oversight

Small and Disadvantaged Businesses: Some Agencies' Advocates Do Not Report to the Required Management Level

Published by the Government Accountability Office on 2003-09-04.

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

                 United States General Accounting Office

GAO              Report to the Committee on Small
                 Business and Entrepreneurship, U.S.
                 Senate


September 2003
                 SMALL AND
                 DISADVANTAGED
                 BUSINESSES
                 Some Agencies’
                 Advocates Do Not
                 Report to the Required
                 Management Level




GAO-03-863

                 a

                                                September 2003


                                                SMALL AND DISADVANTAGED
                                                BUSINESSES

Highlights of GAO-03-863, a report to the       Some Agencies’ Advocates Do Not
Committee on Small Business and
Entrepreneurship, U.S. Senate                   Report to the Required Management
                                                Level


Section 15(k) of the Small Business             Almost half of the federal agencies that GAO reviewed were not in
Act requires that all federal                   compliance with section 15(k)(3) of the Small Business Act. Thirteen of the
agencies with procurement powers                24 agencies were in compliance—that is, the OSDBU director reported
establish an Office of Small and                directly to and was responsible only to the agency head or deputy head (see
Disadvantaged Business Utilization              table). Eleven agencies were not in compliance with the provision. At these
(OSDBU). This law is one of many
designed to enhance the
                                                11 agencies, the OSDBU director (1) reported to officials below the level of
participation of small and                      agency head or deputy head, (2) was not responsible only to the agency head
disadvantaged businesses in                     or deputy head but also to a lower level agency official, or (3) had delegated
federal procurement. Section                    the responsibilities of the OSDBU director to officials who did not report to
15(k)(3) of the act requires that               the agency head or the deputy head.
OSDBU directors, who are
intended to be advocates for small              Since Congress granted the Office of the Secretary of Defense an exemption
and disadvantaged businesses, be                from the section 15(k)(3) reporting requirement in 1988, the organizational
responsible only to and report                  reporting level of the OSDBU director has changed twice—in both cases to
directly to agency heads or deputy              lower levels. From 1989–96, the director reported to officials on the Under
agency heads. GAO was asked to                  Secretary of Defense level, one level below Deputy Secretary. Since 1996
determine compliance with section
15(k)(3) across the government,
                                                (except in 1999), the director has reported to officials on the Deputy Under
review to whom the OSDBU                        Secretary of Defense level, two reporting levels below Deputy Secretary.
director at the Office of the
Secretary of Defense has reported               OA likely is a “Federal agency with procurement powers” subject to the
since the office was exempted from              OSDBU requirements of section 15(k) of the Small Business Act. OA has
that provision, and determine                   procurement powers deriving from its authority to contract on behalf of
whether section 15(k) applies to                EOP. OA is a “federal agency” by virtue of its being an “agency” under the
the Office of Administration (OA),              Administrative Procedure Act (APA), which the Small Business Act adopts
which is the central procurement                by reference, and OA is an APA agency because it possesses the requisite
arm of the Executive Office of the              “substantial independent authority.”
President (EOP).
                                                Agency Compliance with Section 15 (k)(3) of the Small Business Act
                                                 Agency in compliance (13)                       Agency not in compliance (11)
GAO recommends that the heads of                 Defense Logistics Agency                        Department of Agriculture 

                                                 Department of Energy                            Department of Commerce 

agencies that were found not to be               Department of Housing and Urban Development     Department of Education 

in compliance with section 15(k)(3)              Department of Labor                             Department of Health and Human Services 

of the Small Business Act take all               Department of the Air Force                     Department of Justice 

of the necessary steps to comply                 Department of the Army                          Department of State 

with the requirement. In their                   Department of the Navy                          Department of the Interior 

                                                 Department of Transportation                    Department of the Treasury 

comments, the agencies agreed                    Department of Veterans Affairs                  Environmental Protection Agency 

with the report’s description of                 General Services Administration                 Federal Emergency Management Agency 

their OSDBU directors’ reporting                 National Aeronautics and Space Administration   Social Security Administration 

relationships; however, most                     Office of Personnel Management

disagreed with our conclusion that               U.S. Agency for International Development 

the reporting relationships did not             Source: GAO (analysis).
comply with the law.
www.gao.gov/cgi-bin/getrpt?GAO-03-863.

To view the full product, including the scope
and methodology, click on the link above.
For more information, contact David G. Wood
at (202) 512-8678 or woodd@gao.gov.
Contents




Letter
                                                                                                     1
                              Results in Brief 
                                                            3
                              Background                                                                    5

                              Almost Half of the Agencies We Reviewed Were Not Complying with

                                Section 15(k)(3) of the Small Business Act                                  7
                              Reporting Level of the OSDBU Director at the Office of the Secretary
                                of Defense Has Changed Twice                                               27
                              OA Likely Is Subject to the OSDBU Requirements of Section 15(k) of
                                the Small Business Act                                                     29
                              Conclusions                                                                  31
                              Recommendations                                                              31
                              Agency Comments and Our Evaluation                                           32


Appendixes
                Appendix I:   Twenty-four Agencies Covered by the Compliance Review                        39
               Appendix II:   Scope and Methodology                                                        40
              Appendix III:   Legal Analysis of the Applicability of Section 15(k) of the 

                              Small Business Act to the EOP’s Office of Administration                     42

                              Introduction and Summary of Conclusions                                      42

                              Background                                                                   42

                              Analysis                                                                     46

                              Conclusion                                                                   55

               Appendix IV:   Comments from the Department of Agriculture                                  56

               Appendix V:    Comments from the Department of Commerce                                     58

              Appendix VI:    Comments from the Department of Education                                    59

             Appendix VII:    Comments from the Department of Health and Human 

                              Services                                                                     60

             Appendix VIII:   Comments from the Department of Justice                                      63

              Appendix IX:    Comments from the Department of State                                        64

               Appendix X:    Comments from the Department of the Interior                                 67

              Appendix XI:    Comments from the Department of the Treasury                                 68

             Appendix XII:    Comments from the Social Security Administration                             70

             Appendix XIII:   Comments from the U.S. Agency for International 

                              Development                                                                  76





                              Page i                             GAO-03-863 Small and Disadvantaged Businesses
                           Contents




           Appendix XIV:   Comments from the Executive Office of the President, Office
                           of Administration                                                           78
           Appendix XV:    GAO Contact and Staff Acknowledgments                                       79
                           GAO Contacts                                                                79
                           Staff Acknowledgments                                                       79


Table                      Table 1: Summary of Agency Compliance with Section 15(k)(3) of
                                    the Small Business Act                                              3


Figures	                   Figure 1: The OSDBU Director’s Reporting Relationship at the 

                                      Department of the Interior
                                       9
                           Figure 2: The OSDBU Director’s Reporting Relationship at the 

                                      Department of Justice
                                           11
                           Figure 3: The OSDBU Director’s Reporting Relationship at the 

                                      Social Security Administration
                                  13
                           Figure 4: The OSDBU Director’s Reporting Relationship at the 

                                      Department of Commerce
                                          15
                           Figure 5: The OSDBU Director’s Reporting Relationship at the 

                                      Department of Education
                                         16
                           Figure 6: The OSDBU Director’s Reporting Relationship at the 

                                      Environmental Protection Agency
                                 17
                           Figure 7: The OSDBU Director’s Reporting Relationship at the 

                                      Department of Health and Human Services before March 

                                      2003
                                                            18
                           Figure 8: The OSDBU Director’s Reporting Relationship at the 

                                      Department of Agriculture
                                       21
                           Figure 9: The OSDBU Director’s Reporting Relationship at the 

                                      Department of the Treasury
                                      25
                           Figure 10: The OSDBU Director’s Reporting Relationship at the
                                      Department of State                                              26
                           Figure 11: Timeline of the OSDBU Director’s Reporting Relationship
                                      at the Office of the Secretary of Defense                        29




                           Page ii                           GAO-03-863 Small and Disadvantaged Businesses
Contents




Abbreviations

APA          Administrative Procedure Act

CFO          Chief Financial Officers

CICA         Competition in Contracting Act

DOD          Department of Defense

EOP          Executive Office of the President

EPA          Environmental Protection Agency

FAR          Federal Acquisition Regulation

FEMA         Federal Emergency Management Agency

FOIA         Freedom of Information Act

FRA          Federal Records Act

GSA          General Services Administration

HHS          Health and Human Services

NAS          National Academy of Sciences

NARA         National Archives and Records Administration 

OA           Office of Administration

ONDCP        Office of National Drug Control Policy

OSDBU        Office of Small and Disadvantaged Business Utilization

OST          Office of Science and Technology

JAG         Judge Advocate General of the Army


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Page iii                                  GAO-03-863 Small and Disadvantaged Businesses
A

United States General Accounting Office
Washington, D.C. 20548



                                    September 4, 2003


                                    The Honorable Olympia J. Snowe

                                    Chair

                                    The Honorable John F. Kerry

                                    Ranking Minority Member

                                    Committee on Small Business and Entrepreneurship

                                    United States Senate


                                    During the last 25 years, Congress has enacted several laws designed to

                                    enhance small business participation in procurement by federal agencies—

                                    a market that reached more than $250 billion in fiscal year 2002. One of 

                                    these laws—Public Law 95-507, enacted in 1978—amended section 15 of 

                                    the Small Business Act (15 U.S.C. § 644) to require all federal agencies with 

                                    procurement powers to establish an Office of Small and Disadvantaged 

                                    Business Utilization (OSDBU). Under this act, the OSDBU is responsible 

                                    for overseeing the agency’s functions and duties related to the awarding of 

                                    contracts and subcontracts to small and disadvantaged businesses.

                                    Congress intended that OSDBU directors serve in their respective agencies

                                    as advocates for small and disadvantaged businesses. 


                                    One specific provision of the act—section 15(k)(3)—requires that OSDBU 

                                    directors be responsible only to agency heads or deputy heads, and that 

                                    they report directly to these individuals. The purpose of this provision is to 

                                    ensure that the OSDBU directors have immediate access to their agency’s 

                                    top decision-makers in order to advocate effectively for small and 

                                    disadvantaged businesses. In 1988, Congress amended section 15(k)(3) and 

                                    allowed the Department of Defense’s (DOD) Secretary of Defense the 

                                    discretion to designate the official to whom the Defense OSDBU director 

                                    should report.1 The OSDBU director of the Office of the Secretary of

                                    Defense is the only director exempted from the reporting requirement in 

                                    section 15(k)(3).2



                                    1
                                     DOD does not have a single OSDBU director for the entire agency. The services
                                    (Departments of the Air Force, Army, and Navy) and other DOD command units have
                                    established separate OSDBUs, each of which is headed by a director. These organizational
                                    units carry out procurement for most of DOD. The DOD agencies refer to their offices as
                                    Small and Disadvantaged Business Utilization, or SADBUs. For simplicity, we use the term
                                    OSDBU for all agencies in our study.
                                    2
                                     The Office of the Secretary of Defense is the principal staff element of the Secretary of
                                    Defense in the exercise of policy development, planning, resource management, and fiscal
                                    and program evaluation responsibilities.




                                    Page 1                                     GAO-03-863 Small and Disadvantaged Businesses
The Executive Office of the President (EOP) is a group of offices that
provide policy and administrative support to the President. Offices within
EOP include the Council of Economic Advisers, the Council of
Environmental Quality, the National Security Council, and the Office of
Management and Budget. In addition, EOP includes the Office of
Administration (OA), which is responsible for administrative support for all
of EOP’s offices.

As requested, we determined (1) whether the reporting relationships for
the OSDBU directors at major federal agencies comply with section
15(k)(3) of the Small Business Act, (2) to whom the OSDBU director at the
Office of the Secretary of Defense has reported since 1988, and (3) whether
section 15(k) of the Small Business Act applies to EOP’s OA. As agreed
with your staffs, we will provide you at a later date with an additional
report describing OSDBU duties and functions at the major federal
agencies.

To determine agency compliance with section 15(k)(3), we first identified
the designated OSDBU director at each of the 24 federal agencies that
procured $200 million or more in goods and services in fiscal year 2001 (see
app. I).3 We determined that agencies were in compliance where the
designated OSDBU director both exercised the OSDBU responsibilities set
forth in section 15(k)(4)-(10) of the Small Business Act, and reported
directly to and was responsible only to the agency head or agency head’s
deputy. To reach our determinations, we considered information provided
by the designated directors and documentary evidence. Using a written
questionnaire, we asked each designated director to identify the official(s)
to whom he or she reported during the past year (March 2002 - March 2003)
and to provide information characterizing the reporting relationship, such
as the extent to which small business issues were discussed. In addition,
we reviewed documentary evidence, including: organizational charts,
OSDBU directors’ performance appraisals and position descriptions, and
memorandums or reports discussing the agencies’ small business programs
that were submitted to the agency head or the deputy head. We did not
review the effectiveness of any agency’s OSDBU or small business
programs. To determine the reporting levels of officials to whom the


3
 One agency—the Federal Emergency Management Agency (FEMA)—is no longer
independent, having become part of the Department of Homeland Security in March 2003.
Because FEMA was independent during the period of our review, we included it in our
review and are reporting on it as an independent agency.




Page 2                                  GAO-03-863 Small and Disadvantaged Businesses
                     OSDBU director within the Office of the Secretary of Defense has reported
                     since 1988, we reviewed documentation from the Secretary’s office and
                     interviewed the appropriate officials. To determine whether section 15(k)
                     applies to EOP’s OA, we analyzed relevant laws, legislative history, and
                     court cases. A more detailed description of our scope and methodology is
                     discussed in appendix II. We conducted our work in Washington, D.C.,
                     between October 2002 and July 2003 in accordance with generally accepted
                     government auditing standards.



Results in Brief 	   The reporting relationships for OSDBU directors at 13 of the 24 agencies
                     that we reviewed complied with section 15(k)(3) of the Small Business
                     Act—that is, the OSDBU director reported directly to and was responsible
                     only to the agency head or deputy head (see table 1). The reporting
                     relationships for OSDBU directors at 11 of the 24 agencies were not in
                     compliance with section 15(k)(3).



                     Table 1: Summary of Agency Compliance with Section 15(k)(3) of the Small
                     Business Act

                     Agency in compliance (13)                     Agency not in compliance (11)
                     Defense Logistics Agency
                     Department of Agriculture 

                     Department of Energy
                         Department of Commerce

                     Department of Housing and Urban 
             Department of Education

                     Development
                                  Department of Health and Human Services

                     Department of Labor 
                         Department of Justice

                     Department of the Air Force
                  Department of State

                     Department of the Army
                       Department of the Interior

                     Department of the Navy
                       Department of the Treasury

                     Department of Transportation
                 Environmental Protection Agency

                     Department of Veterans Affairs
               Federal Emergency Management Agency

                     General Services Administration
              Social Security Administration

                     National Aeronautics and Space

                     Administration

                     Office of Personnel Management

                     U.S. Agency for International Development 

                     Source: GAO (analysis).


                     At the 13 complying agencies, the OSDBU directors stated that they
                     reported directly to and were responsible only to the agency head or the
                     deputy head. Further, agency documentation generally showed that
                     relationship: the organizational chart showed a direct organizational link
                     between the OSDBU and agency head or deputy head, the agency head or



                     Page 3                                   GAO-03-863 Small and Disadvantaged Businesses
deputy head rated the OSDBU director’s performance, the OSDBU
director’s position description identified one of the top agency officials as
the director’s supervisor, and the OSDBU director’s memorandums or
reports on small business contracting were provided to the agency head or
deputy head. At the 11 agencies that were not in compliance, we found a
variety of reporting arrangements. At 4 of the agencies, the OSDBU
directors told us that they reported to a lower level official than the agency
head or deputy head. Also, agency documents generally indicated that the
OSDBUs were not organizationally linked to the agency head or deputy
head and that a lower level official, such as an assistant secretary or a
division director, evaluated the OSDBU director’s performance. At another
4 of the 11 agencies that were not in compliance, we found that the OSDBU
directors were responsible not only to the agency head or the deputy head,
but also were responsible to lower level officials. At these agencies,
documentary evidence indicated that lower level officials had a supervisory
relationship with the OSDBU director. At the remaining 3 noncomplying
agencies, we found that the designated OSDBU directors had delegated
their responsibilities to others, generally lower level officials who did not
report to either the agency head or the deputy head.

Since Congress granted the Office of the Secretary of Defense an
exemption from the section 15(k)(3) reporting requirement in 1988, the
organizational reporting level of the OSDBU director for the Office of the
Secretary of Defense has changed twice—in both cases to lower levels.
From 1989 through 1996, the OSDBU director reported to officials at the
level of Under Secretary of Defense, the level immediately under the
Deputy Secretary of Defense. Since 1996, with the exception of one year—
1999—the OSDBU director has reported to officials at the level of Deputy
Under Secretary of Defense, two reporting levels below the Deputy
Secretary of Defense.

We believe OA is a “Federal agency with procurement powers” subject to
the OSDBU requirements of section 15(k), although no court to date has
directly addressed this issue. OA has procurement powers because of its
authority to contract on behalf of EOP. We believe OA is a “Federal agency”
by virtue of its being an “agency” under the Administrative Procedure Act
(APA), which the Small Business Act adopts by reference. Several courts
have implicitly found that OA is an “agency” under the APA. In addition, OA
has a wide range of statutory and other significant responsibilities and,
therefore, exercises the requisite “substantial independent authority” that
is necessary to constitute an “agency” under the APA.




Page 4                              GAO-03-863 Small and Disadvantaged Businesses
              We are making recommendations to 10 of the 11 agencies that we found to
              be not in compliance with section 15(k)(3) of the Small Business Act.4 We
              recommend that the agency heads at these agencies take steps to ensure
              that the OSDBU directors are responsible only to and report directly to the
              head or deputy head of the agency.

              We sent a draft of this report to all 24 agencies for their comments. All of
              the agencies that we concluded were not complying with section 15(k)(3)
              of the Small Business Act provided us with comments. Generally, they
              agreed with the report’s description of their OSDBU directors’ reporting
              relationships, but most disagreed with our conclusion that the reporting
              relationships did not comply with section 15(k)(3). However, none of the
              legal arguments that the agencies raised caused us to revise our
              conclusions or recommendations. In addition, we provided a draft of our
              legal opinion on the applicability of section 15(k) of the Small Business Act
              to OA. OA declined to comment on the draft report. It also stated that its
              declination to comment did not indicate agreement with our conclusions,
              citing the court’s decision in Haddon v. Walters, 43F.3d 1488 (D.C. Cir.
              1995).



Background	   The U.S. government buys a myriad of goods and services through private
              contractors. In fiscal year 2002, the federal government awarded $250.2
              billion in contracts. It has been the government’s long-standing policy to
              maximize procurement opportunities for small business, small
              disadvantaged business, and women-owned business. The Small Business
              Act has been amended several times to increase small business
              participation in the federal procurement marketplace. For example, the
              Business Opportunity Development Reform Act of 1988 amended the Small
              Business Act to require the President to establish an annual
              governmentwide goal of awarding not less than 20 percent of prime
              contract dollars to small businesses. The Small Business Reauthorization
              Act of 1997 further amended the Small Business Act to increase the goal to
              not less than 23 percent. The Small Business Administration assigns small
              business prime contract goals to federal agencies, which include all small




              4
               We are not making a recommendation for FEMA because it no longer exists as an
              independent agency.




              Page 5                                   GAO-03-863 Small and Disadvantaged Businesses
business categories.5 Although the Small Business Administration is
responsible for coordinating with executive branch agencies to ensure that
the federal government meets the mandated goal, agency heads are
responsible for achieving the small business goals within their agencies.

In 1978, Congress enacted Public Law 95-507, which amended section 15(k)
of the Small Business Act, by requiring each federal agency having
procurement powers to establish an OSDBU and the agency head to
appoint a director of the OSDBU. The purpose of the law was to create an
advocate for small and disadvantaged businesses within each federal
agency. A 1978 report by the Senate Select Committee on Small Business
noted that officials who were responsible for advocating small business
participation in federal government procurements often did not hold high
enough positions in the agency to be effective. The law mandates a direct
reporting relationship, whereby the OSDBU director is responsible only to
and reports directly to the agency head or deputy head. In addition, the law
specifies a number of duties and functions that the OSDBU director is
responsible for carrying out. These include having supervisory authority
over the OSDBU’s staff; implementing and executing the functions and
duties under sections 8, 15, and 31 of the Small Business Act; and
identifying proposed solicitations that involve the bundling of contract
requirements.6

Before 1987, the OSDBU director at the Office of the Secretary of Defense
reported to the Deputy Secretary of Defense. In 1987, Congress created the
position of Under Secretary of Defense for Acquisition at DOD, a position
considered to be chief of procurement. In conjunction with the new
position, Congress mandated that the OSDBU director report to the Under
Secretary of Defense for Acquisition. One year later, Congress passed
Public Law 100-656, which gave the Secretary of Defense the discretion to
designate the individual to whom the OSDBU director would report.
Section 15(k)(3) now reads, in relevant part, as follows:



5
 The small business categories include small business; women-owned small business;
section 8(a) business; small disadvantaged businesses; HUBZone small business; veteran-
owned small business; and service-disabled, veteran-owned small business.
6
 The Small Business Reauthorization Act of 1997 defines the bundling of contract
requirements as the consolidation of two or more procurement requirements for goods or
services previously provided or performed under separate, smaller contracts into a
solicitation of offers for a single contract that is likely to be unsuitable for award to a small
business concern.




Page 6                                        GAO-03-863 Small and Disadvantaged Businesses
                           “The management of each such office shall be vested in an officer or employee of such
                           agency or employee of such agency who shall be responsible only to, and report directly to,
                           the head of such agency or to the deputy of such head except that the director for the Office
                           of the Secretary of Defense shall be responsible only to, and report directly to, such
                           Secretary or the Secretary’s designee.”




Almost Half of the         While 13 of the 24 agencies we reviewed were in compliance with section
                           15(k)(3) of the Small Business Act, we found that almost half (or 11) were
Agencies We Reviewed       not in compliance because the OSDBU director did not directly report to
Were Not Complying         and was not responsible only to the agency head or deputy agency head.
with Section 15(k)(3)
of the Small Business
Act

The OSDBU Directors Were   At each of the 13 complying agencies, the OSDBU director stated that he or
Reporting to the Agency    she reports only to the agency head or the deputy head for the purposes of
                           carrying out OSDBU duties and functions. All 13 agencies’ organizational
Head or Deputy Agency      charts showed that the OSDBU was organizationally linked to the agency’s
Head at 13 Agencies        top decision-makers. Other documents also demonstrated this relationship,
                           as follows:

                           •	 At 11 of the 13 agencies (the Defense Logistics Agency, Department of
                              the Air Force, Department of the Army, Department of Housing and
                              Urban Development, Department of Labor,7 Department of the Navy,
                              Department of Veterans Affairs,8 General Services Administration
                              (GSA), National Aeronautics and Space Administration, Office of
                              Personnel Management, and U.S. Agency for International
                              Development), the OSDBU directors’ position descriptions designate
                              the agency head or the deputy head as the supervisor; the OSDBU
                              directors’ performance appraisals were signed by the agency head or the
                              deputy; and documents showed that the OSDBU directors periodically


                           7
                            The OSDBU director position at Labor became vacant in April 2002; a new OSDBU director
                           assumed his position on April 21, 2003.
                           8
                            Although the director’s position description, dated 1988, identified the supervisor as the
                           Associate Deputy Administrator for Logistics, the OSDBU director’s most recent
                           performance appraisal indicated that the agency head evaluated the performance of the
                           OSDBU director.




                           Page 7                                      GAO-03-863 Small and Disadvantaged Businesses
                                    provided information regarding the agency’s small business programs,
                                    such as to the agency head or deputy.9

                               •	 At 2 agencies (the Departments of Transportation and Energy), the
                                  documents we obtained indicated a direct reporting relationship;
                                  however, we could not obtain the OSDBU directors’ performance
                                  appraisals that were signed by the agency head or deputy head for the
                                  following reasons:

                                    •	 At Transportation, the Secretary of Transportation’s Chief of Staff
                                       signed the director’s performance appraisal.10 However, the OSDBU
                                       director’s position description indicated that the Secretary was the
                                       OSDBU director’s supervisor.

                                    •	 At Energy, the OSDBU director is a Senate-confirmed presidential
                                       appointee. According to the OSDBU director, she does not receive
                                       written performance appraisals.



Eleven Agencies Were Not       Eleven agencies did not comply with section 15(k)(3) (see table 1). At these
in Compliance with Section     agencies, the OSDBU directors (1) reported to lower level officials than the
                               agency head or deputy; (2) were not responsible only to the agency head or
15(k)(3)
                               deputy head, but also were responsible to a lower level agency official; or
                               (3) had delegated their OSDBU director responsibilities to officials who do
                               not report to either the agency head or the deputy head. We believe these
                               arrangements are contrary to the intent of the law, which is that the official
                               carrying out the OSDBU function have direct access to the agency head or
                               deputy head.

At Four Agencies, OSDBU        At the Departments of the Interior and Justice, the Federal Emergency
Directors Did Not Directly     Management Agency (FEMA), and the Social Security Administration, the
Report to the Agency Head or   OSDBU directors did not report to the agency head or deputy head. At
Deputy Head                    these agencies, the OSDBU director reported to a lower level official who
                               oversaw the agency’s management or finance division.


                               9
                                GSA could not provide us with any formal reports because of the high turnover rate of the
                               OSDBU director position since 2000.
                               10
                                In a memorandum dated January 25, 2001, the Chief of Staff is delegated with the authority,
                               by the Secretary, to take personnel actions, including the authority to certify, on behalf of
                               the Secretary, all personnel documents.




                               Page 8                                     GAO-03-863 Small and Disadvantaged Businesses
The Department of the Interior

The OSDBU director at Interior reported to the Deputy Assistant Secretary
for Budget and Finance for administrative matters and to the Assistant
Secretary for Policy, Management, and Budget and the Chief Financial
Officer (CFO) for policy matters (see fig. 1). On the basis of Interior’s
organizational chart, the OSDBU is directly linked to the Assistant
Secretary for Policy, Management, and Budget and the CFO. The OSDBU
director told us that he met with the Assistant Secretary for Policy,
Management, and Budget and the CFO or the Deputy Assistant Secretary
on small business contracting issues on a regular basis and on a key issue
basis. Both the performance appraisal and the position description
confirmed that the Assistant Secretary for Policy, Management, and Budget
and the CFO was the OSDBU director’s reporting official.



Figure 1: The OSDBU Director’s Reporting Relationship at the Department of the
Interior

                                               Secretary

                                            Deputy Secretary


                                                     Assistant Secretary
                                                  for Policy, Management,
                                                         and Budget
                                                 and Chief Financial Officer

                                                 Deputy Assistant Secretary
                                                  for Budget and Finance


                                                           OSDBU
                                                           Director



          Mandated reporting relationship

          Actual reporting relationship
Source: GAO (analysis).




Page 9                                           GAO-03-863 Small and Disadvantaged Businesses
The Department of Justice

As shown in figure 2, the OSDBU director at Justice reported to the Deputy
Assistant Attorney General for Policy, Management, and Planning.
According to Justice’s organizational chart, the OSDBU was located within
the Justice Management Division, with the OSDBU director under the
supervision of the Deputy Assistant Attorney General Policy, Management,
and Planning. The OSDBU director told us that he did not report to the
Attorney General or Deputy Attorney General (the agency head and deputy
head, respectively) on any matters from March 2002 to 2003, the time frame
covered by our study. The Deputy Assistant Attorney General for Law and
Policy11 evaluated the director’s performance, and the Assistant Attorney
General for Administration, who headed the Justice Management Division,
reviewed the director’s ratings. The reporting relationship between the
OSDBU director and the Deputy Assistant Attorney General has been long-
standing. The OSDBU director’s position description, dated 1981, identified
the director’s supervisor at the Deputy Assistant Attorney General level.




11
   According to a Department of Justice staff member, in 2002, the title of Deputy Assistant
Attorney General for Law and Policy was changed to the title of Deputy Assistant Attorney
General Policy, Management, and Planning.




Page 10                                    GAO-03-863 Small and Disadvantaged Businesses
Figure 2: The OSDBU Director’s Reporting Relationship at the Department of Justice


                          Attorney General

                   Deputy Attorney General



                                                Assistant Attorney
                                             General for Administration


                                                                      Deputy Assistant
                                                                      Attorney General
                                                             Policy, Management, and Planning



                                                                          OSDBU
                                                                          Director


          Mandated reporting relationship

          Actual reporting relationship
Source: GAO (analysis).




The Federal Emergency Management Agency

Before it was absorbed into the Department of Homeland Security, FEMA
was not in compliance with section 15(k)(3). The OSDBU director position
had been vacant for 2 years, and a FEMA employee in the Financial and
Acquisition Management Division carried out the OSDBU functions on a
part-time basis. This employee told us that she did not report directly to
FEMA’s top decision-makers. FEMA became part of the Department of
Homeland Security in March 2003 and ceased to be an independent agency.
According to the Department of Homeland Security’s organizational chart,
the agency has established an OSDBU that is organizationally linked to the
Secretary.

The Social Security Administration

Because the OSDBU director reports to neither the Social Security
Administration’s Commissioner nor the Deputy Commissioner, we
concluded that the Social Security Administration is not complying with



Page 11                                            GAO-03-863 Small and Disadvantaged Businesses
section 15(k)(3). The Social Security Administration’s OSDBU director
reported to the Deputy Commissioner, Office of Finance, Assessment, and
Management, who is one of a number of deputy commissioners managing
various programs and operations (see fig. 3). The OSDBU director told us
that he reports to the Deputy Commissioner, Office of Finance,
Assessment, and Management. He does not report to the Commissioner or
the Deputy Commissioner of the Social Security Administration. Both the
OSDBU director’s position description and performance appraisals were
signed by the Deputy Commissioner, Office of Finance, Assessment, and
Management.

Officials at the Social Security Administration advised us that, on the basis
of a 1999 opinion of its Office of General Counsel, the agency is in
compliance with section 15(k)(3). The primary argument underpinning the
opinion is that the Deputy Commissioner of Finance, Assessment, and
Management reports to the agency head, and that therefore the reporting
relationship of the OSDBU director to the Deputy Commissioner of
Finance, Assessment, and Management is appropriate. The opinion stated
that the Small Business Act does not define what is meant by the term
“deputy.” At the Social Security Administration, each of the eight Deputy
Commissioners, including the Deputy Commissioner of Finance,
Assessment, and Management, as well as the General Counsel and the
Chief Actuary, report directly to the Commissioner. According to the Social
Security Administration’s General Counsel Office, each of them could be
considered to have the status of a “deputy” to the Commissioner, unless
more is required by a specific statute or regulation. Thus, each of these
individuals could be considered to have the status of deputy for purposes
of section 15(k)(3).

We disagree with the Social Security Administration’s legal analysis of
section 15(k)(3) and conclude that the Social Security Administration is not
complying with the provision. Section 15(k)(3) mandates that the OSDBU
director report to the agency head or “the deputy of such head,” that is, the
second-in-command. The legislative history of section 15(k)(3) supports
this analysis. The conference report to the 1978 legislation, establishing the
OSDBU, stated that the office would be “directed by an employee of that
agency, who would report to the head of the agency or his deputy (i.e., the
second ranking person in that agency).”12 [Emphasis supplied.] Moreover,
the Senate report to the legislation stated, “these directors would report


12
     H.R. Conf. Rep. No 1714, 95th Cong. 2d Sess. 18 (1978).




Page 12                                        GAO-03-863 Small and Disadvantaged Businesses
directly to the agency head or an official not less than one level of
responsibility lower than the agency head.” 13 [Emphasis supplied.]

The Social Security Administration has a Deputy Commissioner who has
been designated as the second-in-command. The Social Security
Administration’s organizational manual states that the Deputy
Commissioner of Social Security is to serve as the Acting Commissioner in
the Commissioner’s absence. The manual, in describing the functions of the
Commissioner’s Office, also states that both the Commissioner and the
Deputy Commissioner of Social Security provide executive leadership to
the Social Security Administration and exercise general supervision over
its major components. Finally, according to the manual, the Deputy
Commissioner of Social Security assists the Commissioner in carrying out
his or her responsibilities and performs other duties as the Commissioner
may prescribe.



Figure 3: The OSDBU Director’s Reporting Relationship at the Social Security
Administration

                                     Commissioner

                                Deputy Commissioner


                                                         Deputy Commissioner,
                                                    Office of Finance, Assessment,
                                                           and Management

                                                    Assistant Deputy Commissioner



                                                              OSDBU
                                                              Director



           Mandated reporting relationship

           Actual reporting relationship
Source: GAO (analysis).




13
     S. Rep. No. 1070, 95th Cong., 2d Sess. 18 (1978).




Page 13                                             GAO-03-863 Small and Disadvantaged Businesses
At Another Four Agencies,        We found the Departments of Commerce, Education, and Health and
OSDBU Directors Are Not          Human Services (HHS) and the Environmental Protection Agency (EPA)
Responsible Only to the Agency   not to be in compliance with section 15(k)(3) because the OSDBU directors
Head or Deputy Head              were not responsible only to the agency head and the deputy head.
                                 Although evidence indicated that the OSDBU directors at these agencies
                                 reported at times to the agency head or deputy, the position descriptions
                                 and the performance evaluations identified lower level agency officials as
                                 the OSDBU directors’ supervisors.

                                 The Department of Commerce

                                 The OSDBU director at Commerce told us that for administrative matters,
                                 such as budget, personnel, and space, he reported to a CFO/Assistant
                                 Secretary for Administration, but reported to the Deputy Secretary for
                                 small business policy matters. However, we found that Commerce’s
                                 organizational chart directly linked the OSDBU to the CFO/Assistant
                                 Secretary for Administration, which is one level below the Deputy
                                 Secretary. Further, the performance appraisals showed that the
                                 CFO/Assistant Secretary for Administration evaluated the OSDBU director,
                                 while the position description did not identify the director’s supervisor.
                                 Also, according to a Commerce order that describes the functions of the
                                 OSDBU, the director is to appeal to the CFO/Assistant Secretary for
                                 Administration when internal disputes arise or when the director
                                 determines that the procuring or program area is not providing adequate
                                 opportunity to small and disadvantaged businesses (see fig. 4).




                                 Page 14                            GAO-03-863 Small and Disadvantaged Businesses
Figure 4: The OSDBU Director’s Reporting Relationship at the Department of
Commerce

                                               Secretary

                                            Deputy Secretary


                                             Chief Financial Officer/
                                              Assistant Secretary
                                               for Administration




                                                               OSDBU
                                                               Director



          Mandated reporting relationship

          Actual reporting relationship
Source: GAO (analysis).



The Department of Education

The OSDBU director at Education was responsible not only to the
Secretary or Deputy Secretary, but she also was responsible to the Deputy
Secretary’s Chief of Staff. The OSDBU director told us that she reported to
the Deputy Secretary, and that her office is located within the Deputy
Secretary’s office. She told us that she met with the Deputy Secretary 3 to 4
times from March 2002 to March 2003. The Deputy Secretary’s Chief of
Staff told us that the OSDBU director can meet with the Deputy Secretary
whenever she believes it necessary, even though the Deputy Secretary
assigned the administrative aspects pertaining to the OSDBU director to
the Chief of Staff. However, documentary evidence indicated that the
OSDBU director was not always directly reporting to the Deputy Secretary
and often went through the Deputy Secretary’s Chief of Staff (see fig. 5).
OSDBU employees, including the OSDBU director, told us that all of their
reports and memorandums were sent through the Chief of Staff before
going to the Deputy Secretary. Moreover, the Chief of Staff signed the
OSDBU director’s performance appraisal for the last 2 years. According to
Education officials, evaluating the performance of the OSDBU director is
part of the Chief of Staff’s responsibilities.



Page 15                                           GAO-03-863 Small and Disadvantaged Businesses
Figure 5: The OSDBU Director’s Reporting Relationship at the Department of
Education


                                                Secretary

                                            Deputy Secretary



                                            Deputy Secretary's
                                              Chief of Staff




                                                            OSDBU
                                                            Director



          Mandated reporting relationship

          Actual reporting relationship
Source: GAO (analysis).



The Environmental Protection Agency

The OSDBU director at EPA is not responsible only to the Administrator or
the Deputy Administrator (see fig. 6). The OSDBU director told us that she
met with the Administrator approximately 4 times from March 2002 to
March 2003 to discuss small business contracting issues. Also, her position
description, last updated in 1984, identified her supervisor as the Deputy
Administrator, and EPA’s organizational chart indicated that the OSDBU
director was organizationally linked to the Administrator. However, the
OSDBU director told us that she reported to the Deputy Chief of Staff for
the day-to-day operations and all matters related to small business
programs. Also, the performance appraisal indicated that the
Administrator’s Deputy Chief of Staff evaluated the OSDBU director’s
performance.




Page 16                                            GAO-03-863 Small and Disadvantaged Businesses
Figure 6: The OSDBU Director’s Reporting Relationship at the Environmental
Protection Agency


                                               Administrator

                                            Deputy Administrator



                                            Deputy Chief of Staff




                                                             OSDBU
                                                             Director



          Mandated reporting relationship

          Actual reporting relationship
Source: GAO (analysis).



The Department of Health and Human Services

The OSDBU director at HHS informed us that she reported to the Deputy
Secretary on high-level policy issues, such as small business procurement,
goal setting and achievement, contract bundling, and overall support for
the small business program. However, she advised us that she coordinated
with the Acting Deputy Assistant Secretary for Grants and Acquisition
Management for at least some small business issues—what she categorized
as the day-to-day issues affecting the small business community, as well as
budget and personnel issues (see fig. 7). The HHS organization chart linked
the OSDBU with the Assistant Secretary for Administration and
Management. Further, the OSDBU director’s position description and
performance appraisal showed that a supervisory relationship existed
between the Deputy Assistant Secretary for Grants and Acquisition
Management and the OSDBU director. The only evidence we found that the
OSDBU director had reported to the Deputy Secretary on small business
issues was one statement from the OSDBU director—that is, between
March 2002 and March 2003, she met with the Deputy Secretary once to
discuss small business contracting issues. The agency did not provide us




Page 17                                             GAO-03-863 Small and Disadvantaged Businesses
with any documentary information that indicated the OSDBU director
reports to the Deputy Secretary on any matters.

Since March 2003, HHS has reorganized some of its components. As of June
19, 2003, the OSDBU director is located in the Office of the Director for
Acquisition Management and Policy, which is located within the Office of
the Assistant Secretary for Administration and Management.14 The notice in
the Federal Register announcing HHS’s reorganization stated that the
OSDBU director reports directly to the Deputy Secretary, with the day-to-
day operational support provided by the Office of Acquisition Management
and Policy. However, as discussed in the agency comments section of this
report, it is unclear whether the Deputy Secretary is the only official to
whom the OSDBU director is responsible.



Figure 7: The OSDBU Director’s Reporting Relationship at the Department of Health
and Human Services before March 2003


                                                Secretary

                                             Deputy Secretary



                                                    Assistant Secretary
                                                     for Administration
                                                     and Management


                                                    Deputy Assistant
                                                 Secretary for Grants and
                                                 Acquisition Management



                                                         OSDBU
                                                         Director



           Mandated reporting relationship

           Actual reporting relationship
Source: GAO (analysis).




14
     68 Fed. Reg. 36811 (2003).




Page 18                                            GAO-03-863 Small and Disadvantaged Businesses
                                  Note: This figure represents the reporting relationship during the period covered by our review (March
                                  2002 to March 2003).


Agriculture, the Treasury, and    We found that the Departments of Agriculture, the Treasury, and State were
State Were Not in Compliance      not complying with section 15(k)(3) because their designated OSDBU
Because the OSDBU Directors       directors delegated all of their OSDBU director responsibilities to officials
Delegated Their OSDBU             who do not directly report to either the Secretaries or Deputy Secretaries.
Responsibilities to Lower Level   At each agency, an Assistant Secretary who manages the agency’s
Officials                         administrative functions was designated as the statutory OSDBU director.
                                  The Assistant Secretaries then delegated nearly all of their OSDBU
                                  responsibilities to lower ranking officials, who reported directly to the
                                  Assistant Secretaries. The lower ranking officials thus became the de facto
                                  OSDBU directors. These arrangements, whereby an Assistant Secretary for
                                  management or administration has delegated nearly all of the
                                  responsibilities of the OSDBU director to a lower level official, maintaining
                                  only the title of OSDBU director, defeats the purpose of section 15(k)(3).
                                  Congress assigned to the OSDBU director specific responsibilities to
                                  ensure that small and disadvantaged businesses received a fair portion of
                                  federal procurements. To ensure that these responsibilities were effectively
                                  implemented, Congress also mandated that the OSDBU director—that is,
                                  the person actually carrying out the responsibilities—have immediate
                                  access and be responsible only to the agency head or deputy head.
                                  Consistent with the explicitly specified reporting relationship, the
                                  legislative history of the reporting requirements reveals congressional
                                  frustration with a system that kept those whose principal job was the
                                  promotion of procurement opportunities for small and disadvantaged
                                  businesses in the lower echelons of federal agencies. As the Senate Select
                                  Committee on Small Business reported:

                                  “[Many] small business officials…are located in the lower echelons of the bureaucracy and,
                                  therefore, are unable to advocate or effectively assist in the procurement of contracts for
                                  small businesses. The committee believes that the small business procurement officers
                                  must have direct access to top level agency policymakers to improve their effectiveness as
                                  small business advocates.”15

                                  The reporting relationships at Agriculture, State, and Treasury, in which the
                                  official responsible for the OSDBU function has no direct access to the



                                  15
                                     S. Rept. No. 1070, 95th Cong.2d Sess. 18 (1978). See also S. Rept. No. 1140, 95th Cong., 9
                                  (1978); H.R. Conf. Rep. No. 1714, 95th Cong. 2d Sess. 27 (1978); and H.R. Rep. No. 460, 100th
                                  Cong., 1st Sess. 40 (1987).




                                  Page 19                                         GAO-03-863 Small and Disadvantaged Businesses
agency head or deputy head, is precisely the structure Congress intended
to avoid.

The Department of Agriculture

Agriculture designated the Assistant Secretary for Administration by the
additional title of Director of Small and Disadvantaged Business
Utilization, the statutory title mandated by section 15(k) for agency OSDBU
directors. The Assistant Secretary reported to the Secretary and the Deputy
Secretary of Agriculture16 (see fig. 8). On the basis of Agriculture’s
organizational chart, the Assistant Secretary was linked to the Secretary
and the Deputy Secretary. However, the Assistant Secretary delegated
nearly 100 percent of his OSDBU responsibilities to a lower level official
whose title is very similar—that is, Director, Office of Small and
Disadvantaged Business Utilization (hereafter Delegated Director)—and
who reported to the Assistant Secretary.




16
   The Assistant Secretary for Administration, who served as the OSDBU director during the
period covered by our study, retired as of June 30, 2003. Subsequently, the Acting Assistant
Secretary for Administration was appointed the OSDBU director.




Page 20                                    GAO-03-863 Small and Disadvantaged Businesses
Figure 8: The OSDBU Director’s Reporting Relationship at the Department of
Agriculture


                                                     Secretary

                                                 Deputy Secretary


                                                 Assistant Secretary
                                                  for Administration
                                            (designated OSDBU director)



                                                 Director, OSDBU
                                                    (Delegated
                                                     Director)



          Mandated reporting relationship

          Actual reporting relationship
Source: GAO (analysis).



The Assistant Secretary for Administration told us that he, along with an
Associate Assistant Secretary and the Delegated Director, were responsible
for the day-to-day implementation and execution of the functions and
duties of the OSDBU. However, we found little evidence that the Assistant
Secretary handled the day-to-day functions of the OSDBU. He told us that
he spent 5 percent of his time on small business contracting issues, while
spending the rest of his time on his other duties and responsibilities.17 On
the basis of documents that the agency provided, the only task that the
Assistant Secretary appeared to implement in terms of small business
contracting was providing information to the Secretary. He advised us that
he met at least weekly with the Secretary, and that small business
contracting was one of the many issues discussed at these meetings. For
these weekly meetings, he prepared reports on various administrative
matters. We reviewed 15 of these weekly reports dated from January 28,



17
 The Assistant Secretary for Administration’s additional responsibilities included human
resources management, procurement and property management, facilities operations,
conflict resolution, crisis planning and management, energy efficiency, ethics, and outreach
programs.




Page 21                                             GAO-03-863 Small and Disadvantaged Businesses
2003, through April 29, 2003, and found that 11 of them included some
information on Agriculture’s small business issues.

Other evidence showed that the Delegated Director carried out the day-to-
day implementation of Agriculture’s OSDBU. The Delegated Director told
us that he handled the day-to-day duties and functions of Agriculture’s
OSDBU, and that he spent 100 percent of his time on OSDBU duties and
functions. Moreover, his position description indicated he was the official
responsible for carrying out the duties and functions prescribed under
section 15(k). The position description stated, among other things, that the
Delegated Director is responsible for

•	 establishing short- and long-range program objectives, time schedules,
   and courses of action for the accomplishment of small business goals;

•	 formulating, recommending, and implementing broad policies and
   procedures, which provide the structural framework for all OSDBU
   functions;

•	 keeping abreast of all OSDBU activities and initiating any corrective
   actions deemed necessary;

•	 developing, presenting, and justifying to higher level authorities
   recommendations for modifications of OSDBU operations, policies, and
   procedures to enhance the Office’s effectiveness toward maximum
   satisfaction of functional requirements;

•	 representing Agriculture at conferences and meetings with Members of
   Congress and their key staff members and representatives of the Small
   Business Administration, the Office of Management and Budget, and
   other Executive departments; and

•	 planning, initiating, directing, and coordinating a comprehensive
   evaluation system for review and analysis of budgets, program
   developments, progress, and performance.

The Delegated Director told us that he did not report to the Secretary or
Deputy Secretary for any matters and his performance appraisals showed
that the Assistant Secretary evaluated his performance.




Page 22                             GAO-03-863 Small and Disadvantaged Businesses
The Department of the Treasury

In December 2002, Treasury appointed the Acting Assistant Secretary for
Management as Treasury’s “Designated OSDBU Director.” According to
Treasury’s Small Business Program Handbook, the Assistant Secretary for
Management delegated the responsibility for the overall management of
Treasury’s small business programs to the Director of the Office of Small
Business Development—an official who did not directly report to either the
Secretary or the Deputy Secretary. We found little evidence that the Acting
Assistant Secretary was involved with OSDBU functions or duties during
the period covered by our review. She told us that she spent about 5
percent of her time on small business contracting issues and acknowledged
that she was not responsible for the day-to-day implementation of OSDBU
functions and duties. On the basis of interviews with Treasury officials, it
appeared that her only responsibility in terms of small business contracting
was to provide information to the Secretary or Deputy Secretary on
Treasury’s small business programs. Further, Treasury could not provide us
with any documentary evidence that information related to the OSDBU was
provided to the Secretary or the Deputy Secretary during the time frame
covered by our study. The Acting Assistant Secretary acknowledged that
from December 2002 to March 2003, she never met formally with the
Secretary or Deputy Secretary to discuss small business contracting issues
primarily because she had other Treasury matters that needed her
attention.18

Evidence from Treasury showed that the Director of the Office of Small
Business Development carried out the day-to-day responsibilities under
section 15(k). The Director of the Office of Small Business Development
told us that he spent 100 percent of his time on OSDBU duties and
functions from March 2002 to March 2003. On the basis of the position
description, the Office of Small Business Development director’s duties and
responsibilities, among other things, are

•	 planning, developing, issuing, and providing overall direction for
   policies and programs governing Treasury procurement and financial
   assistance action in accordance with the Small Business Act;

• directing Treasury’s annual goal setting process;


18
   The Acting Assistant Secretary said that she was dealing with, among other things, the
transfer of part of Treasury to the Department of Homeland Security.




Page 23                                    GAO-03-863 Small and Disadvantaged Businesses
•	 working with Treasury bureau heads to establish individual bureau
   goals, and developing and recommending for approval of the Assistant
   Secretary (Management) the appropriate Department goals for each of
   the small business categories; and

•	 monitoring Treasury’s small business goal accomplishments during the
   fiscal year.

The Director of the Office of the Small Business Development told us that
he reported to the Acting Deputy Chief Financial Officer, who, in turn,
reported to the Acting Assistant Secretary (see fig. 9). Treasury documents
confirmed this statement. The Office of Small Business Development
director’s most recent performance appraisal showed that the Acting
Deputy Chief Financial Officer rated the director on small business goals
and the position description identified the Deputy Assistant Secretary
(Management Operations) as the supervisor.




Page 24                            GAO-03-863 Small and Disadvantaged Businesses
Figure 9: The OSDBU Director’s Reporting Relationship at the Department of the
Treasury


                                             Secretary

                                          Deputy Secretary



                                                           Acting Assistant Secretary
                                                          for Management and Chief
                                                                Financial Officer
                                                         (designated OSDBU director)



                                                           Acting Deputy Chief
                                                            Financial Officer


                                                               Director, Office
                                                                  of Small
                                                                  Business
                                                                Development


          Mandated reporting relationship

          Actual reporting relationship
Source: GAO (analysis).



The Department of State

Similar to Agriculture and Treasury, State was not in compliance with the
reporting requirement of section 15(k) because its de facto OSDBU
director—the Operations Director for the Office of the Small and
Disadvantaged Business Utilization—does not report to the Secretary or
Deputy Secretary. The State Department designated the Assistant Secretary
for Administration as its OSDBU director. The Assistant Secretary, who
reports to the Under Secretary for Management, delegated his OSDBU
responsibilities to the “Operations Director,” who in turn reports to the
Assistant Secretary (see fig. 10). The Assistant Secretary told us that he
spends 5 percent of his time on OSDBU functions. However, we found little
evidence that the Assistant Secretary handles any of the day-to-day
functions of the OSDBU. On the basis of agency documents, the only task
that the Assistant Secretary appeared to implement in terms of small



Page 25                                              GAO-03-863 Small and Disadvantaged Businesses
business contracting was providing information to the Under Secretary for
Management.



Figure 10: The OSDBU Director’s Reporting Relationship at the Department of State

                                             Secretary

                                          Deputy Secretary



                                                             Under Secretary
                                                             for Management


                                                                Assistant
                                                              Secretary for
                                                              Administration
                                                               (designated
                                                             OSDBU director)


                                                               Operations
                                                                Director


          Mandated reporting relationship

          Actual reporting relationship
Source: GAO (analysis).



The performance appraisal of the Assistant Secretary for Administration,
the “designated OSDBU director,” indicated that he was not evaluated on
State’s small business programs. However, the Operations Director’s
performance appraisal indicated that she was responsible for developing
and implementing the goals and objectives of the OSDBU. In addition, she
was responsible for, among other things,

•	 delegating and overseeing the duties to screen all new domestic
   contract actions over $100,000,

•	 reviewing subcontracting plans from those large prime contractors
   required to submit plans,

• helping small businesses that request assistance with late payments, and



Page 26                                             GAO-03-863 Small and Disadvantaged Businesses
                          • helping small businesses in their efforts to do business with State.

                          It should also be noted that we found no evidence that the Assistant
                          Secretary reported to the Secretary or the Deputy Secretary. The Assistant
                          Secretary informed us that he reported to the Under Secretary for
                          Management for all matters related to small business contracting, and
                          agency documents confirmed his statement. The Under Secretary signed
                          his performance appraisal. In addition, the Assistant Secretary prepared
                          weekly reports on the agency’s administrative matters, which include small
                          business contracting. We reviewed several of the weekly reports and found
                          that they were addressed to the Under Secretary for Management.



Reporting Level of the    Since Congress granted the Office of the Secretary of Defense an
                          exemption from the 15 U.S.C. § 644(k)(3) reporting requirement in 1988,
OSDBU Director at the     the organizational reporting level of the OSDBU director has changed
Office of the Secretary   twice, in both cases to lower levels. From 1989 until 1996, the director
                          reported to officials on the Under Secretary of Defense level, immediately
of Defense Has            below the Deputy Secretary of Defense. Since then, except in 1999, the
Changed Twice             OSDBU director has reported to officials on the Deputy Under Secretary of
                          Defense level, two reporting levels below the Deputy Secretary of Defense.

                          According to DOD Directive19 5134.4, dated March 17, 1989, the Office of
                          the Secretary of Defense’s OSDBU director reported to the Under Secretary
                          of Defense for Acquisition, a subordinate of the Deputy Secretary of
                          Defense. The Under Secretary of Defense for Acquisition was the senior
                          acquisition executive for DOD and advised the Secretary and Deputy
                          Secretary of Defense on all matters relating to DOD’s acquisition system. In
                          1994, the title of Under Secretary of Defense for Acquisition was changed
                          to the Under Secretary of Defense for Acquisition and Technology.




                          19
                           DOD directives are broad policy documents containing what is required by legislation, the
                          President, or the Secretary of Defense to regulate the actions of DOD components. DOD
                          directives establish or describe policies, programs, and organizations; define missions;
                          provide authority; and assign responsibilities.




                          Page 27                                   GAO-03-863 Small and Disadvantaged Businesses
However, the title change did not affect the reporting level of the OSDBU
director who continued reporting to the Under Secretary of Defense for
Acquisition and Technology.20

In 1996, another DOD directive21 changed the reporting relationship of the
OSDBU director from the Under Secretary of Defense for Acquisition and
Technology to the Deputy Under Secretary of Defense for International and
Commercial Programs, two reporting levels below the Deputy Secretary.
This arrangement lasted until 1999, when for 1 year, the OSDBU director
again reported22 to the Under Secretary of Defense for Acquisition and
Technology. In 2000, the reporting relationship switched back to the
Deputy Under Secretary level when the OSDBU director began reporting23
to the Deputy Under Secretary of Defense for Acquisition and Technology,
two levels below the Deputy Secretary. This reporting relationship remains
in effect today (see fig. 11).




20
   DOD Directive 5134.1, dated June 8, 1994, implemented the position change of Under
Secretary of Defense for Acquisition and Technology. The directive added the
responsibilities of advanced technology, economic security, environmental security, and
atomic energy to the responsibilities of the Under Secretary of Defense for Acquisition.
21
     DOD Directive 4205.1, September 11, 1996.
22
     DOD Directive 5134.1, September 17, 1999.
23
     DOD Directive 5134.13, May 25, 2000.




Page 28                                      GAO-03-863 Small and Disadvantaged Businesses
Figure 11: Timeline of the OSDBU Director’s Reporting Relationship at the Office of the Secretary of Defense

   Deputy                           Deputy                                     Deputy                      Deputy                 Deputy        Deputy
 Secretary                        Secretary                                  Secretary                   Secretary              Secretary     Secretary
 of Defense                       of Defense                                 of Defense                  of Defense             of Defense    of Defense


                                                                               Under                       Under                 Under           Under
  Under                             Under
                                                                             Secretary of               Secretary of           Secretary of   Secretary of
Secretary of                      Secretary of
                                                                             Defense for                 Defense for           Defense for     Defense for
Defense for                       Defense for
                                                                             Acquisition                 Acquisition,          Acquisition     Acquisition,
Acquisition                       Acquisition
                                                                                and                      Technology,              and          Technology,
                                                                             Technology                 and Logistics          Technology     and Logistics

                                                                                                           Deputy                               Deputy
                                                                                                            Under                               Under
                                                                                                        Secretary of                          Secretary of
                                                                                                         Defense for                          Defense for
                                                                                                        International                         Acquisition
                                                                                                             and                                 and
                                                                                                        Commercial                            Technology
                                                                                                          Programs



  OSDBU                            OSDBU                                      OSDBU                      OSDBU                  OSDBU          OSDBU
  Director                         Director                                   Director                   Director               Director       Director


     1988           1989   1990      1991        1992       1993         1994             1995   1996      1997         1998      1999         2000


             1988
               w
      Public La
       100-656
                the
     Office of
                  of
     Secretary nted
        efen se g ra
     D
                 n from
      exemptio
      reporting t
                 en
       requirem


                                                          Actual reporting relationship
Source: GAO (analysis).

                                                  Note: Shading indicates time period of each reporting relationship.




OA Likely Is Subject to                           Although no court to date has directly addressed this issue, we believe OA
                                                  is subject to the OSDBU requirements of section 15(k) of the Small
the OSDBU                                         Business Act, which applies to any “Federal agency with procurement
Requirements of                                   powers.” There is no dispute that OA has procurement powers because it
                                                  serves as the central procurement office for the significant majority of
Section 15(k) of the                              EOP’s procurements of goods and services. We believe that it is a “Federal
Small Business Act                                agency” by virtue of its being an “agency” under the APA, which the Small


                                                  Page 29                                          GAO-03-863 Small and Disadvantaged Businesses
                               Business Act adopts by reference, and it is an APA “agency” because it
                               exercises the requisite “substantial independent authority.” Several courts
                               have implicitly found that OA is an “agency” subject to the APA. In addition,
                               OA has a wide range of statutory and other significant responsibilities and,
                               therefore, exercises the requisite “substantial independent authority”
                               necessary to constitute an “agency” under the APA. See appendix III for our
                               detailed legal analysis of the applicability of section 15(k) to EOP’s OA.



OA Serves as the Central       OA has authority to contract on behalf of EOP and thus it clearly has
Procurement Office for the     procurement powers. OA officials told us that, historically, OA has served
                               as a central procurement office for a significant portion of EOP, and that
Significant Majority of
                               except for procurements for the EOP Office of National Drug Control
EOP’s Procurements             Policy’s antidrug campaign, OA manages the significant majority of EOP’s
                               procurements. OA officials also told us that OA currently has an OSDBU,
                               headed by a director who also serves as Deputy Director of OA; in both
                               capacities, this official reports to the Director of OA. According to these
                               officials, the OA OSDBU works with the Small Business Administration to
                               ensure that an appropriate procurement program is in place for small
                               business, and much of EOP’s small business procurement activity is
                               concentrated within OA.



OA Has Substantial             The Small Business Act defines the term “Federal agency,” with exclusions
Independent Authority and      not relevant here, as “having the meaning given the term ‘agency’ by
                               Section 551(1) of title 5” of the APA. Section 551(1) of the APA defines
Likely Constitutes a Federal
                               “agency” in relevant part as “each authority of the Government of the
Agency Under the Small         United States, whether or not it is within or subject to review by another
Business Act                   agency.” Several courts have implicitly found that OA is an “agency” subject
                               to the APA, and therefore is a “Federal agency” subject to the Small
                               Business Act. In addition, OA exercises the type of “substantial
                               independent authority” that courts have declared constitutes an “agency”
                               under the APA. Finally, OA satisfies the broader Freedom of Information
                               Act “agency” standards that courts have developed to address entities
                               specifically within EOP.

                               OA exercises “substantial independent authority” on the basis of its wide
                               range of significant responsibilities and functions performed across EOP.
                               These responsibilities include (1) administration of significant statutory
                               requirements under the Federal Records Act and the Presidential Records
                               Act, similar to the functions performed by the National Archives and
                               Records Administration; (2) serving as EOP’s central procurement office


                               Page 30                             GAO-03-863 Small and Disadvantaged Businesses
                   with the authority to contract on behalf of EOP (of particular relevance to
                   the OSDBU program); (3) oversight of EOP’s annual budget submission and
                   testimony on EOP’s behalf at appropriations hearings; (4) provision of
                   financial services, including budget formulation, execution and analysis,
                   centralized accounting support, coordinated internal control reporting, and
                   financial records maintenance; (5) provision of wide-ranging legal support
                   services; (6) facilities management services similar to those performed by
                   agencies such as GSA; and (7) human resources management services
                   similar to those performed by agencies such as the Office of Personnel
                   Management. We believe that these responsibilities constitute “substantial
                   independent authority” as the courts have interpreted that term.



Conclusions	       Our review of 24 federal agencies showed that nearly half were not in
                   compliance with section 15(k)(3) of the Small Business Act, a provision
                   enacted by Congress to ensure that small business advocates within federal
                   agencies have access to the highest agency levels. One of these
                   noncomplying agencies—the Federal Emergency Management Agency—
                   has been subsumed into the Department of Homeland Security, which has
                   established an Office of Small and Disadvantaged Business Utilization with
                   a director reporting to the highest agency levels. The remaining 10
                   agencies—the Departments of Agriculture, Commerce, Education, Health
                   and Human Services, Justice, State, the Interior, and the Treasury; the
                   Environmental Protection Agency; and the Social Security
                   Administration—are not in compliance with section 15(k)(3). Because the
                   OSDBU directors at these agencies do not have a direct reporting
                   relationship with their agencies’ head or deputy, the reporting relationships
                   potentially limit their role as an advocate for small and disadvantaged
                   businesses.



Recommendations	   We recommend that the following agency heads take steps as necessary to
                   comply with the requirement in section 15(k)(3) of the Small Business Act
                   that the Office of Small and Disadvantaged Business Utilization director be
                   responsible only to and report directly to the head or deputy head of the
                   agency:

                   • The Attorney General

                   • The Commissioner of the Social Security Administration




                   Page 31                             GAO-03-863 Small and Disadvantaged Businesses
                      • The EPA Administrator

                      • The Secretary of Agriculture

                      • The Secretary of Commerce

                      • The Secretary of Education

                      • The Secretary of Health and Human Services

                      • The Secretary of State

                      • The Secretary of the Interior

                      • The Secretary of the Treasury



Agency Comments and   We sent drafts of this report to all 24 agencies for their comments. In
                      addition, we sent to OA a draft of our legal opinion, appendix III of this
Our Evaluation        report, on the applicability of section 15(k) of the Small Business Act. Of
                      the agencies that we concluded were complying with section 15(k)(3), we
                      received written comments only from the U.S. Agency for International
                      Development, which concurred. Among the agencies that we concluded
                      were not complying with section 15(k)(3), we received written comments
                      from the Departments of Agriculture, Commerce, Education, Health and
                      Human Services, the Interior, Justice, State, and the Treasury and the Social
                      Security Administration. The written comments are reproduced in
                      appendixes IV through XIII. EPA also provided us with E-mail comments
                      on the draft, which we did not reproduce. We also received a written
                      response from OA, which is reprinted in appendix XIV.

                      Generally, the commenting agencies agreed with the report’s description of
                      their OSDBU directors’ reporting relationships. However, most of the
                      agencies disagreed with our conclusion that the reporting relationships did
                      not comply with section 15(k)(3) of the Small Business Act. None of the
                      legal arguments that the agencies raised caused us to revise our
                      conclusions or recommendations. The agencies’ specific comments and
                      our responses are summarized below.

                      •	 Agriculture agreed that the Assistant Secretary for Administration, as
                         the designated OSDBU director (Designated Director), had delegated to
                         the Director, Office of Small and Disadvantaged Business Utilization, the



                      Page 32                             GAO-03-863 Small and Disadvantaged Businesses
   responsibilities of the OSDBU. However, Agriculture pointed out that
   section 15(k) does not contain an explicit prohibition on delegating this
   authority. It cites the case of Fleming v. Mohawk Wrecking & Lumber
   Co., 331 U.S. 111, 121 (1947), for the proposition that in the event that
   there is no statutory prohibition on the delegation, one cannot be
   presumed. We acknowledge Agriculture’s statement. However, the lack
   of an express prohibition on delegation does not necessarily mean that
   delegation of authority is thereby permitted. The Fleming case
   recognizes that the delegation of authority may be withheld by
   implication, and we believe section 15(k)(3) does exactly that. Section
   15(k) assigns specific duties to the OSDBU director. As pointed out in
   the report, to ensure that the OSDBU responsibilities are effectively
   implemented, the statute mandates that the OSDBU director (i.e., the
   person actually carrying out the responsibilities) have immediate
   access, and only be responsible, to the agency head or deputy. The
   legislative history reveals that the reason for this requirement is that
   Congress believed that too often, agency officials responsible for
   promoting procurements for small and disadvantaged businesses were
   relegated to positions too far down the chain of command to be
   effective. The reporting requirement of section 15(k)(3) was intended to
   remedy that situation. Agriculture’s reporting arrangement frustrates the
   purpose of the law. Agriculture also argues that section 15(k) does not
   require that the designated director personally perform all of the
   specific duties it outlines. We acknowledge that at some agencies, the
   OSDBU director may have a staff that carries out many of the duties
   listed under section 15(k). However, there is a difference between, on
   the one hand, having staff carry out the duties while retaining
   responsibility for the duties and, on the other, delegating responsibility
   for carrying out those duties to a lower official.

•	 Commerce stated that they believe its current OSDBU director reporting
   structure—whereby the OSDBU director reports directly to the Deputy
   Secretary on all legislative and policy issues and to the CFO/Assistant
   Secretary for Administration on administrative matters such as
   personnel and budget—complied with the law. However, Commerce did
   not include any analysis or information demonstrating how the above
   mentioned reporting relationship fulfills the requirements of section
   15(k)(3). Moreover, the comments did not respond to any of the
   evidence we presented in the report showing that the OSDBU director
   reported to the CFO/Assistant Secretary. We continue to believe
   Commerce is not in compliance.




Page 33                             GAO-03-863 Small and Disadvantaged Businesses
•	 Education disagreed with our conclusion that the OSDBU director is at
   least partly responsible to the Deputy Secretary’s Chief of Staff. Their
   comments state that the OSDBU director reports to the Deputy
   Secretary, who is the deputy agency head, and cite (1) the director’s
   position description and the agency’s organizational chart, as evidence
   that the position of the OSDBU director is in the Office of the Deputy
   Secretary and (2) the functional statement of the Office of the Deputy
   Secretary, which states that the OSDBU director reports to the Deputy
   Secretary. Education disagreed with other factors that we used to assess
   compliance, such as the level of the official to whom the OSDBU
   director submits reports or who signs the director’s performance
   appraisal—in this case, the Deputy Secretary’s Chief of Staff. According
   to the comments, these factors are operating procedures reflecting the
   Deputy Secretary’s managerial preferences and should not lead to a
   conclusion that the OSDBU director is not reporting to the Deputy
   Secretary. However, we continue to believe that Education is not in
   compliance with section 15(k)(3) because the OSDBU director is
   responsible not only to the Deputy Secretary, but also to the Deputy
   Secretary’s Chief of Staff. Education’s comments did not refute the
   factual information presented in the draft report. Further, Education’s
   OSDBU staff told us that information on small business programs was
   submitted to the Chief of Staff before going to the Deputy Secretary.
   Education did not provide any evidence that the OSDBU director
   directly provided information on small business programs to the Deputy
   Secretary. The OSDBU director told us she was not sure what the Chief
   of Staff did with the information after she submitted it.

•	 According to the OSDBU director, EPA generally agreed with the
   report’s findings, conclusions, and recommendations and told us that
   EPA would take action to comply with section 15(k)(3). According to
   the staff member, the OSDBU director will report to the Deputy
   Administrator and will meet regularly with the Deputy Administrator to
   discuss the overall program and the agency’s performance.

•	 HHS stated that it believes it is in compliance with section 15(k)(3).
   However, our draft report prompted HHS to clarify the reporting
   relationship of the OSDBU director and the Deputy Secretary.
   Specifically, HHS stated that the OSDBU director will report to the HHS
   Deputy Secretary on all policy matters and significant day-to-day issues
   affecting the OSDBU and will arrange for monthly meetings with the
   Deputy Secretary and/or prepare a monthly report for the Deputy
   Secretary on major issues facing the OSDBU. In addition, the Deputy



Page 34                            GAO-03-863 Small and Disadvantaged Businesses
   Secretary will serve as the reviewing official for the OSDBU director’s
   performance evaluations. We agree that by taking these actions, HHS is
   moving toward compliance with section 15(k)(3). However, the
   comment letter is not clear regarding the extent to which the OSDBU
   director will be reporting to the Assistant Secretary for Administration
   and Management’s Office of Acquisition Management and Policy or
   others. The comments mentioned that the OSDBU director will report to
   the Deputy Secretary on certain—but not all—matters. In addition, the
   comments stated that the OSDBU director will continue to receive
   operational support from the Office of Acquisition Management and
   Policy but did not describe what areas were covered under operational
   support. Because we could not conclude on the basis of the comments
   that the OSDBU director would be responsible only to the Deputy
   Secretary, we did not revise the recommendation for HHS.

•	 Interior agreed that the OSDBU director reports to the Assistant
   Secretary for Policy, Management, and Budget; rather, its comment
   letter stated that this reporting relationship has worked for the
   department as evidenced by its successful small business program.
   However, Interior stated that we mischaracterized the OSDBU director’s
   reporting relationship. According to Interior’s letter, the OSDBU
   director does not report to a lower level official within the department,
   but reports to the “the agency head” as defined in Subpart 2.101 of the
   Federal Acquisition Regulations (FAR). The letter added that the
   Assistant Secretary for Policy, Management, and Budget is the agency
   head for acquisition matters, in accordance with the FAR. In our draft
   report, we used the term “lower level official” to distinguish the
   Assistant Secretary from the two officials—the agency head or deputy
   agency head—that section 15(k)(3) designates as the permissible
   officials to whom an agency’s OSDBU director may report. Interior’s
   designation of the Assistant Secretary as its “agency head” for
   procurement powers does not mean that the person thereby becomes its
   agency head for purposes of section 15(k)(3).

•	 Justice acknowledged that its OSDBU resides within the Justice
   Management Division. But Justice also said that the OSDBU’s placement
   in the division is for administrative purposes, and that the OSDBU
   director reports to the Deputy Attorney General on matters of substance
   requiring such attention. Justice’s letter stated that the Office of the
   Deputy Attorney General fully supports the objectives of the OSDBU
   and has met with the director to discuss the office’s work. According to
   a Justice official, the OSDBU director met with a representative of the



Page 35                            GAO-03-863 Small and Disadvantaged Businesses
   Office of the Deputy Attorney General in May 2003. As our draft report
   stated, the OSDBU director told us that he did not report to the agency
   head or deputy head on any matters from March 2002 to March 2003, the
   time frame covered by our study. Also, agency documentation did not
   show that the OSDBU director reported to the Deputy Attorney General
   in any manner. Furthermore, the May 2003 meeting does not provide any
   additional evidence on compliance, since the OSDBU director met with
   a representative of the office, not the Deputy Attorney General.
   Therefore, we did not revise our conclusion or recommendation.

•	 State wrote that it would not comment on our conclusions, since neither
   Justice nor the President’s counsel has provided guidance on the matter.
   Most of State’s comments focused on the effectiveness of its small
   business programs, including contracting awarded to 8(a) firms and to
   firms located in HUBZones. State’s letter stated that as a practical
   matter, the Department of State believed that the organizational
   placement of its OSDBU was highly effective, and that if the
   organization was reorganized to ensure that the OSDBU director
   reported directly to the Secretary or the Deputy Secretary of State, the
   OSDBU director would be less effective in securing contracts for small
   and disadvantaged businesses. State’s letter stated that given the broad
   range of urgent issues upon which the Secretary and the Deputy
   Secretary of State must focus, the OSDBU director would receive much
   less attention than the director enjoys in their present organizational
   location.

•	 The Social Security Administration disagreed with our conclusion that
   because its OSDBU director reported to the Deputy Commissioner of
   Finance, Assessment, and Management, the agency was not in
   compliance with section 15(k)(3). As it had previously indicated to us,
   the Social Security Administration again noted that its Deputy
   Commissioner of Finance, Assessment, and Management reported
   directly to the Commissioner, and that the Deputy Commissioner of
   Finance, Assessment, and Management was considered to have the
   status of “deputy” to the Commissioner. The Social Security
   Administration did not offer us any new information that would affect
   our overall conclusions and recommendation. We acknowledge that the
   Deputy Commissioner of Finance, Assessment, and Management
   reports directly to the Commissioner and is responsible for its programs
   and mission. However, as our draft report stated, this official is not
   second in command. The legislative history of section 15(k)(3) shows
   that Congress intended the deputy referred to in section 15(k)(3) to be



Page 36                            GAO-03-863 Small and Disadvantaged Businesses
   the second ranking person in that agency. In the Social Security
   Administration, the second ranking person is the Deputy Commissioner.
   As our draft report noted, the Social Security Administration’s
   organization manual states that the Deputy Commissioner of the Social
   Security Administration assists the Commissioner in carrying out his or
   her responsibilities and performs other duties as the Commissioner may
   prescribe. Furthermore, a Social Security Administration press release
   dated March 13, 2002, announcing the swearing-in of the Deputy
   Commissioner, referred to the Deputy Commissioner as the principal
   Deputy Commissioner.

•	 Like Agriculture, Treasury disagreed that section 15(k)(3) does not
   allow the delegation of OSDBU responsibilities to lower level officials.
   Treasury’s letter stated that the statutory language or the legislative
   history does not suggest that an OSDBU director cannot delegate some
   of the OSDBU authority. The letter reiterated that the department’s
   OSDBU director remained responsible for the OSDBU performance,
   whether the director personally performed the functions or delegated
   them. However, as previously discussed, we believe that section
   15(k)(3) has an implied prohibition against delegating the OSDBU
   director’s authority. Therefore, we continue to believe Treasury is not in
   compliance.

Agriculture, Commerce, Interior, State, and Treasury also commented on
the effectiveness of their small business programs. As stated in the draft
report, our review did not include an examination of the effectiveness of
agencies’ small business programs; rather, it focused only on agencies’
compliance with section 15(k)(3) of the Small Business Act.

OA declined to comment on the draft report, including the report’s
discussion of the applicability of section 15(k) to OA. However, OA also
stated that its declination to comment did not indicate agreement with our
conclusions, citing the court’s decision in Haddon v. Walters, 43 F.3d 1488
(D.C. Cir. 1995). The Haddon decision does not affect our conclusions in
any way. This case involved whether a unit other than OA—the Executive
Residence of the President—was an “executive agency” covered by the
employment discrimination prohibitions of Title VII of the Civil Rights Act
of 1964. That act, in turn, adopts a second statute’s definition of
“independent establishment,” and the court noted in passing that under a
third statute, OA is expressly excluded as an “independent establishment.”
None of this dicta is relevant to the issue in our report—that is, whether




Page 37                             GAO-03-863 Small and Disadvantaged Businesses
OA is an “agency” under the Small Business Act or the APA—and thus does
not change our conclusion that OA is covered under those statutes.


As agreed with your offices, unless you publicly release its contents earlier,

we plan no further distribution of this report until 30 days from its issuance 

date. At that time, we will send copies of this report to the Chairman and 

the Ranking Minority Member of the House Committee on Small Business. 

We will make copies available to others on request. In addition, this report 

will be available at no charge on the GAO Web site at http://www.gao.gov.


If you have any questions regarding this report, please contact me or

Charles E. Wilson, Jr., Assistant Director, at (202) 512-8678. Key 

contributors to this report are listed in appendix XV.





David G. Wood

Director, Financial Markets and

 Community Investment




Page 38                              GAO-03-863 Small and Disadvantaged Businesses
Appendix I

Twenty-four Agencies Covered by the
Compliance Review

              Defense Logistics Agency

              Department of Agriculture 

              Department of Commerce

              Department of Education

              Department of Energy

              Department of Health and Human Services

              Department of Housing and Urban Development

              Department of Justice

              Department of Labor

              Department of State

              Department of the Air Force

              Department of the Army

              Department of the Interior

              Department of the Navy

              Department of the Treasury

              Department of Transportation

              Department of Veterans Affairs

              Environmental Protection Agency

              Federal Emergency Management Agency

              General Services Administration

              National Aeronautics and Space Administration

              Office of Personnel Management

              Social Security Administration

              U.S. Agency for International Development





              Page 39                          GAO-03-863 Small and Disadvantaged Businesses
Appendix II

Scope and Methodology



              In assessing compliance with section 15(k)(3) of the Small Business Act,
              we reviewed 24 federal agencies (see app. I). We focused on agencies that
              procured $200 million or more in goods and services in fiscal year 2001 on
              the basis of data from the Federal Procurement Data System.1 Because the
              Department of Defense (DOD) has established separate Offices of Small
              and Disadvantaged Business Utilization (OSDBU) for its services and other
              command units, the 24 agencies we reviewed include the Departments of
              the Air Force, Army, and Navy and the Defense Logistics Agency. These
              entities are responsible for a large portion of DOD’s procurements. The
              Office of the Secretary at DOD was not included in our compliance review
              because the law allows the Secretary of Defense the discretion to designate
              the official to whom the OSDBU director should report. Agencies were
              determined to be in compliance where the OSDBU director reported
              directly to the agency head or agency head’s deputy.

              In making our determinations of compliance, we considered several
              factors, including the OSDBU directors’ statements about their reporting
              relationships and documentary evidence that reflected the reporting
              relationships. To obtain this information, we administered to each of the 24
              OSDBU directors a brief questionnaire regarding their reporting
              relationships and requested supporting documentation. The questionnaire
              consisted of 11 open-ended questions, including 1 that asked the OSDBU
              directors to confirm whether they reported to the agency head or deputy
              head. We reviewed organizational charts to identify where the OSDBU was
              located in relation to the agency head or deputy head; OSDBU directors’
              performance appraisals for the previous 2 years to identify the agency
              official who evaluated the OSDBU director’s performance; the most recent
              position description of the OSDBU director position to identify the OSDBU
              director’s supervisor; and various other agency documents, such as reports
              and memorandums discussing the agency’s small business programs that
              the OSDBU director prepared for the agency head or deputy head. In
              addition, we reviewed and analyzed section 15(k)(3). We did not review or
              analyze the effectiveness of any agency’s OSDBU or small business
              programs.

              To describe the reporting levels of the OSDBU director at the Office of the
              Secretary of Defense since 1988 when the Secretary of Defense was given
              discretion to designate the official to whom the OSDBU director should


              1
               The Federal Procurement Data Center is a unit of the General Services Administration that
              collects data on all federal contract actions.




              Page 40                                   GAO-03-863 Small and Disadvantaged Businesses
Appendix II

Scope and Methodology





report, we reviewed a written timeline from the Office of the Secretary of
Defense OSDBU. This timeline identified to whom OSDBU directors
serving from 1979 to 2003 reported. We reviewed DOD directives from 1984
to 2000 pertaining to the reporting relationships of the OSDBU directors of
the Office of the Secretary of Defense. We interviewed an official from the
Office of the Secretary of Defense for clarification on the information
included in the directives and the timeline. We reviewed section 15(k)(3),
including the exemption for the Office of the Secretary of Defense, and the
legislative history and congressional reports relating to the Office of the
Secretary of Defense, OSDBU.

To determine the applicability of the section 15(k) of the Small Business
Act to the Office of Administration (OA) within the Executive Office of
President (EOP), we reviewed and analyzed relevant legislation, legislative
history, and case law.

We conducted our work in Washington, D.C., between October 2002 and
July 2003 in accordance with generally accepted government auditing
standards.




Page 41                            GAO-03-863 Small and Disadvantaged Businesses
Appendix III

Legal Analysis of the Applicability of Section
15(k) of the Small Business Act to the EOP’s
Office of Administration

Introduction and              According to officials in the Office of Administration (OA) within the
                              Executive Office of the President (EOP), OA serves, with one major
Summary of                    exception, as the central procurement arm for the significant majority of
Conclusions                   EOP’s procurements of goods and services.1 These officials also indicated
                              that OA has an Office of Small and Disadvantaged Business Utilization
                              (OSDBU), but they declined to provide OA’s legal position on whether it is
                              subject to the OSDBU requirements of section 15(k) of the Small Business
                              Act, 15 U.S.C. § 644(k). As discussed below, we conclude that section 15(k)
                              likely applies to OA. The Small Business Act adopts the Administrative
                              Procedure Act’s (APA) definition of a covered “agency,” and several courts
                              have implicitly found that OA is an “agency” subject to the APA. In addition,
                              under the relevant statutes, legislative history and case law, OA meets both
                              the core APA “agency” standards and the broader Freedom of Information
                              Act (FOIA) “agency” standards that courts have developed to address
                              entities specifically within EOP.



Background


Section 15(k) of the Small    Section 15(k) requires each “Federal agency having procurement powers”
Business Act	                 to establish an OSDBU. The establishment of OSDBUs “is central to the
                              goal of the Small Business Act which directs that small businesses receive a
                              fair portion of the Federal procurement through vigorous action on the part
                              of Federal departments and agencies.” S. Rep. No. 1070, 95th Cong., 2d Sess.
                              18 (1978); see 15 U.S.C. §§ 631(a), 644(a) (small businesses should receive
                              “fair proportion” of federal government contracts for goods and services).



The Executive Office of the   By Reorganization Plans I and II of 1939 and Executive Order 8248 of
President and the Office of   September 8, 1939, President Roosevelt transferred the functions of several
                              existing federal agencies into the Executive Office of the President, so that
Administration                EOP would be organized “with functions and duties so prescribed and
                              responsibilities so fixed that the President will have adequate machinery


                              1
                               OA does not manage the roughly $200 million in annual procurements associated with the
                              EOP Office of National Drug Control Policy’s (ONDCP) National Youth Anti-Drug Media
                              Campaign, but does manage the “significant majority” of the remainder of EOP’s
                              procurements, which total roughly $50 million annually.




                              Page 42                                  GAO-03-863 Small and Disadvantaged Businesses
Appendix III

Legal Analysis of the Applicability of Section 

15(k) of the Small Business Act to the EOP’s 

Office of Administration





for the administrative management of the Executive branch of the
Government.” See E.O. 8248. As initially established, EOP had five principal
divisions, with no division specifically designated as responsible for
procurement.2 Since 1939, EOP has grown and undergone a number of
organizational changes according to the aims of different administrations.
EOP’s total annual budget is now approximately $276 million and it
employs approximately 1,760 people.3 There are currently more than 15
separate units in EOP, including the Office of the President (known as the
White House Office), the Office of Management and Budget, the Council on
Environmental Quality, the Council of Economic Advisers, and the National
Security Council.

In 1977, in order to improve the efficiency and effectiveness of EOP’s
operations, President Carter took the administrative support functions
then being performed by individual EOP units and consolidated them into
one central Office of Administration. See Reorganization Plan No. 1 of 1977,
91 Stat. 1633; E.O. 12028 (Dec. 12, 1977). The mission of the newly created
OA (originally to be called the Central Administrative Unit) was “to provide
support in administrative services common to all EOP entities. It should be
a separate EOP entity because of the need to assure equal access by all
other units.” See Message of the President to the Congress of the United
States, transmitting Reorganization Plan No. 1 of 1977. After congressional
hearings and debate on the President’s Reorganization Plan, OA was
officially established.4




2
 These were the White House Office, the Bureau of the Budget, the National Resources
Planning Board, the Liaison Office for Personnel Management, and the Office of
Government Reports, with a sixth division authorized in the event of an actual or threatened
emergency.
3
 See Pub. L. No. 107-67, 115 Stat. 514 (2001); U.S. Office of Management and Budget, Budget
of the United States Government, Fiscal Year 2003 (Feb. 4, 2002).
4
 A reorganization plan proposed by the President can take effect only if neither house of
Congress passes a resolution disapproving the plan within a certain time period.
Resolutions disapproving of Reorganization Plan No. 1 of 1977 were introduced in both the
House and Senate, see S. Res. 222 (July 18, 1977)(introduced by Sen. Ribicoff); H. Res. 688
(July 18, 1977)(introduced by Rep. Brooks), but after hearings on the Plan, including
acknowledgement of the proposed creation of OA, neither resolution passed. See generally
S. Rep. No. 465, 95th Cong., 1st Sess. (1977); H.R. Rep. No. 661, 95th Cong., 1st Sess. 4, 44-46, 56
(1977).




Page 43                                        GAO-03-863 Small and Disadvantaged Businesses
Appendix III

Legal Analysis of the Applicability of Section 

15(k) of the Small Business Act to the EOP’s 

Office of Administration





OA’s functions today can be broadly defined as “all types of administrative
support and services that may be used by, or useful to, [EOP] units”
(although generally not the White House Office). See Message of the
President Accompanying Reorganization Plan No. 1 of 1977, Sec. III. These
services include: (1) financial management; (2) information technology and
records management; (3) procurement; (4) data processing; (5) research
and other library services; (6) personnel management; (7) facilities
management and security; and (8) office services and operations, including
printing and duplication, mail, messenger, graphics, word processing, and
supply services.5 With respect to financial management, for example, OA
officials oversee submission of the annual EOP budget request to Congress
and testify before congressional funding panels. With respect to records
management, OA is responsible for administering the Federal Records Act
and the Presidential Records Act throughout EOP.6 OA also administers,
with respect to information it possesses, the requirements of FOIA, 5 U.S.C.
§ 552, the Privacy Act, 5 U.S.C. § 552a, and other information-disclosure
statutes applicable to federal agencies and entities. See 5 C.F.R. Parts 2500,
2502, 2504. At least one federal judge has recognized OA as a significant
administrative resource in the federal government. See Meyer v. Bush, 981
F.2d 1288, 1304 n. 11 (Wald, J., dissenting).

OA is nominally headed by the President, but its day-to-day operations are
managed by a Presidentially appointed Director. The Director serves as
chief administrative officer, whose duties include “contract[ing] for
supplies and services, and do[ing] all other things that the President, as
head of [OA], might do.” See E.O. 12028 § 4(a). In addition to its Director
and associated staff, OA currently has an Office of the Deputy Director,
Office of the General Counsel, and Office of the Executive Secretary, as
well as six principal divisions, each headed by a director, and offices
dedicated to equal employment opportunity, operations and legislative

5
 See E.O. 12028 § 3(b), as amended by E.O. 12122 (Feb. 26, 1979); E.O. 12134 (May 9, 1979);
Hearings Before a Subcommittee of the Committee on Appropriations, House of
Representatives, on Executive Office of the President and Funds Appropriated to the
President and Independent Agencies, FY 2002 (hereafter 2002 EOP Budget Hearings).
6
 The Federal Records Act, a collection of statutes at 44 U.S.C. §§ 2101–2118, 2901-2910,
3101-3107, 3301-3324, governs the creation, management, and disposal of federal records.
The Presidential Records Act, 44 U.S.C. §§ 2201-2207, governs the creation, management,
and disposal of Presidential records, which are documentary materials “created or received
by the President, his immediate staff, or a unit or individual in [EOP] whose function is to
advise and assist the President, in the course of conducting activities which relate to or have
an effect upon the carrying out of the constitutional, statutory, or other official or
ceremonial duties of the President.” Id. § 2201(2).




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liaison, and security. See 5 C.F.R. § 2502.3; United States Government
Manual 2002-2003 at 95. The Director of OA does not have program or
management responsibilities for the other EOP units; that authority is
retained by the respective office heads. See E.O. 12028 § 4(d).

Finally, with respect to procurement responsibilities, OA officials told us
that historically, OA has served as a central procurement office for a
significant portion of EOP, and as noted above, except for procurements
for the EOP Office of National Drug Control Policy’s anti-drug campaign,
OA manages the significant majority of EOP’s procurements.7 OA officials
also told us that OA currently has an OSDBU, headed by a director who
also serves as Deputy Director of OA; in both capacities, this official
reports to the Director of OA. The OA OSDBU works with the Small
Business Administration to ensure that an appropriate procurement
program is in place for small business, and much of EOP’s small business
procurement activity is concentrated within OA.




7
 Since 1994, OA generally has contracted for EOP procurements over $25,000, with other
EOP units making smaller procurements through purchase orders. See U.S. General
Accounting Office, Executive Office of the President: Major Procurements for Calendar
Years 1990 to 1993, GAO/GGD-94-138FS (Washington, D.C.: Sept. 16, 1994) at 1.




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Analysis	   In order to be subject to the OSDBU requirements of the Small Business
            Act, OA8 must both be a “Federal agency” and have “procurements
            powers.” OA clearly has “procurement powers,” a term presumed to have
            its common meaning of authority to make purchases.9 As to the
            requirement to be a “Federal agency,” the Small Business Act defines this
            term, with exclusions not relevant here, as “hav[ing] the meaning given the
            term ‘agency’ by section 551(1) of title 5” of the APA. See 15 U.S.C. § 632(b).
            Section 551(1) of the APA, in turn, with exclusions not relevant here,
            defines “agency” as: “each authority of the Government of the United




            8
             Our congressional requesters asked us to analyze whether the statutory OSDBU
            requirements apply to EOP and its constituent offices. As agreed, we are responding to this
            question by focusing on OA as the centralized procurement arm of EOP. (We do not express
            an opinion on whether any EOP units other than OA, which manage the remainder of EOP’s
            procurements, also may be “Federal agencies” under the Small Business Act.) We have not
            focused on EOP as a whole in light of the general practice of the courts, in litigation filed
            against the “Executive Office of the President,” to look to the specific EOP office involved in
            determining whether there is an “agency” under the relevant statute. A number of recent
            suits against EOP under the Privacy Act, for example, which adopts the FOIA definition of
            “agency,” have been resolved by examining the activities of the White House Office rather
            than EOP. See, e.g., Tripp v. EOP, 200 F.R.D. 140 (D.D.C. 2001), appeal dismissed, No. 01-
            5189, 2001 WL 1488614 (D.C. Cir. Oct. 17, 2001); Dale v. EOP, 164 F. Supp. 2d 22 (D.D.C.
            2001); Falwell v. EOP, 113 F. Supp. 2d 967 (W.D. Va. 2000); Barr v. EOP, No. 99-CV-1695, 2000
            WL 33539396 (D.D.C. 2000).

            Several courts, however, have either allowed suit to proceed directly against EOP or
            suggested that EOP would be a proper party. See Public Citizen v. Carlin, 2 F. Supp. 2d 1, 8-
            9 (D.D.C. 1997), rev’d on other grounds, 184 F.3d 900 (D.C. Cir. 1999), cert. denied, 529 U.S.
            1003 (2000) (rejecting argument in APA/Federal Records Act suit against EOP, OA, and
            others that EOP should be dismissed on ground that it “functions simply as an ‘umbrella’
            designation for various separately designated components which operate in close proximity
            to the President”); Armstrong v. EOP, 1 F.3d 1274, 1282 n. 4 (D.C. Cir. 1993)(rejecting
            untimely argument in APA/Federal Records Act/Presidential Records Act suit that EOP was
            improper party); United States v. Espy, 145 F.3d 1369, 1372-74 (D.C. Cir. 1998)(Independent
            Counsel argues EOP is “agency of the United States” under Criminal Code provision 18
            U.S.C. § 6, defining “agency” to include any “authority . . .of the United States.”).
            9
             When statutes use unambiguous terms without providing a specialized technical meaning,
            the terms generally are deemed to have their ordinary, “plain” meaning. See, e.g., Cowart v.
            Nicklos Drilling Co., 505 U.S. 469, 475 (1992).




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States, whether or not it is within or subject to review by another 

agency. . ..” 5 U.S.C. § 551(1). Thus, whether OA is covered by section 15(k) 

and required to have an OSDBU turns on whether it is an “agency” under 

the APA.10


Although no court to date has addressed whether OA is a “Federal agency” 

under the Small Business Act, at least three courts have implicitly found 

that OA is an “agency” under the APA and, thus, a “Federal agency” under 

the Small Business Act. The courts determined that because the actions of

OA and other federal entities did not comply with certain statutory 

requirements, their actions were “arbitrary and capricious” under the APA, 

and the decisions were necessarily premised on OA being an “agency” 

under the APA.11


We conclude that OA also is an APA agency under the standards set forth in 

the case law and legislative history. As the courts have recognized, “the law

on the simple question of what is an [APA] agency is quite complex.” Lee 

Constr. Co. v. Federal Reserve Bank, 558 F. Supp. 165, 172 (D. Md. 1982).

Likewise, the courts have acknowledged that “[a]ny general definition [of 

“agency” under the APA] can be of only limited utility . . . [when] 

confronted with one of the myriad organizational arrangements for getting

the business of the government done. . . .The unavoidable fact is that each 

new arrangement must be examined anew and in its own context.” 

Washington Research Project, Inc. v. HEW, 504 F.2d 238, 245-46 (D.C. Cir.

1974), cert. denied, 421 U.S. 963 (1975)(citations omitted). 





10
 When Congress enacts a statute incorporating a section of another statute, Congress
generally is presumed to have adopted the interpretations given to that other statute.
Lorillard v. Pons, 434 U.S. 575, 581 (1978).
11
 In Carlin, footnote 8 above, the court ruled that the actions of OA, EOP and the Archivist
of the United States violated the Federal Records Act and therefore also violated the APA as
“arbitrary and capricious” actions. In Armstrong, footnote 8 above, the court found that
OA’s electronic records management guidelines violated the APA and thus the Federal
Records Act. Finally, in Hartness v. Bush, 712 F.Supp. 986 (D.D.C 1989), rev’d on other
grounds, 919 F.2d 170 (D.C. Cir. 1990), the court preliminarily enjoined OA and others, under
the APA, from enforcing an EOP-wide plan under the Drug-Free Workplace statute.




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The issue of whether an EOP unit in particular constitutes an APA “agency”
is further complicated by the fact that virtually all cases analyzing EOP
units’ “agency” status are based not on the APA but on FOIA (or statutes
adopting FOIA’s “agency” definition), and FOIA’s definition of “agency” has
expanded over time. Until 1974, FOIA incorporated the APA “agency”
definition without change, meaning that decisions interpreting FOIA were
effectively decisions interpreting the APA. In 1974, Congress broadened the
APA definition, for FOIA purposes only, to include entities “which perform
governmental functions and control information of interest to the public”
but which “might have eluded the APA’s definition [of agency] in § 551(1). .
..”12 Further, even though one of the EOP offices already had been held
covered by the pre-1974 FOIA (APA) definition (see Soucie v. David, 448 F.
2d 1067 (D.C. Cir. 1971), discussed below), EOP was specifically included
in the entities added by the 1974 amendments, and the amendments’
history shows Congress intended to codify the pre-1974 Soucie analysis
into FOIA.13 The net effect of these events is that although there are a
number of post-1974 FOIA decisions addressing the “agency” status of
various EOP offices, the decisions must be applied with care in
determining whether a particular EOP entity is an “agency” under the APA,
because the decisions typically do not specify which aspect of FOIA they
are applying—the more stringent core APA “agency” definition or the
potentially less stringent list of entities added by the 1974 amendments,
including EOP. With that background, we examine how the courts have
defined “agency” under the APA, including any relevant cases pertaining to
offices within EOP.

Courts have taken somewhat different approaches to what constitutes an
“agency” under the APA. The seminal case is Soucie v. David, above, which


12
   Energy Research Foundation v. Defense Nuclear Facilities Safety Board, 917 F.2d 581,
583 (D.C. Cir. 1990). See also Meyer v. Bush, above, 981 F. 2d at 1304 (Wald, J.
dissenting)(APA definition of agency is “less expansive than FOIA’s”). As amended, FOIA’s
definition of “agency” now reads: “For purposes of this section, the term...‘agency’ as
defined in section 551(1) of this title includes any executive department, military
department, Government corporation, Government controlled corporation, or other
establishment in the executive branch of the Government (including the Executive Office of
the President), or any independent regulatory agency....” 5 U.S.C. § 552(f)(1) (emphasis
added).
13
   See H.R. Conf. Rep. No. 1380, 93d Cong., 2d Sess. 15 (1974) (“With respect to the meaning
of the term ‘Executive Office of the President,’ the conferees intend the result reached in
Soucie v. David. The term is not to be interpreted as including the President’s immediate
personal staff or units in the Executive Office whose sole function is to advise and assist the
President.”); S. Rep. No. 854, 93d Cong., 2d Sess. 33 (1974).




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involved what was then called EOP’s Office of Science and Technology
(OST). Because the APA and FOIA definitions of “agency” were identical at
the time of the lawsuit, the court looked to interpretations of the APA in
determining whether OST was an “agency” under FOIA. The court found
that while the meaning of “agency” under the APA was “not entirely clear,”
it “apparently confers agency status on any administrative unit with
substantial independent authority in the exercise of specific functions.” 448
F.2d at 1073 (emphasis added). Because OST’s “sole function” was not
limited to advising and assisting the President—OST also evaluated federal
science programs previously evaluated by the National Science
Foundation—the court found OST had “substantial independent authority”
and “must be regarded as an agency subject to the APA and [FOIA].” Id. at
1075.

Applying the Soucie test, the court reached a different conclusion
regarding the Judge Advocate General of the Army (JAG) in McKinney v.
Caldera, 141 F. Supp. 2d 25 (D.D.C. 2001). JAG was found not to have
“substantial independent authority,” and thus not to be an APA agency,
even though JAG supervised the Army’s military justice system, performed
appellate review of court martial trials, and furnished legal services.
Notwithstanding that the APA contemplates an “agency” within an
“agency,” the court focused on the fact that JAG’s duties flowed from the
authority of the Secretary of the Army, suggesting that JAG’s
responsibilities were not sufficiently independent.14

Other courts have framed the APA “agency” definition slightly differently,
looking to whether an entity can take “final and binding action.” This
standard is based in part on the Soucie “substantial independent authority”
test and the APA’s legislative history indicating Congress intended covered
agencies to have “final and binding” legal authority.15 In Dong v.
Smithsonian Institution, 125 F.3d 877 (D.C. Cir. 1997), cert. denied, 524
U.S. 922 (1998), for example, the court looked to whether the Smithsonian
Institution was:



14
   The court also was influenced by the fact that finding JAG to be an APA “agency” would
“fundamentally alter the relationship between the civilian and military courts and would, in
essence, defy the presumptions against civilian-court review of military-court decisions.”
McKinney, 141 F. Supp. 2d at 34.
15
 See Report on the Administrative Procedure Act, 79th Cong., 1st Sess. 13 (Comm. Print
1945).




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“a part of government which is generally independent in the exercise of [its] functions and. .
.by law has authority to take final and binding action affecting the rights and obligations of
individuals, particularly by the characteristic procedures of rule-making and adjudication.”

Id. at 881 (emphasis added). The court found that the Smithsonian was not
an APA “agency” under this standard, because while it exercised authority,
the authority was not sufficiently “substantial.” Although the Smithsonian
is closely linked with the federal government, receives federal funding, has
certain police powers to protect its physical plant, and publishes
regulations in the Code of Federal Regulations, the court noted that it does
not make binding rules of general application, determine rights and duties
through adjudications, issue orders, or perform regulatory functions.

Finally, courts have focused on whether an entity is one of the “centers of
gravity” in the exercise of administrative power “where substantial ‘powers
to act’ . . .are vested,” see Lee Constr. Co., above, 558 F. Supp. at 173
(Federal Reserve Bank was APA agency based on its substantial delegated
decision-making authority from Federal Reserve System’s Board of
Governors), or whether the entity has “authority in law to make decisions,”
see Washington Research Project, Inc. v. HEW, above, 504 F.2d at 248
(HEW peer review groups for grant applications were not APA agencies,
because they only recommended grants to an NIH entity which in turn
recommended to the HEW Secretary), or whether the “governmental unit
has substantial authority to act with the sanction of the government behind
it,” see Conservation Law Foundation v. Harper, 587 F. Supp. 357, 364 (D.
Mass. 1984)(Property Review Board, created by Executive Order to review
federal real property acquisition and disposal policies, advise GSA on same,
and establish annual agency targets may be APA agency if it controls
disposition of public property). Thus, the National Academy of Sciences
(NAS) was held not to be an APA “agency,” even though it was authorized
to veto EPA’s suspension of auto-emission standards. See Lombardo v.
Handler, 397 F. Supp. 792 (D.D.C. 1975), aff’d, 546 F.2d 1043 (D.C. Cir.
1976). As the Lombardo court explained, NAS is not the kind of “center of
gravity in the exercise of administrative power” to which the APA refers.
397 F. Supp. at 796.




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Applying these authorities, we conclude that OA possesses the requisite
“substantial independent authority” to constitute an “agency” under the
APA. In OA’s administration of the significant requirements of the Federal
Records Act and Presidential Records Act, for example, it issues statutorily
required records disposition schedules and other directives for all EOP
units. In this regard, OA serves a function similar to the National Archives
and Records Administration (NARA), and indeed, OA was embroiled in
substantial APA-based litigation, along with the head of NARA (the
Archivist of the United States), EOP, and the National Security Council,
challenging the manner in which these parties carried out their statutory
obligations.16 Another of OA’s significant functions, of particular relevance
to the OSDBU program, is serving as EOP’s central procurement office with
authority to contract on behalf of EOP. This procurement responsibility
includes the authority to bind the United States government in contracts
backed by the full faith and credit of the United States. See 41 Op. Atty.
Gen. 403 (1959); White v. DOI, 639 F. Supp. 82 (M.D. Pa. 1986), affd, 815
F.2d 697 (3rd Cir. 1987).

Other significant EOP-wide OA functions include the OA Director’s
oversight of submission of EOP’s annual budget request and testimony on
EOP’s behalf at appropriations hearings,17 and the OA Financial
Management Division’s provision of financial services including budget
formulation, execution and analysis; centralized accounting support;
coordinated internal controls reporting; and financial records maintenance.
See 2002 EOP Budget Hearings at 167-69. OA’s Office of General Counsel
also has significant responsibilities across EOP. The office “advises other
EOP components in areas related to OA’s administrative support mission,
particularly in cases where EOP components do not have counsel with
expertise in government agency law,” for example, on matters involving “a
wide range of substantive areas including general administrative law,
ethics, federal procurement, employment law, legal aspects of budgetary
and congressional matters, federal record keeping, and information
technology management.” Id. at 167. In the area of security, OA manages
“personnel, computer and information security for the EOP complex,” as


16
 See Armstrong v. EOP, 810 F. Supp. 335 (D.D.C 1993); Armstrong v. EOP, 821 F. Supp. 761
(D.D.C. 1993), rev’d on other grounds, 1 F.3d 1274 (D.C. Cir. 1993). See also Carlin, footnote
8 above (involving OA’s Federal Records Act responsibilities).
17
   See, e.g., 2002 EOP Budget Hearings at 1; OA Web site at http://www.whitehouse.gov/oa/
(“The Director of the agency [OA] oversees the submission of the annual EOP Budget
Request and represents the agency before congressional funding panels.”).




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well as overseeing access to the EOP complex. Id. OA directs background
investigations for personnel, pre-screens candidates for employment based
on security guidelines, and briefs employees on requirements and
guidelines for handling classified materials.

Finally, with respect to facilities management and human resources
management, OA carries out functions for EOP similar to the functions of
agencies such as the General Services Administration and the Office of
Personnel Management, respectively. Among other things, OA’s Facilities
Management Division manages “space use, rent allocation, repairs, and
renovations in the White House complex.” Id. at 168. OA’s Human
Resources Management Division manages “recruitment and placement,
internal staffing, general employee and management advisory services,
employee development and training, and position management” for all of
EOP, as well as the automated management systems and the EOP Drug
Free Workplace Program. Id.

In carrying out many of these functions and responsibilities, OA acts
independently, and the nature of the delegation from the President to OA is
extensive. According to the Executive Order establishing OA, “the primary
responsibility for performing all administrative support and service
functions of units within the Executive Office of the President shall be
transferred to the Office of Administration.” E.O. 12028 § 5. Although OA is
nominally headed by the President, OA acts independently in contracting
for and providing administrative supplies and services to the other EOP
units. E.O. 12028 §§ 3(a), 4(a). In the words of Soucie, OA’s “sole function”
is not to advise and assist the President but rather it exercises “substantial
independent authority.”




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In addition to finding that OA is an “agency” under these core APA
standards, we also find OA to be an “agency” under the so-called Meyer
test, developed in Meyer v. Bush, 981 F. 2d 1288 (D.C. Cir. 1993). Meyer sets
forth an interrelated three-factor test to determine when a component of
EOP is an “agency” under the post-1974 FOIA definition:18 (1) how
operationally close the entity is to the President; (2) what the nature is of
the delegation from the President to the entity; and (3) whether the entity
has a self-contained structure. The first Meyer factor—the degree of
operational closeness of the President—weighs in favor of OA being an
“agency.” 19 Although the President is the nominal head of OA, its mission of
providing common administrative support and services to all EOP units,
developing and implementing guidance for them relating to records
management and disposition, and carrying out facilities and human
resources management are all accomplished without close continuing
interaction with the President. The second Meyer factor—the nature of the
delegation from the President—also weighs in favor of OA being an
“agency.” The nature of the delegation from the President to OA is
extensive: the Executive Order creating OA assigned it primary
responsibility for performing all administrative support and service
functions for EOP. See E. O. 12028 § 5. Finally, the third Meyer factor—
whether OA has a self-contained, firm structure—confirms that OA is an
“agency.” OA has such a structure: it is organized, under the direction of a
Director, Deputy Director, General Counsel, and Executive Secretary, into a
series of functional divisions, each headed by a director. See 5 C.F.R.
§ 2502.3; United States Government Manual 2002-2003 at 94-96.

Our conclusion that OA is an agency under FOIA finds support in the fact
that OA itself believes it is covered. As noted above, OA has promulgated
regulations “implementing 5 U.S.C. 552” (FOIA), see 5 C.F.R. § 2502.2, with


18
 While these factors are not strictly applicable in determining what is an “agency” under the
APA, some courts have considered them in that context because they relate back to the pre-
1974 APA/FOIA analysis in the Soucie decision. In Dong, above, for example, the court cited
EOP FOIA “agency” cases in determining whether the Smithsonian was an “agency” under
the APA. See Dong, 125 F.3d at 881, citing, in addition to Soucie, Armstrong v. EOP, 90 F.3d
553 (D.C. Cir. 1996)(National Security Agency not an “agency”); Meyer v. Bush, above, (Task
Force on Regulatory Reform not an “agency”); Rushforth v. Council of Economic Advisers,
762 F. 2d 1038 (D.C. Cir. 1985) (CEA not an “agency”); Pacific Legal Foundation v. Council
on Environmental Quality, 636 F.2d 1259 (D.C. Cir. 1980) (CEQ is an “agency”).
19
   As the court explained this factor in Armstrong v. EOP, 90 F. 3d 553, 558 (D.C. Cir. 1996),
“[t]he closer an entity is to the President, the more it is like the White House staff, which
solely advises and assists the President, and the less it is like an agency to which substantial
independent authority has been delegated.”




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respect to records possessed by OA. This conclusion also is consistent with
the fact that OA has been subject to GAO’s government procurement bid
protest proceedings under the Competition in Contracting Act (CICA)
applicable to “executive agencies,” see 31 U.S.C. § 3551(3), in which this
term is broadly defined in a manner similar to FOIA.20 OA has raised no
objection to the jurisdiction of those proceedings.21 OA also raised no
objection to GAO’s evaluation of OA’s acquisition of a software system
under the Federal Acquisition Regulation (FAR), with the FAR being
applicable to “executive agencies” defined in a similarly broad, FOIA-like
manner.22

Finally, in determining whether OA should be considered an agency under
the Small Business Act, we are guided by the overall remedial purpose of
the statute. It is well settled that remedial statutes should be construed
liberally to effectuate their purposes. See, e.g., United States v. Kayser-
Roth Corp., 910 F.2d 24, 26 (1st Cir. 1990) (interpreting environmental
cleanup statute broadly to ensure protection of human health and
environment). One of the central purposes of the Small Business Act is to
ensure small businesses receive a “fair proportion” of federal government
contracts, see 15 U.S.C. §§ 631(a), 644(a), and Congress has amended the
Act several times over the last 25 years to increase small business
participation in federal procurement. The OSDBU amendments were
enacted in 1978 to remedy the particular problem of small and
disadvantaged businesses lacking effective advocates at high levels within
agencies. Congress deemed these amendments to be necessary to ensure
that the voice of these communities are heard. See S. Rep. No. 1070, 95th
Cong., 2d Sess. 18 (1978) (OSDBU amendments); see also H.R. Rep. No.
460, 100th Cong., 1st Sess. 40 (1987). Thus, any doubt about whether OA is an



20
 As relevant here, “executive agencies” is defined for purposes of CICA bid protest
proceedings as “an executive department or independent establishment in the executive
branch of the Government.” 40 U.S.C. § 102(4).
21
   See, e.g., In re Stay Inc. Protective Services, 92-1 CPD ¶ 393, 1992 WL 93059 (Apr. 24,
1992).
22
 See U.S. General Accounting Office, White House: Acquisition of Automated Resume
Processing System, GAO/GGD-93-117 (Washington, D.C.: June 17, 1993); U.S. General
Accounting Office, White House: Follow-up on Acquisition of Automated Resume
Processing, GAO/GGD-94-127 (Washington, D.C.: Aug. 3, 1994). The FAR applies to
“executive agencies,” defined to mean “executive department[s] . . .or any independent
establishment[s] within the meaning of 5 U.S.C. 101, 102, and 104(1). . ..” See 48 C.F.R.
§§ 1.101, 2.101(b). Those sections, in turn, contain a broad, FOIA-like definition of “agency.”




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              “agency” within the scope of the Small Business Act should be resolved in
              favor of coverage.



Conclusion	   In summary, we conclude that OA likely is a “Federal agency with
              procurement powers” subject to the OSDBU requirements of section 15(k)
              of the Small Business Act. OA clearly has procurement powers, and several
              courts have implicitly found that OA is an “agency” within the meaning of
              the APA and therefore a “Federal agency” within the meaning of the Small
              Business Act. In addition, OA meets both the core APA “agency” standards
              and the broader FOIA “agency” standards that courts have developed to
              address entities specifically within EOP.




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Comments from the Department of 

Agriculture





Page 57                             GAO-03-863 Small and Disadvantaged Businesses
Appendix V

Comments from the Department of
Commerce




             Page 58      GAO-03-863 Small and Disadvantaged Businesses
Appendix VI

Comments from the Department of Education





              Page 59      GAO-03-863 Small and Disadvantaged Businesses
Appendix VII

Comments from the Department of Health and
Human Services




               Page 60     GAO-03-863 Small and Disadvantaged Businesses
Appendix VII

Comments from the Department of Health 

and Human Services





Page 61                                    GAO-03-863 Small and Disadvantaged Businesses
Appendix VII

Comments from the Department of Health 

and Human Services





Page 62                                    GAO-03-863 Small and Disadvantaged Businesses
Appendix VIII

Comments from the Department of Justice





                Page 63    GAO-03-863 Small and Disadvantaged Businesses
Appendix IX

Comments from the Department of State





              Page 64      GAO-03-863 Small and Disadvantaged Businesses
Appendix IX

Comments from the Department of State





Page 65                                  GAO-03-863 Small and Disadvantaged Businesses
Appendix IX

Comments from the Department of State





Page 66                                  GAO-03-863 Small and Disadvantaged Businesses
Appendix X

Comments from the Department of the
Interior




              Page 67      GAO-03-863 Small and Disadvantaged Businesses
Appendix XI

Comments from the Department of the
Treasury




              Page 68      GAO-03-863 Small and Disadvantaged Businesses
Appendix XI

Comments from the Department of the 

Treasury





Page 69                                 GAO-03-863 Small and Disadvantaged Businesses
Appendix XII

Comments from the Social Security
Administration




               Page 70      GAO-03-863 Small and Disadvantaged Businesses
Appendix XII

Comments from the Social Security 

Administration





Page 71                               GAO-03-863 Small and Disadvantaged Businesses
Appendix XII

Comments from the Social Security 

Administration





Page 72                               GAO-03-863 Small and Disadvantaged Businesses
Appendix XII

Comments from the Social Security 

Administration





Page 73                               GAO-03-863 Small and Disadvantaged Businesses
Appendix XII

Comments from the Social Security 

Administration





Page 74                               GAO-03-863 Small and Disadvantaged Businesses
Appendix XII

Comments from the Social Security 

Administration





Page 75                               GAO-03-863 Small and Disadvantaged Businesses
Appendix XIII

Comments from the U.S. Agency for
International Development




                Page 76    GAO-03-863 Small and Disadvantaged Businesses
Appendix XIII

Comments from the U.S. Agency for 

International Development





Page 77                               GAO-03-863 Small and Disadvantaged Businesses
Appendix XIV

Comments from the Executive Office of the
President, Office of Administration




               Page 78      GAO-03-863 Small and Disadvantaged Businesses
Appendix XV

GAO Contact and Staff Acknowledgments




GAO Contacts	      David G. Wood, (202) 512-8678
                   Charles E. Wilson, Jr., (202) 512-6891



Staff 	            In addition to the individual names above, the following individuals made
                   significant contributions to this report: Emily R. Chalmers, Nancy Eibeck,
Acknowledgments	   Edda Emmanuelli-Perez, Brodi Fontenot, Gregg J. Justice III, John T.
                   McGrail, Marc Molino, and Susan D. Sawtelle.




(250109)           Page 79                             GAO-03-863 Small and Disadvantaged Businesses
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