[House Report 112-731]
[From the U.S. Government Publishing Office]
112th Congress Rept. 112-731
HOUSE OF REPRESENTATIVES
2d Session Part 1
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SUBCONTRACTING TRANSPARENCY AND RELIABILITY ACT OF 2012
_______
December 27, 2012.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Graves of Missouri, from the Committee on Small Business,
submitted the following
R E P O R T
[To accompany H.R. 3893]
The Committee on Small Business, to whom was referred the
bill (H.R. 3893) to amend the Small Business Act with respect
to subcontracting and insourcing, and for other purposes,
having considered the same, report favorably thereon with an
amendment and recommend that the bill, as amended, do pass.
CONTENTS
Page
I. Amendment........................................................1
II. Purpose of the Bill and Summary..................................6
III. Background and the Need for Legislation..........................7
IV. Hearings........................................................10
V. Committee Consideration.........................................11
VI. Committee Votes.................................................11
VII. Section-by-Section Analysis of H.R. 3893........................12
VIII.Unfunded Mandates...............................................14
IX. New Budget Authority, Entitlement Authority, and Tax Expenditure14
X. Oversight Findings..............................................15
XI. Statement of Constitutional Authority...........................15
XII. Congressional Accountability Act................................15
XIII.Federal Advisory Committee Statement............................15
XIV. Statement of No Earmarks........................................15
XV. Performance Goals and Objectives................................15
XVI. Changes in Existing Law Made by the Bill, as Reported...........15
I. Amendment
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Subcontracting
Transparency and Reliability Act of 2012''.
(b) Table of Contents.--
Sec. 1. Short title; table of contents.
TITLE I--LIMITATIONS ON SUBCONTRACTING
Sec. 101. Limitations on subcontracting.
Sec. 102. Penalties.
Sec. 103. Conforming amendments.
Sec. 104. Guidance.
TITLE II--SUBCONTRACTING PLANS
Sec. 201. Subcontracting plans.
Sec. 202. Notices of subcontracting opportunities.
TITLE III--INSOURCING
Sec. 301. Definitions relating to procurement protest system.
Sec. 302. Insourcing.
TITLE I--LIMITATIONS ON SUBCONTRACTING
SEC. 101. LIMITATIONS ON SUBCONTRACTING.
The Small Business Act (15 U.S.C. 631 et seq.) is amended--
(1) by redesignating section 45 as section 47; and
(2) by inserting after section 44 the following:
``SEC. 45. LIMITATIONS ON SUBCONTRACTING.
``(a) In General.--If awarded a contract under section 8(a), 8(m),
15(a), 31, or 36, a covered small business concern--
``(1) in the case of a contract for services, may not expend
on subcontractors more than 50 percent of the amount paid to
the concern under the contract;
``(2) in the case of a contract for supplies (other than from
a regular dealer in such supplies), may not expend on
subcontractors more than 50 percent of the amount, less the
cost of materials, paid to the concern under the contract;
``(3) in the case of a contract described in more than 1 of
paragraphs (1) through (4)--
``(A) shall determine for which category of services
or supplies, described in 1 of paragraphs (1) through
(4), the greatest percentage of the contract amount is
awarded;
``(B) shall determine the amount awarded under the
contract for that category of services or supplies; and
``(C) may not expend on subcontractors, with respect
to the amount determined under subparagraph (B), more
than--
``(i) 50 percent of that amount, if the
category of services or supplies applicable
under subparagraph (A) is described in
paragraph (1); and
``(ii) 50 percent of that amount, if the
category of services or supplies applicable
under subparagraph (A) is described in
paragraph (2); and
``(4) in the case of a contract for supplies from a regular
dealer in such supplies, shall supply the product of a domestic
small business manufacturer or processor, unless a waiver of
such requirement is granted--
``(A) by the Administrator, after reviewing a
determination by the applicable contracting officer
that no small business manufacturer or processor can
reasonably be expected to offer a product meeting the
specifications (including period for performance)
required by the contract; or
``(B) by the Administrator for a product (or class of
products), after determining that no small business
manufacturer or processor is available to participate
in the Federal procurement market.
``(b) Similarly Situated Entities.--Contract amounts expended by a
covered small business concern on a subcontractor that is a similarly
situated entity shall not be considered subcontracted for purposes of
determining whether the covered small business concern has violated a
requirement established under subsection (a) or (d).
``(c) Modifications of Percentages.--
``(1) In general.--The Administrator may change, by rule
(after providing notice and an opportunity for public comment),
a percentage specified in paragraphs (1) through (4) of
subsection (a) if the Administrator determines that such change
is necessary to reflect conventional industry practices among
business concerns that are below the numerical size standard
for businesses in that industry category.
``(2) Uniformity.--A change to a percentage under paragraph
(1) shall apply to all covered small business concerns.
``(d) Other Contracts.--
``(1) In general.--With respect to a category of contracts to
which a requirement under subsection (a) does not apply, the
Administrator is authorized to establish, by rule (after
providing notice and an opportunity for public comment), a
requirement that a covered small business concern may not
expend on subcontractors more than a specified percentage of
the amount paid to the concern under a contract in that
category.
``(2) Uniformity.--A requirement established under paragraph
(1) shall apply to all covered small business concerns.
``(3) Construction projects.--The Administrator shall
establish, through public rulemaking, requirements similar to
those specified in paragraph (1) to be applicable to contracts
for general and specialty construction and to contracts for any
other industry category not otherwise subject to the
requirements of such paragraph. The percentage applicable to
any such requirement shall be determined in accordance with
paragraph (2).
``(e) Definitions.--In this section, the following definitions apply:
``(1) Covered small business concern.--The term `covered
small business concern' means a business concern that--
``(A) with respect to a contract awarded under
section 8(a), is a small business concern eligible to
receive contracts under that section;
``(B) with respect to a contract awarded under
section 8(m)--
``(i) is a small business concern owned and
controlled by women (as defined in that
section); or
``(ii) is a small business concern owned and
controlled by women (as defined in that
section) that is not less than 51 percent owned
by 1 or more women who are economically
disadvantaged (and such ownership is determined
without regard to any community property law);
``(C) with respect to a contract awarded under
section 15(a), is a small business concern;
``(D) with respect to a contract awarded under
section 31, is a qualified HUBZone small business
concern; or
``(E) with respect to a contract awarded under
section 36, is a small business concern owned and
controlled by service-disabled veterans.
``(2) Similarly situated entity.--The term `similarly
situated entity' means a subcontractor that--
``(A) if a subcontractor for a small business
concern, is a small business concern;
``(B) if a subcontractor for a small business concern
eligible to receive contracts under section 8(a), is
such a concern;
``(C) if a subcontractor for a small business concern
owned and controlled by women (as defined in section
8(m)), is such a concern;
``(D) if a subcontractor for a small business concern
owned and controlled by women (as defined in section
8(m)) that is not less than 51 percent owned by 1 or
more women who are economically disadvantaged (and such
ownership is determined without regard to any community
property law), is such a concern;
``(E) if a subcontractor for a qualified HUBZone
small business concern, is such a concern; or
``(F) if a subcontractor for a small business concern
owned and controlled by service-disabled veterans, is
such a concern.''.
SEC. 102. PENALTIES.
Section 16 of the Small Business Act (15 U.S.C. 645) is amended by
adding at the end the following:
``(g) Subcontracting Limitations.--
``(1) In general.--Whoever violates a requirement established
under section 45 shall be subject to the penalties prescribed
in subsection (d), except that, for an entity that exceeded a
limitation on subcontracting under such section, the fine
described in subsection (d)(2)(A) shall be treated as the
greater of--
``(A) $500,000; or
``(B) the dollar amount expended, in excess of
permitted levels, by the entity on subcontractors.
``(2) Monitoring.--Not later than 1 year after the date of
enactment of this subsection, the Administrator shall take such
actions as are necessary to ensure that an existing Federal
subcontracting reporting system is modified to notify the
Administrator, the appropriate Director of the Office of Small
and Disadvantaged Business Utilization, and the appropriate
contracting officer if a requirement established under section
45 is violated.''.
SEC. 103. CONFORMING AMENDMENTS.
(a) HUBZones.--Section 3(p)(5) of the Small Business Act (15 U.S.C.
632(p)(5)) is amended--
(1) in subparagraph (A)(i) by striking subclause (III) and
inserting the following:
``(III) with respect to any
subcontract entered into by the small
business concern pursuant to a contract
awarded to the small business concern
under section 31, the small business
concern will ensure that the
requirements of section 45 are
satisfied; and'';
(2) by striking subparagraphs (B) and (C); and
(3) by redesignating subparagraph (D) as subparagraph (B).
(b) Entities Eligible for Contracts Under Section 8(a).--Section 8(a)
of such Act (15 U.S.C. 637(a)) is amended by striking paragraph (14)
and inserting the following:
``(14) Limitations on subcontracting.--A concern may not be
awarded a contract under this subsection as a small business
concern unless the concern agrees to satisfy the requirements
of section 45.''.
(c) Small Business Concerns.--Section 15 of such Act (15 U.S.C. 644)
is amended by striking subsection (o) and inserting the following:
``(o) Limitations on Subcontracting.--A concern may not be awarded a
contract under subsection (a) as a small business concern unless the
concern agrees to satisfy the requirements of section 45.''.
SEC. 104. REGULATIONS.
Not later than 180 days after the date of enactment of this Act, the
Administrator of the Small Business Administration shall issue guidance
with respect to compliance with the changes made to the Small Business
Act by the amendments in this Act, with opportunities for notice and
comment.
TITLE II--SUBCONTRACTING PLANS
SEC. 201. SUBCONTRACTING PLANS.
(a) Subcontracting Reporting Requirements.--
(1) In general.--Section 8(d)(6) of the Small Business Act
(15 U.S.C. 637(d)(6)) is amended--
(A) by striking ``(6) Each subcontracting plan'' and
inserting the following:
``(6) Subcontracting plan requirements.--Each subcontracting
plan'';
(B) by amending subparagraph (E) to read as follows:
``(E) assurances that the offeror or bidder will--
``(i) submit--
``(I) not later than 180 days after
the date on which performance under the
applicable contract begins, and every
180 days thereafter until contract
performance ends, a report that
describes all subcontracting activities
under the contract during the preceding
180-day period;
``(II) not later than 1 year after
the date on which performance under the
applicable contract begins, and
annually thereafter until contract
performance ends, a report that
describes all subcontracting activities
under the contract that have occurred
before the date on which the report is
submitted (except that, with respect to
the Department of Defense and the
National Aeronautics and Space
Administration, a report under this
subclause shall be submitted not later
than 180 days after the date on which
contract performance begins and every
180 days thereafter until contract
performance ends); and
``(III) not later than 30 days after
the date on which performance under the
applicable contract ends, a report that
describes all subcontracting activities
under the contract; and
``(ii) cooperate with any study or survey
required by the applicable Federal agency or
the Administration to determine the extent of
compliance by the offeror or bidder with the
subcontracting plan;''; and
(C) by moving the margins for subparagraphs (A), (B),
(C), (D), and (F) 2 ems to the right (so that the align
with subparagraph (E), as amended by subparagraph (B)
of this paragraph).
(2) Reporting system modification.--
(A) In general.--Not later than 1 year after the date
of enactment of this Act, the Administrator of the
Small Business Administration shall take such actions
as are necessary to ensure that the Federal
subcontracting reporting system to which covered
reports are submitted is modified to notify the
Administrator, the appropriate contracting officer, and
the appropriate Director of Small and Disadvantaged
Business Utilization if an entity fails to submit a
required covered report. If the Administrator does not
modify the subcontracting reporting system on or before
the date that is 1 year after the date of enactment of
this Act, the Administrator may not carry out or
establish any pilot program until the date the
Administrator modifies the reporting system.
(B) Covered report defined.--In this paragraph, the
term ``covered report'' means a report submitted in
accordance with assurances provided under section
8(d)(6)(E) of the Small Business Act (15 U.S.C.
637(d)(6)(E)).
(b) Failure To Submit Subcontracting Reports as Breach of Contract.--
Section 8(d)(8) of such Act (15 U.S.C. 637(d)(8)) is amended--
(1) by striking ``(8) The failure'' and inserting the
following:
``(8) Material breach.--The failure'';
(2) in subparagraph (A) by striking ``subsection, or'' and
inserting ``subsection,'';
(3) in subparagraph (B) by striking ``subcontract,'' and
inserting ``subcontract, or'';
(4) by inserting after subparagraph (B) the following:
``(C) assurances provided under paragraph (6)(E),'';
and
(5) by moving the margins of subparagraphs (A), (B), and the
matter following subparagraph (B) 2 ems to the right.
(c) Authority of Small Business Administration.--Section 8(d)(10) of
such Act (15 U.S.C. 637(d)(10)) is amended--
(1) by striking ``(10) In the case of'' and inserting the
following:
``(10) Authority of administration.--In the case of'';
(2) in subparagraph (B) by striking ``, which shall be
advisory in nature,'';
(3) in subparagraph (C) by striking ``, either on a contract-
by-contract basis, or in the case contractors'' and inserting
``as a supplement to evaluations performed by the contracting
agency, either on a contract-by-contract basis or, in the case
of contractors''; and
(4) by moving the margins of subparagraphs (A) through (C) 2
ems to the right.
(d) Appeals.--Section 8(d) of such Act (15 U.S.C. 637(d)) is amended
by adding at the end the following:
``(13) Appeals.--
``(A) In general.--If a procurement center
representative or commercial market representative
determines that a subcontracting plan required under
paragraph (4) or (5) fails to provide the maximum
practicable opportunity for covered small business
concerns to participate in the performance of the
contract to which the plan applies, such representative
may delay acceptance of the plan in accordance with
subparagraph (B).
``(B) Process.--A procurement center representative
or commercial market representative who makes the
determination under subparagraph (A) with respect to a
subcontracting plan may delay acceptance of the plan
for a 30-day period by providing written notice of such
determination to appropriate personnel of the
contracting agency. Such notice shall include
recommendations for altering the plan to provide the
maximum practicable opportunity described in that
subparagraph.
``(C) Disagreements.--If a procurement center
representative or commercial market representative
delays the acceptance of a subcontracting plan under
subparagraph (B) for a 30-day period and, during such
period, does not reach agreement with appropriate
personnel of the contracting agency to alter the plan
to provide the maximum practicable opportunity
described in subparagraph (A), the disagreement shall
be submitted to the head of the contracting agency by
the Administrator for a final determination.
``(D) Covered small business concerns defined.--In
this paragraph, the term `covered small business
concerns' means small business concerns, qualified
HUBZone small business concerns, small business
concerns owned and controlled by veterans, small
business concerns owned and controlled by service-
disabled veterans, small business concerns owned and
controlled by socially and economically disadvantaged
individuals, and small business concerns owned and
controlled by women.''.
SEC. 202. NOTICES OF SUBCONTRACTING OPPORTUNITIES.
Section 8(k)(1) of the Small Business Act (15 U.S.C. 637(k)(1)) is
amended by striking ``in the Commerce Business Daily'' and inserting
``on the appropriate Federal Web site (as determined by the
Administrator)''.
SEC. 203. REGULATIONS.
Not later than 180 days after the date of enactment of this Act, the
Administrator of the Small Business Administration shall issue guidance
with respect to the changes made to the Small Business Act, with
opportunity for notice and comment.
TITLE III--INSOURCING
SEC. 301. DEFINITIONS RELATING TO PROCUREMENT PROTEST SYSTEM.
(a) Protest.--Section 3551(1) of title 31, United States Code, is
amended by adding at the end the following:
``(F) Conversion of a function that is being
performed by a small business concern to performance by
a Federal employee.''.
(b) Interested Party.--Section 3551(2) of such title is amended--
(1) in subparagraph (A) by striking ``and'' at the end;
(2) in subparagraph (B) by striking the period at the end and
inserting ``; and''; and
(3) by adding at the end the following:
``(C) with respect to a conversion described in
paragraph (1)(F), means a small business concern (as
that term is defined in section 3(a) of the Small
Business Act) whose economic interest would be affected
by the conversion.''.
SEC. 302. INSOURCING.
The Small Business Act (15 U.S.C. 631 et seq.), as amended by this
Act, is further amended by inserting after section 45 the following:
``SEC. 46. INSOURCING.
``A Federal agency may only convert a function that is being
performed by a small business concern to performance by a Federal
employee if--
``(1) the agency has made publicly available, after providing
notice and an opportunity for public comment, the procedures of
the agency with respect to decisions to convert a function
being performed by a small business concern to performance by a
Federal employee; and
``(2) the procedures described in paragraph (1) include that
all decisions described in such paragraph are reviewed by any
appropriate--
``(A) Office of Small and Disadvantaged Business
Utilization; and
``(B) procurement center representative.''.
II. Purpose and Bill Summary
The purpose of H.R. 3893, the ``Subcontracting Transparency
and Reliability Act of 2012,'' is to amend the Small Business
Act (the Act)\1\ to impose additional limitations on the
ability of small businesses that obtain contracts through
preferences established in the Act to subcontract the
performance of that work to large businesses. By changing basis
on which the limitations on subcontracting by small business
concerns are calculated from cost to price, the bill will
promote firms' ability to comply with subcontracting
limitations. At the same time, this legislation also recognizes
the need to penalize those who engage in improper
subcontracting by imposing additional penalties on those who
attempt to circumvent these limitations.
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\1\Originally, title II of the Act of July 30, 1953, c. 282, 67
Stat. 232 was designated as the Small Business Act of 1953. A plethora
of amendments in subsequent Congresses led to a rewrite in 1958. Pub.
L. No. 85-536, Sec. 1, 72 Stat. 384 (1958). The Act is codified at 15
U.S.C. Sec. Sec. 631-657q.
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Further, to improve the subcontracting plans that large
business prime contractors must submit with their bids, H.R.
3893 amends the reporting of subcontracting actions taken by
the large prime contractors by requiring more accurate
information. Finally, the legislation imposes additional
restraints on the ability of the federal government to transfer
work performed under contract by private entities and transfer
it to federal employees by a process known as ``insourcing.''
III. Need For Legislation
In FY 2010, approximately $536 billion were awarded as
federal prime contracts, of which at least $210 billion
ultimately went to subcontractors. The Act iterates Congress's
belief in the importance of small business participation in
federal prime contracts and the resultant subcontracts.
Therefore, when a small business receives a set aside or sole
source contract under the auspices of the Act contracting
programs, the government has a vested interest in ensuring that
the small business performs a significant portion of the work.
Otherwise, the small business could pass through the work to a
large contractor, thereby defeating the purpose of the Act.
Consequently, Sections 3(p)(A)(i)(III), 8(a)(14) and 15(o) of
the Act each impose restrictions on the amount of work a
business may subcontract on a set aside contract.
Small businesses face two issues in making a good faith
effort to comply with the restrictions on pass-through
contracting, First, there problems with the cost-based
accounting required by the Act, and second there are issues
concerning classification of the contracts themselves.
First, there are the inherent challenges with cost-based
accounting. Take for example, the case of a service contract.
Pursuant to section 15(o)(1)(A) of the Act, at least 50 percent
of the cost of contract performance incurred for personnel must
be spent on employees of the prime contractor. However, that
requires that the prime contractor have a cost-based accounting
system, something that few small businesses and almost no
commercial companies use. The Federal Acquisition Regulation
(FAR) specifically exempts most small businesses from employing
cost accounting systems, because they are considered a barrier
to entry for small firms.\2\ Even if a prime contractor has a
cost accounting system, the firm must have access to each
subcontractor's personnel costs if the firm is to correctly
calculate 50 percent of the cost of contract performance
incurred for personnel.
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\2\48 C.F.R. Sec. 30.000.
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Unfortunately, even for cost accounting standards compliant
contracts, the subcontractor is not required to give its cost
information to the prime contractor, because the information is
considered too sensitive. Instead, subcontractors are permitted
to provide cost and pricing data in a sealed envelope that is
transmitted to the contracting officer (CO). However, this data
pass-through will not work when examining limitation on
subcontracting, as the prime contractor needs access to the
cost data to track its own compliance. The small firm that
wants to comply is therefore left making guesses and estimates
regarding its subcontractors costs.
The second challenge faced by small businesses is that the
current statutory scheme assumes that contracts are either for
goods or services. While this is sometimes the case, an
increasing number of small businesses are receiving contracts
as value added resellers, or for contracts that encompass the
provision of goods and services. Neither the Act nor the
implementing regulations give small firms guidance on how to
comply in these scenarios.
H.R. 3893 clarifies the limitation on subcontracting and
puts in place a usable standard to ease small businesses
ability to comply with the law. Specifically, by changing the
standard from cost to price and allowing the Small Business
Administration (SBA) to promulgate rules which recognize the
differences between certain industries, tools are being
provided to ensure ease of compliance.
However, due to the challenges and complexities of
complying with limitations on subcontracting, firms
occasionally, rather than acting in good faith, utilized the
complexity to their advantage while defrauding and harming
legitimate small businesses. In this scenario, the issue is
that tracking compliance with the limitation on subcontracting
provisions is complicated, time consuming, and bears little
advantage for the typical COs. Merely easing the ability to
comply with the subcontracting limitations does not itself
solve the problem. Therefore, this legislation provides
penalties for those firms who violate these limitations.
Furthermore, the Executive branch has a nonstatutory goal
of awarding 35.9 percent of all dollars subcontracted from
federal prime contracts to small businesses.\3\ It also has
statutory goals of awarding 5 percent of subcontracted dollars
to Women-Owned Small Businesses (WOSBs) and Small Disadvantaged
Businesses (SDBs) firms, and 3 percent to Service-Disabled
Veteran-Owned Small Businesses (SDVOSBs) and Historically
Underutilized Business Zone (HUBZone) small businesses. To
achieve these goals, a contract awarded to an other-than-small
business for more than $650,000 must include a subcontracting
plan enumerating the opportunities for small businesses to
participate as subcontractors and the plan must assign both
percentage and dollar value goals to these opportunities.\4\
The failure of an other-than-small business to make a good
faith effort to comply with the subcontracting plan is supposed
to result in the government collecting liquidated damages from
the contractor.\5\ The SBA Procurement Center Representative
(PCR),\6\ when available, provides an opinion to the CO on the
appropriate subcontracting goals, and then the Commercial
Market Representative (CMR)\7\ and CO assume responsibility for
post award compliance with the subcontracting plan.
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\3\SBA, Governmentwide 2010 Small Business Procurement Scorecard
(2011). Interestingly, in 2003, the goal was 40 percent, and in 1978,
this Committee amended the Act, H. Rep. No. 95-949 at 5 (1978), to
address the fact that small businesses were receiving only 37.5 percent
of subcontract dollars--1.6 percent more than the current goal. SBA,
Goaling Guidelines for the Small Business Preference Programs for Prime
and Subcontract Federal Procurement Goals and Achievements 6 (2003).
\4\15 U.S.C. Sec. 637(d).
\5\Id. at Sec. 637(d)(5). The damages are calculated as the actual
dollar amount by which the contractor failed to achieve each
subcontracting goal. 48 C.F.R. Sec. 19.705-7.
\6\According to the SBA, PCRs ``increase the small business share
of Federal procurement awards by initiating small business set-asides,
reserving procurements for competition among small business firms;
providing small business sources to Federal buying activities; and
counseling small firms. In addition, PCRs advocate for the breakout of
items for full and open competition to affect savings to the Federal
Government.'' SBA, Government Contracting Field Staff Directory (2011)
(hereinafter Field Staff Directory) available at http://www.sba.gov/
content/government-contracting-field-staff-directory.
\7\CMRs also assist small businesses seeking subcontracts through
counseling and matchmaking. Id.
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Firms with subcontracting plans are required to submit
semi-annual individual contract reports, a report within 30
days of contract completion, and summary subcontracting reports
annually, except that the Department of Defense (DoD) and the
National Aeronautics and Space Administration (NASA) require
summary reports semi-annually. These reports are submitted
using the Electronic Subcontracting Reporting System (ESRS).
Compliance with the subcontracting goal is reflected in past
performance reports on prime contractors.\8\ However, given the
sheer number of other-than-small prime contractors and the fact
that there are fewer than 35 full and part time CMRs,\9\ it is
unsurprising that in FY 2006, the SBA Office of the Inspector
General (OIG) found that CMRs monitored less than half of the
2,200 largest prime contractors.\10\
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\8\48 C.F.R. Sec. 19.704.
\9\The average CMR is responsible for 90 to 200 prime contractors.
GAO, Improvements Needed to Help Ensure Reliability of SBA's
Performance Data on Procurement Center Representatives 2 GAO-11-549
(2011).
\10\SBA OIG, Review of SBA's Subcontracting Assistance Program,
2007 (No. 7-33).
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In order to aid small businesses in receiving
subcontracting opportunities and promote compliance with
requirements to submit subcontracting plans, this legislation
allows PCRs and CMRs ability to review subcontracting plans
ensuring the maximum practicable opportunity for small business
concerns to participate. The CMRs and PCRs are then permitted
to protest those plans that do not represent the maximum
practicable utilization of small businesses as subcontractors.
Additionally, the Act requires that prime contractors
publish any subcontracting opportunities over $10,000 through a
publication known as Commerce Business Daily (CBD).\11\ At the
time this provision was added, CBD also reported all prime
contract opportunities. On January 1, 2002, CBD was replaced by
Federal Business Opportunities (FBO)--a website that provides
all prime contract opportunities over $25,000. SBA introduced
Subcontracting Network (SUB-Net), which was intended to replace
the subcontracting function of the CBD. Unfortunately, SUB-Net
has never been fully adopted. Furthermore, the FAR does not
even mention SUB-Net, so it remains unclear how prime
contractors would be required to use the system. Due to this,
H.R. 3893 requires that federal subcontracting opportunities
are being posted on an appropriate federal website that widens
the dissemination of prime contractor subcontracting
opportunities.
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\11\15 U.S.C. Sec. 637(d)(8)(k).
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Finally, this bill seeks to ensure transparency in the
insourcing process. Insourcing is the process by which the
federal government transfers work performed under contract by
private entities to federal employees. Much of the debate
regarding insourcing focuses on which work should be performed
by government employees and which work may be performed by
private entities. The Constitution of the United States vests
the executive power in the President,\12\ foresees certain
duties that should be restricted to government.\13\ However, it
was understood that not all functions of government need be
carried out by federal employees, but that contractors could
provide some goods and services.\14\ Yet there has always
remained a question as to when work should be performed by
federal employees and when it should be performed by
contractors. It is accepted that work which is inherently
governmental should be performed by federal employees.\15\
There remains a debate concerning what is inherently
governmental and how work not inherently governmental should be
performed.
---------------------------------------------------------------------------
\12\U.S. Const. art. II, Sec. 1, cl. 1.
\13\See, e.g., U.S. Const. art. II, Sec. 2-3; U.S. Const. art. I,
Sec. 8.
\14\See, e.g., R.R. Co. v. Peniston, 85 U.S. 5 (1873) (Contractor
provided services to government); Reeside v. Walker, 52 U.S. 272 (1851)
(plaintiff was heir to contractor who delivered the mail for the
Federal government); U.S. Const. art. I, Sec. 8 (Congress has the power
to spend).
\15\31 U.S.C. Sec. 501 (note).
---------------------------------------------------------------------------
The most recent attempt to address this issue was the
Omnibus Appropriations Act (OAA) of 2009.\16\ Pursuant to the
2009 OAA, each civilian agency was required to publish
insourcing guidance by mid-July of 2009. However, three years
later, that guidance has not been made publicly available.
According to the GAO, agencies were waiting for final guidance
from Office of Federal Procurement Policy (OFPP) before issuing
their own guidelines, so that the insourcing documents are
consistent.\17\ However, the OFPP guidance was published on
September 12, 2011\18\ yet agency specific guidance has not yet
been made public. This does not mean that agencies have not
been insourcing, simply that there is no guidance publicly
available to the small businesses whose work is being
insourced.
---------------------------------------------------------------------------
\16\Omnibus Appropriations Act, 2009 [hereinafter 2009 OAA] Pub. L.
No. 111-8, Sec. 736, 126 Stat. 524 (2009).
\17\GAO, Insourcing Guidelines 2 (GAO-10-58R) (Oct. 6, 2009).
\18\Performance of Inherently Governmental and Critical Functions,
76 Fed. Reg. 56227 (Sept. 12, 2011).
---------------------------------------------------------------------------
To promote transparency and ensure that the unique nature
of small business concerns are examined during an insourcing
decision, H.R. 3893 allows small firms to protest the
insourcing of their contract as well as requiring that an
Agency must publish the procedures for converting the function
previously contracted to a small business concern have a notice
and comment period before insourcing that contract.
Additionally, the decisions must be reviewed by a PCR or the
agency's Office of Small and Disadvantaged Business Utilization
to ensure small business concerns are being appropriately
addressed.
IV. Hearings
In the 112th Congress, the Committee held three hearings to
address subcontracting and insourcing. One was conducted by the
Subcommittee on Contracting and Workforce at a hearing entitled
``Insourcing Gone Awry: Outsourcing Small Business Jobs'' on
June 23, 2011. At this hearing, the Subcommittee examined the
implementation of the Administration's insourcing policies and
the effect of these policies on small businesses. Specifically,
five issues were discussed: the lack of transparency in the
insourcing process; inconsistencies in the cost studies used to
justify insourcing; the prohibition on public-private
competitions when insourcing; the lack of standing for small
businesses that wish to challenge agency insourcing decision;
and the role of the SBA in insourcing.
The second hearing, also conducted by the Subcommittee on
Contracting and Workforce was entitled ``Subpar Subcontracting:
Challenges for Small Business Contractors'' on October 6, 2011.
At this hearing, the Subcommittee examined issues with the
limitation on subcontracting requirements; noncompliance with
subcontracting plans; and duplicative government contracting
systems which fail to support enforcement or compliance.
The third hearing was held by the Subcommittee on
Investigations, Oversight and Regulation on October 27, 2011
and entitled ``Misrepresentation and Fraud: Bad Actors in the
Small Business Procurement Programs.'' The Subcommittee
examined whether there are sufficient monitoring mechanisms in
place to detect fraud and misrepresentation related to
limitations on subcontracting.
V. Committee Consideration
The Committee on Small Business met in open session, with a
quorum being present, on March 7, 2012, and ordered H.R. 3893
reported, as amended, to the House by a roll call vote of 11 to
7 at 3:27 pm. During the markup, two amendments were offered,
and one amendment was adopted while the other amendment was
rejected. Disposition of the amendments is addressed below and
is based on the order amendments were filed with the Clerk of
the Committee and not necessarily in the order that they were
considered at the markup.
Amendment Number One filed by Mr. Mulvaney (R-SC) allows
the Administrator to set appropriate limitations on
subcontracting for construction contracts, and clarifies that
the insourcing provisions only apply to small businesses.
Amendment Number One was adopted by a voice vote at 3:16 pm.
Amendment Number Two filed by Ms. Clarke (D-NY) strikes
sections 301 and 302 related to insourcing. Amendment Number
Two failed by a voice vote at 3:26 pm.
VI. Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the recorded
votes on the motion to report the legislation and amendments
thereto. No recorded votes were taken in consideration of H.R.
3893.
Amendment to H.R. 3893
Offered by Mr. Mulvaney of South Carolina
Page 2, beginning on line 13, strike ``(except
construction)''.
Strike page 2, line 17, and all that follows through page 3,
line 7, and redesignate provisions accordingly.
Page 4, strike line 5 and all that follows through line 12,
and redesignate provisions accordingly.
Page 6, insert after line 3 the following:
(3) Construction projects.--The Administrator shall
establish, through public rulemaking, requirements
similar to those specified in paragraph (1) to be
applicable to contracts for general and specialty
construction and to contracts for any other industry
category not otherwise subject to the requirements of
such paragraph. The percentage applicable to any such
requirement shall be determined in accordance with
paragraph (2).
Page 18, line 2, strike ``private sector entity'' and insert
``small business concern''.
Page 18, line 12, strike ``includes any'' and insert ``means
a''.
Amendment to H.R. 3893
Offered by Ms. Clarke of New York
Beginning on page 17, line 18, strike all that follows
through the end of the bill, and redesignate provisions
accordingly.
VII. Section-by-Section Analysis of H.R. 3893
SECTION-BY-SECTION ANALYSIS OF H.R. 3893 AS AMENDED
Section 1. Short Title; Table of Contents
This section provides that the bill may be cited as the
``Subcontracting Transparency and Reliability Act of 2012.''
TITLE I--LIMITATIONS ON SUBCONTRACTING
Section 101. Limitations on Subcontracting
This section amends the Small Business Act by changing the
limitations on subcontracting by small business concerns from
cost to price and by allowing, in case of a contract that
combines services, construction or supplies, the limitation on
subcontracting to be determined by the category that is the
greatest percentage of the contract amount. Currently, these
limitations are addressed in sections 8(a), 8(m), 15(a), 31, or
36 of the Act. H.R. 3893 instead consolidates these into a new
section 45. This addresses confusion by slight inconsistencies
in the language of each individual section.
Section 45 then limits subcontracting based on the price of
the contract rather than the costs incurred by the contractor.
Specifically, for service contracts, prime contractors are
limited to expending 50 percent of the amount paid under the
contract.
This section also would require that amounts expended by a
covered small business concern on a subcontractor that is a
similarly situated entity shall not be used in the
determination of the subcontracting limitations. This will
allow small businesses to pursue larger contracts, and
encourage the formation of small business teams.
Additionally this section allows the Administrator to
modify the subcontracting limitation percentage by rule with
public notice and comment period is needed to reflect industry
changes. The Administrator has previously done so for
construction and specialty construction firms, where standard
industry practice is to subcontract a much higher percentage of
work. The Administrator is directed to continue these variances
for general and specialty construction, and to adopt similar
practices for industries where additional subcontracting is
required.
Section 102. Penalties
This section amends section 16 of the Act by establishing
penalties for anyone who violates the subcontracting
limitations established in section 45 as added by this bill. An
entity that exceeds the limitation on subcontracting will be
fined either $500,000 or the dollar amount expended to the
subcontractor in excess of permitted levels, whichever is
greater.
Section 103. Conforming Amendments
This section makes conforming amendments to the Act in
order to incorporate the changes made by section 101.
Specifically, the limitation in subcontracting provisions in
sections 8, 15, 31 and 36 are replaced with references to
section 45.
Section 104. Regulations
This section requires the Administrator to issue
implementing regulations no later than 180 days after the date
of passage of H.R. 3893. The regulations must be promulgated
pursuant to notice and comment rulemaking.
TITLE II--SUBCONTRACTING PLANS
Section 201. Subcontracting Plans
Subsection (a)--Subcontracting Reporting Requirements
This subsection amends section 8(d) of the Act to require
an offeror or bidder responding to a federal solicitation to
submit a subcontracting report every 6 months during contract
performance, an annual subcontracting report during
performance, and a summary report within 30 days of the end of
the contract. This is a codification of the reporting
requirements currently in use. As DoD and NASA currently
require an additional semiannual report, this requirement was
also retained for contractors at those agencies.
This subsection also requires the offeror or bidder to
cooperate with any federal survey or study to determine the
extent of compliance with the subcontracting plan.
Additionally, it provides for modification of the federal
subcontracting reporting system by the Administrator, so that
the system will notify appropriate the appropriate federal
employees if a contractor fails to submit a required report. If
the modification to the reporting system is not completed
within the first year after passage of H.R. 3893, this
subsection prohibits the Administrator from establishing or
carrying out any pilot program.
Subsection (b)--Failure to Submit Subcontracting Reports as
a Breach of Contract
This subsection provides authority for a PCR or CMR to
assess whether a proposed subcontracting plan provides the
maximum practicable opportunity for small business concerns to
participate. If the PCR or CMR believes that the plan does not
provide sufficient opportunities for small business
participation, the PCR or CMR is permitted to delay acceptance
of the subcontracting plan for up to 30 days. However, if the
PCR or CMR fails to reach an agreement with the contracting
agency's personnel on a plan to provide the maximum practicable
opportunity; this subsection provides that the disagreement
shall be decided by the head of the contracting agency.
Section 202. Notices of Subcontracting Opportunities
This section amends section 8(k) of the Act to require that
notices of small business contracting opportunities to be
posted on an appropriate federal website. This is necessary as
the Act currently requires publication in the CBD, which has
been defunct for a decade. The Administrator is given
discretion to determine the appropriate replacement website,
but the website should be one that provides for maximal
dissemination of opportunities available to small businesses
seeking subcontracts.
Section 203. Regulations
This section requires the Administrator promulgate
regulations implementing H.R. 3893 within 180 days of passage.
TITLE III--INSOURCING
Section 301. Definitions Relating to Procurement Protest System
This section amends section 3551(1) of title 31 to allow
include any small business concern whose contract is being
insourced or whose economic interests will be affected to
protest the agency's decision at GAO. This is comparable to the
protection already provided under section 3557 of title 31 to
federal employees whose functions are being converted to
performance by a private company.
Section 302. Insourcing
This section would amend the Act by adding a new section
46. The new section requires that, prior to insourcing work
currently performed by a small business, the agency insourcing
the work must publish by notice and comment rulemaking its
procedures for determining which functions to convert. Further,
the procedures must provide for the review of any insourcing
decisions involving a small business by the appropriate Office
of Small and Disadvantaged Business Utilization and PCR.
VIII. Unfunded Mandates
H.R. 3893 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act, Pub.
L. No. 104-4, and would impose no costs on state, local or
tribal governments.
IX. New Budget Authority, Entitlement Authority and
Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House, the Committee provides the following opinion and
estimate with respect to new budget authority, entitlement
authority and tax expenditures. The Committee has not received
an estimate of new budget authority contained in the cost
estimate prepared by the Director of the Congressional Budget
Office pursuant to Sec. 402 of the Congressional Budget Act of
1974. However, the Committee believes that the cost of
implementing H.R. 3893 should be less than $1 million. This
amount should allow for SBA to modify its subcontracting
reporting systems to allow for improved reporting and
notification. All other costs contained herein would be handled
under existing levels of appropriations for agency salary and
expenses.
X. Oversight Findings
In accordance with clause 2(b)(1) of rule X of the Rules of
the House, the oversight findings and recommendations of the
Committee on Small Business with respect to the subject matter
contained in H.R. 3893 are incorporated into the descriptive
portions of this report.
XI. Statement of Constitutional Authority
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds that the
authority for this legislation in Art. I, Sec. 8, cls. 1, 3,
and 18 and Art. IV, Sec. 3, cl. 2 of the Constitution of the
United States.
XII. Congressional Accountability Act
H.R. 3893 does not relate to the terms and conditions of
employment or access to public services or accommodations
within the meaning of Sec. 102(b)(3) of Pub. L. No. 104-1.
XIII. Federal Advisory Committee Act Statement
H.R. 3893 does not establish or authorize the establishment
of any new advisory committees as that term is defined in the
Federal Advisory Committee Act, 5 U.S.C. App. 2.
XIV. Statement of No Earmarks
Pursuant to clause 9 of rule XXI, H.R. 3893 does not
contain any congressional earmarks, limited tax benefits or
limited tariff benefits as defined in subsections (d), (e) or
(f) of clause 9 of rule XXI of the Rules of the House.
XV. Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House, the Committee establishes the following performance-
related goals and objectives for this legislation:
H.R. 3893 includes a number of provisions designed to
improve compliance with limitations on subcontracting
found in the Small Business Act, ensure compliance with
reporting subcontracting plans, and promote
transparency for insourcing the work of small business
concerns.
XVI. Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
SMALL BUSINESS ACT
* * * * * * *
Sec. 3. (a) * * *
* * * * * * *
(p) Definitions Relating to HUBZones.--In this Act:
(1) * * *
* * * * * * *
(5) Qualified hubzone small business concern.--
(A) In general.--A HUBZone small business
concern is ``qualified'', if--
(i) the small business concern has
certified in writing to the
Administrator (or the Administrator
otherwise determines, based on
information submitted to the
Administrator by the small business
concern, or based on certification
procedures, which shall be established
by the Administration by regulation)
that--
(I) * * *
* * * * * * *
[(III) with respect to any
subcontract entered into by the
small business concern pursuant
to a contract awarded to the
small business concern under
section 31, the small business
concern will ensure that--
[(aa) in the case of
a contract for services
(except construction),
not less than 50
percent of the cost of
contract performance
incurred for personnel
will be expended for
its employees or for
employees of other
HUBZone small business
concerns;
[(bb) in the case of
a contract for
procurement of supplies
(other than procurement
from a regular dealer
in such supplies), not
less than 50 percent of
the cost of
manufacturing the
supplies (not including
the cost of materials)
will be incurred in
connection with the
performance of the
contract in a HUBZone
by 1 or more HUBZone
small business
concerns; and
[(cc) in the case of
a contract for the
procurement by the
Secretary of
Agriculture of
agricultural
commodities, none of
the commodity being
procured will be
obtained by the prime
contractor through a
subcontract for the
purchase of the
commodity in
substantially the final
form in which it is to
be supplied to the
Government; and]
(III) with respect to any
subcontract entered into by the
small business concern pursuant
to a contract awarded to the
small business concern under
section 31, the small business
concern will ensure that the
requirements of section 45 are
satisfied; and
* * * * * * *
[(B) Change in percentages.--The
Administrator may utilize a percentage other
than the percentage specified in item (aa) or
(bb) of subparagraph (A)(i)(III), if the
Administrator determines that such action is
necessary to reflect conventional industry
practices among small business concerns that
are below the numerical size standard for
businesses in that industry category.
[(C) Construction and other contracts.--The
Administrator shall promulgate final
regulations imposing requirements that are
similar to those specified in items (aa) and
(bb) of subparagraph (A)(i)(III) on contracts
for general and specialty construction, and on
contracts for any other industry category that
would not otherwise be subject to those
requirements. The percentage applicable to any
such requirement shall be determined in
accordance with subparagraph (B).]
[(D)] (B) List of qualified small business
concerns.--The Administrator shall establish
and maintain a list of qualified HUBZone small
business concerns, which list shall, to the
extent practicable--
(i) * * *
* * * * * * *
Sec. 8. (a)(1) * * *
* * * * * * *
[(14)(A) A concern may not be awarded a contract under this
subsection as a small business concern unless the concern
agrees that--
[(i) in the case of a contract for services (except
construction), at least 50 percent of the cost of
contract performance incurred for personnel shall be
expended for employees of the concern; and
[(ii) in the case of a contract for procurement of
supplies (other than procurement from a regular dealer
in such supplies), the concern will perform work for at
least 50 percent of the cost of manufacturing the
supplies (not including the cost of materials).
[(B) The Administrator may change the percentage under clause
(i) or (ii) of subparagraph (A) if the Administrator determines
that such change is necessary to reflect conventional industry
practices among business concerns that are below the numerical
size standard for businesses in that industry category. A
percentage established under the preceding sentence may not
differ from a percentage established under section 15(o).
[(C) The Administration shall establish, through public
rulemaking, requirements similar to those specified in
subparagraph (A) to be applicable to contracts for general and
specialty construction and to contracts for any other industry
category not otherwise subject to the requirements of such
paragraph. The percentage applicable to such requirement shall
be determined in accordance with subparagraph (B), except that
such a percentage may not differ from a percentage established
under section 15(o) for the same industry category.]
(14) Limitations on Subcontracting.--A concern may not be
awarded a contract under this subsection as a small business
concern unless the concern agrees to satisfy the requirements
of section 45.
* * * * * * *
(d)(1) * * *
* * * * * * *
[(6) Each subcontracting plan]
(6) Subcontracting plan requirlements.--Each subcontracting
plan required under paragraph (4) or (5) shall include--
(A) percentage goals for the utilization as
subcontractors of small business concerns, small
business concerns owned and controlled by veterans,
small business concerns owned and controlled by
service-disabled veterans, qualified HUBZone small
business concerns, small business concerns owned and
controlled by socially and economically disadvantaged
individuals, and small business concerns owned and
controlled by women;
(B) the name of an individual within the employ of
the offeror or bidder who will administer the
subcontracting program of the offeror or bidder and a
description of the duties of such individual;
(C) a description of the efforts the offeror or
bidder will take to assure that small business
concerns, small business concerns owned and controlled
by veterans, small business concerns owned and
controlled by service-disabled veterans, qualified
HUBZone small business concerns, small business
concerns owned and controlled by socially and
economically disadvantaged individuals, and small
business concerns owned and controlled by women will
have an equitable opportunity to compete for
subcontracts;
(D) assurances that the offeror or bidder will
include the clause required by paragraph (2) of this
subsection in all subcontracts which offer further
subcontracting opportunities, and that the offeror or
bidder will require all subcontractors (except small
business concerns) who receive subcontracts in excess
of $1,000,000 in the case of a contract for the
construction of any public facility, or in excess of
$500,000 in the case of all other contracts, to adopt a
plan similar to the plan required under paragraph (4)
or (5);
[(E) assurances that the offeror or bidder will
submit such periodic reports and cooperate in any
studies or surveys as may be required by the Federal
agency or the Administration in order to determine the
extent of compliance by the offeror or bidder with the
subcontracting plan;]
(E) assurances that the offeror or bidder will--
(i) submit--
(I) not later than 180 days after the
date on which performance under the
applicable contract begins, and every
180 days thereafter until contract
performance ends, a report that
describes all subcontracting activities
under the contract during the preceding
180-day period;
(II) not later than 1 year after the
date on which performance under the
applicable contract begins, and
annually thereafter until contract
performance ends, a report that
describes all subcontracting activities
under the contract that have occurred
before the date on which the report is
submitted (except that, with respect to
the Department of Defense and the
National Aeronautics and Space
Administration, a report under this
subclause shall be submitted not later
than 180 days after the date on which
contract performance begins and every
180 days thereafter until contract
performance ends); and
(III) not later than 30 days after
the date on which performance under the
applicable contract ends, a report that
describes all subcontracting activities
under the contract; and
(ii) cooperate with any study or survey
required by the applicable Federal agency or
the Administration to determine the extent of
compliance by the offeror or bidder with the
subcontracting plan;
(F) a recitation of the types of records the
successful offeror or bidder will maintain to
demonstrate procedures which have been adopted to
comply with the requirements and goals set forth in
this plan, including the establishment of source lists
of small business concerns, small business concerns
owned and controlled by veterans, small business
concerns owned and controlled by service-disabled
veterans, qualified HUBZone small business concerns,
small business concerns owned and controlled by
socially and economically disadvantaged individuals,
and small business concerns owned and controlled by
women; and efforts to identify and award subcontracts
to such small business concerns; and
* * * * * * *
[(8) The failure]
(8) Material Breach.--The failure of any contractor or
subcontractor to comply in good faith with--
(A) the clause contained in paragraph (3) of this
[subsection, or] subsection,
(B) any plan required of such contractor pursuant to
the authority of this subsection to be included in its
contract or [subcontract,] subcontract, or
(C) assurances provided under paragraph (6)(E),
shall be a material breach of such contract or
subcontract.
* * * * * * *
[(10) In the case of]
(10) Authority of Administration.--In the case of contracts
within the provisions of paragraphs (4), (5), and (6), the
Administration is authorized to--
(A) assist Federal agencies and businesses in
complying with their responsibilities under the
provisions of this subsection, including the
formulation of subcontracting plans pursuant to
paragraph (4);
(B) review any solicitation for any contract to be
let pursuant to paragraphs (4) and (5) to determine the
maximum practicable opportunity for small business
concerns, small business concerns owned and controlled
by veterans, small business concerns owned and
controlled by service-disabled veterans, qualified
HUBZone small business concerns, small business
concerns owned and controlled by socially and
economically disadvantaged individuals, and small
business concerns owned and controlled by women to
participate as subcontractors in the performance of any
contract resulting from any solicitation, and to submit
its findings[, which shall be advisory in nature,] to
the appropriate Federal agency; and
(C) evaluate compliance with subcontracting plans[,
either on a contract-by-contract basis, or in the case
contractors] as a supplement to evaluations performed
by the contracting agency, either on a contract-by-
contract basis or, in the case of contractors having
multiple contracts, on an aggregate basis.
* * * * * * *
(13) Appeals.--
(A) In general.--If a procurement center
representative or commercial market representative
determines that a subcontracting plan required under
paragraph (4) or (5) fails to provide the maximum
practicable opportunity for covered small business
concerns to participate in the performance of the
contract to which the plan applies, such representative
may delay acceptance of the plan in accordance with
subparagraph (B).
(B) Process.--A procurement center representative or
commercial market representative who makes the
determination under subparagraph (A) with respect to a
subcontracting plan may delay acceptance of the plan
for a 30-day period by providing written notice of such
determination to appropriate personnel of the
contracting agency. Such notice shall include
recommendations for altering the plan to provide the
maximum practicable opportunity described in that
subparagraph.
(C) Disagreements.--If a procurement center
representative or commercial market representative
delays the acceptance of a subcontracting plan under
subparagraph (B) for a 30-day period and, during such
period, does not reach agreement with appropriate
personnel of the contracting agency to alter the plan
to provide the maximum practicable opportunity
described in subparagraph (A), the disagreement shall
be submitted to the head of the contracting agency by
the Administrator for a final determination.
(D) Covered small business concerns defined.--In this
paragraph, the term ``covered small business concerns''
means small business concerns, qualified HUBZone small
business concerns, small business concerns owned and
controlled by veterans, small business concerns owned
and controlled by service-disabled veterans, small
business concerns owned and controlled by socially and
economically disadvantaged individuals, and small
business concerns owned and controlled by women.
* * * * * * *
(k) Notices of Subcontracting Opportunities.--
(1) In general.--Notices of subcontracting
opportunities may be submitted for publication [in the
Commerce Business Daily] on the appropriate Federal Web
site (as determined by the Administrator) by--
(A) * * *
* * * * * * *
Sec. 15. (a) * * *
* * * * * * *
[(o)(1) A concern may not be awarded a contract under
subsection (a) as a small business concern unless the concern
agrees that--
[(A) in the case of a contract for services (except
construction), at least 50 percent of the cost of
contract performance incurred for personnel shall be
expended for employees of the concern; and
[(B) in the case of a contract for procurement of
supplies (other than procurement from a regular dealer
in such supplies), the concern will perform work for at
least 50 percent of the cost of manufacturing the
supplies (not including the cost of materials).
[(2) The Administrator may change the percentage under
subparagraph (A) or (B) of paragraph (1) if the Administrator
determines that such change is necessary to reflect
conventional industry practices among business concerns that
are below the numerical size standard for businesses in that
industry category.
[(3) The Administration shall establish, through public
rulemaking, requirements similar to those specified in
paragraph (1) to be applicable to contracts for general and
specialty construction and to contracts for any other industry
category not otherwise subject to the requirements of such
paragraph. The percentage applicable to any such requirement
shall be determined in accordance with paragraph (2).]
(o) Limitations on Subcontracting.--A concern may not be
awarded a contract under subsection (a) as a small business
concern unless the concern agrees to satisfy the requirements
of section 45.
* * * * * * *
Sec. 16. (a) * * *
* * * * * * *
(g) Subcontracting Limitations.--
(1) In general.--Whoever violates a requirement
established under section 45 shall be subject to the
penalties prescribed in subsection (d), except that,
for an entity that exceeded a limitation on
subcontracting under such section, the fine described
in subsection (d)(2)(A) shall be treated as the greater
of--
(A) $500,000; or
(B) the dollar amount expended, in excess of
permitted levels, by the entity on
subcontractors.
(2) Monitoring.--Not later than 1 year after the date
of enactment of this subsection, the Administrator
shall take such actions as are necessary to ensure that
an existing Federal subcontracting reporting system is
modified to notify the Administrator, the appropriate
Director of the Office of Small and Disadvantaged
Business Utilization, and the appropriate contracting
officer if a requirement established under section 45
is violated.
* * * * * * *
SEC. 45. LIMITATIONS ON SUBCONTRACTING.
(a) In General.--If awarded a contract under section 8(a),
8(m), 15(a), 31, or 36, a covered small business concern--
(1) in the case of a contract for services, may not
expend on subcontractors more than 50 percent of the
amount paid to the concern under the contract;
(2) in the case of a contract for supplies (other
than from a regular dealer in such supplies), may not
expend on subcontractors more than 50 percent of the
amount, less the cost of materials, paid to the concern
under the contract;
(3) in the case of a contract described in more than
1 of paragraphs (1) through (4)--
(A) shall determine for which category of
services or supplies, described in 1 of
paragraphs (1) through (4), the greatest
percentage of the contract amount is awarded;
(B) shall determine the amount awarded under
the contract for that category of services or
supplies; and
(C) may not expend on subcontractors, with
respect to the amount determined under
subparagraph (B), more than--
(i) 50 percent of that amount, if the
category of services or supplies
applicable under subparagraph (A) is
described in paragraph (1); and
(ii) 50 percent of that amount, if
the category of services or supplies
applicable under subparagraph (A) is
described in paragraph (2); and
(4) in the case of a contract for supplies from a
regular dealer in such supplies, shall supply the
product of a domestic small business manufacturer or
processor, unless a waiver of such requirement is
granted--
(A) by the Administrator, after reviewing a
determination by the applicable contracting
officer that no small business manufacturer or
processor can reasonably be expected to offer a
product meeting the specifications (including
period for performance) required by the
contract; or
(B) by the Administrator for a product (or
class of products), after determining that no
small business manufacturer or processor is
available to participate in the Federal
procurement market.
(b) Similarly Situated Entities.--Contract amounts expended
by a covered small business concern on a subcontractor that is
a similarly situated entity shall not be considered
subcontracted for purposes of determining whether the covered
small business concern has violated a requirement established
under subsection (a) or (d).
(c) Modifications of Percentages.--
(1) In general.--The Administrator may change, by
rule (after providing notice and an opportunity for
public comment), a percentage specified in paragraphs
(1) through (4) of subsection (a) if the Administrator
determines that such change is necessary to reflect
conventional industry practices among business concerns
that are below the numerical size standard for
businesses in that industry category.
(2) Uniformity.--A change to a percentage under
paragraph (1) shall apply to all covered small business
concerns.
(d) Other Contracts.--
(1) In general.--With respect to a category of
contracts to which a requirement under subsection (a)
does not apply, the Administrator is authorized to
establish, by rule (after providing notice and an
opportunity for public comment), a requirement that a
covered small business concern may not expend on
subcontractors more than a specified percentage of the
amount paid to the concern under a contract in that
category.
(2) Uniformity.--A requirement established under
paragraph (1) shall apply to all covered small business
concerns.
(3) Construction projects.--The Administrator shall
establish, through public rulemaking, requirements
similar to those specified in paragraph (1) to be
applicable to contracts for general and specialty
construction and to contracts for any other industry
category not otherwise subject to the requirements of
such paragraph. The percentage applicable to any such
requirement shall be determined in accordance with
paragraph (2).
(e) Definitions.--In this section, the following definitions
apply:
(1) Covered small business concern.--The term
``covered small business concern'' means a business
concern that--
(A) with respect to a contract awarded under
section 8(a), is a small business concern
eligible to receive contracts under that
section;
(B) with respect to a contract awarded under
section 8(m)--
(i) is a small business concern owned
and controlled by women (as defined in
that section); or
(ii) is a small business concern
owned and controlled by women (as
defined in that section) that is not
less than 51 percent owned by 1 or more
women who are economically
disadvantaged (and such ownership is
determined without regard to any
community property law);
(C) with respect to a contract awarded under
section 15(a), is a small business concern;
(D) with respect to a contract awarded under
section 31, is a qualified HUBZone small
business concern; or
(E) with respect to a contract awarded under
section 36, is a small business concern owned
and controlled by service-disabled veterans.
(2) Similarly situated entity.--The term ``similarly
situated entity'' means a subcontractor that--
(A) if a subcontractor for a small business
concern, is a small business concern;
(B) if a subcontractor for a small business
concern eligible to receive contracts under
section 8(a), is such a concern;
(C) if a subcontractor for a small business
concern owned and controlled by women (as
defined in section 8(m)), is such a concern;
(D) if a subcontractor for a small business
concern owned and controlled by women (as
defined in section 8(m)) that is not less than
51 percent owned by 1 or more women who are
economically disadvantaged (and such ownership
is determined without regard to any community
property law), is such a concern;
(E) if a subcontractor for a qualified
HUBZone small business concern, is such a
concern; or
(F) if a subcontractor for a small business
concern owned and controlled by service-
disabled veterans, is such a concern.
SEC. 46. INSOURCING.
A Federal agency may only convert a function that is being
performed by a small business concern to performance by a
Federal employee if--
(1) the agency has made publicly available, after
providing notice and an opportunity for public comment,
the procedures of the agency with respect to decisions
to convert a function being performed by a small
business concern to performance by a Federal employee;
and
(2) the procedures described in paragraph (1) include
that all decisions described in such paragraph are
reviewed by any appropriate--
(A) Office of Small and Disadvantaged
Business Utilization; and
(B) procurement center representative.
Sec. [45.] 47. All laws and parts of laws inconsistent with
this Act are hereby repealed to the extent of such
inconsistency.
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TITLE 31, UNITED STATES CODE
* * * * * * *
SUBTITLE III--FINANCIAL MANAGEMENT
* * * * * * *
CHAPTER 35--ACCOUNTING AND COLLECTION
* * * * * * *
SUBCHAPTER V--PROCUREMENT PROTEST SYSTEM
Sec. 3551. Definitions
In this subchapter:
(1) The term ``protest'' means a written objection by
an interested party to any of the following:
(A) * * *
* * * * * * *
(F) Conversion of a function that is being
performed by a small business concern to
performance by a Federal employee.
(2) The term ``interested party''--
(A) with respect to a contract or a
solicitation or other request for offers
described in paragraph (1), means an actual or
prospective bidder or offeror whose direct
economic interest would be affected by the
award of the contract or by failure to award
the contract; [and]
(B) with respect to a public-private
competition conducted under Office of
Management and Budget Circular A-76 with
respect to the performance of an activity or
function of a Federal agency, or a decision to
convert a function performed by Federal
employees to private sector performance without
a competition under Office of Management and
Budget Circular A-76, includes--
(i) * * *
(ii) any one individual who, for the
purpose of representing the Federal
employees engaged in the performance of
the activity or function for which the
public-private competition is conducted
in a protest under this subchapter that
relates to such public-private
competition, has been designated as the
agent of the Federal employees by a
majority of such employees[.]; and
(C) with respect to a conversion described in
paragraph (1)(F), means a small business
concern (as that term is defined in section
3(a) of the Small Business Act) whose economic
interest would be affected by the conversion.
* * * * * * *