Disaster Recovery: Federal Contracting in the Aftermath of Hurricanes Katrina and Rita
Released: 2011-09-15T00:00:00

Letter

Background

When the President declares a state of emergency after a natural or other major disaster, the declaration gives the federal government the authority to engage in various emergency response activities, many of which federal agencies provide through contracts with private businesses, including those for debris removal, reconstruction, and the provision of supplies. Federal agencies’ contracts with private businesses, whether made in the normal course of agency operations or specifically related to a natural disaster declaration, in most cases, are subject to certain goals to increase participation by various types of small businesses. The Small Business Act requires that the President set a governmentwide goal each fiscal year for small business participation for the total value of all prime contracts awarded directly by an agency. Additionally, the Small Business Act sets annual prime contract dollar goals for participation by five specific types of small businesses: small businesses, small disadvantaged businesses, businesses owned by women, businesses owned by service-disabled veterans, and businesses located in historically underutilized business zones (HUBZone). The Stafford Act also requires federal agencies to give contracting preferences, to the extent feasible and practicable, to organizations, firms, and individuals residing in or doing business primarily in the area affected by a major disaster or emergency.

The Federal Acquisition Regulation (FAR) implements many federal procurement statutes and provides executive agencies with uniform policies and procedures for acquisition. For example, the FAR generally requires that executive agencies report information about procurements directly to the Federal Procurement Data System-Next Generation (FPDS-NG), a governmentwide contracting database that collects, processes, and disseminates official statistical data on all federal contracting activities that are greater than the micro-purchase threshold (generally $3,000). This system automatically obtains from other systems or online resources additional information that is importan procurement, such as the contractor’s location.

The FAR also requires agencies to measure small business participation in their acquisition programs. A small business may participate via prime contracts—which are contracts awarded directly by a federal agency—or through subcontracts. Any business receiving a contract directly from a federal executive agency for more than the simplified acquisition threshold must agree in the contract that small businesses will be given the “maximum practicable opportunity” to participate in the contract “consistent with its efficient performance.” Additionally, in general, for acquisitions (or modifications to contracts) that (1) are individually expected to exceed $650,000 ($1.5 million for construction contracts) and (2) have subcontracting possibilities, the solicitation shall require the apparently successful offeror in a negotiated acquisition to negotiate a subcontracting plan that is acceptable to the contracting officer, and each invitation for bid shall require the bidder selected for award to submit a subcontracting plan to be eligible for award. The subcontracting plan must include certain information, such as a description of the types of work the prime contractor believes it is likely to award to subcontractors, as well as goals, expressed as a percentage of total planned subcontracting dollars, for the use of small businesses. Generally, contracts that offer subcontracting possibilities and are expected to exceed the monetary thresholds that we have previously mentioned are to include certain clauses. These clauses require that for contracts that have individual subcontracting plans, prime contractors generally must semiannually and at project completion report on their progress toward reaching the goals in their subcontracting plans. Generally, contractors that have individual subcontracting plans are required to report on their subcontracting goals and accomplishments twice a year to the federal government through the Electronic Subcontracting Reporting System (eSRS), which is a governmentwide database for capturing this information. Furthermore, the agencies’ administrative contracting officers are responsible for monitoring the prime contractors’ activities and evaluating and documenting contractor performance under any subcontracting plan included in the contract. The contracting officer is tasked with acknowledging receipt of the reports submitted to eSRS.

Federal Agencies Awarded a Significant Amount of Contract Dollars Directly to Small Businesses in Gulf Coast and Other States

Federal agencies directly awarded $20.5 billion in contracts nationwide between fiscal years 2005 and 2011 for recovery efforts related to Hurricanes Katrina and Rita. Of this $20.5 billion, small businesses located in four Gulf Coast states received approximately $2.7 billion (13.3 percent), and small businesses in the rest of the United States received United States received about $2.6 billion (see fig. 1). about $2.6 billion (see fig. 1).

Among the four Gulf Coast states in our review, Louisiana small businesses directly received the greatest amount of federal contract funds, about $1.4 billion. However, Alabama had the highest proportion (47 percent) of total prime contract dollars awarded to small businesses (see fig. 2).

In the four states, the amount of federal contract funds directly awarded to specific types of small businesses for Hurricanes Katrina- and Rita- related recovery efforts varied (see fig. 3).

Small disadvantaged businesses: Of the approximately $2.7 billion that went directly to small businesses, about $804 million (29 percent) went to small disadvantaged businesses. Small disadvantaged businesses in Louisiana received the greatest amount of federal contract funds awarded to this category (more than $420 million).

HUBZones: Small businesses in HUBZones directly received about $560 million (20 percent of federal contract funds directly awarded to Gulf Coast small businesses). Small businesses in HUBZones in Louisiana received the greatest amount (about $292 million).

Women-owned small businesses: About $381 million were directly awarded to women-owned small businesses (14 percent of all federal contract funds directly awarded to Gulf Coast small businesses). Women-owned small businesses in Louisiana received the greatest amount (approximately $182 million).

Veteran-owned small businesses: About $270 million (or 10 percent of federal contracts directly awarded to Gulf Coast small businesses) went to this category. Veteran-owned small businesses in Louisiana received about $180 million, the most in the Gulf Coast states.

Corps of Engineers and DOD Could Not Demonstrate Consistent Monitoring of Subcontracting Information for Selected Contracts

The Corps and DOD could not demonstrate that they consistently were monitoring subcontracting accomplishment information as required. As we have previously discussed, subcontracting plans are generally required for construction contracts (or modifications to contracts) that are expected to exceed $1.5 million and that have subcontracting possibilities. The FAR states that subcontracting plans must include assurances that prime contractors will report on their progress toward reaching their subcontracting goals. Generally, contracts that offer subcontracting possibilities and are expected to exceed the monetary thresholds above are to include certain clauses. In general, these clauses require contractors to submit these reports semiannually and at project completion. The Corps and DOD use these reports to monitor contractor performance under subcontracting plans. We reviewed the 57 construction contracts that the Corps, DHS, DOD, and GSA awarded directly to large businesses in fiscal years 2005– 2009 for hurricane- related recovery and that were listed in FPDS-NG as having subcontracting plans. The Corps awarded 29 of these contracts but could not provide subcontracting accomplishment report information for 11. DOD awarded 14 contracts and could not provide information for 2 (see table 1). Without these reports, either in eSRS or paper form, contracting officials lacked a key tool for monitoring contractors’ performance under subcontracting plans.

As of 2005, all contractors with subcontracting reporting requirements related to contracts with civilian agencies were generally required to submit, with some exceptions, summary subcontract reports into eSRS, a Web-based govermentwide subcontracting system that allows contractors to submit and agency officials to review subcontracting accomplishment reports electronically rather than using paper forms. DOD implemented eSRS incrementally and began primarily relying on eSRS for subcontract reporting as of 2009. The development of eSRS was intended to create more visibility and transparency into the process of gathering information on federal subcontracting accomplishments.

In addition to requirements for contractors to submit subcontracting accomplishment information, the FAR requires that agency contracting officers review subcontracting plans for adequacy and take action to enforce the terms of the contract if notified that the contractor is failing to meet its commitments under their subcontracting plan. Agency administrative contracting officials are required to provide information to the contracting officer on the extent to which the contractor is meeting subcontracting plan goals and to notify the contracting officer if the contractor is failing to comply in good faith with the subcontracting plan. In determining whether a contractor failed to make a good-faith effort to comply with its subcontracting plan, a contracting officer must look to the totality of the contractor’s actions, consistent with the information and assurances provided in its plan. When considered in the context of the contractor’s total effort in accordance with its plan, failure to submit contracting accomplishment reports may be considered an indicator of a failure to make a good-faith effort. These requirements were in place prior to the 2005 hurricanes and have continued in the eSRS environment. New requirements were added to the FAR in April 2008 that additionally require that contracting officers acknowledge receipt of or reject the subcontracting accomplishment reports submitted by contractors in eSRS. In addition, DHS, GSA, DOD, and the Corps have agency guidance that spells out the contract administration duties necessary to monitor contractor compliance with subcontracting plan reporting requirements. Without subcontracting accomplishment information, contracting officials at the Corps and DOD lack a key tool used to monitor contractor performance under subcontracting plans. In the absence of these reports, the Corps and DOD could not demonstrate that they were consistently monitoring contractor performance under the plans.

As we have previously noted, the Corps did not provide subcontracting accomplishment report information for 11 contracts and could not explain why the information was unavailable. DOD did not provide us with subcontracting information on 2 of 14 construction contracts we reviewed.

DOD officials told us that after searching retained records, they could not find any paper or electronic subcontracting accomplishment reports. We concluded that without monitoring, the Corps and DOD were limited in their ability to determine the extent to which their prime contractors followed subcontracting plans. We recommended that the Secretary of Defense take steps to ensure that contracting officials consistently comply with requirements to monitor the extent to which contractors were meeting subcontracting plan goals, including requirements for contractors with subcontracting plans to submit subcontracting accomplishment reports. Once these reports are submitted, contracting officials should maintain and regularly review them to determine whether contractors have been following subcontracting plans. To ensure consistent compliance, DOD and the Corps small business offices should monitor such actions by contracting officials, as deemed appropriate. DOD did not concur with the implication that its contracting personnel did not enforce requirements. We recently received information from both DOD and the Corps that indicates that they have initiated actions to address our recommendation.

Chair Landrieu, Ranking Member Snowe, this concludes my prepared statement. I would be happy to answer any questions at this time.

Contacts and Acknowledgments

For further information on this testimony, please contact William T. Woods at (202) 512-4841 or woodsw@gao.gov or William B. Shear at (202) 512-8678 or shearw@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this testimony included Marshall Hamlett, Assistant Director; Christine Houle; Julia Kennon; Triana McNeil; Marc Molino; Barbara Roesmann, and Alyssa Weir.

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