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Testimony:

Before the Committee on Energy and Natural Resources, U.S. Senate:

United States General Accounting Office:

GAO:

For Release on Delivery Expected at 10:00 a.m. EDT:

Tuesday, May 18, 2004:

DEPARTMENT OF ENERGY:

Achieving Small Business Prime Contracting Goals Involves Both 
Potential Benefits and Risks:

Statement of Robin M. Nazzaro, Director. Natural Resources and 
Environment:

GAO-04-738T:

GAO Highlights:

Highlights of GAO-04-738T, testimony before the Committee on Energy and 
Natural Resources, United States Senate 

Why GAO Did This Study:

Under the Small Business Reauthorization Act of 1997, the federal 
government has a goal of awarding at least 23 percent of prime, or 
direct, contracting dollars to small businesses each fiscal year. The 
Department of Energy (DOE), like other federal agencies, shares in the 
responsibility for meeting this goal. In fiscal year 2003, DOE spent 
$21.6 billion on prime contracts. More than 80 percent of this amount 
was spent on facility management contracts to manage and operate DOE’s 
sites.

Before 1999, DOE included subcontracts awarded by its facility 
management contractors when calculating its small business prime 
contracting achievements. In 1999, however, the Office of Federal 
Procurement Policy determined that DOE could no longer do so. 

This testimony discusses (1) the effect of the 1999 policy change on 
the amount of prime contract dollars that DOE will be required to 
direct to small businesses, (2) the steps that DOE has taken or plans 
to take to achieve its small business contracting goals, and (3) the 
likely implications for DOE’s programs resulting from these changes.

What GAO Found:

To meet its share of federal goals, DOE would need to direct 
significantly more prime contracting dollars to small businesses. If it 
is to reach its near-term goals of 5.06 percent in fiscal year 2004, 
and 5.50 percent in fiscal year 2005, DOE must direct to small 
businesses an additional $226 million and $319 million, respectively, 
over the $847 million it directed to small businesses in fiscal year 
2003. Achieving a long-term goal of directing 23 percent of prime 
contracting dollars to small businesses would require DOE to contract 
with small businesses at about 6 times its current rate. Such an 
increase is about equal to the combined annual budgets for Los Alamos 
and Sandia—the two largest national laboratories.

To address its near-term small business prime contracting goals, DOE 
has improved its outreach efforts and has redirected to small 
businesses some contract dollars not associated with facility 
management contracts. DOE has also begun to review facility management 
contracts up for renewal to identify work that could be redirected to 
small business prime contracts. Achieving a long-term goal of 23 
percent is much more problematic. Notably, DOE’s three largest offices—
the National Nuclear Security Administration (NNSA), Environmental 
Management (EM), and Science—have differing views as to what extent 
facility management contract work can be redirected to small businesses 
without having a negative impact on accomplishing their missions. EM is 
in favor of doing so if redirecting the work is consistent with its 
accelerated cleanup strategy. NNSA and Science officials express 
concern that redirecting work now done by facility management 
contractors could jeopardize critical research missions at the 
laboratories.

DOE’s efforts to increase small business prime contracting involve both 
potential benefits and risks, which depend on the eventual goal DOE 
attempts to achieve. The potential benefits to DOE of increased small 
business prime contracting include increasing the pool of potential 
contractors, which could result in better competition and better prices 
for the government; finding new and innovative approaches to the work 
developed by small businesses; and providing experiences to small 
businesses to allow them to better compete for other federal contracts. 
The potential risks include integrating and coordinating the work of a 
greater number of contractors at a site in a safe, secure, and 
effective manner, and having adequate federal resources for effective 
contract management and oversight—areas that already pose significant 
challenges for DOE. In addition, DOE’s efforts to increase small 
business prime contracting may cause its facility management 
contractors to reduce the amount of subcontracting that they direct to 
local and regional small businesses. 

DOE largely agreed with the information in this testimony. However, it 
disagreed with GAO’s characterization of DOE’s long-term small business 
prime contracting goal and its strategy to achieve it. GAO believes 
that both the long-term goal and DOE’s strategy have been accurately 
described.


www.gao.gov/cgi-bin/getrpt?GAO-04-738T.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Robin M. Nazzaro, (202) 
512-3841 or nazzaror@gao.gov.

[End of section]

Mr. Chairman and Members of the Committee:

I am pleased to be here today to discuss the Department of Energy's 
(DOE) efforts to increase its direct contracting with small businesses. 
The Small Business Act, as amended by the Small Business 
Reauthorization Act of 1997, established a government-wide goal of 
directing at least 23 percent of prime contracting dollars to small 
businesses each fiscal year.[Footnote 1] DOE, like other federal 
agencies, shares in the responsibility for meeting this goal. 
Contracting is particularly significant at DOE, which spends more on 
contracting than any other civilian agency in the federal government. 
More than 90 percent of DOE's total fiscal year 2003 budget, or $21.6 
billion, was spent on prime contracts. The majority of this amount--
$18.2 billion, or more than 80 percent of the contracting dollars--was 
spent on 37 large contracts for the management of DOE's laboratories, 
production facilities, and environmental restoration sites. As a group, 
these contracts are referred to as facility management contracts. Under 
these facility management contracts, a contractor is responsible for 
performing, managing, and integrating the work at a DOE site, often 
subcontracting specific portions of the work to other businesses.

DOE's approach to reporting its small business prime contracting 
dollars has been affected by a change in federal policy concerning 
whether subcontracts with small businesses can in certain situations be 
counted toward achieving small business prime contracting goals. For 
most of the 1990s, DOE included in its calculations of small business 
prime contracting achievements the subcontracts awarded to small 
businesses by its facility management contractors. The Office of 
Federal Procurement Policy[Footnote 2] had allowed DOE to include these 
subcontracts because of DOE's unique reliance on facility management 
contractors to operate its facilities and carry out its missions. In 
1999, however, the Office of Federal Procurement Policy determined that 
to ensure consistent reporting of achievements across the federal 
government, DOE could no longer include the subcontracts under facility 
management contracts when calculating the percentage of prime 
contracting dollars awarded to small businesses.[Footnote 3]

You asked us to examine what has happened as a result of this policy 
change. My testimony will discuss (1) the effect of the 1999 policy 
change on the amount of prime contracting dollars that DOE will be 
required to direct to small businesses, (2) the steps that DOE has 
taken or plans to take to achieve its small business contracting goals, 
and (3) the likely implications for DOE's programs, if any, resulting 
from these changes.

My testimony is based on a review of DOE small business contracting 
goals and achievements from fiscal year 1990 through fiscal year 2003. 
Our work included a review of DOE's plans to achieve its near-term 
goals and the projected incremental increases needed to achieve long-
term goals. These goals were developed by DOE's Office of Small and 
Disadvantaged Business Utilization (referred to in this testimony as 
DOE's Small Business Office) within its Office of Economic Impact and 
Diversity. We also reviewed documentation provided by DOE and the Small 
Business Administration (SBA), and completed and current procurements 
for new small business prime contracts.[Footnote 4] We interviewed DOE 
and contractor officials at DOE headquarters and selected sites, as 
well as national and regional small business associations and advocacy 
groups. Our scope included DOE's three largest offices-the National 
Nuclear Security Administration (NNSA)[Footnote 5], and the Offices of 
Environmental Management (EM) and Science-that account for about 70 
percent of DOE's annual budget. We conducted our review from February 
2004 through May 2004 in accordance with generally accepted government 
auditing standards. Our review included a data reliability assessment 
on DOE's small business prime contracting and subcontracting results 
for fiscal years 1990 through 2003. These data are being used primarily 
for context. Our assessment of DOE's prime contracting data determined 
that the data are sufficiently reliable for the purposes of this 
testimony. Although we are not as confident of the reliability of the 
subcontracting data as reported to DOE by its facility management 
contractors, we determined that these are the only data available and 
they are sufficiently reliable for the observations presented in this 
testimony.

In summary, we found the following:

* To comply with the 1999 federal policy change and to achieve federal 
small business prime contracting goals, DOE would need to direct 
significantly more prime contracting dollars to small businesses. To 
achieve DOE's near-term small business prime contracting goals of 5.06 
percent in fiscal year 2004, and 5.50 percent in fiscal year 2005, DOE 
will have to direct an additional $226 million in fiscal year 2004, and 
$319 million in fiscal year 2005, above the roughly four percent of 
prime contracting dollars directed to small businesses in fiscal year 
2003. The long-term goal of 23 percent in small business prime 
contracting represents a level significantly beyond what DOE has ever 
achieved--about 6 times the $847 million directed to small businesses 
in fiscal year 2003. Placed in the context of DOE's current contracting 
base, such an increase would represent an amount approximately equal to 
the annual budgets of the two largest laboratories--Los Alamos and 
Sandia National Laboratories.

* DOE has taken steps to increase its near-term small business prime 
contracting, but has no consistent strategy for reaching the eventual 
goal of directing 23 percent of its prime contracting dollars to small 
businesses. To achieve the near-term goals, DOE has focused primarily 
on improving outreach to the small business community and directing 
additional contract dollars to small businesses from procurements not 
associated with facility management contracts. In addition, as certain 
facility management contracts are due for renewal, DOE, and especially 
EM, has begun identifying potential work that could be redirected in 
the form of small business prime contracts. In the longer term, it is 
less clear how, or if, DOE intends to achieve an eventual goal of 23 
percent small business prime contracting. In 2002, DOE's Small Business 
Office prepared a 20-year plan outlining when and how the department 
would achieve the 23 percent small business prime contracting goal. 
Since DOE's facility management contracts represent about 80 percent of 
its total contract dollars, the department cannot mathematically 
achieve the 23 percent goal without redirecting some of those dollars 
to small business prime contracts. Although the 20-year plan proposed 
that eventually DOE would redirect about a fifth of its facility 
management contract dollars to small business prime contracts, it 
provides no details as to which offices would provide those dollars. 
DOE's three largest offices have differing views as to how much of the 
work that is done by facility management contractors can be redirected 
to small businesses without jeopardizing the department's missions. 
While the EM program has begun to move work from its facility 
management contracts and redirect these dollars to small business prime 
contracts, EM officials said that doing so must be consistent with the 
overall strategy of accelerating cleanup at DOE sites and must be at a 
level that can be effectively managed by EM contract and project 
management staff. In contrast, officials in the two offices that 
oversee DOE's research laboratories--NNSA and Science--said that their 
programs are less able to redirect significant segments of their work 
from facility management contracts to small businesses without 
jeopardizing critical research missions. DOE has not reconciled these 
differing views into a consistent strategy for achieving its long-term 
small business contracting goals.

* The implications of increasing small business prime contracts depend 
on the eventual goals that DOE attempts to achieve. Given the 
contrasting views of DOE's three largest offices, it is not clear if 
DOE as a whole will commit to the incremental increases that would 
eventually lead to a 23 percent rate of prime contracting to small 
businesses. Regardless of how far DOE moves in the direction of 
providing more prime contracting dollars for small businesses, efforts 
to increase small business prime contracting involve both potential 
benefits and risks. In addition to helping the federal government meet 
the overall goal of 23 percent prime contracting, potential benefits 
include increasing the pool of possible contractors, which could result 
in better competition and perhaps better prices for the government; 
finding new and innovative approaches developed by small businesses; 
and providing experiences to small businesses that could enhance their 
capacity to compete for other federal contracts. The potential risks 
associated with increasing the number of small business prime contracts 
include difficulties integrating and coordinating the activities of a 
greater number of prime contractors at a site to ensure safe, secure, 
and effective operations and having adequate federal resources for 
effective contract management and oversight--two areas that continue to 
be a challenge for DOE. Furthermore, DOE's efforts to increase small 
business prime contracting may cause facility management contractors to 
reduce the amount of subcontracting dollars that they direct to local 
and regional small businesses.

We discussed a draft of this testimony with DOE officials representing 
DOE's Small Business Office, procurement organizations, NNSA, EM, and 
Science. DOE officials generally agreed with the information and 
observations presented in the testimony, with two exceptions. First, 
DOE said that it disagreed with our statement that DOE has no 
consistent strategy for reaching an eventual goal of directing 23 
percent of its prime contracting dollars to small businesses. DOE 
argued that its 20-year plan, its annual goal-setting process with SBA, 
and the individual goal setting that occurs within NNSA and the program 
offices collectively represented a consistent strategy. We disagree. 
Although DOE has a 20-year plan that projects incremental increases in 
small business prime contracting up to 23 percent by 2022, no strategy 
is in place that defines how DOE will achieve this goal, identifies 
what the contributions of the various DOE organizational components 
will be, or reconciles the differing views within DOE as to what would 
be an appropriate level of small business prime contracting. Second, 
DOE said that we have mischaracterized its 23 percent small business 
prime contracting goal as an eventual long-term goal, while DOE views 
it as a goal that it may or may not agree to, based on its annual 
negotiations with SBA. We believe we have appropriately described DOE's 
goal and we stated that it is not clear if DOE will commit to the 
incremental increases that would lead to achieving the goal. Finally, 
DOE suggested technical corrections, which we incorporated as 
appropriate.

Background:

DOE has about 50 major sites around the country where the department 
carries out its missions, including developing, maintaining, and 
securing the nation's nuclear weapons capability; cleaning up the 
nuclear and hazardous wastes resulting from more than 50 years of 
weapons production; and conducting basic energy and scientific 
research, such as mapping the human genome. This mission work is 
carried out under the direction of NNSA and DOE's program offices.

With a workforce of 16,000 federal employees and more than 100,000 
contractor employees, DOE relies primarily on contractors to manage and 
operate its facilities and to accomplish its missions. In addition to 
accomplishing DOE's core mission work, managing and operating the sites 
involves a broad range of support activities, such as information 
technology, safety, security, and purchase of products and services.

The Small Business Act, as amended by the Small Business 
Reauthorization Act of 1997, directed the President to establish the 
goal that not less than 23 percent of the federal government's prime 
contracting dollars would be directed to small businesses each fiscal 
year. SBA is charged with working with federal agencies to establish 
agency small business contracting goals that, in the aggregate, meet or 
exceed the 23 percent government-wide goal. SBA negotiates an annual 
goal with each agency based on the overall amount of contracting in the 
agency (contracting base) and the agency's past achievements.[Footnote 
6] SBA guidelines for setting individual agency goals specify that 
certain types of federal spending should not be included in the 
contracting base. These exclusions include items such as grants, 
purchases from mandatory sources, or contracts for work done 
internationally for which U.S. small businesses would not be competing. 
For fiscal year 2003, excluding such items resulted in a DOE 
contracting base of about $21 billion subject to the small business 
prime contracting goal. As figure 1 shows, facility management 
contracts account for more than 80 percent of this amount.

Figure 1: Components of DOE's Fiscal Year 2003 Contracting Base:

[See PDF for image]

[End of figure]

DOE's Small Business Office negotiates annual small business 
contracting goals with SBA, coordinates outreach efforts with the small 
business community, and works with NNSA and DOE's program offices to 
establish and monitor annual goals for small business contracting. 
DOE's Office of Procurement and Assistance Management and NNSA's Office 
of Acquisition and Supply Management establish policies and guidance 
for conducting procurements according to federal and departmental 
regulations, and maintain the information systems on the department's 
prime contracts, including annual dollars provided to each contract. 
NNSA and DOE's program offices, such as EM and Science, are responsible 
for identifying opportunities for small business contracting and 
providing program oversight and direction to the contractors.

Unprecedented Levels of Small Business Prime Contracting Necessary for 
DOE to Meet Future Goals:

Since the 1999 federal policy change, DOE can no longer include 
subcontracts of its facility management contractors when calculating 
the department's small business prime contracting goals. As a result, 
to achieve even its near-term small business prime contracting goals, 
DOE will have to direct more prime contracting dollars to small 
businesses than it ever has in the past. Further, meeting a long-term 
goal of 23 percent small business prime contracting would represent an 
achievement far beyond what DOE has ever reached--about 6 times the 
$847 million that it directed to small businesses in fiscal year 2003.

Meeting Near-term Goals Requires More Small Business Prime Contracting 
Dollars Than Previously Achieved:

Now that DOE's facility management subcontracts can no longer be 
counted toward achieving its small business prime contracting goals, 
achieving its near-term goals for fiscal years 2004 and 2005, will 
require DOE to expand the amount of prime contracting dollars it 
provides directly to small businesses. The department has a goal of 
directing to small business prime contracts 5.06 percent of its 
contracting base in fiscal year 2004, and 5.50 percent of its 
contracting base in fiscal year 2005. These goals surpass any of DOE's 
small business prime contracting achievements prior to fiscal year 
2004. As figure 2 shows, the percentage of prime contracting dollars 
DOE directed to small businesses in any year since 1996 ranges from 
2.68 percent to 3.99 percent. During 1991 through 1999, when DOE could 
include in its achievements those dollars going to small business 
subcontractors of facility management contractors, as well as dollars 
going directly to small business prime contractors, DOE's reported 
percentages of prime contracting dollars awarded to small businesses 
ranged from 15.7 percent to 19.9 percent.[Footnote 7] However, most of 
the reported achievements during those years came from facility 
management subcontracting dollars going to small businesses. The 
remainder of the reported achievements came from prime contracts to 
small businesses for work not associated with facility management 
contracts.

Figure 2: DOE's Reported Small Business Prime Contracting Achievements 
for Fiscal Years 1996 through 2003 and Goals for Fiscal Years 2004 and 
2005:

[See PDF for image]

Note: For fiscal years 2000 through 2003, DOE did not include facility 
management subcontracting dollars in calculating small business prime 
contracting achievements. Therefore, facility management 
subcontracting is not shown in figure 2 for those years.

[End of figure]

Meeting the small-business prime contracting goals in fiscal years 2004 
and 2005 will require DOE to achieve a substantial increase over the 
$847 million in prime contracting dollars that DOE provided directly to 
small businesses in fiscal year 2003. To meet its fiscal year 2004 
goal, DOE will need to direct an additional $226 million, or 26.7 
percent, over the 2003 amount. Meeting the department's 2005 goal will 
require directing $319 million more than in 2003, an increase of 37.7 
percent over 2003 levels.[Footnote 8]

Meeting the Long-term Goal of 23 Percent Requires Huge Increases in 
Small Business Prime Contracting:

Although achieving DOE's near-term small business prime contracting 
goals for fiscal years 2004 and 2005 will not be easy, the long-term 
goal of 23 percent would require an achievement far beyond what DOE has 
accomplished in the past. SBA expects DOE to achieve a small business 
prime contracting goal at least on par with the federal goal of 23 
percent. DOE's response has been to formulate a plan for gradual 
compliance. In 2002, DOE's Small Business Office submitted a plan to 
SBA to achieve the 23 percent goal in 20 years, by the year 2022.

According to this 20-year plan, DOE would increase its level of small 
business prime contracting by about 1 percentage point per year to 
achieve the 23 percent goal by 2022. To achieve this goal, the 
department would need to increase its small business prime contracting 
to about $5 billion, or 6 times its 2003 achievement. Put in terms of 
DOE's current contracting base, the additional amount of contracting 
dollars necessary to achieve the 23 percent goal approximately equals 
the combined annual budgets of the facility management contracts for 
the two largest laboratories--Los Alamos and Sandia National 
Laboratories.

Meeting the 23 percent goal under DOE's current contracting approach 
means that a substantial portion of dollars now included in facility 
management contracts would have to be redirected to small business 
prime contracts, resulting in more prime contracts for DOE to manage. 
Redirecting these dollars would be necessary because prime contracts 
not associated with facility management generally account for less than 
20 percent of DOE's total prime contract dollars. Therefore, even if 
all the dollars not associated with facility management contracts were 
directed to small businesses, the total amount would be insufficient to 
meet the 23 percent small business prime contracting goal.

DOE Has Near-term Plans But No Consistent Strategy for Achieving Long-
term Small Business Contracting Goals:

Although DOE has an agreed upon organizational strategy to achieve its 
near-term small business prime contracting goals, a consistent view 
does not prevail within the department on whether or how to reach the 
eventual goal of directing 23 percent of prime contracting dollars to 
small businesses. To achieve the near-term goals of 5.06 of prime 
contracting dollars to small businesses in fiscal year 2004, and 5.50 
percent in fiscal year 2005, DOE has focused primarily on improving 
outreach to the small business community, directing more of the dollars 
not associated with facility management contracts toward small 
businesses, and beginning to redirect selected facility management 
contract activities to small business prime contracts. It is less 
clear, however, how DOE intends to achieve the eventual long-term goal 
of 23 percent small business prime contracting. DOE's Small Business 
Office's 20-year plan calls for redirecting about 20 percent of 
facility management contract dollars to small business prime contracts 
but provides no details as to how NNSA and the program offices, such as 
EM and Science, would implement the plan. Officials in these offices 
have differing views as to how much of the work done by their facility 
management contractors can be redirected to small businesses without 
jeopardizing critical agency missions.

Near-Term Plans Focus Primarily on Increasing Awards of Non-Facility 
Management Contracts to Small Businesses:

DOE's plan for achieving its near-term small business prime contracting 
goals focuses primarily on directing more of the dollars not associated 
with facility management contracts to small businesses. To increase the 
percentage of such dollars going to small businesses, DOE has expanded 
its outreach to the small business community, notifying small 
businesses of contracting opportunities and preparing them to compete 
for these contracts. DOE's Small Business Office has developed a 
variety of outreach and capacity-building activities designed to assist 
small businesses in competing for DOE prime contracts. For example, 
DOE's Small Business Office fosters mentor-protégé relationships 
between small businesses and DOE's large prime contractors to help the 
small businesses expand their expertise. In addition to these 
department-wide efforts, offices such as NNSA and EM have also 
developed outreach activities, generally related to specific prime 
contract opportunities (see table 1 for examples.):

Table 1: Examples of Outreach Efforts by DOE's Small Business Office 
and Program Offices:

Small Business Office efforts; Approach: Marketing and outreach; 
Description: Educate and inform small businesses about the contracting 
opportunities at DOE; Provide a listing of potential prime and 
subcontracting opportunities for the next 3 years. These potential 
opportunities for small businesses are organized by program office or 
state and are posted on the Small Business Office's Web site; Sponsor 
annual conferences, workshops, procurement fairs, and seminars for the 
small business community.

Small Business Office efforts; Approach: Mentor-protégé relationship; 
Description: Foster long-term business relationships between small
business entities and DOE prime contractors in order to increase the 
overall number of these small business entities that can successfully 
compete for DOE contract and subcontract awards.

Small Business Office efforts; Approach: Small business advisory team; 
Description: Established an advisory group consisting of small business 
trade associations, chambers of commerce, and other federal agencies to 
provide advice and guidance to the Small Business Office on small 
business programs and activities. Purposes of the group include 
identifying best practices and exploring business models that promote 
outreach and interaction with the small business community.

Program Office efforts; Approach: Teaming workshops; 
Description: Sponsor meetings of small and large businesses to discuss 
upcoming requests for proposals to encourage formation of teams that 
combine the advantages of small and large businesses, or combine the 
different strengths of several small businesses, for proposed new prime 
contracts (NNSA and EM).

Program Office efforts; Approach: Market research; 
Description: Conduct market research before issuing a request for 
proposals for a new contract not associated with facility management to 
identify whether small businesses exist with capabilities in specific 
performance areas (NNSA, EM, and Science).

Program Office efforts; Approach: Database of small businesses; 
Description: Build a database of interested small businesses to 
identify highly skilled small businesses that meet program requirements 
(NNSA). 

Source: GAO analysis of DOE information.

[End of table]

In addition to its outreach efforts, DOE has taken steps in two other 
major areas. First, it has established internal requirements that it 
believes will help make progress toward achieving its small business 
prime contracting goals. These internal requirements were part of a 14-
item plan of action included in the 20-year plan. The plan of action 
includes reviews of upcoming contracts to identify work activities that 
could potentially be awarded to small businesses, and regular 
monitoring of DOE program level and agency-wide achievements toward 
DOE's annual goals. For example, each year DOE's Small Business Office 
requires each program office to develop a small business plan that 
reflects the program's goals for increasing prime contracts with small 
businesses. These program plans are used to develop DOE's overall small 
business contracting goals, and DOE's Small Business Office tracks 
progress toward these goals quarterly. Second, DOE has modified some of 
its procurement processes to eliminate certain barriers for small 
businesses, such as bonding requirements, and to help small businesses 
minimize the cost of developing proposals. For example, DOE has limited 
the amount of documentation that small businesses are required to 
submit in response to a request for proposals to 50 pages instead of 
volumes of supporting documentation.

To achieve the near-term small business prime contracting goals in 
fiscal years 2004 and 2005, DOE is concentrating primarily on contracts 
not associated with facility management, because doing so does not 
involve significant changes in the way the department does business. 
For contracts not associated with facility management, as new work is 
identified or existing contracts come up for renewal, DOE sets them 
aside for small businesses and awards them as small business prime 
contracts whenever possible. For example, the information technology 
support contract for DOE headquarters came up for renewal in January 
2002. DOE determined that this contract, which was held by a large 
business, could be carried out by a small business. The new contract, 
for a 5-year term with a total value of $409 million, was awarded in 
January 2003, to a team that included a consortium of 10 small 
businesses.

NNSA and the program offices have also focused primarily on 
procurements not associated with their facility management contracts. 
NNSA, EM, and Science officials issued policy letters stressing the 
importance of directing contracts for activities not associated with 
facility management to small businesses to the maximum extent possible. 
For example, for any upcoming contract not associated with facility 
management, program office personnel must first conduct market research 
to determine if any small businesses are capable of performing all or 
parts of the work and have the necessary qualifications to do so. If 
the program office finds two small businesses capable of doing the 
work, the policy requires the contract or parts of the contract to be 
"set aside" from unrestricted competition and instead generally be made 
available for a more restricted competition among small businesses. Any 
exceptions to this policy must be approved by the head of the program 
office.

Although in the near term DOE is concentrating primarily on contracts 
not associated with facility management, it has also begun to look at 
certain facility management contracts as they come up for renewal to 
identify potential work that could be made available to small 
businesses. DOE's Offices of EM and Fossil Energy have identified 
several specific activities that had been within a facility management 
contractor's scope of work and have set those activities aside for 
small business prime contracts. (See table 2 for examples.):

Table 2: Status of Selected Procurements Redirecting Facility 
Management Contract Dollars to Small Business Prime Contracts:

Fossil Energy; Program office/site: Strategic Petroleum Reserve, 
Louisiana; 
Nature of work: Construction management services; 
Current facility management contractor: DynMcDermott; 
Contract amount: $26.5 million for 2 years, plus three 1-year options; 
Status of procurement: Contract awarded November 2003.

Environmental Management; Program office/site: Fast Flux Test Facility, 
Hanford, WA; 
Nature of work: Decontamination, decommissioning, demolition, disposal 
of reactor waste; 
Current facility management contractor: Fluor Hanford; 
Contract amount: $46.1 million per year, contract length not to exceed 
8 years; 
Status of procurement: Request for proposals closed March 2004.

Environmental Management; Program office/site: 222-S Laboratory, 
Hanford, WA; 
Nature of work: Laboratory analysis of tank waste samples; 
Current facility management contractor: CH2M Hill; 
Contract amount: $10 million per year for 5 years, plus five additional 
1-year options; 
Status of procurement: Request for proposals closed March 2004.

Environmental Management; Program office/site: Portsmouth, OH; 
Nature of work: 1 contract for environmental remediation; 
1 contract for infrastructure; 
Current facility management contractor: Bechtel Jacobs; 
Contract amount: $273 million over 5 years for remediation; 
$129 million over 5 years for infrastructure; 
Status of procurement: Request for proposals closed March 2004.

Environmental Management; Program office/site: Paducah, KY; 
Nature of work: 1 contract for environmental remediation; 
1 contract for infrastructure; 
Current facility management contractor: Bechtel Jacobs; 
Contract amount: $377 million over 5 years for remediation; 
$100 million over 5 years for infrastructure; 
Status of procurement: Request for proposals closed March 2004. 

Source: GAO analysis of DOE information.

[End of table]

Of the examples shown in table 2, the procurement at the Strategic 
Petroleum Reserve in Louisiana is the only one that DOE has completed 
so far. According to DOE officials with the Office of Fossil Energy, 
when the facility management contract was nearing the end of its term, 
DOE's Small Business Office asked the program office to look for 
opportunities for small business prime contracts. DOE officials at the 
Strategic Petroleum Reserve said they identified a number of 
construction projects that could be performed by small businesses, and 
awarded several prime contracts to small businesses for this work. DOE 
officials then decided to remove all the construction management work 
from the facility management contract for the site so that a new small 
business prime contractor for construction management could then award 
and manage subcontracts for individual construction projects. According 
to DOE's contracting officer at the Strategic Petroleum Reserve, having 
the new prime contractor responsible for awarding and managing the 
contracts will reduce the amount of additional work required by DOE 
procurement and program personnel. The prime contract was awarded in 
November 2003.

DOE's Small Business Office and Program Offices Have Different Views on 
the Extent to Which Facility Management Contract Dollars Can Be 
Redirected to Small Business:

While DOE's Small Business Office and the three largest offices have a 
consistent approach to their near-term goals--primarily focusing on 
increasing small business prime contracting by using dollars not 
associated with facility management contracts--a consistent view does 
not prevail in the department on whether or how to achieve the eventual 
goal of directing 23 percent of prime contracting dollars to small 
businesses. DOE's Small Business Office's plan to achieve the long-term 
small business prime contracting goals has two main components. The 
first is to continue increasing the small business share of contract 
dollars not associated with facility management contracts. For any new 
contracts not associated with facility management, DOE has a stated 
preference to set aside those contracts for small businesses where 
possible. The three largest offices have been consistent in their 
efforts to do so. However, even this portion of DOE's contracting base 
(about 20 percent of total contract dollars) is not immediately 
available for small business prime contracts. For example, many of the 
contracts not associated with facility management cover multiple years, 
so only a portion of these contracts are up for award or renewal in a 
given year.[Footnote 9] In addition, some contracts for work not 
associated with facility management may not be available for award to 
small businesses, for example, if market research determines that there 
are not at least two small businesses capable of performing all or 
parts of the work in an upcoming procurement.

Because of the limited amount of contracting dollars for work not 
associated with facility management, the second component of DOE's 
Small Business Office's long-term plan is to redirect dollars now going 
to facility management contracts to small business prime contracts. 
DOE's 20-year plan calls for increasing dollars redirected from 
facility management contracts to small business prime contracts from 
less than 1 percent in 2003 to about 20 percent by 2022 (see figure 3).

Figure 3: Projected Percentage of Facility Management Contract Dollars 
to Be Redirected to Small Business Prime Contracts:

[See PDF for image]

Note: The actual percentage of facility management contract dollars 
redirected to small business prime contracts between fiscal years 1990 
and 2003 was less than one percent.

[End of figure]

Nevertheless, DOE does not have a consistent strategy in place to 
accomplish its plan for redirecting dollars from its facility 
management contracts to small business prime contracts. Officials in 
NNSA, EM, and Science have considerably different views about the 
feasibility of redirecting significant amounts of funding from their 
facility management contracts to small businesses. For example:

* Both NNSA and Science officials are very concerned about the 
implications of setting aside for small businesses significant portions 
of the dollars now going to facility management contractors that 
operate the weapons and research laboratories. NNSA and Science 
officials' concerns stem from the large scale of laboratory operations, 
the integrated nature of the mission and mission support work, and the 
complexity and critical importance of the laboratory missions. These 
officials said that fragmenting mission activities among several 
contractors at the research laboratories, whether the contractors were 
large or small businesses, was inadvisable. Therefore, according to 
NNSA's Director of Acquisition and Supply Management and Science's 
Director of Grants and Contracts, NNSA and Science may never achieve a 
23 percent small business prime contracting level because doing so 
would be inconsistent with accomplishing their missions safely, 
securely, and effectively.

Despite the reluctance to fragment core mission activities, NNSA and 
Science officials said they would explore opportunities to contract 
separately with small businesses for mission support functions at the 
laboratories if those mission support functions were not closely 
integrated with the laboratories' core missions.[Footnote 10] For 
example, NNSA is analyzing its own purchases of goods and services, 
such as computer hardware, software, and staffing services, as well as 
similar purchases by its facility management contractors. NNSA is 
assessing the feasibility of purchasing these items in bulk under a 
prime contract, rather than multiple separate contracts. An NNSA 
official said that NNSA is not trying to increase its small business 
prime contracting numbers by becoming a purchasing agent for its 
facility management contractors, but rather combining similar 
requirements as a way to possibly increase NNSA's level of prime 
contracting to small business. On the basis of this analysis, NNSA is 
pursuing three potential opportunities, valued at about $80 million, 
involving technical services and services to provide temporary staff, 
and is exploring other opportunities.

* By contrast, EM officials were more optimistic about the potential 
role of small businesses in accomplishing its core missions. The 
Assistant Secretary for EM said that part of its initiative to 
accelerate the cleanup of DOE sites involves greater use of 
alternatives to traditional facility management contracts, including 
removing work from facility management contracts and setting that work 
aside for small businesses. The Assistant Secretary said that these 
small business procurements are part of EM's overall strategy to clean 
up sites more quickly and at a lower cost to the government, not just 
to increase the amount of small business prime contracting.

EM is also developing a complex-wide contracting arrangement, called 
indefinite delivery/indefinite quantity, which will result in prime 
contracts with both large and small businesses for smaller-scale 
cleanup activities. According to EM's Director of Acquisition 
Management, the multiple contracts awarded under this initiative will 
allow EM sites nationwide to quickly purchase cleanup services from 
small and large businesses without having to conduct a separate 
procurement, which can take months to complete. Instead, either EM or 
the facility management contractor will be able to simply write a task 
order against these existing contracts.

Finally, it is unclear to what extent EM can expand its use of small 
business prime contracts to accomplish its core missions. According to 
the Assistant Secretary, the main constraint is the ability of EM staff 
to effectively oversee those contracts, not the availability of 
qualified small businesses to perform the work. The Assistant Secretary 
said that EM is proceeding carefully to ensure that effective 
management and oversight will occur; that cost, schedule, and technical 
standards are met; and that safety and security issues are adequately 
addressed.

Potential Benefits and Risks of Increased Small Business Prime 
Contracting Depend on the Goal that DOE Tries to Achieve:

Since DOE is in the early stages of implementing a long-term strategy 
to redirect facility management contracting dollars to small 
businesses, the implications of increased small business prime 
contracting are still relatively uncertain. However, the implications 
depend heavily on the extent to which DOE agrees, in its negotiations 
with SBA, to meet the 23 percent small business prime contracting goal. 
Given the differences we heard in the approaches of the three largest 
offices, it is not clear if DOE will commit to the incremental 
increases that would eventually lead to a 23 percent rate of prime 
contracting to small businesses, as detailed in the 20-year schedule 
prepared by DOE's Small Business Office. Absent more specific direction 
from Congress or the executive branch, DOE's eventual commitment to a 
particular small business prime contracting goal appears to rest 
heavily on whether the department will be willing to change its 
approach to contracting for activities at the science and weapons 
laboratories, its environmental cleanup work, or both. Regardless of 
the extent to which DOE directs more prime contracting dollars to small 
businesses, efforts to increase small business prime contracting 
involve potential benefits as well as potential risks.

Potential Benefits of Increasing Small Business Prime Contracting:

An overarching benefit of increasing small business prime contracting 
is that DOE would be helping to carry out the President's small 
business agenda and would be contributing to the federal government's 
overall goal of directing 23 percent of prime contracting dollars to 
small businesses. Beyond contributing to this overall effort, DOE's 
Small Business Office and procurement officials explained that the 
benefits included increased competition, greater innovation, and 
enhanced small business capacity.

One example of increased competition can be seen in EM's program. DOE's 
efforts to increase small business contracting have resulted in new 
procurements with narrower scope. In the past, EM has been concerned 
about the limited pool of potential contractors for large cleanup 
projects, sometimes receiving only two proposals on multibillion dollar 
procurements. By structuring the cleanup work into smaller contracts 
and opening them to individual small businesses or small business 
teams, EM expects to attract more potential bidders. One of EM's 
current procurements is for cleanup work at the Fast Flux Test Facility 
at the Hanford site in Washington state. Currently included in a 
facility management contract, EM is in the process of redirecting this 
work as a small business set-aside. EM officials said that in the 
response to the request for proposals for this project, with an 
estimated contract amount of $46 million per year for up to 8 years, 
DOE received proposals from several small business teams. According to 
EM officials, increased competition from a larger pool of potential 
contractors could result in better prices for the government. However, 
since the contracts for the current small business procurements have 
not yet been awarded, it is too soon to tell whether better prices will 
be realized.

In addition to increased competition, DOE procurement and program 
office officials believe that small businesses may bring new ideas and 
innovative approaches to the work. For example, as part of its 
accelerated cleanup strategy, EM has been looking for better and faster 
ways to accomplish cleanup at its sites and facilities. According to EM 
officials, expanding the pool of potential contractors for cleanup 
projects may increase the potential for new technology and 
ideas.[Footnote 11]

Increasing small business prime contracting can also provide small 
businesses with the experience necessary to compete for other federal 
prime contracts. According to small business associations and advocacy 
groups that we contacted, a direct contracting relationship with DOE 
provides small businesses with more challenging work and better 
opportunities to grow and expand their businesses. The use of mentor-
protégé arrangements or teaming with other small or large businesses 
also provides opportunities for growth and economic development. For 
example, an owner of a small construction company in New Mexico told us 
that his business had successfully teamed with a large construction 
company for several projects and that his small company was now the 
senior member of that team and was competing for DOE prime contracts.

Potential Risks of Increasing Small Business Prime Contracting:

DOE's long-term strategy for achieving a 23-percent small business 
prime contracting goal includes redirecting a substantial amount of 
facility management contract dollars to small business prime contracts. 
DOE procurement and program officials acknowledge that doing so would 
significantly increase the number of prime contracts DOE would have to 
manage. Increasing DOE's number of prime contracts, whether these are 
with small or large businesses, could create problems with integrating 
and coordinating the efforts of more contractors at a site, as well as 
create problems with contract management and oversight. In addition, 
DOE's efforts to increase small business prime contracting could 
inadvertently reduce the amount of small business subcontracting 
directed to local and regional small businesses.

Increasing the number of prime contracts at a site raises concerns 
about integration, coordination, and accountability. If a facility 
management contractor has primary responsibility for accomplishing work 
at the site, that contractor is also accountable for integrating the 
efforts of multiple subcontractors to ensure that the mission work is 
accomplished. In addition, the facility management contractor has the 
responsibility for ensuring that all contractor and subcontractor 
employees at the site comply with DOE safety and security standards. If 
the work done by the facility management contractor becomes fragmented 
and spread among multiple prime contracts, DOE may need to carry out 
these integration functions, which places more oversight 
responsibilities on federal program and project management personnel. 
If the number of prime contractors at a site increases significantly, 
the challenges associated with integrating and coordinating the 
activities also increase. Both DOE and facility management contractor 
officials have expressed concerns about successfully integrating and 
coordinating the efforts of an increased number of prime contractors at 
a site. Ensuring that all work is performed in accordance with DOE 
safety and security standards is a significant concern, especially 
given the continuing challenges that the department faces in these two 
areas.[Footnote 12]

To begin to address the constraint of having a limited number of 
federal employees to perform coordination and integration functions, 
DOE is considering awarding small business prime contracts but then 
having the facility management contractors at the sites manage and 
oversee the work. As some facility management contracts are extended or 
awarded, DOE includes a provision that specifically allows the 
department to identify and redirect work within the facility management 
contract to a small business prime contract. The provision also allows 
DOE to request the facility management contractor to manage and oversee 
the work. Since the work that DOE would redirect is generally already 
being done by a facility management subcontractor, the only actual 
change is the contractual relationship. In fiscal year 2003, NNSA 
started using this arrangement for facilities and infrastructure 
restoration projects at the Sandia National Laboratory in New Mexico. 
NNSA awarded prime contracts--$100,000 in fiscal year 2003 and an 
estimated $3 million in fiscal year 2004--to small businesses for some 
of these projects. Although it is too soon to fully assess the 
implications of this arrangement, facility management contractor 
officials at the Sandia laboratory have expressed concern that it could 
confuse the lines of authority and accountability at the site, because 
the contractual relationship is not consistent with the daily 
management and oversight of the activities being performed. In prior 
work, we have also expressed concerns about confusing the lines of 
authority, which can make it difficult to hold contractors accountable 
for performance.[Footnote 13]

Regarding contract management and oversight, increasing the number of 
prime contracts with DOE could place further strain on DOE's 
procurement and program oversight personnel. DOE's reliance on 
contractors to operate its facilities and carry out its missions, 
coupled with the department's history of inadequate contractor 
management and oversight, led us in 1990 to designate DOE contract 
management as a high-risk area vulnerable to fraud, waste, abuse, and 
mismanagement. This high-risk designation is still in effect. GAO and 
others have stated that one of the contributing factors to DOE's 
inadequate oversight of its contractors has been a shortage of 
personnel with the right skills to perform these functions.

Although DOE has over the past several years made progress in training 
and certifying its procurement and project management personnel, DOE 
procurement and program officials said that the overall number of 
available personnel has not grown, and has significantly decreased in 
NNSA. More prime contracts would create additional work for federal 
employees in two phases: managing the procurement process by requesting 
and evaluating proposals to award a contract, and overseeing the work 
of the contractor to ensure that performance is acceptable. DOE 
officials at headquarters and at the sites we visited expressed 
concerns that significantly increasing the number of prime contracts 
could reduce the ability to adequately oversee and evaluate contractor 
performance.

While headquarters and site office officials in the EM program 
acknowledge the potential risks that additional prime contracts can 
create in both integrating work activities at a site and contract 
management and oversight, they are pursuing ways to mitigate those 
risks. To address concerns about sitewide integration of safety and 
security, DOE officials at Hanford plan to use contract language and 
incentives to encourage the site's new small business prime contractors 
and the facility management contractors to work together. To earn 
potential incentive fees under this proposed arrangement, for example, 
all prime contractors will have to cooperate in such areas as safety 
and security. But, since these are new approaches and the small 
business prime contracts have yet to be awarded, the extent to which 
these steps will mitigate the potential risks is unknown. To lessen the 
impact of additional prime contracts on procurement and program 
personnel, EM officials said they intend to use a contract for small 
business procurements that has a well-defined statement of work and 
that ties incentive fees to accomplishing the contract's stated final 
goal rather than to interim steps. According to EM's Director of 
Acquisition Management, administering such contracts generally may 
require less federal involvement, although EM will also have to train 
its staff on the most effective way to manage these contracts.

In addition to the potential risks discussed above, DOE and contractor 
officials, as well as representatives of small business advocacy 
groups, raised concerns about DOE's efforts to increase small business 
prime contracting. One concern expressed was that such efforts could 
inadvertently result in less total contracting dollars directed to the 
small business community. Procurement regulations require that all 
facility management contractors have a small business subcontracting 
plan and facility management contractors must generally negotiate 
annual small business subcontracting goals with the department. 
However, if work is removed from a facility management contract, the 
facility management contractor may negotiate lower subcontracting goals 
with the department and then subcontract less of the remaining work to 
small businesses. Since the efforts to redirect facility management 
contract dollars to small businesses is in its early stages, no data 
are yet available to validate this concern.

A related concern is that if DOE removes work from a facility 
management contract and sets that work aside for a small business 
procurement, there may be fewer contracting dollars available to local 
and regional small businesses. This could occur because DOE's facility 
management contractors generally are not required to follow federal 
regulations in their procurements, but instead comply with "best 
business practices." In doing so, a facility management contractor can 
restrict a competition for its subcontracts to the local small business 
community. In contrast, DOE must generally open up its procurements to 
nationwide competition, which may result in fewer contracts going to 
local and regional small businesses. Again, no data are yet available 
to validate this concern.

Finally, representatives of some small business advocacy groups told us 
that some small businesses would rather have a subcontract with a 
facility management contractor than a prime contract with DOE. This is 
because facility management contractors generally have fewer 
administrative requirements and a less burdensome and faster 
procurement process.

It is not clear to what extent these potential risks will affect DOE's 
ability to carry out its missions in a safe, secure, and effective 
manner. The impact on DOE's missions of increasing small business prime 
contracts will depend both on the total number of new prime contracts 
awarded and on how well the department manages the contractors and the 
work. The stakes are high as DOE attempts to contribute to the federal 
government's goal of increasing the prime contracting dollars directed 
to the small business community, while striving to accomplish its 
missions efficiently and effectively.

This concludes my testimony. I would be pleased to respond to any 
questions that you may have.

Contacts and Acknowledgments:

For further information on this testimony, please contact Ms. Robin 
Nazzaro at (202) 512-3841. Individuals making key contributions to this 
testimony included Carole Blackwell, Ellen W. Chu, Matt Coco, Doreen 
Feldman, Jeff Rueckhaus, Stan Stenersen, and Bill Swick.

[End of section]

Appendix I: Department of Energy (DOE) Contract Dollars Directed to 
Small Businesses, Fiscal Years 1990-2003:

Millions of dollars: 

Row no. 1; 
Contract type: Contracting base[A]; 
1990: $17,095.8; 
1991: $18,628.6; 
1992: $18,852.2; 
1993: $18,392.5; 
1994: $18,826.3; 
1995: $17,177.4; 
1996: $16,213.2; 
1997: $15,844.0; 
1998: $15,117.5; 
1999: $15,483.8; 
2000: $17,067.9; 
2001: $18,551.2; 
2002: $19,170.9; 
2003: $21,210.0.

Row no. 2; 
Contract type: Facility management contracts; 
1990: 13,790.2; 
1991: 15,592.5; 
1992: 15,798.2; 
1993: 14,970.0; 
1994: 15,788.0; 
1995: 14,240.1; 
1996: 13,127.7; 
1997: 13,844.4; 
1998: 13,226.6; 
1999: 13,487.8; 
2000: 14,079.1; 
2001: 14,756.4; 
2002: 15,671.7; 
2003: 18,189.1.

Row no. 3; 
Contract type: All other prime contracts; 
1990: 3,305.5; 
1991: 3,036.1; 
1992: 3,054.0; 
1993: 3,422.5; 
1994: 3,038.3; 
1995: 2,937.3; 
1996: 3,085.5; 
1997: 1,999.6; 
1998: 1,890.9; 
1999: 1,995.9; 
2000: 2,988.8; 
2001: 3,794.7; 
2002: 3,499.2; 
2003: 3,020.9.

Row no. 4; 
Contract type: Contracts to small businesses; 
1990: 3,047.2; 
1991: 3,211.8; 
1992: 3,162.3; 
1993: 3,578.8; 
1994: 3,616.2; 
1995: 3,441.8; 
1996: 3,001.1; 
1997: 3,173.4; 
1998: 3,033.5; 
1999: 3,225.3; 
2000: 2,805.1; 
2001: 3,539.9; 
2002: 4,241.9; 
2003: 4,382.2.

Row no. 5; 
Contract type: Small business prime contracts; 
1990: 500.9; 
1991: 529.8; 
1992: 578.8; 
1993: 512.7; 
1994: 508.1; 
1995: 484.5; 
1996: 434.9; 
1997: 460.9; 
1998: 442.6; 
1999: 472.9; 
2000: 486.8; 
2001: 509.5; 
2002: 555.7; 
2003: 847.2.

Row no. 6; 
Contract type: Small business subcontracts awarded by prime 
contractors; 
1990: 2,546.3; 
1991: 2,682.0; 
1992: 2,583.5; 
1993: 3,066.1; 
1994: 3,108.2; 
1995: 2,957.3; 
1996: 2,566.2; 
1997: 2,712.5; 
1998: 2,591.0; 
1999: 2,752.4; 
2000: 2,318.3; 
2001: 3,030.4; 
2002: 3,686.2; 
2003: 3,535.0.

Row no. 7; 
Contract type: Small business subcontracts awarded by facility 
management contractors; 
1990: 2,402.4; 
1991: 2,464.0; 
1992: 2,374.8; 
1993: 2,772.3; 
1994: 2,795.6; 
1995: 2,699.3; 
1996: 2,328.1; 
1997: 2,156.7; 
1998: 2,037.3; 
1999: 2,608.7; 
2000: N/A[B]; 
2001: N/A[B]; 
2002: N/A[B]; 
2003: N/A[B].

Row no. 8; 
Contract type: Small business subcontracts awarded by all other prime 
contractors; 
1990: 144.0; 
1991: 217.9; 
1992: 208.7; 
1993: 293.9; 
1994: 312.5; 
1995: 258.0; 
1996: 238.1; 
1997: 555.8; 
1998: 553.6; 
1999: 143.7; 
2000: N/A[B]; 
2001: N/A[B]; 
2002: N/A[B]; 
2003: N/A[B].

Row no. 9; 
Contract type: Small and large business subcontracts awarded by prime 
contractors; 
1990: 5,617.8; 
1991: 6,300.1; 
1992: 5,653.5; 
1993: 6,458.5; 
1994: 6,347.3; 
1995: 5,870.3; 
1996: 5,055.1; 
1997: 5,223.4; 
1998: 5,684.5; 
1999: 5,547.1; 
2000: 4,826.4; 
2001: 6,409.3; 
2002: 7,548.6; 
2003: 7,349.0.

Small business prime contracts (as a percent of contracting base)[C]; 
1990: 2.93; 
1991: 2.84; 
1992: 3.07; 
1993: 2.79; 
1994: 2.70; 
1995: 2.82; 
1996: 2.68; 
1997: 2.91; 
1998: 2.93; 
1999: 3.05; 
2000: 2.85; 
2001: 2.75; 
2002: 2.90; 
2003: 3.99.

Small business prime contracts and facility management subcontracts (as 
a percent of contracting base)[D]; 
1990: N/A; 
1991: 16.07; 
1992: 15.67; 
1993: 17.86; 
1994: 17.55; 
1995: 18.53; 
1996: 17.04; 
1997: 16.52; 
1998: 16.40; 
1999: 19.90; 
2000: N/A; 
2001: N/A; 
2002: N/A; 
2003: N/A.

Small business prime and subcontracts (as a percent of contracting 
base)[E]; 
1990: 17.82; 
1991: 17.24; 
1992: 16.77; 
1993: 19.46; 
1994: 19.21; 
1995: 20.04; 
1996: 18.51; 
1997: 20.03; 
1998: 20.07; 
1999: 20.83; 
2000: 16.44; 
2001: 19.08; 
2002: 22.13; 
2003: 20.66.

Small business subcontracts (as a percent of all subcontracts)[F]; 
1990: 45.33; 
1991: 42.57; 
1992: 45.70; 
1993: 47.47; 
1994: 48.97; 
1995: 50.38; 
1996: 50.76; 
1997: 51.93; 
1998: 45.58; 
1999: 49.62; 
2000: 48.03; 
2001: 47.28; 
2002: 48.83; 
2003: 48.10.

Source: GAO analysis of DOE data.

Note: Dollars in the table are expressed in current-year (unadjusted) 
dollars and include DOE prime contracts valued at $25,000 or more that 
are tracked in DOE data systems. Prime contracts awarded by another 
federal agency but funded by DOE are excluded from the table. 
Subcontract dollars are included only for contractors who are required 
to report on their small business subcontracting activities.

[A] DOE's contracting base includes dollars that can potentially be 
directed to U.S. small businesses, excluding, under Small Business 
Administration (SBA) guidelines, dollars that cannot go to small 
business prime contracts, such as grants and purchases from mandatory 
or foreign sources.

[B] For fiscal years 2000 through 2003, DOE did not account separately 
for subcontract dollars going to small businesses from facility 
management prime contractors versus those from all of its other prime 
contractors.

[C] We calculated the percentage of DOE's contract dollars going to 
small business prime contracts by dividing small business prime 
contract dollars (row 5) by the contracting base (row 1).

[D] For fiscal years 1991 through 1999, DOE's annual small business 
prime contracting achievements, as reported to SBA, included DOE 
subcontracts awarded to small businesses by its facility management 
contractors, as well as prime contracts awarded directly to small 
businesses. To calculate small business prime contracting achievements 
for these 9 years, we therefore added rows 5 and 7 and divided the sum 
by row 1. We did not do this calculation for fiscal years 1990 and 2000 
through 2003 because small business subcontracts from facility 
management contractors did not "count" in those years toward small 
business achievement percentages.

[E] We calculated the overall percentage of DOE's contract dollars 
going to small businesses--via both prime contracts and subcontracts--
by dividing DOE's contract dollars to small businesses (row 4) by the 
contracting base (row 1).

[F] We calculated the percentage of total subcontracting dollars going 
to small business by dividing small business subcontract dollars from 
prime contractors (row 6) by total subcontract dollars going to small 
and large businesses (row 9).

[End of table]

FOOTNOTES

[1] Prime contracts are direct contracts between the government and a 
contractor.

[2] The Office of Federal Procurement Policy within the Office of 
Management and Budget, in addition to issuing policy letters, has the 
responsibility for resolving any disagreements between the Small 
Business Administration and another federal agency on small business 
prime contracting goals. 15 U.S.C. § 644(g)(2).

[3] The Office of Federal Procurement Policy stated that for fiscal 
year 2000 and beyond, contracts awarded by DOE's facility management 
contractors should instead be counted toward DOE's small business 
subcontracting goals.

[4] DOE awards new small business contracts through a procurement 
process that generally includes issuing a request for proposals, 
evaluating those proposals, and selecting a contractor.

[5] NNSA is a separately organized agency within DOE, with its own 
procurement organization and program offices such as Defense Programs 
and Defense Nuclear Nonproliferation. Program offices referred to in 
this testimony generally include NNSA and its program offices as well 
as DOE's program offices of Environmental Management and Science.

[6] Small Business Administration officials said that it is important 
that the three largest federal contracting agencies--the Department of 
Defense, the National Aeronautics and Space Administration, and DOE--
meet the 23 percent goal in order for the government-wide goal to be 
achieved.

[7] See appendix I for information on DOE's prime and subcontract 
dollars directed to small businesses between 1990 and 2003.

[8] These estimates assume that the contracting base--or the amount of 
contracting dollars used to calculate achievements--remains the same 
for fiscal years 2004 and 2005 as it was in fiscal year 2003.

[9] Of the $3.4 billion in contracting dollars not associated with 
facility management contracts in fiscal year 2003, only about $672 
million, or 20 percent, was available to award as new contracts. The 
remaining $2.7 billion was annual funding for existing contracts.

[10] Although the facility management contracts for the laboratories 
distinguish between core mission work and mission support functions, 
individual laboratories may differ from one another in the extent to 
which a specific activity is regarded as an integral part of 
accomplishing the mission. At some of DOE's laboratories, for example, 
information technology provides a support function that could 
potentially be separated from the facility management contract and 
awarded to small business without jeopardizing the mission; such a 
separation is being proposed at the Office of Science's Oak Ridge 
National Laboratory in Tennessee. In contrast, NNSA officials have said 
that information technology at NNSA's weapons laboratories represents 
an integral part of simulated testing and certification of the nation's 
nuclear weapons stockpile and cannot be separated from the mission work 
without jeopardizing the results.

[11] To assist in the development of new technologies, EM as well as 
other program offices with research and development programs provide 
funding for two small business grant programs managed by the Office of 
Science. The Small Business Innovation Research Program and the Small 
Business Technology Transfer Program, with combined funding of more 
than $100 million in fiscal year 2003, encourage the development of new 
technologies, including those dealing with environmental cleanup.

[12] For information on safety and security challenges, see U.S. 
General Accounting Office, Major Management Challenges and Program 
Risks: Department of Energy, GAO-03-100 (Washington, D.C.: Jan. 2003); 
Department of Energy, Management Challenges at the Department of 
Energy, DOE/IG-0626 (Washington, D.C.: Nov. 12, 2003); U.S. General 
Accounting Office, Department of Energy: Mission Support Challenges 
Remain at Los Alamos and Lawrence Livermore National Laboratories, 
GAO-04-370 (Washington, D.C.: Feb. 27, 2004); and U.S. General 
Accounting Office, Nuclear Security: DOE Must Address Significant 
Issues to Meet the Requirements of the New Design Basis Threat, 
GAO-04-701T (Washington, D.C.: Apr. 27, 2004).

[13] U.S. General Accounting Office, Department of Energy: Fundamental 
Reassessment Needed to Address Major Mission, Structure, and 
Accountability Problems, GAO-02-51 (Washington, D.C.: Dec. 21, 2001).