Small Business Subcontracting: Some Contracting Officers Face Challenges Assessing Compliance with the Good Faith Standard
Fast Facts
Some federal contracts require that contractors make goals to subcontract at least part of the work to small businesses. If a contractor doesn't make a good faith effort to meet these goals, it could face penalties.
Most agencies we reviewed don't report agency-level data on whether contractors are meeting their small business goals—making it hard to know the extent that contractors are complying in good faith. And the Small Business Administration reviews only a few contracts for compliance with the requirements.
We recommended that SBA and other agencies improve how they review and report contract data to address this issue.
Highlights
What GAO Found
Certain federal contracts must have a plan containing goals for the percentage of work to be subcontracted to small businesses. Contracting officers are required to assess contractors' good faith efforts to meet these goals by comparing contractors' small business subcontracting performance against their goals. The contracting officer is to assess the contractor's explanation when the goals are not achieved. For these contracts, contracting officers are also required to assign contractors a rating related to subcontracting in the Contractor Performance Assessment Reporting System.
Contracting officers from six agencies stated they rarely identify contractors who have not met their small business goals, and therefore rarely assign below-satisfactory ratings. In contrast, according to government-wide data released by the Small Business Administration (SBA), many contractors reported not meeting their subcontracting goals in fiscal year 2022 (see figure).
Reported Government-wide Contractor Achievement of Subcontracting Goals by Small Businesses and Socioeconomic Category, Fiscal Year 2022
Note: Data include only contractors that have individual subcontracting plans.
SBA's data do not include agency-level information that may help explain the differences in the contracting officers' statements and SBA's government-wide data. Further, most federal agencies GAO reviewed do not report or review data on contractors' achievement of their subcontracting goals at the agency level, as required by statute. Collecting and reviewing these data would help agencies better understand the extent to which contractors comply in good faith with their subcontracting plans and the overall success of the agencies' small business subcontracting program. In addition, SBA could use these data to identify specific agencies that may need additional support and training related to small business subcontracting.
SBA conducted only six compliance reviews of subcontracting plans in each of fiscal years 2021 and 2022. SBA found that contractors generally were not in compliance with all of the subcontracting plan requirements and regulations. SBA officials did not believe these reviews were representative of the universe of federal contracts. However, SBA has not analyzed the risks associated with conducting this limited number of reviews each year. Conducting such an assessment could help SBA determine whether to conduct additional reviews, which would further SBA's understanding of the extent and nature of contractors' noncompliance.
Why GAO Did This Study
Federal regulations require, contractors make a good faith effort to provide small businesses with maximum practicable opportunities to participate in federal contracts. GAO was asked to review federal agencies' assessment of contractors' compliance with this good faith standard. This report examines (1) how contracting officers assess contractors' compliance with the good faith standard and the extent to which they find contractors noncompliant, and (2) the benefits and challenges associated with good faith standard assessments.
GAO reviewed documentation and interviewed contracting related officials at two Department of Defense agencies (Air Force and Army) and four civilian agencies (Departments of Homeland Security, Health and Human Services, and Veterans Affairs, and the National Aeronautics and Space Administration), selected based on total contracting obligations. GAO also reviewed documentation and interviewed SBA and Defense Contract Management Agency officials on their role in supporting contracting agencies.
Recommendations
GAO is making 13 recommendations, including that five agencies periodically review data on contractors' small business subcontracting goal performance, that SBA include these agency-level data in its annual report to Congress, and that SBA analyze the risk of conducting a limited number of compliance reviews. Some agencies agreed with the recommendations, but DOD and SBA partially concurred. While they proposed some corrective actions, the actions do not fully address the recommendations.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of the Air Force | The Secretary of the Air Force should periodically collect, review, and report data on the extent to which contractors achieve the goals and objectives of their subcontracting plans. (Recommendation 1) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|
| Department of the Air Force | The Secretary of the Air Force should work with relevant contracting staff, such as small business specialists, to develop and implement just-in-time training for contracting officers related to good faith assessments. (Recommendation 2) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|
| Department of the Army | The Secretary of the Army should periodically collect, review, and report data on the extent to which contractors achieve the goals and objectives of their subcontracting plans. (Recommendation 3) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|
| Department of the Army | The Secretary of the Army should work with relevant contracting staff, such as small business specialists, to develop and implement just-in-time training for contracting officers related to good faith assessments. (Recommendation 4) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|
| Department of Homeland Security | The Secretary of Homeland Security should periodically collect, review, and report data on the extent to which contractors achieve the goals and objectives of their subcontracting plans. (Recommendation 5) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|
| Department of Homeland Security | The Secretary of Homeland Security should work with relevant contracting staff, such as small business specialists, to develop and implement just-in-time training for contracting officers related to good faith assessments. (Recommendation 6) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|
| Department of Health and Human Services | The Secretary of Health and Human Services should periodically collect, review, and report data on the extent to which contractors achieve the goals and objectives of their subcontracting plans. (Recommendation 7) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|
| Department of Health and Human Services | The Secretary of Health and Human Services should work with relevant contracting staff, such as small business specialists, to develop and implement just-in-time training for contracting officers related to good faith assessments. (Recommendation 8) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|
| National Aeronautics and Space Administration | The NASA Administrator should work with relevant contracting staff, such as small business specialists, to develop and implement just-in-time training for contracting officers related to good faith assessments. (Recommendation 9) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|
| Small Business Administration | The SBA Administrator should develop and implement actionable steps to ensure compliance with the statutory requirement to include agency-level data in its annual report to Congress on status of small business subcontracting plan goals. (Recommendation 10) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|
| Small Business Administration | The SBA Administrator should analyze the risk of having a limited understanding of federal contractors' noncompliance with their subcontracting plans, based on current practices, and determine whether the Office of Government Contracting should conduct additional reviews. (Recommendation 11) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|
| Department of Veterans Affairs | The Secretary of Veterans Affairs should periodically review data on the extent to which contractors achieve the goals and objectives of their subcontracting plans. (Recommendation 12) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|
| Department of Veterans Affairs | The Secretary of Veterans Affairs should work with relevant contracting staff, such as small business specialists, to develop and implement just-in-time training for contracting officers related to good faith assessments. (Recommendation 13) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|