Federal Subcontracting: Linking Small Business Subcontractors to Prime Contracts Is Not Feasible Using Current Systems
Published: 2014-12-11T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In fiscal year 2013 the federal government awarded about $460 billion on contracts, many of which involve subcontracts. Federal regulations require prime contractors to report on their subcontracting with small businesses.
The Joint Explanatory Statement for the National Defense Authorization Act for Fiscal Year 2014 mandated that GAO review the feasibility of linking small business subcontractors to particular prime contracts when there is a subcontracting plan that pertains to multiple contracts. This report (1) assesses the feasibility of using contract reporting systems to link small business subcontractors to particular contracts and (2) identifies actions executive agencies are taking that might help facilitate linking small business subcontractors to prime contracts.
To address these objectives, GAO reviewed four government-wide contract reporting systems and extracted data using contract information from previously reviewed defense programs to attempt to link small business subcontractors to prime contracts. In addition, GAO met with officials who are responsible for the management of, or are users of, the contract systems to validate the methodologies used and determine actions being taken to facilitate linking small business subcontractors to prime contracts.
GAO is not making any recommendations in this report.
section_title: What GAO Found
paragraphs: The contract reporting systems GAO reviewed contain relevant information on subcontracting plans, subcontracts, and subcontractors, but no single system was designed to link small business subcontractors to prime contracts. Linking small business subcontractors to prime contracts when there is a subcontracting plan that pertains to multiple contracts is especially difficult because these plans do not specify the particular contracts to which they apply. Despite the limited data, GAO was able to link a few small business subcontractors to prime contracts, but multiple steps were required. GAO queried subcontract reporting systems regarding 199 contracts and found that 37 reported subcontract data, including contracts with a subcontracting plan that pertains to multiple contracts. GAO selected a nongeneralizable sample of 12 of these 37 contracts and was able to identify a number of small business subcontractors.
There are multiple actions currently under way, or called for by legislation, that may result in a single system that can link small business subcontractors to prime contracts. The General Services Administration is currently involved in an effort to consolidate the functions and information of several existing contract reporting systems, and the Department of the Treasury was recently given responsibility to operate and maintain USASpending.gov and plans to make changes to improve the search function of that website, which could help facilitate linking subcontractors to prime contracts. In addition to the actions under way to improve the retrieval or presentation of data, the Digital Accountability and Transparency Act, enacted May 2014, requires that agencies disclose additional data relevant to subcontracting; improve the consistency and reporting of these data; and periodically review their completeness, timeliness, quality, and accuracy.

section_title: Letter
paragraphs: In fiscal year 2013, the federal government awarded about $460 billion on  contracts for goods and services. Federal law requires prime contractors  to make a good faith effort to award a portion of their subcontracts to  small businesses and in some cases to have small business  subcontracting plans. The federal government has created multiple  databases to facilitate the reporting of this information and track  compliance.
The Joint Explanatory Statement for the National Defense Authorization  Act for Fiscal Year 2014 mandated that GAO review the feasibility of  linking small business subcontractors to particular prime contracts when  there is a subcontracting plan that pertains to multiple contracts.  These  plans provide for reporting subcontracting activity at a summary level.  This report (1) assesses the feasibility of using contract reporting systems  to link small business subcontractors to particular prime contracts and (2)  identifies actions executive agencies are taking that might help facilitate  linking small business subcontractors to prime contracts.
House Committee on Armed Services, 113th Cong., National Defense Authorization Act  for Fiscal Year 2014 Legislative Text and Joint Explanatory Statement to accompany H.R.  3304 (Comm. Print No. 2, 2013) at 701-702. contained in these systems and their limitations. We also met with  officials from the Department of Defense (DOD) because it is the largest  contracting agency and a significant user of these systems. We  determined that the data in these systems are sufficiently reliable for the  purposes of this report. To further assess the feasibility of linking small  business subcontractors to prime contracts, we searched these systems  using unique contract numbers from contracts that support numerous  defense programs we previously had reviewed. To identify the actions  executive agencies are taking that might help facilitate linking small  business subcontractors to prime contracts, we reviewed GSA’s plans for  consolidating several contract reporting systems. We also conducted  interviews with officials from GSA, OMB, Treasury’s Bureau of the Fiscal  Service and the Government Accountability and Transparency Board  (GAT Board)—a panel created by a 2011 executive order to provide,  among other things, strategic advice on acquisition related data—to  discuss actions they are taking. Appendix I contains more information  regarding our scope and methodology.
We conducted this performance audit from June 2014 to December 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: Federal law and regulations require that contractors working with the  federal government ensure that small businesses will have the “maximum  practical opportunity” to receive subcontracting work.contractor generally is required to submit a subcontracting plan for each  solicitation or contract modification above certain dollar thresholds that  has subcontracting possibilities. Three types of plans are used by federal  contractors: (1) an individual subcontracting plan, (2) a comprehensive   A prospective  subcontracting plan, and (3) a commercial subcontracting plan. All plans  include goals for subcontracting with specific types of small businesses.  After a contract is awarded, the contractor must periodically submit to the  government a subcontracting report that describes progress toward these  goals. While the individual plans require reporting on a single contract,  comprehensive and commercial plans allow for consolidated reporting of  multiple contracts on a division- or company-wide basis. In addition,  regulations require that prime contractors report data on subcontractors  and subcontract awards, including the subcontract number and the  names of the subcontractors.contractors with which the prime contractors have a contractual  relationship, in other words, the first-tier of subcontractors.
This information is only required for  The federal government has developed a number of databases to collect  information related to subcontracts and subcontracting plans.
The Electronic Subcontract Reporting System (eSRS). eSRS was  created in 2005 to streamline contractors’ reporting of progress  toward meeting the small business subcontracting goals in their  subcontracting plans and to facilitate agencies’ oversight. Depending  on the individual contract, the system may contain subcontracting  information reported by both the prime contractor as well as multiple  subcontractors. This system is administered by GSA.
USASpending.gov. USASpending.gov was created as a result of the  Federal Funding Accountability and Transparency Act of 2006  (FFATA). This website is intended to promote transparency in  government spending by providing the public with the ability to track  where and how federal funds are spent. USASpending.gov receives  prime contract data from the Federal Procurement Data System -  Next Generation (FPDS-NG) and subcontract data from the FFATA  Subaward Reporting System (FSRS). Treasury is responsible for the  operation and maintenance of USASpending.gov, while GSA  administers FPDS-NG and FSRS. Previous GAO reports have found  problems with data reliability in USASpending.gov. In June 2014, we  reported that we could not verify the subcontract data in the system as  agencies frequently do not maintain the records necessary to verify  the information reported by the awardees. We also found  inconsistencies in the reporting of 20 of 21 data elements caused by  errors in data entry, missing data, or a lack of clear guidance, among  other things.
FPDS-NG. Since 1980, FPDS-NG and its predecessor have been  the primary government-wide databases for contract information  at the prime contractor level. Federal agencies are responsible for  ensuring that the information reported in this database is complete  and accurate. FPDS-NG does not contain data on subcontracts.
FSRS. Created as a result of FFATA, FSRS became active in July  2010. Prime contractors must register and report subcontract  information for first-tier subcontractors, including award and entity  information, such as Data Universal Numbering System (DUNS)  identification numbers. FSRS contains the small business status  of some subcontractors, but only for limited types of small  businesses. Information on subcontracts awarded by first-tier  subcontractors to other entities, or lower-tier subcontractors, is not  currently required.
section_title: It Is Not Feasible to Link Small Business Subcontractors to Prime Contracts Using Existing Contract Reporting Systems
paragraphs: Contract reporting systems we reviewed contain relevant information on  subcontracting plans, subcontracts, and subcontractors, but no one  system was designed to link small business subcontractors to prime  contracts. Linking small business subcontractors to prime contracts under  comprehensive or commercial reporting plans is especially difficult  because these plans do not specify the particular contracts to which they  apply. Despite the limited data available in existing contract reporting  systems, we were able to link a few small business subcontractors to  prime contracts, including those with comprehensive plans, but multiple  steps were required.
subsections: section_title: Contract Reporting Systems Not Intended to Link Small Business Subcontractors to Prime Contracts
paragraphs: Existing contract reporting systems were not intended to link small  business subcontractors to prime contracts and, independently or  collectively, do not contain all of the information required to do so. Figure  1 describes the extent to which relevant data elements are contained in  each contract reporting system.
One system we assessed, eSRS, is intended to report information on  contractors’ performance against small business subcontracting goals.  This can indicate that subcontracting to small businesses has or may  occur, but the utility of eSRS in linking small business subcontractors to  prime contracts is limited. The system is not intended to provide a list of  subcontractors associated with a particular contract. In addition, agency  officials stated that information in the system is limited to contracts  awarded after the system was created or above certain dollar thresholds.
The system uses two types of reports, the individual subcontract report  and the summary subcontract report. The report used depends on the  type of subcontracting plan assigned to a contract at award. Contracts  with individual subcontracting plans use individual reports to show the  performance for a single contract against agreed-upon subcontracting  goals, including those for small businesses.contractors using either comprehensive or commercial subcontracting  plans report their performance through summary reports that aggregate  data on multiple contracts awarded by specific agencies for an entire  division or company. Summary reports for comprehensive plans in eSRS  may also include supplementary information that contains specific  contract numbers associated with that plan. According to agency officials,  this information is not provided for all comprehensive plans, however, and  depends on annual negotiations with the contracting agencies. They  stated that detailed subcontract information is not required for commercial  plans. This lack of specific subcontract information makes it difficult or  impossible to determine whether small businesses were awarded  subcontracts under a specific contract covered by summary reports.  Neither of the two types of reports submitted by prime contractors  identifies specific subcontractors.
The second system we assessed, USASpending.gov, contains data  about contracts, contractors, and subcontractors and provides a list of  subcontractors for particular contracts. However, it is limited in the other  information it provides. Neither USASpending.gov nor either of its  associated systems (FPDS-NG and FSRS) are required to identify the  type of subcontracting plan used, and the only small business information  provided is limited to a certain subset of small businesses and does not  capture all categories of small businesses. required to contain information beyond the first-tier subcontractors,  contracts awarded before the database was created, or contracts below  certain cost thresholds.
These include entities such as Self-Certified Small Disadvantaged Businesses, SBA  Certified HUB Zone Firms, and SBA Certified 8(a) Program Participants.
subsections: section_title: Use of the System for Award Management Is Required for a More Complete Identification of the Small Business Status for Subcontractors
paragraphs: We found that an additional system, the System for Award Management  (SAM), was needed to better identify an entity’s small business size  status. SAM does not contain data on specific contracts or subcontracts  and therefore cannot be considered a contract reporting system, but it  does contain information on an entity’s small business status. However,  agency officials explained that registration in SAM is only required for  entities that plan to compete for prime contracts. They stated that some  prime contractors encourage their subcontractors to register in SAM to  expedite their reporting requirements, which may expand the data  available. GSA officials stated that some entities prefer not to enter data  on their businesses for privacy or competitive reasons. According to SBA  officials, the information is also limited in that a contractor’s small  business status in SAM is entered at the time of its registration and may  change over time. GSA officials explained that it is the entity’s  responsibility to update their registration to reflect such changes annually,  at a minimum, in accordance with federal regulation.
section_title: Linking Small Business Subcontractors to Prime Contracts Is Possible for Some Contracts but Involves Multiple Steps
paragraphs: We found that it is possible to link small business subcontractors to prime  contracts for a limited number of contracts, but our attempts involved  multiple steps using several systems. We queried these systems using  contract numbers for 199 contracts and found that 37 reported  subcontract data, including contracts with individual and comprehensive  plans. We selected a nongeneralizable sample of 12 of these 37  contracts and entered their subcontractors’ information into SAM and  were able to identify a number of small businesses. Figure 2 illustrates  the multistep process we used to connect small business subcontractors  to prime contracts.
In attempting to link small business subcontractors we used a three-step  process:  1.  First, we entered selected contract numbers in USASpending.gov to  search for the specific subcontractors associated with the contracts.  We considered the search to be successful if the system reported any  subcontractors, large or small, for a particular contract.  2.  To determine which type of subcontracting plan the contract used, we  entered the contract numbers for those contracts that  USASpending.gov identified as having subcontractors into eSRS. If  the search yielded individual subcontract reports submitted by a prime  contractor, we concluded that the prime contractor used an individual  plan. If we were unable to find an individual report, we used the prime  contractor’s DUNS number to search for a summary subcontract  report and supplementary information that identified specific contract  numbers. This allowed us to associate a contract with a  subcontracting plan that pertains to multiple contracts. We used  DUNS numbers because contract numbers cannot be used to search  for summary subcontracting report information.  3.  We then selected a nongeneralizable sample of the contracts that  reported subcontractors in USASpending.gov and entered the  subcontractors’ DUNS numbers in SAM to determine their small  business status. We searched under both active and inactive  registrants.
In conducting our multistep analysis, we searched on 199 contract  numbers in USASpending.gov to determine which contracts reported  subcontract information and found 37 that did so. This level of reporting  is consistent with previous GAO findings that data in USASpending.gov  are underreported or inaccurate. Of these 37 contracts, 8 were  associated with individual subcontract plans, and 5 were associated with  comprehensive subcontracting plans, and for the remaining 24 contracts,  we were unable to determine the type of subcontracting plan used.
We selected a nongeneralizable sample of 12 of these 37 contracts  based on military service, contracting office, prime contractor,  subcontracting plan type, and contract type and, using SAM, sought to  determine which of the subcontractors associated with these contracts  were small businesses. These 12 contracts included 278 unique  subcontractors, and we were able to determine that 36 percent of the  subcontractors were small businesses; just less than 5 percent were  considered small businesses for some, but not all, contracted activities;  and 44 percent were registered as other than small businesses. We were  unable to determine the small business status for 16 percent of these  subcontractors because the subcontractors were not registered in SAM or  had not updated their registration.
The analysis we conducted confirms our overall assessment. Given the  limitations to the existing systems, there is not a feasible way to reliably  link small business subcontractors to prime contracts using existing  contract reporting systems. However, actions agencies have under way  could facilitate making such linkages in the future, as discussed later in  this report.
section_title: Executive Agencies Have Actions Under Way That Could Facilitate Linking Subcontractors to Prime Contracts
paragraphs: There are multiple actions currently under way, or called for by legislation,  that may result in a single system that can link small business  subcontractors to prime contracts. These actions also could produce  improvements in the underlying data.
subsections: section_title: Agencies Are Currently Redesigning Contract Reporting Systems
paragraphs: GSA is currently involved in an effort to consolidate the functions and  information of several existing contract reporting systems, including  eSRS, FPDS-NG, and FSRS. The single system GSA envisions is  intended to provide users a common environment to, among other  functions, search for information on federal contracts and subcontracts by  creating expanded and more flexible mechanisms for accessing existing  reporting systems’ underlying data. According to GSA officials, this will  enable a faster and more effective database and search tool that could  improve the traceability of contract data and enable better linkage of  prime and subcontract data. Achieving better linkage in this area is one of  the explicit goals of the new effort, according to GSA officials, as it was  one of the concerns expressed to them by users of the current contract  reporting systems. It is, however, too early to tell whether this will be  achieved. The first phase in developing this new system is planning for  the common user interface, which GSA expects to complete in the third  quarter of fiscal year 2015. GSA projects that planning for consolidation  and improvement of subcontract reporting will take place in the second  phase and be complete in the first quarter of 2016. GSA currently expects  to complete planning for the entire system by the first quarter of 2018.  Once planning is successfully completed, GSA intends to design and  implement the system. Eventually, GSA plans to decommission the  current systems and replace them with the new system. However, GSA  officials noted that improvements to the underlying data these systems  collect are needed to link small business subcontractors to prime  contracts.
In addition to the new system being developed by GSA, Treasury is  planning changes to USASpending.gov. In 2014, OMB designated  Treasury as the agency responsible for operating and maintaining  USASpending.gov. Treasury plans to improve the usability of the  website, presentation of data, and search functionality. The planned  improvements could help facilitate the use of contract reporting systems  to link subcontractors to prime contracts if the ability to search for such  information is indeed improved. Treasury hopes to implement these  changes by the spring of 2015.
section_title: Additional Actions Could Improve Reliability of Data
paragraphs: In addition to the actions under way to improve the retrieval or  presentation of data, there are a number of actions required by legislation  or proposed in new regulations that could improve the reliability of data.  Specifically, the Digital Accountability and Transparency Act of 2014  (DATA Act) requires that agencies disclose additional data relevant to  contracts and subcontracts; establish common, government-wide  standards to provide consistency in such data; make reporting of these  data simpler; and periodically review the completeness, timeliness,  quality, and accuracy of the data. requirements could indirectly facilitate better linkage of small business  subcontractors to prime contracts by increasing the amount of data and  making the data more consistent and reliable. Treasury plans to work with  OMB to establish data standards.
Pub. L. No. 113-101, § 3(2), 128 Stat. 1146 (31 U.S.C. § 6101, Note), amending FFATA,  Pub. L. No. 109-282, §§ 3-4. changes could also enhance the quantity and accuracy of data available  for linking small business subcontractors and prime contracts.
section_title: Agency Comments
paragraphs: We are not making any recommendations in this report. We provided a  draft of this report to DOD, GSA, OMB, SBA, and the Treasury for their  review and comment. GSA submitted comments that agreed with our  findings, but none of the other agencies submitted formal comments.  Technical comments were incorporated as appropriate.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense, the Administrator of General  Services, the Director of the Office of Management and Budget, the  Administrator of the Small Business Administration, and the Secretary of  the Treasury, 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 have questions about this report, please call me at  (202) 512-4841 or woodsw@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 major contributions to this report are  listed in appendix II.
section_title: Appendix I: Scope and Methodology
paragraphs: We had two objectives for this review: (1) to assess the feasibility of using  data in contract reporting systems to link small business subcontractors to  particular prime contracts and (2) to identify actions executive agencies  are taking that might help facilitate linking small business subcontractors  to prime contracts.
To determine the feasibility of linking small business subcontractors to  prime contracts, we identified four current contract reporting systems: the  Electronic Subcontract Reporting System (eSRS), USASpending.gov, the  Federal Procurement Data System - Next Generation (FPDS-NG), and  the Federal Funding Accountability and Transparency Act Subaward  Reporting System (FSRS). We reviewed user manuals for these systems  to determine which data the systems did and did not have available. From  our analysis, we identified a need to use a fifth system—the System for  Award Management (SAM)—to determine subcontractors’ small business  status. We also reviewed previous GAO reports to determine the  reliability and accuracy of the data in the contract reporting systems. We  interviewed agency officials with the General Services Administration  (GSA), the Office of Management and Budget (OMB), the Small Business  Administration (SBA), and the Department of the Treasury (Treasury)—as  the agencies responsible for oversight or management of these  systems—to discuss the information contained in these systems and their  limitations. We also interviewed officials with the Department of Defense  (DOD), the largest contracting agency and a significant user of these  systems.
For efficiency, we used contract data on major defense acquisition  programs collected from ongoing work to identify 199 unique contracts.  We entered each contract number into USASpending.gov to search for  specific subcontractors associated with the contract. This search was  conducted under the subaward search and was considered successful if  the system reported any subcontractors for a particular contract. When  searching in USASpending.gov for information on indefinite  delivery/indefinite quantity contracts, we searched via the specific task  orders instead of the base contract as awards are reported via the task  orders. As contracting and subcontracting information in  USASpending.gov is automatically imported from FPDS-NG and FSRS,  we verified the information found in USASpending.gov by entering some  contracts, including all of those that reported subcontract data, in FSRS  and FPDS-NG. We then entered contract numbers for the contracts that  reported subcontractors into eSRS to determine which type of  subcontracting plan each contract used. We first searched for individual  subcontract reports submitted by a prime contractor and if we were  unable to find one, we conducted a search in USASpending.gov using the  contract number to find the prime contractor’s Data Universal Numbering  System (DUNS) number. As contract numbers cannot be used to search  for summary subcontracting plan information, we then took the prime  contractor’s DUNS number and searched in eSRS for a summary  subcontract report and supplementary information that identified specific  contract numbers. We considered the search to be successful if it  returned either an individual subcontract report for the prime contractor  associated with the contract or if we were able to determine through the  summary subcontract report search that a particular contract was  associated with that report. We also used eSRS to determine which  contracts reported subcontracting activity by searching for individual  subcontract reports associated with particular contracts reported at the  prime or subcontractor level. We used the results to compare actual  subcontracts found in USASpending.gov with contracts that report some  level of subcontracting activity in eSRS. From the set of 37 contracts with  available subcontract data in USASpending.gov, we selected a  nongeneralizable sample of 12 contracts based on the military service,  contracting office, contract type, subcontracting plan type, and prime  contractor. We determined that these contracts had 278 unique  subcontractors. We downloaded the DUNS numbers from  USASpending.gov for each of these subcontractors and entered the  DUNS numbers in SAM to determine their small business status. SAM  requires registrants to update their information annually in order to remain  in an active status. To better identify that status, we searched under both  active and inactive registrants. Agency officials indicated to us that many  subcontractors do not regularly update their information and if this search  setting is not changed then the small business status of some  subcontractors cannot be found. We also interviewed officials at DOD,  GSA, and SBA to verify our methodology and to explain any outliers and  anomalies that we encountered.
To identify any current actions under way by executive agencies that  could facilitate linking small business subcontractors and prime contracts,  we reviewed GSA’s plans for consolidating contract reporting systems,  including those identified in our methodology, and Treasury’s plans to  improve USASpending.gov. We reviewed prior GAO work, relevant recent  legislation, and potential regulatory changes in addition to conducting  interviews with officials at GSA, OMB (Office of Federal Procurement  Policy, Office of Federal Financial Management, and Office of E- Government and Information Technology), the Government Accountability  and Transparency Board, and Treasury’s Bureau of the Fiscal Service to  identify any actions planned or implemented that might facilitate drawing  links between small business subcontractors and prime contracts.
We conducted this performance audit from June 2014 to December 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.
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: William T. Woods (202) 512-4841 or woodsw@gao.gov.
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, J. Kristopher Keener (Assistant  Director), Peter Anderson, John Crawford, Julia Kennon, John Krump,  Ramzi Nemo, James R. Sweetman Jr., and Ozzy Trevino made key  contributions to this report.