DOE has major sites and facilities around the country where the department carries out its missions, including developing, maintaining, and securing the nation’s nuclear weapons capability; cleaning up the nuclear and hazardous wastes resulting from more than 50 years of weapons production; and conducting basic energy and scientific research, such as mapping the human genome. DOE relies on facility management contractors to operate its facilities and accomplish its missions. This mission work is carried out under the direction of the National Nuclear Security Administration (NNSA) and DOE’s program offices, including the offices of Environmental Management and Science. SBA develops regulations and provides guidance for federal agencies and their contractors to follow in carrying out the federal policy to provide maximum practicable contracting opportunities for small businesses, consistent with efficient contract performance. Under the Small Business Act and federal regulations, any large business with a federal prime contract that has a value over $500,000 (or $1 million for construction contracts) and that has subcontracting possibilities, must have a small business subcontracting plan, including annual goals for directing subcontracting dollars to small businesses. SBA has also issued specific guidance for developing annual subcontracting goals and reporting achievements to SBA. Although there is no specified percentage goal for small business subcontracting in law or regulations, SBA’s government- wide goal is that 40 percent of federal subcontracted dollars be directed to small businesses. DOE’s facility management contractors carry out the SBA requirements by developing subcontracting plans and annual goals, and reporting their achievements to DOE and SBA. Facility management contractors use the following process: Develop small business subcontracting plans. Facility management contractors generally develop small business subcontracting plans as part of the overall proposal submitted in response to a DOE request for proposals on a new contract or upon extension or renewal of an existing contract. The subcontracting plan includes information on the types of work to be subcontracted and how, and to what extent, the contractor would provide subcontracting opportunities for small businesses. The proposed subcontracting plans are reviewed as part of the overall proposal and are then incorporated into the contract when it is awarded. Develop annual small business subcontracting goals. Generally, the facility management contractors perform “make-or-buy” analyses to determine how much of their work will be subcontracted rather than performed by the contractors’ own employees. For the portion of the work the facility management contractor intends to subcontract, the facility management contractors develop small business subcontracting goals each year, after considering the proposed funding for the contracts, upcoming subcontracting opportunities, and the potential for small businesses to perform the subcontracting work. After an agreement is reached on the proposed goals, the goals are incorporated into the contract. Report small business subcontracting achievements. Facility management contractors are required to report their small business subcontracting achievements to SBA twice each fiscal year—as of the ends of March and September. SBA guidelines specify that small business subcontracting achievements should be calculated as a percentage of total dollars subcontracted. Facility management contractors also report this achievement information to DOE. DOE’s Small Business Office negotiates the department’s annual small business subcontracting goals with SBA, coordinates outreach efforts with the small business community, and works with NNSA and DOE’s program offices to establish and monitor annual goals. DOE’s Office of Procurement and Assistance Management and NNSA’s Office of Acquisition and Supply Management establish policies and guidance for conducting procurements according to federal and departmental regulations, and they maintain the information systems on the department’s prime contracts, including annual dollars provided to each facility management contractor. NNSA and DOE’s program offices, such as Environmental Management and Science, are responsible for providing program oversight and direction to the contractors. In addition to the oversight responsibilities shared among DOE’s various headquarters and field organizations, SBA has a role in the oversight of facility management contractors’ small business subcontracting efforts. SBA officials in regional offices generally review proposed subcontracting plans and proposed annual small business goals. Regional SBA officials also review the reports on small business subcontracting achievements submitted by facility management contractors, and they may review large proposed subcontracts to determine if there are potential opportunities for small businesses. SBA regional offices also perform periodic compliance reviews of individual contractor’s small business subcontracting efforts, including validating the data reported by the contractors to ensure that the contractor is following SBA guidelines. The data that DOE uses to monitor its facility management contractors’ performance in small business subcontracting generally shows that the contractors have exceeded their annual subcontracting goals. However, these data are not useful for monitoring purposes for two reasons. First, the data reported by the facility management contractors frequently overstated their subcontracting achievements, by failing to account for all of their subcontracts, as required by SBA reporting guidelines. As a result, the percent of total subcontracting dollars going to small businesses appeared larger than if the contractors had been following SBA’s reporting guidelines. Second, even if the facility management contractors were correctly reporting their small business subcontracting achievements, the method for calculating those achievements does not provide a true picture of contractors’ performance. The method can make a contractor appear to be performing well—for example, by directing 80 percent of subcontracting dollars annually to small businesses—when, in fact, that percentage is based on a small amount of dollars. When small business subcontracting dollars are recalculated as a percent of the annual funding on the facility management contract, the contractor’s actual achievement can turn out to be relatively low. Because contractor-reported data does not provide a true picture of the contractors’ performance, the department cannot meaningfully use the data to monitor performance and determine whether the contractors are providing small business subcontractors with the maximum practicable opportunity to provide goods and services to the facility management contractors, as required by the policy set out by the Small Business Act. The contractor-reported data that DOE uses to monitor facility management contractors’ performance in small business subcontracting generally showed that contractors exceeded their annual small business subcontracting goals in fiscal years 2001 through 2004. In fiscal year 2004, for example, 29 of the 34 facility management contractors reported exceeding their annual goals when they directed 33 to 88 percent of their subcontracting dollars to small businesses. These contractors reported exceeding their goals by as much as 28 percent, whereas the contractors that reported falling short of their goals for that year did so by as much as 26 percent. Whether or not individual contractors achieved their goals, the 34 contractors collectively reported directing nearly $3.3 billion to small business subcontractors in fiscal year 2004, representing a 27 percent increase over the amount they had directed to small businesses in fiscal year 2001 (see table 1). Additional information on the facility management contractors’ subcontracting goals and achievements for fiscal years 2001 through 2004 is presented in appendix I. Although facility management contractors generally reported exceeding their subcontracting goals, the data are not useful for monitoring the contractors’ performance, because the contractors’ achievements were frequently overstated. When calculating subcontracting achievements, SBA guidelines allow contractors to exclude from their calculations only those subcontracts performed outside of the U.S. or its territories and subcontracts with affiliate organizations, such as a subsidiary or parent company. However, in fiscal year 2004, all 34 of the contractors’ reported achievements incorrectly excluded other types of subcontracts, beyond what SBA guidelines allow (see table 2). The facility management contractors we visited generally told us it was their normal practice to make these types of exclusions. In making these types of exclusions, the contractors said they were following their past practices or that DOE contracting officers had approved the additional exclusions. For example, officials representing one of these contractors pointed out that, in excluding subcontracts from the calculation of their subcontracting achievements beyond what SBA guidance allows, their company was following the subcontracting plan approved by DOE. The contractor officials said that they would not have made these exclusions, if DOE had not permitted them, nor would they have negotiated as high a subcontracting goal under those circumstances. Facility management contractors’ practice of incorrectly excluding certain subcontracts from achievement calculations resulted in overstating their reported subcontracting achievements by making the achievements appear larger than they would have appeared, if only the appropriate exclusions had been made in the calculation. For SBA-reporting purposes, contractors calculate their subcontracting achievements by expressing the dollars that they directed to small business subcontracts as a percentage of the total amount they subcontracted. However, because they incorrectly excluded subcontracts that generally did not go to small businesses—such as subcontracts with other facility management contractors—the facility management contractors incorrectly reduced the total amount that was subcontracted (the denominator), without affecting the total amount going to small businesses (the numerator). As a result, the percentage of total subcontracted dollars going to small businesses appeared larger than it actually was. The effect of making incorrect exclusions on achievement calculations is significant. At the 13 facility management contractors we visited, we analyzed the fiscal year 2004 dollar amounts associated with the subcontracts that were incorrectly excluded from the calculation of their reported subcontracting achievements. These excluded subcontracts totaled about $887 million. For these 13 contractors, the practice of incorrectly excluding subcontracts from their reported achievements resulted in overstating the percentage achievements by as much as 27 percent. Moreover, although 12 of the 13 contractors had appeared, from their reported achievements, to be meeting or exceeding their subcontracting goals, when the achievements were recalculated by adding the incorrectly excluded subcontracts back into the calculation, only 4 contractors would have achieved their goals. The remaining 9 contractors would have fallen short of their subcontracting goals, by as much as $31.1 million, or about 19 percent. According to contractor officials, it is also likely that these contractors would not have agreed to as high of a subcontracting goal, if they had to include these subcontracts (see table 3).