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Small Business Subcontracting at Two Army Contracting Command Locations DODIG-2018-086

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Objective:

We determined whether Army Contracting Command (ACC)–Redstone and ACC-Warren contracting officials took appropriate actions to ensure prime contractors met their small business subcontracting goals. We reviewed a nonstatistical sample of 50 contracts with estimated completion dates in FYs 2015 or 2016 and 30 contracts awarded in FY 2016. This audit is the fourth and last in a series of our audits on DoD small business contracting.

Finding:
ACC-Redstone and ACC-Warren contracting officials ensured that prime contractors provided small businesses with adequate subcontracting opportunities for 27 of 50 contracts we reviewed, valued at $693.5 million and $1.6 billion, respectively.

However, ACC-Redstone and ACC-Warren contracting officials did not ensure that prime contractors provided small businesses with adequate subcontracting opportunities for the remaining 23 contracts, valued at $914.8 million. Specifically, ACC-Redstone and ACC-Warren contracting officials:

  • awarded six contracts, valued at $330.7 million, without a subcontracting plan or a contracting officer’s determination that no subcontracting possibilities existed;
  • did not monitor prime contractors’ compliance with subcontracting plans for 11 contracts, valued at $480.3 million;  
  • did not determine why prime contractors with individual subcontracting plans did not meet their small business subcontracting goals for five contracts, valued at $81.6 million; and
  • accepted an individual subcontracting report for one contract, valued at $22.1 million, that may have misreported subcontract awards.

ACC-Redstone and ACC-Warren contracting officials stated that this occurred because contracting officials did not understand subcontracting plan requirements and because administering subcontracting plans was not a high priority. In addition, ACC-Redstone and ACC-Warren had high turnover among their contracting staffs, and subcontracting plan administration guidance at both locations did not address the transfer of duties from one contracting officer to another. Also, ACC-Redstone contracting management did not provide adequate training or standard operating procedures on requirements for administering subcontracting plans.

As a result, small businesses may have been denied subcontracting opportunities that prime contractors were required to make a good-faith effort to provide. ACC-Redstone and ACC-Warren contracting officials did not obtain subcontracting reports, did not follow up on reports that showed contractors were not meeting their small business goals, and did not determine whether prime contractors made good-faith efforts to comply with negotiated subcontracting goals. Therefore, ACC-Redstone and ACC-Warren may have missed opportunities to recoup liquidated damages (the amount paid by a contractor that fails to make a good-faith effort to comply with its subcontracting plan) of up to $82.3 million.

Recommendations:

We recommend that the ACC-Redstone and ACC-Warren Executive Directors determine whether the contractor made a good-faith effort to meet its subcontracting goals for 16 contracts and assess liquidated damages, as appropriate.

We also recommend that the Deputy Assistant Secretary of the Army for Procurement, in coordination with the Director, Army Office of Small Business Programs:

  • train contracting officials on Federal Acquisition Regulation Subpart 19.7 responsibilities for administering subcontracting plans,
  • revise Army Federal Acquisition Regulation Supplement Subpart 5119.7 to incorporate guidance on administering subcontracting plans and procedures for transferring subcontracting plan administration duties when a contract is transferred from one contracting officer to another, and
  • issue a policy alert to notify contracting officials of the revision to Army Federal Acquisition Regulation Supplement Subpart 5119.7 incorporating guidance on administering subcontracting plans and procedures for transferring subcontracting plan administration duties when a contract is transferred from one contracting officer to another.

Management Actions Taken:

The Executive Directors agreed with our recommendations and took corrective action for some of the contracts. ACC-Redstone and ACC-Warren contracting officials determined that the contractors met, exceeded, were on pace to meet, or made a good-faith effort to meet their small business subcontracting goals for 9 of 16 contracts.

Management Comments and Our Response:

The ACC Deputy to the Commanding General, responding for the ACC-Redstone and ACC-Warren Executive Directors, agreed with the recommendations. Specifically, ACC-Redstone and ACC-Warren will determine whether the contractor made a good-faith effort to meet its subcontracting goals for the remaining seven contracts. Therefore, the recommendations are resolved but remain open. We will close the recommendations once we verify that ACC-Redstone and ACC-Warren completed their good-faith effort determinations and assessed liquidated damages, as appropriate.

The Army Office of Small Business Programs Director, responding for the Deputy Assistant Secretary of the Army for Procurement, agreed with the recommendations. The Army Office of Small Business Programs implemented training and is developing a schedule to train contracting officials and small business professionals. In addition, the Army Office of Small Business Programs, in coordination with the Deputy Assistant Secretary of the Army (Procurement), is drafting the revised language for incorporation into the Army Federal Acquisition Regulation Supplement and the policy alert to notify all contracting officials and small business professionals of the revision to the Army Federal Acquisition Regulation Supplement Subpart. Therefore, the recommendations are resolved but remain open. We will close the recommendations once we verify that the training has been provided and the policy change and alert have been issued.

This report is a result of Project No. D2017‑D000CF‑0118.000.