oversight

Small Business: Low Participation in Set-Aside Program Expected for Sheltered Workshops

Published by the Government Accountability Office on 1990-08-06.

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

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

                   Resources, Community,   and
                   Economic Development    Division

                   B-240260.1

                   August   6, 1990

                   The Honorable Dale L. Bumpers
                   Chairman, Committee on Small Business
                   United States Senate

                   The Honorable John J. LaFalce
                   Chairman, Committee on Small Business
                   House of Representatives

                   Section 133 of the Small Business Administration Reauthorization and
                   Amendment Act of 1988 (P.L. 100-590, dated Nov. 3,1988) amended
                   section 15(c) of the Small Business Act to authorize private and public
                   organizations for the handicapped (sheltered workshops) to compete for
                   small business set-aside contracts awarded by federal agencies between
                   fiscal years 1989 and 1993. The act, among other things, directed GAOto
                   prepare by September 30, 1992, a report describing the impact that such
                   contracts have had on for-profit small businesses for fiscal years 1989
                   through 1991.

                   In meetings with the offices of the Senate and House Committees on
                   Small Business to discuss this legislative reporting requirement., we
                   agreed to provide this interim report on (1) the availability of data
                   needed to measure how contracts with sheltered workshops have
                   affected for-profit small businesses and (2) the extent to which shel-
                   tered workshops are participating in the early stages of the program.
                   Our final report--to be issued by September 30, 1992-will satisfy our
                   legislative mandate to evaluate the effect of contracts awarded to shel-
                   tered workshops on small businesses.


                   The Office of Management and Budget’s Office of Federal Procurement
Results in Brief   Policy (OFPP) has not yet compiled data received from federal agencies
                   on the number and dollar value of set-aside contracts awarded to shel-
                   tered workshops. However, organizations representing sheltered work-
                   shops believe that their participation in the small business set-aside
                   program has been minimal. According to these organizations, participa-
                   tion has been low because (1) the 1988 authorizing legislation prohibits
                   items that are competitively supplied by sheltered workshops under set-
                   aside contracts from being added to the list of products and services
                   that are permanently awarded to sheltered workshops under the provi-
                   sions of the Javits-Wagner-O’Day (JWOD) Act, (2) some sheltered work-
                   shops are not aware they are eligible to participate in this program, and


                   Page 1                                    GAO/RCEMJO.192   Sheltered   Workshops
                        5240260.1




                        government contracting to workshops employing the blind in the manu-
                        facture of brooms, mops, and other suitable commodities. In 1971,
                        amendments to the act expanded the program’s scope to include other
                        severely handicapped persons in addition to the blind and to include ser-
                        vices as well as products. With these amendments, the act came to be
                        known as the Javits-Wagner-O’Day Act. Once a commodity or service is
                        approved for procurement under the JWOD program, the federal govern-
                        ment is generally required to purchase that commodity or service from
                        the one or more designated sheltered workshops as long as the product
                        or service is required.


                        Data on sheltered workshops’ participation in the set-aside program in
Data on Sheltered       fiscal year 1989 are not available for several reasons. First, the legisla-
Workshops’              tion imposing the OFPP reporting requirements was not signed until
Participation in the    November 1988. Moreover, according to OFPP’S Deputy Associate Admin-
                        istrator, OFPP needed time to change the instructions federal agencies use
Set-Aside Program Are   to submit procurement data for the Federal Procurement Data System,
Not Yet Available       to coordinate these changes with the Federal Acquisition Regulatory
                        Councils (the Defense Acquisition Regulatory Council and the Civilian
                        Agency Acquisition Council), and to disseminate the revised instructions
                        to the reporting agencies for implementation. The reporting agencies and
                        FPDC also needed time to modify their computer systems to capture the
                        required data.

                        According to the OFPP official, OFPP has been receiving, on computer
                        tapes, agencies’ procurement data, including information on set-aside
                        contracts awarded to sheltered workshops in fiscal year 1990. However,
                        the data reported to FPDCduring the first two quarters of fiscal year
                        1990 will not be compiled and available until August 1990. According to
                        OFPP, this delay is due to the transfer of the technical support services
                        for processing these data from FPDCto the Department of Defense’s
                        Defense Logistics Agency because of budget constraints at the General
                        Services Administration.

                        Comprehensive information on sheltered workshops’ participation in the
                        set-aside program also were not available from associations that
                        represent sheltered workshops. In April 1990, one association conducted
                        a limited survey on participation levels in the set-aside program, but in
                        general these associations do not collect such data.




                        Page 3                                     GAO/RCED90-192   Sheltered   Workshops
5240260.1




program to the JWOD Program is probably the major reason his organiza-
tion’s membership has avoided the set-aside program.

In April 1990, the National Association of Rehabilitation Facilities
(NARF) surveyed the 160 facilities in its membership that receive NARF'S
Commerce Business Daily Review to obtain information on their partici-
pation in the set-aside program. Of the 35 facilities (workshops) that
had responded to the survey as of May 30,1990,23 answered a question
that sought to determine what effect the legislative prohibition against
switching items to the JWOD list has had on the facilities’ participation in
the set-aside program. When asked if they would be more inclined to bid
on a set-aside contract if it could be converted to a JWOD contract, 15 of
23 said they would. Five other facilities said that although the provision
would not preclude their participation, they would be more inclined to
participate if conversion were allowed. (Note: Because of the small
number of responses, these survey results must be interpreted with cau-
tion, as they may not represent NARF'S entire membership.)

In a Senate Small Business Committee report issued in 1986, when a bill
was introduced to allow sheltered workshops to participate in the small
business set-aside program, the Committee stated that it was cognizant
of concerns that sheltered workshops could underbid on set-aside con-
tracts. The Senate Committee was also aware of concerns that once a
workshop was awarded a set-aside contract, it could apply to have the
product or service added to the list of items permanently awarded to
sheltered workshops under the JWOD Program.

The 1986 bill did not pass but was reintroduced in 1988. Again, mem-
bers of the Senate Small Business Committee sought to strike a balance
between the interests of handicapped individuals and the interests of
small businesses. Several organizations representing sheltered work-
shops supported the Senate version of the proposed bill, which would
have limited, but would not eliminate, the total dollar amount of set-
aside contracts that could be converted to the JWOD Program. In confer-
ence, the Senate and House Committees on Small Business decided to
prohibit set-aside contracts from being converted to the JWOD Program,
and this prohibition was included as part of the program’s authorizing
legislation.




 Page 6                                     GAO/RCED90.192   Sheltered   Workshops
                       R-240260.1




                       Although actual data were not available at the time of our review (May
Conclusions            1990), it appears that sheltered workshops’ participation in the small
                       business set-aside program has been minimal. While Public Law loo-590
                       authorized sheltered workshops to participate in the program, it also
                       sought to protect for-profit small businesses from any severe economic
                       harm such participation might cause by placing a ceiling on the total
                       dollar amount of contracts that could be awarded to workshops in any
                       one year and by prohibiting the transfer of competitively awarded set-
                       aside contracts to permanent awards under the JWOD Program. However,
                       the temporary nature of set-aside contracts and the prohibition on
                       transferring items to the JWOD Program appear to have made bidding on
                       set-aside contracts undesirable and/or uneconomical for many work-
                       shops. In the opinion of officials from federal agencies and organizations
                       representing sheltered workshops, some workshops are not aware that
                       they are eligible to participate in the program and/or do not know how
                       to bid on federal set-aside contracts. The officials representing sheltered
                       workshop organizations believe that this has discouraged workshops
                       from participating in the program. Unless changes are made to alter or
                        remove these barriers, workshops may not increase their participation.


                       If greater participation in the small business set-aside program is to be
Matters for            achieved, Public Law loo-590 needs to be modified to reduce or remove
Consideration by the   some of the barriers. Specifically, the Congress may wish to consider (1)
Congress               designating a federal agency responsible for informing sheltered work-
                       shops about the set-aside program and providing training on how to bid
                       on federal contracts and (2) allowing items supplied by workshops
                       under set-aside contracts to be transferred to the list of items supplied
                       exclusively by workshops under the JWOD Program. If desired, the total
                       dollar amount of contracts that can be transferred could be limited to a
                       portion of the annual ceiling imposed by the existing legislation.


                       To determine the availability of data needed to measure the impact of
                       sheltered workshops’ contracts on for-profit small businesses, we
                       reviewed the reporting requirements required by the program’s author-
                       izing legislation, the Federal Acquisition Regulation, and the relevant
                       federal agencies’ regulations. We interviewed officials at OFPP and SBA-
                       the federal agencies responsible for collecting and analyzing data on
                       participation levels and monitoring the program-and the Committee
                       for Purchase From the Blind and Other Severely Handicapped.




                        page7
    B240260.1




    reached on (202) 275-5525. Major contributors to this report are listed in




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    Assistant Comptroller General
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    Page 9                                    GAO/RCRD-99.192   Sheltered   Workshops
Page 11   GAO/RCRJMMVZ   Sheltered   Workshops
Major Contributors to This Report


                        James R. Yeager, Assistant Director
Resources,              Leigh E. Cowing, Assignment Manager
Community, and          James C. Charlifue, Evaluator-in-Charge
Economic -
Development Division,
Washington, DC.




(386215)                Page 13                                   GAO/RCEB9&192   Sheltemd   Workshops
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Appendix I

Federal Government Units and Sheltered                                                             -
Workshop Organizations Contacted by GAO

                      Committee for Purchase From the Blind and Other Severely
Federal Government      Handicapped
                      Office of Management and Budget, Office of Federal Procurement Policy
                      Small Business Administration, Office of Procurement Policy and
                        Liaison


                      Association for Retarded Citizens
Organizations         General Council for Workshops for the Blind
Representing          Goodwill Industries of America, Inc.
Sheltered Workshops   National Association of Rehabilitation Facilities
                      National Easter Seal Society
                      National Industries for the Blind
                      National Industries for the Severely Handicapped
                      IJnited Cerebral Palsy Association




                      Page 12                                   GAO/RCRB90192   Sheltered   Workshops
Contents


Letter                                                                                                     1
Appendix I                                                                                                 I2
Federal Government
Units and Sheltered
Workshop
Organizations
Contacted by GAO
Appendix II                                                                                                13
Major Contributors to
This Report




                        Abbreviations

                        FPDC      Federal Procurement Data Center
                        GAO       General Accounting Office
                        JWOD      Javits-Wagner-O’Day
                        NARF      National Association of Rehabilitation Facilities
                        SBA       Small Business Administration
                        OFPP      Office of Federal Procurement Policy


                        Page 10                                    GAO/RCED9@192   Sheltered   Workshops
5240260.1




Since no federal data were available at the time of our review to mea-
sure sheltered workshops’ initial participation in the set-aside program,
we interviewed officials from the major organizations representing shel-
tered workshops. See appendix I for a list of the entities we contacted.

The Small Business Administration Reauthorization and Amendment
Act of 1988 requires GAO to report on how contracts awarded to shel-
tered workshops under the small business set-aside program have
affected for-profit small businesses for fiscal years 1989 through 1991.
The report is to be issued by September 30, 1992. To fulfill this legisla-
tive mandate, we plan to examine the program’s effect on individual
small businesses as well as on small businesses aggregated within
various industries. We will define impact as the dollar amount of federal
contracts awarded to sheltered workshops in competition with for-profit
small businesses under the set-aside program. To assess this impact, we
will (1) analyze federal data; (2) meet with officials representing
various federal agencies, sheltered workshops, and small businesses to
obtain their views on the impact of the program; and (3) gather any
additional documentation available.

We discussed the contents of this report with officials from SBA, OFPP,
and the Committee for Purchase From the Blind and Other Severely
Handicapped, who generally agreed with the information presented.
Their suggested revisions have been incorporated where appropriate.
However, as agreed with your offices, we did not obtain formal agency
comments on this report.

As arranged with your offices, unless you publicly announced its con-
tents earlier, we plan no further distribution of this report until 30 days
after the date of this letter. At that time, we will provide copies of the
report to the Administrator of SBA, the Director of the Office of Manage-
ment and Budget, the Administrator of OFPP, the Director of the Com-
mittee for Purchase From the Blind and Other Severely Handicapped,
and other entities listed in appendix I. We will make copies available to
others upon request.

This report was prepared under the direction of John M. 01s Jr..
Director, Housing and Community Development Issues, who may be




Page6                                      GAO/RCED9lH92SheltmdWorkshops
                                 B240269.1




Insufficient Information         According to federal agency officials responsible for monitoring the
                                 small business set-aside program, many sheltered workshops do not
and Training on the Set-         know they are eligible to participate. Officials from organizations repre-
Aside Program                    senting sheltered workshops told us that insufficient knowledge about
                                 who can participate and how the set-aside program works contributes to
                                 low participation levels. For example:

                           l     The Director of SRA'S Office of Procurement Policy and Liaison believes
                                 that few nonprofit organizations know that sheltered workshops are eli-
                                 gible to participate in the set-aside program because it has not been pub-
                                 licized. He also said that it would take a couple of years for contracting
                                 officers throughout the federal government to become familiar with this
                                 facet of the set-aside program and, as a result, participation would not
                                 be widespread before 1991. He said that contracting officers’ lack of
                                 information is not a widespread problem, but that personnel turnover
                                 and the absence of training for contracting officers could affect the
                                 program.
                               . The Executive Director of the Committee for Purchase From the Blind
                                 and Other Severely Handicapped said that many workshops are not
                                  aware of specific federal contracts available under small business set-
                                 asides. She also said that the National Industries for the Severely Handi-
                                 capped, which was established to help workshops pursue federal con-
                                 tracts under the JWOD Program, does not have the resources necessary to
                                 train workshop personnel on how to bid on set-aside contracts.

                                 Of the 35 facilities that had responded to the previously mentioned NARF
                                 survey, only 7 had bid on set-aside contracts. One NARF official believes
                                 that few had placed bids because most facilities were unfamiliar with
                                 the government procurement process.

                                 The Senate and House conferees on the bill that became Public Law 1OO-
                                 590 recognized the need for sheltered workshops to become more
                                 familiar with the federal government’s competitive procurement pro-
                                 cess, especially bid preparation. They encouraged SBA to work with the
                                 appropriate organizations in developing training programs. However,
                                 the final legislation did not designate SBA, or any other federal agency,
                                 responsible for program outreach and training. According to the
                                 Director of SBA'S Office Of Procurement Policy and Liaison, SBA has been
                                 unable to initiate any action because of budget constraints. Further-
                                 more, as of April 1990, only one private organization (NARF) had
                                 informed us that it had provided its member workshops with informa-
                                 tion and training on the set-aside program.



                                 Page6
                               R-240269.1




                               Officials from SBA and OFPP said that they could not determine the level
Sheltered Workshops’           of sheltered workshops’ participation in the small business set-aside
Participation in Set-          program because federal data were not available. But officials from
                               organizations that represent sheltered workshops told us that work-
Aside Program                  shops’ participation has been minimal. They cited several reasons.
Appears Low

Authorizing Legislation        Sheltered workshop officials believe that the program’s authorizing leg-
                               islation is a major factor contributing to the low participation levels
Discourages Sheltered          because it prohibits adding any items supplied by sheltered workshops
Workshops’ Participation       under competitively bid set-aside contracts to the list of products and/or
                               services that are permanently awarded to sheltered workshops under
                               the JWOD Program. For example:

                           . The Executive Director of the Committee for Purchase From the Blind
                             and Other Severely Handicapped, a presidentially appointed committee
                             responsible for increasing employment opportunities for the blind and
                             other severely handicapped, said sheltered workshops want the stability
                             that the long-term contracts available under the JWOD Program provide.
                             This stability is not available in the set-aside program. The Committee’s
                             General Counsel said the legislative prohibition on switching items to
                             the NOD Program is the major reason for the low participation levels.
                           . The President of Goodwill Industries of America, Inc., said it is difficult
                             to justify the capital expenditures needed for the production of an item
                             under a set-aside contract because the workshop may not receive subse-
                             quent contracts. By contrast, under the JWOD Program, the same capital
                             expenditures may be feasible because the permanent award allows the
                             workshops to take advantage of the long-term amortization of capital
                             equipment.
                           l An official from the National Easter Seal Society said that workshops
                             have not participated in the set-aside program because they cannot
                             switch a product or service into the JWOD Program if they have provided
                             the product or service under a set-aside contract. The short-term, or
                             “temporary,” nature of set-aside contracts makes it difficult for work-
                             shops to participate because of the extended training and learning curve
                             many disabled employees need.
                           l The President of the General Council for Workshops for the Blind
                             believes that most of his organization’s members have not participated
                             in the set-aside program because of the prohibition against switching
                             items from this program to the JWOD Program.
                           l An official for the National Industries for the Blind said the legislative
                             provision that prohibits switching an item or service from the set-aside


                               Page 4                                     GAO/RCED-99.192   Sheltered   Workshops
             R-240260.1




             (3) some sheltered workshops do not know how to bid on federal set.
             aside contracts.


             Sheltered workshops are charitable organizations or workshops con-
Background   ducted not for profit but for the purpose of carrying out a recognized
             program of rehabilitation for handicapped workers, and/or providing
             such individuals with renumerative employment or other occupational
             rehabilitating activity of an educational or therapeutic nature. On
             November 3, 1988, Public Law loo-590 was enacted, permitting shel-
             tered workshops to compete for federal government contracts set aside
             for small businesses. These contracts involve procurements in which
             competitive bidding is restricted to for-profit firms that qualify as small
             businesses under the business-size standards established by the Small
             Business Administration (SBA). While this legislation allows sheltered
             workshops to compete against for-profit small businesses, a workshop is
             not awarded a contract unless it provides the lowest qualifying bid. Fur-
             thermore, each time the contract expires, the workshop must again com-
             pete for any follow-on contract. Preliminary data for fiscal year 1989
             reveal that small business set-aside contracts accounted for $12.5 bil-
             lion, or about 7 percent of the $184.5 billion in federal procurements
             reported to the General Services Administration’s Federal Procurement
             Data Center (FPDC).FFQCoperates the Federal Procurement Data System,
              which is used to develop consolidated, governmentwide information
             about federal purchases for OFPP.

             Public Law loo-590 states that SBA'S Administrator shall monitor and
             evaluate the participation of sheltered workshops to ensure that the
             total dollar amount of contract awards during any fiscal year does not
             exceed the ceiling amount established for that year in the law-$30 mil-
             lion in fiscal year 1989, $40 million in fiscal year 1990, and $50 million
             in each of fiscal years 1991,1992, and 1993. Federal agencies (and
             departments) having procurement powers are required by the law to
             report to OFPP on each set-aside contract awarded to a sheltered work-
             shop and the amount of the next higher bid submitted by a for-profit
             small business. OFPP plans to collect these submitted data, through FPDC,
             and report them to SBA on a quarterly basis.

              The law also prohibits items purchased from sheltered workshops from
              being added to the list of items purchased by federal agencies on a non-
              competitive basis under provisions of the JWOD Act. In 1938, the Wagner-
              O’Day Act established a program that gave preferential treatment in



              Page2                                     GAO/RCED90.192   Sheltered   Workshops
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