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Will an Obscure Pentagon Small Business Program Live On?

Fate of 25-year-old research project depends on fiscal 2015 Defense authorization.

Deep in the bowels of the Pentagon is a 25-year-old research project designed to test a new way of encouraging large contractors to pass along some of their work to small businesses.

Known as the Comprehensive Subcontracting Plan Test Program, it was set up in 1990 to “determine if comprehensive subcontracting plans on a corporate, division or plant-wide basis [instead of for individual contracts] would lead to increased opportunities for small businesses,” according to its website.

Participants in this elongated research project include a dozen major contractors, from Lockheed Martin Corp. to Northrop Grumman Corp.

Yet the program -- created when George H. W. Bush was president and housed within the Office of Small Business that reports to the undersecretary of Defense for Acquisition, Technology and Logistics -- has yet to release a single report or data set. And an array of small business groups have long viewed the project as a wasteful distraction that is actually costing them opportunities by allowing the major firms leeway to get around the governmentwide goal of awarding 23 percent of contract dollars to small business.

This summer, the House and Senate have staked out opposing positions as to the program’s fate in negotiating the fiscal 2015 National Defense Authorization Act, which the House passed on May 22 and which awaits floor action in the Senate.

The Defense Department itself, Government Executive has learned, thinks it’s time to throw in the towel.

The most vocal crusader against the research program is Lloyd Chapman, president of the Petaluma, Calif.- based American Small Business League. Chapman, a former software salesman who has twice sued the Pentagon for the program’s research results under the Freedom of Information Act, estimates that it has cost small businesses $1 trillion in lost work. “It would be ridiculous for Congress to extend a 25-year test program that has produced no results—I’ve never heard of anything like it in my life,” he told Government Executive.

Chapman’s group argues that large firms in the program are exempted from submitting subcontracting reports used by federal agencies to monitor compliance with small business goals. This allows them to “dodge the Federal Acquisition Regulation ‘liquidated damages’ clause,’ which requires any government contractor that fails to meet its small business-subcontracting goal to pay damages to the federal government,” the league says.

Other small business groups are skeptical but more open to the program’s continuation. This April, the House Armed Services and Small Business committees received a letter signed by 10 groups ranging from the National Small Business Association to the American Institute of Architects to the U.S. Hispanic Chamber of Commerce to Women Impacting Public Policy. These groups expressed concern that it is “unclear” that the program has helped small businesses, and asked Congress to obtain more data. The groups noted that the only published evaluation was a 2004 Government Accountability Office report, which declared, “Although the test program was started 12 years ago, DoD has yet to establish metrics to evaluate the program’s results and effectiveness.”

In 2010, five House members led by Rep. Yvette Clarke, D-N.Y., asked GAO for a follow-up report, which, a GAO spokesman confirmed, was never performed. The American Small Business League says it obtained the “only known evaluation of the program,” which “indicated a decline in subcontract work for small businesses since implementation” of the program.

Over the decades, through seven reauthorizations of the CSP (which expires Dec. 31 unless Congress acts), Congress has altered eligibility criteria on which contractors and what size contracts and contract activities should be used to measure small business participation. The current House-passed language seeks to improve transparency of the program by requiring reporting on contracts based on the North American Industry Classification System, military departments, large service contracts and major acquisition programs, a House Small Business Committee spokesman said.

“But the program is a sham,” said Charles Tiefer, a University of Baltimore law professor specializing in government contracts. “The very name shows Congress was dubious about it in 1990,” authorizing it only for two years initially to 1993. “All these top contractors have to do is provide a companywide plan instead of providing a plan for each contract they bid on, so the most powerful spur for increasing small business contracting is thrown away,” he said. The companies’ plans “can be very broad and very vague,” he said. The Defense Contract Management Agency is “tasked with oversight of subcontracting plans, but they’re not tasked to see that overall contacting with small business increases, just whether contractors tell untruths.”

Though Armed Services Chairman Rep. Buck McKeon, R-Calif., in his markup of the defense bill acknowledged that the program has produced little data, he made an agreement with Small Business Committee Chairman Sam Graves, R-Mo., to include language preserving the program as part of a package of new tools to help small contractors.

The language in the Senate version, however, reflects less enthusiasm. It says, in part, that the CSP would be terminated on Sept. 30, 2015, unless the undersecretary of Defense by Dec. 31 certifies to the committees that the department “will not be able to transition all participants in the test program to individual small business subcontracting plans that meet all relevant requirements contained in the Federal Acquisition Regulation.” That language, according to Chapman, is “deliberately ambiguous and punts it back to the Pentagon.”

The fate of the program “will be decided in conference, and we’re optimistic our language will make it to the final legislation," said the House Small Business spokesman. “Graves seeks to reform the pilot to add transparency and accountability and ensure that the program fulfills its original intent.” Pentagon spokeswoman Maureen Schumann told Government Executive that the CSP is not in fact “a Pentagon program; it’s a program enacted in law in 1990 with the intention of saving large prime contractors money by allowing them to negotiate corporatewide goals, increase small business participation, strengthen the industrial base, and apply those savings into small business programs. Although well intended, the program has not produced quantifiable results. The Department of Defense position is to not have Congress extend the CSP.”

By contrast, a statement from the Aerospace Industries Association said the program “allows defense contractors the opportunity to work closely with small businesses and to train and mentor small businesses in the arcane and bureaucratic government contracting process. Without CSP, defense contractors would be forced to revert from advocates for small business to predominantly data collectors. It is estimated that without CSP, defense contractors would be forced to submit more than 10,000 additional reports to DoD annually,” the association said. “All companies in the CSP participate in rigorous DoD reviews on an annual basis to validate their preceding and upcoming utilization of small businesses.”

Stan Soloway, president and CEO of the Professional Services Council, said his trade group has long agreed that the program should provide better data. “We don’t have good data on the percentage of dollars going to small businesses via subcontracts, which would help us understand the flow of business and the role of small business in the economy,” he said. “Before we start messing around with the program, we have to get good data.”

Molly Day, vice president of public affairs at the National Small Business Association, said her group is now “relatively happy” with the House bill, and would not wish to “blow things up” over a small program when it backs other provisions -- such as the NDAA’s provision to raise small business goals from 23 percent to 25 percent. “We look at the program with some skepticism, and some businesses believe it is inadvertently cutting them out,” she said. “But we need viable data.”

If Congress renews the program, Chapman said, he plans to file for an injunction in federal district court in San Francisco, citing a lack of evidence that the program works.

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