Small Business

Monitoring of Subcontracting to Small Disadvantaged Businesses Gao ID: RCED-95-271 September 22, 1995

GAO reviewed federal efforts to monitor the progress of federal agencies' contractors in providing maximum subcontracting opportunities for small businesses owned and controlled by socially and economically disadvantaged persons. GAO's review included the Defense Logistics Agency, NASA, the Energy Department, and the General Services Administration. This report determines (1) how these agencies monitor contractors' progress in subcontracting to small disadvantaged businesses; (2) whether agencies have assessed monetary damages, known as liquidated damages, against contractors who did not make a good faith effort to subcontract to small disadvantaged businesses; and (3) what initiatives are being considered to change the monitoring process.

GAO found that the four agencies: (1) have established procedures to monitor contractors, which include reports from the contractors on their subcontracting activities, as well as on-site reviews of contractors' subcontracting programs; (2) have met or exceeded their annual subcontracting goals to small disadvantaged businesses since fiscal year 1988; and (3) do not closely review contractor-submitted reports on subcontracting activities, and they do not verify subcontracting data reported by the contractors to ensure data accuracy. In addition, GAO found that: (1) some agency officials question the need for additional monitoring procedures, since they rely on contractors to self-certify their progress; (2) some contracting staff believe that the threat of assessed liquidated damages encourages compliance with subcontracting goals, while others believe that the definition of good faith effort is vague and they question whether an assessment of liquidated damages could be upheld in court; and (3) various initiatives are under way that may affect the agencies' monitoring process, including streamlined reports, contractorwide subcontracting plans, and electronic data reporting.

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