Jay Challa - Minority Enterprise Executive Council

In this manner, the Federal governmentwill save a considerable amount ofmoney by eliminating the personneland processes that are being usedgovernment-wide on an internationalbasis because all details will be containedwithin the subcontracting agreement.The subcontracting agreement willbecome valid upon contract awardand thus creates the legal relationshipbetween the parties.In today’s process subcontracting program,the parties document the arrangementin teaming agreements which are, forthe most part, very difficult for a smallbusiness to litigate successfully.The use of a subcontracting agreementprovides a dramatically better standing fora small business or small disadvantagedbusiness to litigate.Testimony of Fernando V. GalavizRegarding Small Business ProgramSolutionOn May 22, 2007, Fernando V. Galavizprovided the following testimony underthe title Minority Entrepreneurship:Assessing the Effectiveness of SBA’sPrograms for the Minority BusinessCommunity to the United StatesSenate Committee on Small Businessand Entrepreneurship“We recommend the elimination ofsubcontracting plans.Instead, with respect to prime contractawards over $2 million, the Federalgovernment should require in the Requestfor Proposals (RFPs) that large businessacquisition bidders do the following:1) Identify the subcontractor;2) Identify the subcontractor’sspecific scope work to be performed;3) Identify the specific dollaramount that will be awarded to thesubcontractor in the subcontractoragreement;4) Mandate that the prime andsubcontractor execute a subcontractoragreement prior to the proposalsubmission;5) Mandate that a copy of thefully executed subcontract agreementexecuted between the prime andthe subcontractor be included in thebidder’s proposal submission.The subcontracting agreementwould only be in effect if the bidderis awarded the prime contract. Sincethere is no privity of contract betweenthe government and the subcontractor,there would be no need for governmentintervention if the prime contractorbreaches the subcontract agreementbecause the subcontractor would havea means to enforce the subcontractagreement through the legal system.It is current practice for prime contractorsto enter into teaming agreementswhere the major corporation as a primecontractor indicates a percentage ofwork to be performed and a certaindollar amount that will be awarded.Subsequent to contract award, primecontractors enter into subcontractagreements with subcontractors, butin most instances subcontractorsare offered less work share and lessdollars in the subcontract agreementas what was indicated in the teamingagreement.For example, under the present system,the major prime contractor can beawarded a $200 million contract on thebasis that the prime contractor will besubcontracting 20% ($40 million) of theaward to minority, small and/or smalldisadvantaged businesses. However, inactuality, subsequent to contract award,the prime contractor may only awardthe small business subcontractors$8 million worth of business, leavingthe remaining $32 million dollars tobe awarded in the future. Currently,the Federal government is not fullyaware whether large businesses arecomplying with their subcontractingplans. Would you buy a home withoutlooking at the master bedroom orkitchen? It is no different with Federalgovernment contracting.It is for this reason that we believe ourrecommendation for subcontractingcompliance is viable and will benefitminority, small and disadvantagedbusiness subcontractors. This strategywill be market driven because in orderto be competitive, prime contractorswill need to select the best qualifiedsubcontractors. This strategy willalso afford the Federal governmentcontracting agency the opportunityto fully evaluate all vendors at all tierlevels performing on the contract.”Current/Standing Issues RegardingSmall Business SubcontractingCurrent SBA programs are ineffectiveand are making insignificant progressto increase small business Federalcontracting opportunities.Two of the largest contributing factorsare the result of contract bundling andsubcontracting regulations. With regardto these two contributing factors:– Large businesses are not beingheld accountable for providingopportunities to small businessesunder current contract bundlingrequirements– According to GAO and SBA InspectorGeneral, current subcontractingreporting standards are vulnerableto misrepresentation, unreliable andinconsistent– The SBA Inspector General foundlax oversight by the SBA commercialmarket representatives reporting onsmall business data– Unnecessary bundling displacesentrepreneurial contractors anddiscourages competition– Large businesses routinely imposeteaming agreements on small firmswhere they have no intention ofhonoring the terms– Mentor-protégé agreements fail toguarantee subcontracts to smallfirms– There is little enforcement againstlarge primes for fraudulent “bait andswitch” tactics and dilatory paymentpractices– The SBA has not complied withrequirements regarding thedissemination of best businesspractice guidelines to maximize smallbusiness contracting opportunities– Current regulations do not establishmetrics to measure the extent to whichcontract bundling is occurring, or theextent to which bundling impacts smallbusiness contracting opportunities– Federal government contractingofficers have not been consistent inenforcing the subcontracting plansof major corporations– Inconsistencies in the SmallBusiness Act and the FAR result inmisinterpretation and misuse18 Minority En t e r p r i s e Adv o c at e • January / February 2009