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

Letter

Background

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.

DOE Efforts to Increase Contracts with Small Businesses Have Had Partial Success

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.

Key Efforts to Increase Small Business Contracts Focused on Expanding Contracting Opportunities, Finding More Qualified Small Businesses, and Improving Program Management and Oversight

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.

Identifying More Contracting Opportunities for Small Businesses

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.

Expanding Small Business Development and Outreach Activities

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.

Improving Program Management and Oversight

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.

Despite Increasing Its Contracting with Small Businesses, DOE Prime Contracting Achievement Continues to Fall Short of Its Annual Goal

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.

Two Key Management Challenges Hinder DOE’s Efforts to Further Improve Its Small Business Contracting Performance

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.

DOE Has Not Effectively Detailed How It Will Achieve Its Small Business Prime Contracting Goal

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.

DOE Does Not Use Performance Information to Evaluate and Improve Program Performance

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.

Other Federal Agencies Use Formal Program Evaluation to Guide Changes in Their Small Business Programs

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.

Conclusions

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.

Recommendations for Executive Action

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.

Agency Comments and Our Evaluation

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.

Appendix I: Objectives, Scope, and Methodology

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.

Appendix II: Comments from the Department of Energy

Appendix III: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

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.