Federal Advertising Contracts

Pursuant to a congressional request, GAO reviewed the distribution of federal contract dollars for advertising services to small disadvantaged businesses (SDB), focusing on: (1) the goals established for federal contracting with small minority-owned and women-owned businesses; (2) trend data on the distribution of prime advertising obligations for fiscal years 1994 through 1998; (3) information on the distribution of and competition for advertising contracts with fiscal year (FY) 1998 obligations; and (4) information on the distribution of subcontract awards to SDBs for selected advertising contracts.

GAO noted that: (1) the Small Business Act, as amended, establishes a governmentwide goal that a minimum of 23 percent of all federal prime contract dollars should be awarded to small businesses; (2) the Small Business Act also establishes governmentwide goals for SDBs and women-owned small businesses that each group receive not less than 5 percent of the total value of prime subcontract awards for each fiscal year; (3) although the Small Business Administration has established industry-specific size standards for what constitutes a small business, including advertising, there are no industry-specific contracting goals; (4) large businesses with contracts generally exceeding $500,000 that offer subcontracting possibilities are required to prepare subcontracting plans on how they intend to use small businesses, SDBs, and women-owned small businesses as subcontractors; (5) they must also prepare semi-annual reports on the actual distribution of subcontract dollars; (6) total advertising contract obligations increased from $139 million in FY 1994 to $368 million in FY 1998; (7) during that same time period, the share of prime contract obligations to SDBs peaked at $3 million, or 3.1 percent of the total contract obligations in FY 1995, and experienced a general decline to $1.2 million, or 0.3 percent in FY 1998; (8) analysis of FY 1998 obligations made under prime contracts for federal advertising showed that 91.4 percent of the total advertising contract obligations were to large businesses; (9) 12 federal agencies or departments funded these obligations under 36 contracts awarded to 26 different contractors; (10) the five largest advertising contracts accounted for 78 percent of the obligations; (11) the Federal Procurement Data Center reports show that 20 of the 36 contracts were awarded using full-and-open competition; (12) another 10 contracts were purchase orders or blanket purchase agreements; (13) two contracts were awarded on a sole source basis, and one contract was awarded under a multiple award schedule; (14) if a prime contract exceeds $500,000 and offers opportunities for subcontracting with SDBs, the prime contractor must establish plans for distribution of those subcontracts and report on the amount of subcontract funds awarded to SDBs from contract inception through completion; (15) subcontracting reports were required on 12 of the 36 advertising contracts with large business firms that received FY 1998 obligations; and (16) these reports show that SDBs received over 8 percent of the total subcontracting funds awarded under these 12 prime contracts.