oversight

Proposed Minority Enterprise Act of 1977

Published by the Government Accountability Office on 1977-09-26.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         LCCUMENT FESUME
03855 - [B27339711

[Proposed Minority Enterprise Act of 1977]. September 26, 1977.
6 pp.
Testimony before the House Committee on Small Eusiness: Minority
Enterprise and General Oversight Subcommittee; by Richard W.
Gutmann, Director, Procu:ement and Systems kcgrisitions Div.

Issue Area: Federal Procurement of Goods and Services (1900).
Contact: Procurement and Systems Acquisition Div.
Budqet Function: General Government: Other General Government
     (806).
Organization Corcerred: Department of Defense.
Congressional Relevance: House Committee on Small Business:
    Minority Enterprise and General Oversight Subcommittee.
Authority: Minority Enterpsise Act of 1977; H.R. 567 (95th
    Cong.). Small Business Investment Act cf 1S58, as amended.
    40 U.S.C. 270. et seq. A.S.P.E. 7-104.36.
         The proposed Minority Enterprise Act of 1977 (H.R. 567)
would expand assistance to minority small busiress concerns,
provide statutory standards for contracting and subcontracting
with respect to such concerns, and create a commission on
Federal Assistance to Minority Enterprise. Small business
concerns owned by the named minority group members would
automatically be eligible for the kenefits conferred by the
bill, whether or not actual social or economic disadvantage
could be shown to exist. Since the intent of the bill is to
assist those who are unable to compete effectively without
special financial assistance, "minority group members" should be
eliminated as a separate eligibility category. A review of the
Department of Defense (DOD) Minority Business Interprise Program
indicated that prime contractor's xzograms'to award subcontracts
to minority enterprises were not as effective as they might be
and that more than one-third of the largest DOD contractors are
not required to participate in the program. Either the
discretion allowed to contracting officers with respect to the
insertion of the Minority Business Enterprise Subcontracting
Clause should be eliminated from the proposed legislation or
contracting officers should be required to document the record
whenever the clause is not to be included. (SC)
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%-C)                      United States General Accounting Office
ULr                             Washington, D.C. 20548
 o0

                                                         FOR RELEASE ON DELIVERY
                                                         EXPECTED AT 1:00 PM
                                                         September 26, 1977



                                    STATEMENT OF
                               R. W. GUTMANN, DIRECTOR
                   PROCUREMENT AND SYSTEMS ACQUISITION DIVISION ON

                    H. R. 567 THE MINORITY ENTERPRISE ACT OF 1977

                                      Before the
                   SUBCOMMITTEE ON MINORITY ENTERPRISE, AND GENERAL

                           OVERSIGHT, COMMITTEE ON SMALL BUSINESS

                           UNITED STATES HOUSE O p REPRESENTATIVES
            Mr. Chairman and Members of the Subcommittee:

                I am pleased to appear before your subcommittee today to
            present a statement on our views of H.R. 567, the Minority

            Enterprise Act of 1977,    This bill would expand assistance
            to minority small business concerns, provide statutory

            standards for contracting and subcontracting with respect

            to such concerns and create a commission on Federal Assis-

            tance to Minority Enterprise.

                On April 26, 1977, we provided to the Chairman, House
            Committee on Small Business a detailed technical analysis of

            H.R. 567 including suggested revisions, where appropriate.

                One fairly significant point in our letter bears

            repetition.    This concerns Section 105(3) of the bill which
would require that at least 25 percent of direct loan funds

be used for loans to "minority small business concerns," and

section 108(5) which would waive bonding requirements under

40 U.S.C. SS 270a et seq. for such concerns.    While the

definition of "minority small business concern" is not based

exclusively on specified race or ethnic group characteristics,

it appears that small business concerns owned by the named

minority group members would automatically be eligible for

the benefits conferred by the bill whether or not actual

social or economic disadvantage could be shown to exist.

Since the findings in section 2 of the bill indicate that

its intent is to assist those who are unable to compete

effectively without special financial assistance, we suggest

that the proposed new subsection 3(b) be amended by e]imi-

nating "minority group members" as a separate eligibility

category.   This can be accomplished by changing section 101

(b) on page 4 of the Act to read as follows:

            "For the purposes of this title, a minority

     small business concern shall be deemed to be a small

     business concern that is owned or controlled by

     socially or economically disadvantaged minority group

     members or other socially or economically disadvantaged

     individuals."

    If the suggested approach were followed, the practical

effect of basing eligibility on the existence of "social or

economic disadvantage" would be to promote the objectives

cf the bill--to assist minority small business concerns--

without actually conferring federal benefits on the basis of

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race or ethnic identity per se.     Also, the proposed languag_

would generally be consistent with the approach adopted in

section 301(d) of the Small Business Investment Act of
1958, as amended.

    As you know, we performed a review at the request of this

subcommittee, on how the Department of Defense Minority Business

Enterprise Program (MBE) was working.     Our report was issued on

February 28, 1977.    We found that prime contractor's programs

to award subcontracts to minority enterprises were not as

effective as they might be and more than one-third of the

largest DOD contractors are not required to participate

in the program.

    We recommended that the Secretary of Defense revise the

current contract clause to provide contractors with more

specific direction on increasing the involvement of minority

firms in subcontracting.    To accomplish this we said DOD

should:

    -- Include goals and objectives for 9rime contractors

      to achieve in identifying and soliciting minority firms

      capable of providing the required products

      and services.

    -- Define the role of responsible corporate liaison offi-

      cials, including their duties in program coordination

      and program implementation.

    -- Require contractors to record in summary form the

      number and value of solicitations made to minority

      businesses as well a3 awards to such businesses.

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We also recommended tnat the Department:

    -- Provide for more effective monitoring of the MBE

      subcontracting program through the development of
      performance standards to be used in evaluating prime

      contractors' ccrmpliance with the MBE subcontracting

      program contractual requirements.

    -- Provide specific guidance to procurement contracting

      officers to guide them in determining those contractors
      that should be required to implement an MBE subcontracting

      program.

    On July 5, 1977, the Department of Defense, in response

to recommendations made in our report, proposed certain changes

to the Minority Business Enterprise (MBE) Subcontracting Clause

in the Armed Services Procurement Regulation (ASPR) 7-104.36.

While we believe the proposed changes are generally responsive

to our first three recommendations, the DOD transmittal letter

to us did not have any specific changes with respect to our

last two recommendations concerning the need for (a) more

effective monitoring of the MBE Subcontracting Program through

the development of performance standards to be use' in

evaluating prime contractors' compliance with the MBE Subcon-

tracting Program contractual requirements and, (b) specific

guidance to procurement contracting officers to assist them

in determining those contractors that should be required

to implement an MBE Subcontracting Program.




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    We contacted an official in the Office of the Assistant

Secretary of Defense, I & L, who stated that visits ,3 con-

tractors by high ranking Department personnel and the setting

of goals for awards has effectively responded to our recommenda-

tion on development of performance standards.   We believe, however,
that more should be done and have suggested that the Department

of Defense develop specific standards for evaluating a contractor's

MBE program for use by the contract administration elements.

    We note that your bill deals with our second recommendation

discussed above that was not properly implemented by the Depart-

ment of Defense.   We note however, that in the Amendment to
Title III of the Federal Property and Administrative Service A-t

of 1949, Section 311 still would permit contracting officers

discretion as to whether or not the MBE subcontracting program

clause should be included in contracts over $500,000.

In our review, we found that many of the largest DOD prime con-

tractors were excluded from the program even though we have

little doubt that they have needs that could be filled by soli-

citing offers from minority business enterprise.

    The revised ASPR, MBE Subcontracting Clause currently being

considered by the Department of Defense states that, "The

following clause shall be included, in all contracts of

$500,000 or more and which, in the opinion of the contracting

officer, may offer subcontracting or other procurement oppor-

tunities for products and services for minority business

enterprises."



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    This is essentially the same language as previously con-

tained in the clause and leaves the insertion of the clause

to the contracting officer's discretion.

    We therefore suggest that either the discretion allowed
to contracting officers with respect ti;   insertion of the
clause be eliminated from your bill or that contracting officers

be required to document the record whenever the clause is

not to be included in any prime contract over $500,000.

    This completes our formal statement, Mr. Chairman.        I will
be glad to respond to any questions regarding our comments.




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