Government Contracting: Federal Efforts to Assist Small Minority Owned Businesses
Released: 2012-09-28T00:00:00

Letter

Background

Federal Goals for Contracting with Small Businesses

Under the Small Business Act, SBA plays an important role in ensuring that small businesses gain access to federal contracting opportunities. SBA negotiates specific agency-wide goals to ensure that the federal government collectively meets the 23 percent statutory goal for contract dollars awarded to small businesses. In addition, SBA negotiates goals for the socioeconomic categories of businesses. The current goals are:

5 percent of prime contracts and subcontract dollars are to be awarded to women-owned small businesses,

5 percent of prime contracts and subcontract dollars are to be awarded to small disadvantaged businesses,

3 percent of prime contracts and subcontract dollars are to be awarded to service-disabled veteran-owned small businesses, and

3 percent of prime and subcontract dollars are to be awarded to HUBZone small businesses.

Appendix II provides more information on the extent that federal agencies obligated federal contract dollars to minority-owned businesses by various socioeconomic categories.

Federal Agency Contracting Assistance for Small Businesses

The federal government has established a number of programs that can assist small and small disadvantaged businesses—including those that may be minority-owned—that seek to contract with federal agencies. MBDA promotes the growth and competitiveness of minority-owned businesses of any size.clients identify federal procurement opportunities, analyze solicitations, and prepare bids and proposals. It also facilitates relationships between minority-owned businesses and federal agencies, and researches contracting trends at federal agencies. MBDA’s Federal Procurement Center (FPC) provides research on federal agency contracting trends, identifies large federal contracts, and helps minority-owned businesses identify possible contracting opportunities.

MBDA’s network of business centers helps SBA administers programs that are targeted to small businesses and that provide assistance with federal contracting opportunities. SBA’s 8(a) Business Development Program is one of the federal government’s primary means of developing small businesses owned by socially and economically disadvantaged individuals. Participating businesses, which are generally referred to as 8(a) firms, are eligible to participate in the program for 9 years. Businesses receive technical assistance, mentoring, counseling, and financial assistance so that they can become competitive in the federal marketplace. Additionally, participating businesses may bid on competitive federal contracts that are open only to 8(a) firms as well as on noncompetitive federal contracts.

SBA’s Procurement Center Representatives (PCR) and Commercial Market Representatives (CMR) play an important role in helping ensure that small businesses gain access to contracting and subcontracting opportunities. PCRs and CMRs are the primary SBA staff who implement SBA’s prime contracts and subcontracting assistance programs, which are intended to increase contracting opportunities for small businesses and help ensure that small businesses receive a fair and equitable opportunity to participate in federal prime contracts and subcontracts. PCRs also can make recommendations to agency contracting officers that proposed contracts be set aside for eligible small businesses. In particular, a PCR’s key responsibilities include reviewing potentially bundled or consolidated solicitations—those in which two or more procurement requirements previously provided or performed under separate smaller contracts are grouped into a solicitation for a single contractcontracting officers. —and making set-aside recommendations to agency The OSDBU within federal agencies advocate on behalf of small businesses. Section 15(k) of the Small Business Act describes the functions of OSDBU directors—which include implementing and executing the agency’s functions and duties related to the award of contracts and subcontracts to small and small disadvantaged businesses. Other responsibilities of the OSDBU include identifying bundled contracts, potentially revising them to encourage small business participation, and facilitating small business participation in the contracts. OSDBU directors also help small businesses obtain payments from agencies and subcontractors, recommend set-asides, coordinate with SBA, and oversee OSDBU personnel.

Agencies also conduct outreach activities for small and small disadvantaged businesses, including minority-owned firms that are seeking federal contracts. Some agencies host monthly vendor outreach sessions, a series of appointments with either agency officials (such as small business or procurement officials) or prime contractors that have subcontracting needs. These sessions give the businesses an opportunity to discuss their capabilities and learn about potential contracting opportunities. One of MBDA’s primary outreach efforts is the Minority Enterprise Development Week Conference. During this conference, participants from minority-owned businesses that have been vetted and designated by MBDA are offered appointments with federal and corporate partners to discuss contracting opportunities that will be made available within the next 6 to 18 months.

Finally, a number of online resources are also available to businesses seeking to contract with the federal government. For example, federal agencies list their contract solicitations of $25,000 or more on the Federal Business Opportunities website (www.FedBizOpps.gov)–managed by GSA. The website provides online business tools, training videos, and event announcements for small business owners. USA Spending, established by the Office of Management and Budget, also contains information on federal spending trends across the government, including grants and contracts. In addition, federal agencies such as SBA provide online contracting courses designed to help small businesses understand the basics of contracting with government agencies.provides a summary of selected programs, resources, and outreach activities available to minority-owned businesses.

Agencies and Advocacy Groups Identified Various Contracting Challenges That Minority-Owned Businesses May Face

Agency and advocacy group officials we interviewed identified a number of challenges that small businesses—including minority-owned businesses—may face when seeking to contract with the federal government. In particular, these officials generally agreed that the lack of performance history and knowledge of the federal contracting process were significant challenges minority-owned businesses may face in contracting with the federal government. However, the officials offered varying opinions on the extent to which minority-owned businesses faced other challenges, such as a lack of access to contracting officials and a lack of monitoring subcontracting plans, and difficulties accessing needed resources such as capital. Some agency officials we contacted indicated that outreach activities they conduct and practices they undertake in their contract solicitation activities address some of these challenges.

Agency and Advocacy Group Officials Differed in Their Opinions on Contracting Challenges That Minority-Owned Businesses May Face

Federal agency and advocacy group officials that we interviewed differed in their opinions on challenges that small businesses—including those that are minority-owned—may face when seeking to contract with the federal government. The challenges identified included a lack of performance history and knowledge of the federal contracting process, contract bundling, a lack of access to contracting officials, lack of monitoring of subcontracting plans, and difficulties assessing capital.

Officials from federal agencies and advocacy groups we contacted cited the lack of a performance history and a full understanding of the federal contracting process as significant challenges that minority-owned businesses may face. According to the statement of Guiding Principles of the Federal Acquisition System, when selecting contactors to provide products or perform services, the government will use contractors that have a track record of successful past performance or that have demonstrated a current superior ability to perform. SBA officials told us that historically and currently, small, minority-owned businesses that lacked a performance history have had difficulty entering the federal contracting market. MBDA officials also said that lack of a past performance record with government contracts or private contracts of similar size, made obtaining federal contracts more difficult for minority- owned businesses because of the weight given to performance history.

However, some agency officials, including those from two DHS contracting offices, noted that because prior commercial experience—not just government contracting experience—was considered, the lack of prior government experience would not necessarily make a minority- owned business noncompetitive. Officials from a GSA contracting office said that most small businesses seeking to contract with its office had a performance history with the private sector, not the federal government. The officials said that they considered past performance with the private sector when making contract award decisions, and thus would not consider lack of past performance history with the federal government as a challenge. Finally, officials from an HHS contracting office noted that the Federal Acquisition Regulation (FAR) requires that businesses receive a neutral rating if they do not have a performance history and that some small businesses may not be aware of this requirement. However, some advocacy group officials indicated that certain prerequisites and past performance requirements were difficult for minority-owned businesses to meet. For example, officials from one group said that these businesses might partner with other more established businesses to help meet the performance requirements.

See 48 C.F.R. § 15.305(a)(2)(iv). The FAR states that offerors without a record of relevant past performance may not be evaluated favorably or unfavorably on past performance—in other words, they must be given a neutral rating for the past performance evaluation factor. bidding process works, and learning how to secure a government contract. Further, MBDA officials noted that the federal contracting process was very different from contracting with private sector companies. They added that although federal agencies spend time and money holding sessions on doing business with the federal government, these sessions offered general information that could not be transferred to bidding on specific projects. Similarly, agency officials also cited the lack of understanding of agencies’ contracting needs. For example, an OSDBU official from HHS emphasized that businesses that did not understand the mission of the agency with which they were seeking a contract or did not know what the agency bought and acquired might not know how to market their product or service appropriately to win the contract.

Advocacy group officials cited contract bundling as a significant challenge, although a majority of agency officials disagreed. Advocacy group officials whom we interviewed said that contract bundling could reduce the number of contracting opportunities available for small and minority-owned businesses. MBDA officials said that they believe that many contracts are bundled unnecessarily and agreed that this practice limited minority-owned businesses’ ability to compete for these contracts.

However, other federal agency officials we interviewed said that they did not believe that contract bundling was a significant challenge for minority- owned businesses at their agencies. In addition, some agency officials told us that they had specific policies regarding contract bundling. For example, HHS and DOD contracting officials noted that their offices had policies that prohibited contract bundling and added that small businesses could protest a contract that they believed was unjustifiably bundled. Further, officials from one HHS contracting office indicated that they worked with small business specialists to determine if contracts should be separated.

Advocacy group officials cited a lack of access to contracting officials as a significant challenge. Officials from six advocacy groups that we interviewed stated that the agency officials present at outreach events, such as matchmaking events, often did not have the authority to make decisions about awarding a contract. However, with the exception of MBDA, none of the federal agency officials we contacted said that access to contracting officers was a challenge at their agencies. The officials emphasized efforts that their agencies were making to assist businesses. For example, officials participate in industry days, where businesses can meet prime contractors as well as interact with agency procurement staff, and also conduct one-on-one appointments with businesses that seek to contract with their agencies. Some federal contracting officials did note that limited resources might pose a challenge in accessing the contracting officers. For example, contracting officials from DHS and GSA indicated that any perceived access issues would be due to limited resources in contracting offices. GSA contracting officials said that when the office had a large number of contracts to complete, they could not meet with each business owner seeking contract opportunities.

Advocacy group officials also cited a lack of monitoring of subcontracting plans by federal agencies as a significant challenge for minority-owned businesses, although SBA officials noted that this issue was a challenge for all small businesses, not just those owned by minorities. Officials from five advocacy groups described instances in which prime contractors did not use the small, minority-owned business subcontractors that they initially said they would use. Further, one advocacy group official said that because federal contracting officials generally had relationships with prime contractors and not subcontractors, small, minority-owned subcontractors often had no recourse when a problem arose. An official from another advocacy group stated that contracting officers have no accountability to federal agencies to justify any subcontractor changes. SBA officials noted that prime contractors’ “dropping” of subcontractors from their plans after the contracts were obligated was not an issue exclusive to minority-owned businesses but was a challenge for small subcontractors in general.

In addition, we previously reported that CMRs cited a lack of authority to influence subcontracting opportunities. was difficult to enforce prime contractors’ performance under subcontracting plans because determining that a contractor was not acting in good faith was difficult. Officials from one DOD contracting office said that they did not communicate with subcontractors directly and that prime contractors did have the right to pick a subcontractor of their choice throughout the duration of a contract. An OSDBU official from DOD added that the contracting officer would review and approve a replacement subcontractor under certain circumstances. If a prime contractor’s subcontracting plan included a certain percentage of work that was designated for a small disadvantaged business, the contracting officer might not approve the proposed replacement subcontractor if the change did not adhere to the original percentage.

GAO, Improvements Needed to Help Ensure Reliability of SBA’s Performance Data on Procurement Center Representatives, GAO-11-549R (Washington, D.C.: June 15, 2011). less likely to apply for loans because they feared their applications would be denied.

Further, officials from two advocacy groups noted that bonding requirements could prevent small, minority-owned businesses from competing for large contracts. Bonding is required to compete for certain contracts to ensure that businesses have the financial capacity to perform the work and pay for labor and supplies. advocacy group indicated that to be considered for large contracts, businesses may be required to obtain $25 million to $50 million in bonding capacity. Since few small businesses can obtain this bonding capacity, this official said that these businesses rely on “teaming” arrangements—two or more businesses that collectively pursue larger procurement contracts—to expand their opportunities.

For example, an official at one In general, advocacy groups identified linguistic and cultural barriers as a challenge for minority-owned businesses on a limited basis. One advocacy group official said that linguistic barriers may be a challenge because business owners with strong accents could have difficulty communicating. Officials from a few Asian-American advocacy groups noted that business owners with limited English proficiency (LEP) may experience challenges. For example, one official said that business owners in the construction industry may have difficulty obtaining a required design certification if English was not the business owner’s first language. Another advocacy group official cited challenges such as discrimination against subcontractors by prime contractors because of accents or LEP. Officials from advocacy groups also cited examples of cultural barriers. For example, one noted that some first generation Americans might have an aversion to working with the federal government and therefore would not be willing to seek government contracts. Some officials from Hispanic advocacy groups said Hispanic contracting officials were underrepresented in the federal government.

A surety bond is form of insurance that guarantees contract completion.

Officials from another group also said that some minority groups, including those in nonmetropolitan areas, could lack the infrastructure needed (e.g., Internet service and transportation) to conduct business in these areas.

Officials from all but one federal agency—SBA—that we contacted said that they did not know of any linguistic or cultural issues that posed a barrier for minority-owned businesses seeking to contract with the government. SBA officials told us that cultural barriers may be a challenge for minority-owned businesses seeking federal government contracts and emphasized that minority-owned businesses would be hesitant to reveal any linguistic barriers. The officials noted that some cultural barriers existed for Asian-Americans, Alaskan Natives, Native- Americans, and Native Hawaiians, because their traditional ways of conducting business involved intangibles that did not translate well into a “faceless” electronic contracting community. These officials also said that some minority-owned businesses may have informal business practices—for example, they may obtain financing from a friend or family member instead of through a bank—and therefore a business owner might not have the documentation required by some federal programs.

Agency Outreach Efforts Help Address Some Challenges Facing Small and Minority-Owned Businesses

As we have previously noted, federal agencies conduct outreach to help minority-owned businesses seeking federal government contracts. For example, federal contracting officials with whom we spoke cited “industry days,” conferences, and meetings with businesses as efforts to help businesses address challenges they could face in seeking federal contracts. During industry days small businesses are invited to meet prime contractors in their industries and potentially obtain subcontracts. Businesses can also interact directly with contracting office staff. For example, contracting officers said that they participated in panel discussions to provide business owners with information on the acquisition process and forecasts of contract opportunities. Contracting officers also accept requests from business owners that schedule meetings to discuss their business capabilities. Many agency officials, including an OSDBU official and contracting officials, told us they also work with and refer businesses to Procurement Technical Assistance Centers (PTAC) so that the businesses may receive one-on-one assistance.

Agency outreach to businesses is generally directed by agency OSDBUs, the agencies’ advocates for small businesses. OSDBU directors use a variety of methods—including internal and external collaboration, outreach to small businesses, and oversight of agency small business contracting—to help small businesses overcome challenges they may face such as understanding the federal contracting process. OSDBU officials from three federal agencies we contacted indicated that they collaborate with several agency offices, such as acquisition and small business specialists, and with organizations such as MBDA. We previously reported that nearly all of the OSDBU directors saw outreach activities as a function of their office. For example, 23 of the 25 OSDBU directors we surveyed between November and December 2010 viewed hosting conferences for small businesses as one of their responsibilities, and 23 had hosted such conferences. More specifically, these 23 agencies had hosted an average of 20 conferences within the previous 2 years. In addition, 20 of the 25 OSDBU directors surveyed saw sponsoring training programs for small businesses as one of their responsibilities, and 18 had hosted such events in the last 2 years.

Federal Agencies Collect Some Information on Contracting Assistance Provided to Minority-Owned Businesses

Federal agencies we contacted generally collect and report information on contracting assistance they provide to small and small disadvantaged businesses. Federal agencies are required to report annually to SBA on participation in the agency’s contracting activities by small disadvantaged businesses, veteran-owned small businesses (including service-disabled veterans), qualified HUBZone small businesses, and women-owned small businesses. SBA compiles and analyzes the information and reports the results to the President and Congress.report to SBA plans to achieve their contracting goals, which can include outreach activities. In addition, Executive Order 11,625 requires the Secretary of Commerce—the umbrella agency of MBDA—and other agencies to report annually on activities related to minority business development and to provide other information as requested. Finally, federal agencies are also required to develop and implement systematic Agencies are also required to data collection processes and provide MBDA with current data that will help in evaluating and promoting minority business development efforts.

A majority of the federal agencies we contacted told us that the extent to which they met SBA prime and subcontracting goals for the various socioeconomic categories of businesses (including the small disadvantaged business goal) provided a measure of their efforts to assist minority-owned businesses in contracting with the federal government. As figure 1 shows, in fiscal year 2011 the federal government met its 5 percent goal for prime contracting and subcontracting with small disadvantaged businesses. In addition, all four agencies we reviewed met their prime contracting goals of 5 percent, and three met their 5 percent subcontracting goals for this category. Contracting officials at these agencies generally attributed their success in contracting with small businesses—including small disadvantaged businesses—to a variety of factors, including support from the agency OSDBU and upper management, staff commitment, and the use of set-asides. They also noted several other factors that contributed to their contracting performance, including market research, a strategy for small businesses, and outreach efforts. Federal agency officials also said that some outreach activities might be targeted to certain socioeconomic categories to assist in meeting agency SBA goals. For example, DHS contracting office officials said that as a result of monitoring their progress in meeting SBA goals, they conducted outreach to women-owned and HUBZone businesses with contract set-asides.

SBA also issues an annual scorecard as an assessment tool to measure how well federal agencies reach their small business and socioeconomic prime contracting and subcontracting goals, to provide accurate and transparent contracting data, and to report agency-specific progress. An overall grade assesses an agency’s entire small business procurement performance, and three quantitative measures show achievements in prime contracting, subcontracting, and plan progress, or an agency’s efforts and practices to meet its contracting goals.given for government-wide performance, and individual agencies receive their own grades. For fiscal year 2011, SBA gave a grade of “B” for overall government-wide performance. For the federal agencies that we included in our analysis, GSA scored an overall grade of A+, DHS and HHS scored an overall grade of A, and DOD scored an overall grade of B.

Two agencies we reviewed collected and reported data by minority group. For example, MBDA reports data categorized by minority group, on contracting assistance that its business centers provide as required by executive order. For fiscal year 2011, MBDA reported that its business centers helped minority-owned businesses obtain 1,108 transactions (the sum of contracts and financings) totaling over $3.9 billion (see table 1).

SBA also collects some information for its various programs, including information by minority group for the 8(a) Business Development Program, as required by statute. For example, SBA reported that of the 7,814 8(a) program participants in fiscal year 2011—the most recent data available—more than 90 percent of the participants were minority-owned businesses (see fig. 2). SBA also reported that 8(a) program participants reported total year-end revenues exceeding $21.7 billion in fiscal year 2010, with 43.4 percent of these revenues coming from 8(a) contracts. During that same year, SBA provided technical assistance to 2,000 8(a) businesses. SBA officials we interviewed said that SBA generally did not collect information by minority group for any of its other programs.

Most federal agencies that we contacted indicated that they collected some general information on outreach events and activities and some demographic data, although collecting such data was not required. For example, for outreach events such as the Minority Enterprise Development week conference, MBDA officials told us that they collect general demographic information from participants on their businesses and experience, but not by minority group. The officials told us that they also collect aggregated data on its outreach activities for minority-owned businesses, such as number of meetings and participants. For example, MBDA officials told us that they conducted 119 of the 129 one-on-one meetings scheduled between minority-owned and small businesses and corporations and prime contractors during this event.

Officials from DOD, DHS, GSA, and HHS said that they asked participants in their outreach events questions (sometimes by survey or evaluation) about the value or helpfulness of the events. Officials from three agencies noted that they used the survey results to determine the effectiveness of, or how to improve, the event. In addition, agencies may ask questions to obtain general information about a business and potentially its socioeconomic status. Officials also said that they collected some information by socioeconomic group, but none by minority group.

Finally, the OSDBU Council—which comprises OSDBU officials from various federal agencies—hosts an annual procurement conference that provides assistance to businesses seeking federal government contracts, and some information is collected for this event. According to the council’s website, more than 3,500 people registered for the 2012 conference, and more than 130 matchmaking sessions were conducted. According to the council’s president, 2012 is the first year that such information was collected.

Agency Comments and Our Evaluation

We provided a draft of this report to Commerce, DHS, DOD, GSA, HHS, and SBA for review and comment and received comments only from Commerce. Commerce provided written comments which are reprinted in appendix V.

Commerce made two observations on our draft report. First, the department stated that the report was a good start at capturing the federal government’s effort to support small, minority-owned businesses, but did not include all federal programs that supported federal contracting with minority-owned businesses. The department added that GAO had missed an opportunity to provide a more comprehensive picture of the federal government’s efforts in this area, noting, for example, that the Departments of Agriculture, Housing and Urban Development, and Transportation had programs (other than OSDBUs) geared toward increasing federal contracts with minority-owned firms. In addition, the department stated that an Office of Minority and Women Inclusion was recently established at each of the financial regulatory agencies. While providing support to minority-owned businesses, these agencies and offices were outside of the scope of our review, which as we stated in our report, focused on the four agencies—DHS, DOD, GSA, and HHS—that accounted for about 70 percent of total federal obligations to small, minority-owned businesses in fiscal year 2010. We also included SBA and Commerce’s MBDA in our review because of their roles in assisting minority-owned businesses. We are reviewing the efforts of the Office of Minority and Women Inclusion in an ongoing study that will be issued in 2013.

Second, Commerce noted that although the dollar amount of federal contracts obligated to small, minority-owned businesses was encouraging, the report did not analyze the number of minority-owned firms that actually secured federal contracts. The department said that it was possible that a handful of minority-owned firms had secured sizable federal contracts but that the majority of minority-owned firms continued to fail in obtaining them. However, data are not available on the total universe of small, minority-owned businesses that entered bids in response to federal contract solicitations. Just as with our reporting of funds obligated for contracts, data on the number of minority-owned businesses that secured federal contracts would not provide information on the number of such businesses that did not obtain them. Likewise, while we do report MBDA’s statistics on contracting assistance provided to minority-owned businesses, again such data do not provide information on how many businesses sought but did not obtain federal contracts. We conducted interviews with officials from MBDA, SBA, contracting offices at the federal agencies in our scope, and advocacy groups to obtain their perspectives on the challenges minority-owned businesses may face in seeking to contract with the federal government.

We are sending copies of this report to appropriate congressional committees; the Attorney General; the Secretaries of Defense, Homeland Security, and Health and Human Services; the Acting Secretary of Commerce; and the Administrators of the General Services Administration and Small Business Administration. In addition, this report will be available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions on the matters discussed in this report, please contact me at (202) 512-8678 or by email at shearw@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 VI.

Appendix I: Objectives, Scope, and Methodology

Our objectives were to describe: (1) what federal agency officials and advocacy groups identified as challenges that small, minority-owned businesses may face in seeking to contract with the federal government— including any linguistic or cultural barriers—and agencies’ efforts to address them, and (2) what information is available on federal efforts to assist small, minority-owned businesses in contracting with the federal government.

To determine which programs and resources to include in our scope, we conducted a web-based search for initial information on programs and resources available from federal government agencies using terms such as contracting assistance for minorities. We analyzed information on programs that provide federal contracting assistance and resources on contracting opportunities, and are available to minority-owned businesses. We describe programs and resources provided by the Minority Business Development Agency (MBDA) as they are tasked with the growth and promotion of minority-owned businesses. We also describe programs and resources available from the Small Business Administration (SBA), as this agency is responsible for providing assistance to small businesses—which can be minority owned—and programs and resources available from other selected federal agencies based on the criteria described below. Finally, we interviewed officials from these selected agencies and advocacy groups that provide assistance to businesses owned by Asian-, Black-, Hispanic-, and Native- Americans. We selected these minority groups because they received the largest share of federal obligations to small, minority-owned businesses based on business owners self-identifying as a member of these groups.

To select agencies to include in our scope, we reviewed data from Federal Procurement Data System-Next Generation (FPDS-NG) on contract awards to small businesses owned by the minority groups in our scope by federal agency. Although we could not independently verify the reliability of these data, we reviewed system documentation and conducted electronic data testing for obvious errors in accuracy and completeness. On the basis of these efforts, we determined that the FPDS-NG data on federal contract dollars to socioeconomic groups by self-reported minority group were sufficiently reliable for purposes of our review. We selected the top four agencies that accounted for about 70 percent of total federal obligations to small, minority-owned businesses in fiscal year 2010—the most recent data available at the time of our selections. These agencies were the Departments of Defense (DOD), Health and Human Services (HHS), and Homeland Security (DHS), and, the General Services Administration (GSA).

To select a purposive, non-representative sample of contracting offices for purposes of conducting interviews, we first selected the top two divisions within DOD, DHS, and HHS in terms of the percentage of their agency’s obligations to small, minority-owned businesses. Those divisions included the Departments of the Army and Navy for DOD; the Bureau of Customs and Border Protection and the United States Coast Guard for DHS, and the National Institute of Health and the Centers for Medicaid and Medicare for HHS. We selected only one division for GSA—the Public Buildings Service—as this division represented over 76 percent of GSA’s funds obligated for contracts to small, minority-owned businesses. Using this approach, we selected a total of seven divisions within the four agencies in our scope. Within each division, we selected one of the top contracting offices based on the office’s percentage of their division’s obligations to businesses owned by the minority groups in our scope. We selected two contracting offices from the Department of the Army because the percentage of obligations to small, minority-owned businesses by any of its top contracting offices was small. Our final sample consisted of eight contracting offices.

To describe the challenges that small, minority-owned businesses may face in contracting with the federal government, we interviewed agency officials—including those from contracting offices and the Office of Small Disadvantaged Business Utilization—from the purposive, non- representative sample of eight contracting offices. We also interviewed officials from MBDA and SBA. Further, we conducted interviews with officials from 12 advocacy groups. We selected groups that provided assistance to businesses owned by the minority groups in our scope based on a web-based search on national organizations that represent and provide assistance to minority-owned businesses in obtaining federal contracts. To describe information on improving access to services for persons with limited English proficiency, we reviewed Executive Order 13,166—Improving Access to Services for Persons with Limited English Proficiency (LEP)—to understand its applicability to outreach activities associated with federal contracting. We reviewed guidance from the Department of Justice (DOJ), as well as existing LEP plans for each agency in our scope. We could not review the LEP plans for DOD and for SBA, as the plan for each agency had not yet been completed. We also obtained and reviewed written responses from DOJ.

To describe the information available on the extent of federal efforts to assist small, minority-owned businesses in contracting with the federal government, we reviewed federal government prime contracting and subcontracting goals and SBA procurement scorecards for fiscal year 2011 for DOD, HHS, DHS and GSA. We also reviewed documentation for programs that assist small businesses owned and controlled by socially and economically disadvantaged individuals—which can include businesses that are minority-owned—to determine the types of contracting assistance available. We conducted interviews with officials from the selected agencies and contracting offices to identify and obtain available information on their outreach efforts to assist minority-owned businesses. In addition, we conducted interviews with officials from 12 advocacy groups that provide contracting assistance to the minority groups in our scope.

For information on the percentage of funds obligated for contracts in fiscal year 2011 to each socioeconomic category of small businesses by minority group—including small disadvantaged, women-owned, service- disabled veteran-owned, and Historically Underutilized Business Zone (HUBZone)—we analyzed data from FPDS-NG, which receives data from the Central Contractor Registration System (CCR)—the system in which all businesses seeking federal government contracts must register. In CCR, registrants (i.e., business owners) can self identify as minority- owned and can specify a minority group(s). Registrants can select from the following six categories: Asian Pacific, Subcontinent Asian, Black- American, Hispanic-American, Native-American, and Other. We conducted electronic testing for obvious errors in accuracy and completeness. As a part of this assessment, we analyzed the FPDS-NG data to determine cases in which contracting firms were identified as belonging to a particular minority group, such as Subcontinent Asian, but did not designate the firm as being minority-owned. This occurred in less than 3 percent of the cases. We conducted the same assessment within different socioeconomic categories, such as small disadvantaged business, and found a potential undercount of the minority-owned designation in less than 4 percent of the cases. In addition, businesses that selected “other minority” and those that self-identified as more than one minority group were categorized as other minority. We determined the minority-owned designations data were sufficiently reliable for the purposes of our report. However, because we cannot verify the minority group that contractors self-report, we characterize these data as self- reported.

We conducted this performance audit from November 2011 through September 2012 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.

Appendix II: Percentage of Obligated Funds for Contracts to Socioeconomic Categories by Minority Group, Fiscal Year 2011

We analyzed data from the Federal Procurement Data System – Next Generation to determine the amount of obligated funds for contracts that federal agencies made to small businesses by minority group for fiscal year 2011. As figure 3 shows, the federal government obligated over $36 billion (35.1 percent) to small, minority-owned businesses in fiscal year 2011.

Figure 4 shows the amount of federal obligated funds for contracts to small disadvantaged businesses. For example, about $28.8 billion (85.6 percent) was obligated to small disadvantaged businesses that were minority-owned.

Figures 5 shows the amount of federal obligated funds for contracts to small women-owned businesses. For example, $8.2 billion (45.7) percent were obligated to small women-owned businesses that were minority- owned.

Figure 6 shows the amount of federal obligated funds for contracts to small HUBZone businesses. For example, nearly $5.5 billion (54.3 percent) were obligated to small HUBZone businesses that were minority- owned.

Figure 7 shows the amount of federal obligated funds for contracts to small service-disabled veteran-owned businesses. For example, nearly $3.9 billion (33 percent) were obligated to small service-disabled veteran- owned businesses that were minority-owned.

Appendix III: Selected Federal Government Contracting Programs, Resources, and Outreach Activities

This table shows programs, resources, outreach activities, and examples of contracting assistance that agencies provide to assist minority-owned businesses in contracting with the federal government.

Appendix IV: Potential Applicability of the Limited English Proficiency Executive Order to Federal Contracting

Executive Order 13,166, Improving Access to Services for Persons with Limited English Proficiency, issued on August 11, 2000, requires federal agencies to prepare a plan to improve access to federally conducted programs and activities for those with limited English proficiency (LEP).

Under the order, federal agencies must take reasonable steps to provide meaningful access to persons with LEP for federally conducted programs and activities. In addition, the Department of Justice (DOJ) serves as a central repository for agency plans to address LEP and provides guidance to agencies for developing such plans.

According to DOJ guidance issued on August 16, 2000 and available at LEP.GOV, the four factors to be considered in determining what constitutes “reasonable steps to ensure meaningful access” include (1) the number or proportion of such individuals in the eligible population, (2) the frequency with which they come into contact with the program, (3) the importance of the service provided by the program, and (4) the resources available to the recipients. In May 2011, DOJ also issued a Language Access Assessment and Planning Tool for Federally Conducted and Federally Assisted Programs to provide guidance to recipients of federal financial assistance and federal agencies. The first step in the assessment tool is a self-assessment that determines what type of contact an agency has with the LEP population and describes the elements that are part of effective language access policy directives and implementation plans. “Generally, current practice with regard to announcing federal government contracts and grants would not be altered under the Executive Order. In determining what is required, the focus of the analysis in this situation is on the first factor—the number or proportion of eligible LEP persons. Except, perhaps, in territories, it is reasonable to expect that the number or proportion of eligible contract or grant recipients who are LEP and are themselves attempting to find and respond to announcements of grants and contracts is negligible.”

Federal agency officials and advocacy groups we spoke with cited linguistic barriers as a challenge on a limited basis. In addition, few agencies had taken action to address possible linguistic barriers, and most told us that they had not taken such action because they had not encountered this challenge. For example, based on its efforts as of July 2012, GSA found that only one region reported significant contact with persons with LEP.

Appendix V: Comments from the Department of Commerce

Appendix VI: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, Marshall Hamlett (Assistant Director), Emily Chalmers, Pamela Davidson, Meredith Graves, Julia Kennon, Shamiah T. Kerney, Katherine Leigey, and Andrew J. Stephens made key contributions to this report.