Defense Department steps up scrutiny of subcontractors

Department of Defense officials will be watching its contractors closely to ensure they meet their goals for subcontracting to small businesses, Deirdre Lee, director of defense procurement and acquisition policy, told information technology contractors at a Nov. 12 breakfast meeting in Falls Church, Va.

The Bush administration's strategy on contract bundling, released last month, calls for agencies to consider compliance with subcontracting plans when evaluating a contractor's past performance before awarding new work.

Contract bundling is the practice of consolidating procurements for goods or services in a single contract. The strategy calls for unbundling large contracts where possible, and where that is not possible, for mitigating the effects of bundling on small businesses by ensuring them greater opportunities to win federal work.

On large contracts, agencies typically require the prime contractor to subcontract a certain percentage of the work to small businesses Ñ sometimes 40 percent or more. But some small businesses complain that they are signed on as subcontractors yet never see the work after the contract is awarded.

"We've given a lot of primes goals ... and we have not necessarily been following up [to see that they are met]," Lee said. "We will be following up and evaluating that in your past performance.

"We will not be telling you who to subcontract with," Lee said, "although a lot of subcontractors are tired of bait and switch. I hear that way too much to think it's just an isolated coincidence. We have to do better to ensure that money flows from primes to small businesses."

Lee also said the department deserved a new procurement rule designed to increase competition in services purchases. The rule implementing Section 803 of the National Defense Act of 2002 requires contracting officers to contact as many schedule holders as possible when buying services worth more than $100,000 under multiple-award contracts. It requires them to receive at least three bids or document their market research and the reason why three bids were not received. The rule was published Oct. 25 in the Federal Register.

"The Department of Defense deserved 803. I wish I could tell you it was different," Lee said. Governmentwide acquisition contracts and multiple-award contracts are a "wonderful tool ... designed to make sure everybody had a fair opportunity," but contracting officers were making too many noncompetitive awards, she said.

Previously, contracting officers were only required to contact three vendors before making an award. Often only one of the three would respond, which resulted in many contract awards without competition.

Contracting officers also must stop notifying vendors about jobs on a Thursday and requiring their responses on a Tuesday, because the practice limits competition, Lee said. Often the incumbent will be the only vendor capable of responding in such a short time frame, she said.

"It's not enough time, and it's not professional," she said. "The auditors will be looking at how DoD uses the schedules and 803 will be dead center. If we abuse the tool, we will lose the tool."