The Small Business Act of 1953 created SBA, whose function is to aid, counsel, assist, and protect the interests of small businesses. The Act also stipulated that SBA would ensure small businesses a fair proportion of government contracts. The Business Opportunity Development Reform Act of 1988 amended the Small Business Act to require the President to establish an annual government-wide goal of awarding not less than 20 percent of prime contract dollars to small businesses. The Small Business Reauthorization Act of 1997 further amended the Small Business Act to increase this goal to not less than 23 percent. SBA is responsible for coordinating with executive branch agencies to ensure that the federal government meets the mandated goal. Of the federal agencies with procurement authority, 20 agencies accounted for over 99 percent of total government contract dollars in fiscal year 2000. These 20 agencies and their fiscal year 2000 procurement dollars, as reported to FPDC, are listed in appendix IV. FPDC collects data on prime contract actions from over 50 executive branch agencies. These agencies report their prime contract actions to FPDC on standard forms. Since fiscal year 1998, FPDC has used this information to compile the “Report on Annual Procurement Preference Goal Achievements” that summarizes total government prime contract actions and each agency’s small business contract actions. In fiscal year 2000, SBA assigned small business prime contract goals directly to agencies after initial agency goals did not total the 23-percent government-wide goal. At the same time, SBA assigned fiscal year 2001 goals without engaging in a formal negotiation process as had been done in the past. SBA adopted this change in strategy to ensure that the 23-percent goal was established, and that it was done in a timely manner. The government had difficulty establishing the 23-percent goal in fiscal year 2000. In addition, only 22.26 percent of procurement dollars were actually awarded to small businesses. The difficulties were primarily because the Department of Energy was directed to change its method of calculating prime contract small business awards. While SBA’s direct assignment of goals was intended to meet the statutory goal-setting requirement, SBA has not documented the criteria it used to derive the assigned goals. Furthermore, the direct assignment of goals has reduced the consultation and negotiation process envisioned by Congress. Some agency officials noted that they did not have the opportunity to negotiate fiscal year 2001 goals. Federal agencies’ initial goal submissions to SBA for fiscal year 2000 totaled only 20.4 percent in the aggregate, falling short of the mandated 23-percent government-wide goal. SBA’s requests to agencies to increase their goals resulted in a government-wide goal of only 21.2 percent. In February 2000, SBA decided to assign goals directly to the 20 agencies that account for over 99 percent of procurement dollars so that the 23-percentgoal could be met. At the same time, in a conference call between SBA and the agencies, SBA assigned fiscal year 2001 goals that were identical to the 2000 goals. In a memorandum to the agencies, the SBA Associate Deputy Administrator cited a significant change in the way the Department of Energy calculates its small business achievements as a key reason for the difficulties in setting the fiscal year 2000 goal and a primary justification for SBA’s decision to unilaterally assign goals. As shown in appendix IV, the Department of Energy is second only to the Department of Defense in the procurement dollars it reports. Based on a 1991 letter from the Office of Management and Budget’s Office of Federal Procurement Policy, the Department of Energy had been counting contracts awarded by its management and operating contractors as prime contracts rather than subcontracts. Specifically, the letter stated that “a strong case can be made for management and operating contractors to be treated, for the purposes of small business goaling, as Government prime contracts.” The ruling noted that procurements made by management and operating contractors are for the direct benefit of the federal government and that these contractors are required to follow Department of Energy procurement rules and policies that are similar to those government agencies must use in awarding contracts. Using this methodology, the Department of Energy awarded about 18 percent of its prime contracts to small businesses in fiscal year 1998 and about 17 percent in 1999, according to FPDC reports. However, in the opinion of SBA officials, awards made by the Department’s management and operating contractors are actually subcontracts, not prime contracts. Nevertheless, the Department of Energy continued to support its practice of counting them as prime contracts. In 1999, SBA and the Department of Energy asked the Office of Federal Procurement Policy to resolve this disagreement. In November 1999, the Office of Federal Procurement Policy reversed its earlier position and, supporting SBA’s position, determined that the contracts awarded by the Department’s management and operating contractors should be counted as subcontracts. The Administrator, Office of Federal Procurement Policy, stated in the decision that federal agencies should be consistent in the types of awards counted as prime contracts. As a result of the change in methodology, the Department of Energy’s reported prime contract actions to small businesses fell sharply. In fiscal year 2000, the Department’s prime contract goal dropped to 5 percent from its 18-percent goal in fiscal year 1999. This reduction in the Department of Energy’s small business goal affected the government’s overall ability to establish the 23-percent goal. According to SBA officials, the direct assignment of goals—as was done in fiscal years 2000 and 2001—has not only ensured that the mandated 23-percent goal will be established, but it has also ensured that goals will be established in a timely manner. Guidance issued by the Office of Management and Budget’s Office of Federal Procurement Policy stipulates that small business prime contract goals are to be established by the start of the fiscal year. However, both SBA and the agencies have been delinquent in setting goals in a timely manner. For example, in fiscal years 1998, 1999, and to a lesser extent in fiscal year 2000, many agency goals were established after the start of the fiscal year. However, we found no link between the timeliness of goal-setting and actual awards to small businesses. According to SBA records, all 20 large agencies submitted goals after the start of fiscal year 1999. One reason for the delay was that SBA’s letter requesting goals from individual agencies was not distributed until more than 2 weeks after the fiscal year began. In addition, SBA’s deadline for agencies to submit their 1998 and 1999 goals was 1 to 2 months after the start of the fiscal year. SBA officials explained that designating a grace period enabled agencies to evaluate the prior year’s performance and develop strategies for improvement. The officials acknowledged, however, that the period was not used for this purpose because FPDC does not issue preliminary prior-year results until the second quarter of the following fiscal year. Despite SBA’s lenient deadlines, most agencies did not submit their goals on time. For example, in fiscal year 1999 only one agency—the Department of Defense—met SBA’s deadline of November 1, 1998. Three agencies submitted goals in the second quarter, three submitted goals in the third quarter, and one submitted its goal in the fourth quarter. Some small agencies did not establish any goals at all. Timeliness improved in fiscal year 2000, when 11 agencies met SBA’s deadline. Once again, some small agencies did not submit goals at all. When the large agencies were late in submitting goals, SBA followed up with letters. However, SBA conducted little if any follow-up with the small agencies because they represent a very small fraction of federal procurement dollars. Timeliness of goal submissions was not a problem in fiscal year 2001, because SBA assigned the goals directly. We did not find a link between timeliness of goal-setting and actual small business achievements. For example, the Department of Commerce, which submitted its fiscal year 1999 goal 4 months after SBA’s deadline, exceeded its goal of 35 percent, awarding 40.83 percent of its prime contract actions to small businesses. On the other hand, the Department of Agriculture, which missed SBA’s deadline by only 2 days, did not achieve its goal of 45.1 percent, awarding small businesses only 37.96 percent of its prime contract actions. The approach and criteria SBA used to derive individual agency goals in fiscal years 2000 and 2001 have not been formalized or shared with the procurement agencies. Some agency officials expressed confusion about how SBA had determined the assigned goal for their agencies. The extent to which SBA changed individual agencies’ fiscal year 2000 goals from the negotiated fiscal year 1999 goals varied by agency. The February 2000 memorandum from SBA’s Associate Deputy Administrator stated that every agency was assigned an increased goal compared to the 1999 goals. However, while most of the agency goals were increased, goals for four agencies—in addition to the Department of Energy—decreased. SBA officials could not explain their methodology for assigning fiscal year 2000 goals. Table 1 compares fiscal year 1999 negotiated goals with SBA’s assigned goals for fiscal year 2000. According to SBA officials, given SBA’s mandate to establish a goal of not less than 23 percent and the difficulties in setting that goal in fiscal year 2000, they had little choice other than to assign goals that year. SBA notified agencies in a conference call early in 2000 that their fiscal year 2001 goals would be identical to their 2000 goals. Some agency officials said that they appreciated knowing their fiscal year 2001 goals well ahead of the start of the fiscal year. Other officials, however, noted that they did not have the opportunity to consult with SBA about the 2001 goals. The head of each federal agency shall, after consultation with the Administration , establish goals for participation by small business concerns…in procurement contracts of such agency. Goals established under this subsection shall be jointly established by the Administration and the head of each Federal agency…. Agencies have recourse if they disagree with SBA.