to its needs.  Because NIST did not account for these variations across service areas,  NIST’s cooperative agreement award spending may not allow centers to  provide the same level of services to target manufacturing firms,  according to their needs. NIST officials told us that an analysis they  recently conducted showed a wide variation across centers in the  relationship between their cooperative agreement award amounts and the  number of target manufacturing firms in their service areas. NIST officials  told us they are exploring ways to revise NIST’s cooperative agreement  award spending to take into account variations across service areas in  the number of target manufacturing firms, among other factors.
subsections: section_title: NIST’s Cooperative Agreement Award Spending Is Based on Historical Practice
paragraphs: NIST’s spending on cooperative agreement awards is based on the  historical amount awarded to each center when it was established. Most  of the currently operating centers were established between 1989 and  1996, according to our analysis of NIST data estimating the establishment  dates of current centers. When the centers were established, their  original award amounts were based on the proposals that they submitted  in response to NIST’s federal funding opportunity announcements. For all  but the first federal funding opportunity announcement, NIST specified  that it would evaluate proposals by assigning scores to the following  equally weighted criteria:Identification of target firms in the proposed region. The proposals had  to demonstrate an understanding of the service area’s manufacturing  base, including concentration of industry, business size, industry  types, product mix, and technology requirements, among other things.
Technology resources. The proposals had to assure strength in  technical personnel and programmatic resources, full-time staff,  facilities, equipment, and linkages to external sources of technology,  among other things.
Technology delivery mechanisms. The proposals had to define an  effective methodology for delivering advanced manufacturing  technology to manufacturing firms, among other things.
Management and financial plan. The proposals had to define a  management structure and assure management personnel to carry  out development and operation of an effective center, among other  things.
Budget. The proposals had to contain a detailed 1-year budget and  budget outline for subsequent years, among other things.
For funding opportunity announcements that NIST published after it  issued its 2008 strategic plan, these criteria were to be discussed in the  context of the proposer’s ability to align the proposal with the program’s  strategic objectives. The announcements stated that, after scoring the  proposals, NIST would select award recipients based upon their score  ranking and other factors such as availability of federal funds and the  need to assure appropriate regional distribution.
After centers were established, their subsequent cooperative agreement  awards have remained at the historical amount when they were renewed  each year. According to NIST officials, in some instances, centers’  cooperative agreements are not renewed and are instead opened to  recompetition; during fiscal years 2009 to 2013, eight cooperative  agreements were opened to recompetition. NIST officials told us that  recompetitions typically occur because the existing center has voluntarily  closed or the organization has decided its mission no longer supports  running a MEP center. According to NIST’s funding opportunity  announcements, NIST used the same evaluation criteria discussed above  to select new centers and establish their awards. Unlike renewed  cooperative agreement awards, which remain at the historical amount  each year, recompeted awards are based on, but can be greater than, the  historical amount. NIST officials told us that they use the historical  amounts as a baseline in establishing the recompeted award amounts,  but they may make additional funding available for the recompetitions.  This was the case for all but one of the eight recompetitions that took  place during fiscal years 2009 to 2013. According to NIST officials, during  these years, NIST reserved additional funds for seven of the  recompetitions to accommodate compelling proposals such as those that  identified increased matching funds or broadened the work historically  done in the service area. All but one of those seven recompetitions led to  award amounts greater than the historical amount.
In addition to renewing existing awards and recompeting awards when a  center has closed, NIST officials told us that NIST recently added a new  center to the nationwide system and based the new award on the  historical amount awarded for the area. Specifically, in 2012, a new  center was added in South Dakota. Previously, the MEP center located in  North Dakota served both North and South Dakota and received separate  cooperative agreement awards for each. Serving both states proved to be  difficult for the center, however, and most of its activity was focused in  North Dakota. According to NIST officials, the state of South Dakota  suggested to NIST the addition of a new South Dakota center. Through a  competitive process, the new South Dakota center received an award  equal in amount to the award that the North Dakota center previously  received to serve South Dakota. The North Dakota center received an  award equal in amount to the award it previously received to serve North  Dakota.
section_title: NIST’s Cooperative Agreement Award Spending Does Not Take into Account Variations in Demand for Program Services or in Centers’ Costs of Providing Services across Service Areas
paragraphs: NIST’s spending on cooperative agreement awards to MEP centers does  not account for variations across centers’ service areas in terms of the  demand for program services, which is a function of the number and  characteristics of target manufacturing firms. As a result, NIST’s  cooperative agreement award spending falls short of a component of  beneficiary equity—a standard commonly used to design and evaluate  funding formulas— that calls for funds to be distributed in a way that  takes into account these variations so that each center can provide the  same level of services to each target manufacturing firm, according to its  needs. The original awards were made in part on the basis of each  center’s identification of target manufacturing firms in its service area,  including characteristics such as business size, industry types, product  mix, and technology requirements, among other things. NIST’s funding  opportunity announcements published in June 1995, May 1996, July  2000, March 2001, and March 2003 specified that award amounts should  be directly related to the level of activity of the center, which is a function  of the number of manufacturing firms in the designated service area.  Because most of the current MEP center cooperative agreements were  made on an incremental basis over a period of more than 15 years, they  did not take into account the distribution of demand for program services  across service areas. NIST officials told us they recognize that, as a  result of the incremental addition of centers, wide variations emerged  across centers in the relationship between their cooperative agreement  award amounts and the number of target manufacturing firms in their  service areas. Specifically, NIST officials told us that an analysis they  recently conducted of current cooperative agreement award amounts per  target manufacturing firm across service areas showed a mean of $333  per target manufacturing firm and a range of $82 to $972, with 75 percent  of centers falling between $179 and $487. As a result, centers may not be  able to provide the same level of services to each target manufacturing  firm, according to its needs.
NIST’s spending on cooperative agreement awards also does not take  into account variations in MEP centers’ costs of providing services to  target manufacturing firms. As a result, NIST’s cooperative agreement  award spending falls short of another component of beneficiary equity.  Under the beneficiary equity standard, funds should be distributed in a  way that accounts for variations in the cost of providing services in each  area, so that target manufacturing firms across MEP center service areas  may receive the same level of assistance, according to their needs. The  costs of operating the centers to provide assistance to manufacturing  firms affect the amount of funding that centers have available for direct  assistance to firms. According to NIST’s funding opportunity  announcements, costs—as presented by the centers’ budgets—were  considered in making the original awards, but these costs were presented  on an incremental basis over a period of more than 15 years and,  therefore, NIST’s consideration of these costs did not account for  variations across service areas. By not accounting for these variations,  NIST’s cooperative agreement award spending may further call into  question centers’ ability to provide the same level of services to each  target manufacturing firm, according to its needs.
section_title: NIST Is Undertaking Efforts to Revise Its Cooperative Agreement Award Spending
paragraphs: NIST officials told us they are exploring ways to revise cooperative  agreement award spending to take into account variations across service  areas in the number of target manufacturing firms, among other factors.  The officials discussed various options they are considering, but they did  not identify an option they had agreed to implement or a timeline for  decision making and implementation. They stated that one option they  are considering is to provide increased awards to those centers that are  currently underfunded relative to the mean relationship between centers’  cooperative agreement award amounts and the number of manufacturing  firms in their service areas. They told us that doing so would result in a  greater benefit in terms of manufacturing firms served than providing  additional funds to centers that are overfunded relative to the mean. NIST  estimates that if it were to increase cooperative agreement award  amounts for the underfunded centers, the program would see up to a 20  percent increase in the number of manufacturing firms served in these  service areas over a 3-year period.
NIST officials told us that they face at least two impediments in revising  cooperative agreement award spending. First, they stated that revising  cooperative agreement award spending within the current level of funding  would likely mean taking funds from some centers to give to others, and  NIST is concerned about the effect this disruption might have on the  impact of the program. The officials told us that they would like to  increase NIST’s total cooperative agreement award spending and that  they are exploring options to do so. They said they are examining their  spending on direct support contracts to determine whether cost savings  can be realized and redirected to cooperative agreement awards. They  also said that they are considering making any changes over a multiyear  period. Our prior work has shown that phasing in changes to funding  levels gradually over a number of years minimizes disruptions to funding  recipients by providing them time to adjust.
The second impediment that the officials identified is the requirement in  the MEP program’s authorizing legislation that federal cooperative  agreement funds provided to MEP centers after their sixth year of  operation not exceed one-third of their capital and annual operating and  maintenance costs. This requirement leaves the centers responsible for  raising the remaining two-thirds of matching funds from other sources.  NIST officials told us that many centers already face difficulties raising the  required two-thirds of matching funds and may not be able to raise the  additional funds needed to access an increased cooperative agreement  award.
section_title: Conclusions
paragraphs: Manufacturing plays a key role in the U.S. economy, and NIST has  established a nationwide system of MEP centers dedicated to supporting  and strengthening the U.S. manufacturing base. However, because  NIST’s cooperative agreement award spending does not take into  account variations across service areas in the demand for program  services—a function of the number and characteristics of target  manufacturing firms—or variations in MEP centers’ costs of providing  services, centers may not be able to provide the same level of services to  each target manufacturing firm, according to its needs. NIST officials told  us they are exploring ways to revise cooperative agreement award  spending to take into account variations across service areas in the  number of target manufacturing firms, among other factors. Revising  NIST’s cooperative agreement award spending poses challenges  because it could result in award decreases for some centers, along with  increases for others. However, there are ways to ease the transition, such  as phasing in changes gradually to minimize disruption to centers and the  manufacturing firms they serve.
section_title: Recommendation for Executive Action
paragraphs: To ensure that NIST’s spending on cooperative agreement awards to  MEP centers is more equitable to manufacturing firms in different service  areas, we recommend that the Secretary of Commerce revise the  program’s cooperative agreement award spending to account for  variations across service areas in:  the demand for program services—a function of the number and  characteristics of target manufacturing firms—and
MEP centers’ costs of providing services.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the Department of Commerce’s NIST  for review and comment. In its written comments, reproduced in appendix  II, NIST generally agreed with our findings and recommendation. In  commenting on our recommendation, NIST stated that information in our  report could help NIST continue to efficiently operate the MEP program.
NIST also provided technical comments, which we incorporated into the  report as appropriate.
We are sending a copy of this report to the Secretary of Commerce, the  appropriate congressional committees, and other interested parties. In  addition, the report is available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff members have any questions about this report, please  contact me at (202) 512-3841 or ruscof@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix III.
section_title: Appendix I: List of Manufacturing Extension Partnership Centers, 2013
subsections: section_title: State City AK
paragraphs: Name  Alaska Manufacturing Extension Partnership Colorado Association for Manufacturing and Technology  Connecticut State Technology Extension Program  Iowa Center for Industrial Research and Services  Illinois Manufacturing Excellence Center-Chicago Region  Manufacturing Extension Partnership of Louisiana  North Carolina Industrial Extension Service  North Dakota Manufacturing Extension Partnership  New Hampshire Manufacturing Extension Partnership  New Jersey Manufacturing Extension Partnership  New Mexico Manufacturing Extension Partnership  Empire State Development’s Division of Science, Technology and Innovation (NYSTAR)
section_title: State City OK
paragraphs: According to NIST officials, the Alaska Manufacturing Extension Partnership closed in September  2013.  According to NIST officials, the Florida Manufacturing Extension Partnership is expected to close by  March 2014.  According to NIST officials, the Maryland MEP was established in July 2013.  According to NIST officials, Rhode Island Manufacturing Extension Services was established in  February 2013.  According to NIST officials, South Dakota Manufacturing and Technology Solutions was established  in January 2013.
section_title: Appendix II: Comments from the Department of Commerce
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, Susan Quinlan (Assistant  Director), Greg Dybalski, Kim Frankena, Cindy Gilbert, Mark M. Glickman,  Paul Kinney, Cynthia Norris, Marietta Mayfield Revesz, Emmy Rhine  Paule, William B. Shear, Barbara Timmerman, and Jack Wang made key  contributions to this report.