H. Rept. 112-727 - 112th Congress (2011-2012)
December 21, 2012, As Reported by the Small Business Committee

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House Report 112-727 - EARLY STAGE SMALL BUSINESS CONTRACTING ACT OF 2012




[House Report 112-727]
[From the U.S. Government Printing Office]


112th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     112-727

======================================================================



 
              EARLY STAGE SMALL BUSINESS CONTRACTING ACT 
                                OF 2012

                                _______
                                

 December 21, 2012.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

     Mr. Graves of Missouri, from the Committee on Small Business, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 4121]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Small Business, to whom was referred the 
bill (H.R. 4121) to provide for a program to provide Federal 
contracts to early stage small businesses, and for other 
purposes, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.

                                CONTENTS

                                                                   Page
   I. Amendment.......................................................1
  II. Purpose of the Bill and Summary.................................3
 III. Background and the Need for Legislation.........................3
  IV. Hearings........................................................4
   V. Committee Consideration.........................................4
  VI. Committee Votes.................................................4
 VII. Section-by-Section Analysis of H.R. 4121........................5
VIII. Congressional Budget Cost Estimate..............................5
  IX. Unfunded Mandates...............................................6
   X. New Budget Authority, Entitlement Authority, and Tax Expenditure6
  XI. Oversight Findings..............................................7
 XII. Statement of Constitutional Authority...........................7
XIII. Congressional Accountability Act................................7
 XIV. Federal Advisory Committee Statement............................7
  XV. Statement of No Earmarks........................................7
 XVI. Performance Goals and Objectives................................7
XVII. Changes in Existing Law Made by the Bill, as Reported...........7

                              I. Amendment

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Early Stage Small Business Contracting 
Act of 2012''.

SEC. 2. IN GENERAL.

  The Small Business Act (15 U.S.C. 631 et seq.) is amended by adding 
at the end the following:

``SEC. 46. PROGRAM TO PROVIDE FEDERAL CONTRACTS TO EARLY STAGE SMALL 
                    BUSINESSES.

  ``(a) Establishment.--The Administrator shall establish and carry out 
a program in accordance with the requirements of this section to 
provide improved access to Federal contract opportunities for early 
stage small business concerns.
  ``(b) Procurement Contracts.--
          ``(1) In general.--In carrying out subsection (a), the 
        Administrator, in consultation with other Federal agencies, 
        shall identify procurement contracts of Federal agencies for 
        award under the program.
          ``(2) Contract awards.--Under the program established 
        pursuant to this section, the award of a procurement contract 
        of a Federal agency identified by the Administrator pursuant to 
        paragraph (1) shall be made by the agency to an eligible 
        program participant selected, and determined to be responsible, 
        by the agency.
          ``(3) Competition.--
                  ``(A) Sole source.--A contracting officer may award a 
                sole source contract under this program if such concern 
                is determined to be a responsible contractor with 
                respect to performance of such contract opportunity and 
                the contracting officer does not have a reasonable 
                expectation that 2 or more early stage small business 
                concerns will submit offers for the contracting 
                opportunity and in the estimation of the contracting 
                officer, the contract award can be made at a fair and 
                reasonable price.
                  ``(B) Restricted competition.--A contracting officer 
                may award contracts on the basis of competition 
                restricted to early stage small business concerns if 
                the contracting officer has a reasonable expectation 
                that not less than 2 early stage small business 
                concerns will submit offers and that the award can be 
                made at a fair market price.
          ``(4) Contract value.--Contracts shall be awarded under this 
        program if its value is greater than $3,000 and less than half 
        the upper threshold of section 15(j)(1) of the Small Business 
        Act.
  ``(c) Eligibility.--Only an early stage small business concern shall 
be eligible to compete for a contract to be awarded under the program. 
The Administrator shall certify that a small business concern is an 
early stage small business concern, or the Administrator shall approve 
a Federal agency, a State government, or a national certifying entity 
to certify that the business meets the eligibility criteria of an early 
stage small business concern.
  ``(d) Technical Assistance.--The Administrator shall provide early 
stage small business concerns with technical assistance and counseling 
with regard to--
          ``(1) applying for and competing for Federal contracts; and
          ``(2) fulfilling the administrative responsibilities 
        associated with the performance of a Federal contract.
  ``(e) Attainment of Contract Goals.--All contract awards made under 
the program shall be counted toward the attainment of the goals 
specified in section 15(g) of the Small Business Act.
  ``(f) Regulations.--The Administrator shall--
          ``(1) issue proposed regulations to carry out this section 
        not later than 180 days after the date of enactment of this 
        Act; and
          ``(2) issue final regulations to carry out this section not 
        later than 270 days after the date of enactment of this Act.
  ``(g) Report to Congress.--Not later than April 30, 2015, the 
Administrator shall transmit to the Congress a report on the 
performance of the program.
  ``(h) Definitions.--For purposes of this section, the following 
definitions shall apply:
          ``(1) Program.--The term `program' means a program 
        established pursuant to subsection (a).
          ``(2) Early stage small business concern.--The term `early 
        stage small business concern' means a small business concern 
        that--
                  ``(A) has not more than 15 employees; and
                  ``(B) has average annual receipts that total not more 
                than $1,000,000, except if the concern is in an 
                industry with an average annual revenue standard that 
                is less than $1,000,000, as defined by the North 
                American Industry Classification System.''.

SEC. 3. REPEAL OF SIMILAR PROGRAM.

  Section 304 of the Small Business Administration Reauthorization and 
Amendments Act of 1994 (15 U.S.C. 644 note) is repealed.

                      II. Purpose and Bill Summary

    The purpose of H.R. 4121, the ``Early Stage Small Business 
Contracting Act of 2012,'' is to amend the Small Business Act 
(the Act)\1\ to reestablish in a slightly different format a 
successful program to help very small businesses win federal 
government contracts. The original program's authorization has 
lapsed, and H.R. 4121 rectifies that situation.
---------------------------------------------------------------------------
    \1\Originally, title II of the Act of July 30, 1953, c. 282, 67 
Stat. 232 was designated as the Small Business Act of 1953. A plethora 
of amendments in subsequent Congresses led to a rewrite in 1958. Pub. 
L. No. 85-536, Sec. 1, 72m Stat. 384 (1958). The Act is codified at 15 
U.S.C. Sec. Sec. 631-657q.
---------------------------------------------------------------------------
    Specifically, this bill changes the program's name from the 
Very Small Business Pilot Program to the Early Stage Small 
Business Contracting Program. Additionally, this bill allows 
for sole source contracts and contracts to be restricted to 
competition between early stage small business concerns under 
certain circumstances. Finally, the bill requires a report to 
Congress by the Administrator of the Small Business 
Administration (SBA) by April 30, 2015 on the performance of 
the program.

                       III. Need for Legislation

    The Act iterates Congress's belief in the importance of 
small business participation in federal prime contracts and the 
resultant subcontracts. Specifically, the Act directs that:

          To effectuate the purpose of this Act, small-business 
        concerns within the meaning of this Act shall receive 
        any award or contract or any part thereof, and be 
        awarded any contract for the sale of Government 
        property, as to which it is determined by the 
        Administration and the contracting procurement or 
        disposal agency (1) to be in the interest of 
        maintaining or mobilizing the Nation's full productive 
        capacity, (2) to be in the interest of war or national 
        defense programs, (3) to be in the interest of assuring 
        that a fair proportion of the total purchase and 
        contracts for property and services for the Government 
        in each industry category are placed with small-
        business concerns, or (4) to be in the interest of 
        assuring that a fair proportion of the total sales of 
        Government be made to small-business concerns.\2\
---------------------------------------------------------------------------
    \2\Id. at 644(a).

    To effectuate these objectives, Congress has enacted six 
different contract programs overseen by the SBA's Office of 
Government Contracting and Business Development. Previously, 
under section 304 of the Small Business Administration 
Reauthorization and Amendments Act of 1994\3\ the Small 
Business Administration (SBA) was authorized to administer a 
federal contracting pilot program for very small business 
concerns. Under this program, a very small business concern was 
defined as a small business which had 15 employees or fewer and 
whose average annual receipts were below $1 million. The 
purpose of the program was ``to improve access to government 
contract opportunities for concerns that are substantially 
below SBA's size standards by reserving certain acquisitions 
for competition among such concerns.''\4\ Although the pilot 
was originally set to expire in 1998, a number of Congressional 
actions extending all SBA programs were enacted which extended 
the authorization of the pilot program. However, when Congress 
enacted changes to the Small Business Act in 2004, it did not 
include the extension of this pilot program.\5\ H.R. 4121 
reestablishes the program with stronger certification 
requirements and changes the program's name to ``early stage 
small business concerns'' rather than ``very small business 
concerns,'' because the program is being reoriented to assist 
new businesses rather than long-established very small 
businesses.
---------------------------------------------------------------------------
    \3\Small Business Administration Reauthorization and Amendments Act 
of 1994, Pub. L. No. 103-403 Sec. 304, 108 Stat. 4175, 4188 (1994).
    \4\Very Small Business Pilot Program, 48 C.F.R. 19.901(b) (repealed 
by in 2005 as the program failed to be reauthorized.)
    \5\The Very Small Business Program,--Final Rule (repeal), 70 Fed. 
Reg. 56,815 (Sept. 29, 2005).
---------------------------------------------------------------------------

                              IV. Hearings

    Since H.R. 4121 is reauthorizing a program with a lapsed 
reauthorization, the findings of previous Congresses with 
respect to the matter raised in this legislation were 
determined still valid. As a result, no hearings were held on 
H.R. 4121.

                       V. Committee Consideration

    The Committee on Small Business met in open session, with a 
quorum being present, on March 07, 2012, and ordered H.R. 4121 
reported, as amended, to the House by a voice vote at 3:10 pm. 
During the markup, one amendment was offered and adopted. 
Disposition of the amendment is addressed below.
    Amendment Number One filed by Mr. Graves (R-MO) makes a 
technical correction to the bill and clarifies a reference to a 
statute which would be obsolete under H.R. 4121. Amendment 
Number One was adopted by a voice vote at 3:10 pm.

                          VI. Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the recorded 
votes on the motion to report the legislation and amendments 
thereto. No recorded votes were taken in consideration of H.R. 
4121.

                         Amendment to H.R. 4121


                   Offered by Mr. Graves of Missouri

    Page 5, insert after line 14 the following:

SEC. 3. REPEAL OF SIMILAR PROGRAM.

    Section 304 of the Small Business Administration 
Reauthorization and Amendments Act of 1994 (15 U.S.C. 644 note) 
is repealed.
                              ----------                              


             VII. Section-by-Section Analysis of H.R. 4121


          SECTION-BY-SECTION ANALYSIS OF H.R. 4121 AS AMENDED

Section 1--Short title

    This section provides that the bill may be cited as the 
``Early Stage Small Business Contracting Act of 2012.''

Section 2--In general

    This section reauthorizes a federal contract program, 
previously known as the Very Small Business Program, as the 
Early Stage Small Business Contracting Program. This section 
defines ``early stage small business concerns'' as a firm with 
15 or fewer employees and average annual receipts under $1 
million, except in an industry where the average annual revenue 
standard is less than $1 million. There is an expectation that 
if the program is successful, businesses will quickly lose 
eligibility. The Committee expects that most businesses that 
would utilize the program are in their formative stages.
    In order to participate in the program, this section 
requires the Small Business Administrator to certify the firm 
as an early stage small business concern or approve another 
Federal Agency, State government, or nationwide certification 
entity to certify the firm as such. This section allows for 
restricted competition if two or more early stage small 
businesses would compete and the contract award will be at fair 
and reasonable price. Further, it allows sole-source contracts 
to be awarded if the contracting officer does not have a 
reasonable expectation that two or more early stage small 
businesses will compete for the contract and the contract award 
will be at a fair and reasonable price. Additionally, this 
section requires the Small Business Administrator to issue a 
report on the performance of the program by April 30, 2015.

            VIII. Congressional Budget Office Cost Estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, June 1, 2012.
Hon. Sam Graves,
Chairman, Committee on Small Business,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4121, the Early 
Stage Small Business Contracting Act of 2012.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Matthew 
Pickford.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

H.R. 4121--Early Stage Small Business Contracting Act of 2012

    H.R. 4121 would require the Small Business Administration 
to establish a program to provide access to federal contracts 
to certain small businesses. Specifically, the legislation 
would give the first opportunity to obtain federal contracts 
valued between $3,000 and $75,000 to businesses that employ 
fewer than 16 people and have annual receipts of $1 million or 
less. (The bill defines such firms as early-stage small 
businesses.) Under the bill, the SBA would certify the status 
of such businesses.
    Based on information from the SBA and the General Services 
Administration, CBO estimates that implementing H.R. 4121 would 
cost about $20 million over the 2013-2017 period, assuming 
appropriation of the necessary amounts. Those costs include 
about $3 million a year for the SBA to administer the program 
and provide certifications and technical assistance to small 
businesses that meet the bill's definition. In addition, CBO 
estimates that $5 million in start-up costs would be needed to 
train contract officers throughout the government to work with 
SBA and those small businesses to find appropriate 
opportunities and to help agencies meet their goals for 
contracting with small businesses. Enacting the legislation 
would not affect direct spending or revenues; therefore, pay-
as-you-go procedures do not apply.
    H.R. 4121 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    The CBO staff contact for this estimate is Matthew 
Pickford. This estimate was approved by Theresa Gullo, Deputy 
Assistant Director for Budget Analysis.

                         IX. Unfunded Mandates

    H.R. 4121 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act, Pub. 
L. No. 104-4, and would impose no costs on state, local or 
tribal governments.

          X. New Budget Authority, Entitlement Authority and 
                            Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House, the Committee provides the following opinion and 
estimate with respect to new budget authority, entitlement 
authority and tax expenditures.
    The Committee does not adopt as its own the estimate of new 
budget authority contained in the cost estimate prepared by the 
Director of the Congressional Budget Office (CBO) pursuant to 
Sec. 402 of the Congressional Budget Act of 1974. CBO estimates 
that implementing H.R. 4121 would cost about $20 million over 
the five years. Those costs include $3 million a year for the 
SBA to administer the program and provide certifications and 
technical assistance to small businesses that meet the bill's 
definition, and $5 million in start-up costs to train 
contracting officers throughout the government. The Committee 
disagrees with these costs. H.R. 4121 allows the Administrator 
to accept certifications from third parties, so the 
Administrator need not establish an elaborate certification 
process. Furthermore, Congress already appropriates funds to 
train contracting officers. Including information on the Early 
Stage Small Business Contracting Program in this training will 
not require any additional appropriations.

                         XI. Oversight Findings

    In accordance with clause (2)(b)(1) of rule X of the Rules 
of the House, the oversight findings and recommendations of the 
Committee on Small Business with respect to the subject matter 
contained in H.R. 4121 are incorporated into the descriptive 
portions of this report.

               XII. Statement of Constitutional Authority

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
authority for this legislation in Art. I, Sec. 8, cls. 1, 3, 
and 18 and Art. IV, Sec. 3, cl. 2 of the Constitution of the 
United States.

                 XIII. Congressional Accountability Act

    H.R. 4121 does not relate to the terms and conditions of 
employment or access to public services or accommodations 
within the meaning of Sec. 102(b)(3) of Pub. L. No. 104-1.

             XIV. Federal Advisory Committee Act Statement

    H.R. 4121 does not establish or authorize the establishment 
of any new advisory committees as that term is defined in the 
Federal Advisory Committee Act, 5 U.S.C. App. 2.

                      XV. Statement of No Earmarks

    Pursuant to clause 9 of rule XXI, H.R. 4121 does not 
contain any congressional earmarks, limited tax benefits or 
limited tariff benefits as defined in subsections (d), (e) or 
(f) of clause 9 of rule XXI of the Rules of the House.

                 XVI. Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House, the Committee establishes the following performance-
related goals and objectives for this legislation:

          H.R. 4121 includes provisions to reauthorize a 
        federal contract program, previously known as the Very 
        Small Business Program, as the Early Stage Small 
        Business Contracting Program, in order to improve early 
        stage small businesses access to federal contracts.

      XVII. Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                           SMALL BUSINESS ACT




           *       *       *       *       *       *       *
SEC. 46. PROGRAM TO PROVIDE FEDERAL CONTRACTS TO EARLY STAGE SMALL 
                    BUSINESSES.

  (a) Establishment.--The Administrator shall establish and 
carry out a program in accordance with the requirements of this 
section to provide improved access to Federal contract 
opportunities for early stage small business concerns.
  (b) Procurement Contracts.--
          (1) In general.--In carrying out subsection (a), the 
        Administrator, in consultation with other Federal 
        agencies, shall identify procurement contracts of 
        Federal agencies for award under the program.
          (2) Contract awards.--Under the program established 
        pursuant to this section, the award of a procurement 
        contract of a Federal agency identified by the 
        Administrator pursuant to paragraph (1) shall be made 
        by the agency to an eligible program participant 
        selected, and determined to be responsible, by the 
        agency.
          (3) Competition.--
                  (A) Sole source.--A contracting officer may 
                award a sole source contract under this program 
                if such concern is determined to be a 
                responsible contractor with respect to 
                performance of such contract opportunity and 
                the contracting officer does not have a 
                reasonable expectation that 2 or more early 
                stage small business concerns will submit 
                offers for the contracting opportunity and in 
                the estimation of the contracting officer, the 
                contract award can be made at a fair and 
                reasonable price.
                  (B) Restricted competition.--A contracting 
                officer may award contracts on the basis of 
                competition restricted to early stage small 
                business concerns if the contracting officer 
                has a reasonable expectation that not less than 
                2 early stage small business concerns will 
                submit offers and that the award can be made at 
                a fair market price.
          (4) Contract value.--Contracts shall be awarded under 
        this program if its value is greater than $3,000 and 
        less than half the upper threshold of section 15(j)(1) 
        of the Small Business Act.
  (c) Eligibility.--Only an early stage small business concern 
shall be eligible to compete for a contract to be awarded under 
the program. The Administrator shall certify that a small 
business concern is an early stage small business concern, or 
the Administrator shall approve a Federal agency, a State 
government, or a national certifying entity to certify that the 
business meets the eligibility criteria of an early stage small 
business concern.
  (d) Technical Assistance.--The Administrator shall provide 
early stage small business concerns with technical assistance 
and counseling with regard to--
          (1) applying for and competing for Federal contracts; 
        and
          (2) fulfilling the administrative responsibilities 
        associated with the performance of a Federal contract.
  (e) Attainment of Contract Goals.--All contract awards made 
under the program shall be counted toward the attainment of the 
goals specified in section 15(g) of the Small Business Act.
  (f) Regulations.--The Administrator shall--
          (1) issue proposed regulations to carry out this 
        section not later than 180 days after the date of 
        enactment of this Act; and
          (2) issue final regulations to carry out this section 
        not later than 270 days after the date of enactment of 
        this Act.
  (g) Report to Congress.--Not later than April 30, 2015, the 
Administrator shall transmit to the Congress a report on the 
performance of the program.
  (h) Definitions.--For purposes of this section, the following 
definitions shall apply:
          (1) Program.--The term ``program'' means a program 
        established pursuant to subsection (a).
          (2) Early stage small business concern.--The term 
        ``early stage small business concern'' means a small 
        business concern that--
                  (A) has not more than 15 employees; and
                  (B) has average annual receipts that total 
                not more than $1,000,000, except if the concern 
                is in an industry with an average annual 
                revenue standard that is less than $1,000,000, 
                as defined by the North American Industry 
                Classification System.
                              ----------                              


 SECTION 304 OF THE SMALL BUSINESS ADMINISTRATION REAUTHORIZATION AND 
                         AMENDMENTS ACT OF 1994

[SEC. 304. PILOT PROGRAM FOR VERY SMALL BUSINESS CONCERNS.

  [(a) Establishment.--The Administrator shall establish and 
carry out a pilot program in accordance with the requirements 
of this section to provide improved access to Federal contract 
opportunities for very small business concerns.
  [(b) Procurement Contracts.--
          [(1) In general.--In carrying out subsection (a), the 
        Administrator shall identify procurement contracts of 
        Federal agencies for award under the program.
          [(2) Contract awards.--Under the program established 
        pursuant to this section, the award of a procurement 
        contract of a Federal agency identified by the 
        Administration pursuant to paragraph (1) shall be made 
        by the agency to an eligible program participant 
        selected, and determined to be responsible, by the 
        agency.
          [(3) Competition.--All contract opportunities offered 
        for award under the program shall be awarded on the 
        basis of competition among eligible very small business 
        concerns.
  [(c) Eligibility.--Only a very small business concern shall 
be eligible to compete for a contract to be awarded under the 
program. A contracting officer may rely in good faith on a 
written certification that a small business concern is a very 
small business concern.
  [(d) Delegation of Authority.--The authority of the 
Administrator under subsections (b)(1) and (c) shall be 
delegated to not less than 5 and not more than 10 districts of 
the Administration to promote the award of contracts that can 
be performed by very small business concerns.
  [(e) Financial Assistance.--In order to assist very small 
business concerns receiving contract awards under the program, 
the Administrator shall establish a preauthorization program 
for such concerns for the purpose of receiving financial 
assistance under section 7(a) of the Small Business Act.
  [(f) Attainment of Contract Goals.--All contract awards made 
under the program shall be counted toward the attainment of the 
goals specified in section 15(g) of the Small Business Act.
  [(g) Regulations.--The Administrator shall--
          [(1) issue proposed regulations to carry out this 
        section not later than 180 days after the date of 
        enactment of this Act; and
          [(2) issue final regulations to carry out this 
        section not later than 270 days after the date of 
        enactment of this Act.
  [(h) Report to Congress.--Not later than April 30, 1997, the 
Administrator shall transmit to the Congress a report on the 
results of the program, together with such recommendations as 
the Administrator deems appropriate.
  [(i) Program Term.--Implementation of the program shall begin 
not later than August 30, 1995. The program authorized by this 
section shall expire on September 30, 2003.
  [(j) Definitions.--For purposes of this section, the 
following definitions shall apply:
          [(1) Administration.--The term ``Administration'' 
        means the Small Business Administration.
          [(2) Administrator.--The term ``Administrator'' means 
        the Administrator of the Small Business Administration.
          [(3) Program.--The term ``program'' means a program 
        established pursuant to subsection (a).
          [(4) Very small business concern.--The term ``very 
        small business concern'' means a small business concern 
        that--
                  [(A) has not more than 15 employees; and
                  [(B) has average annual receipts that total 
                not more than $1,000,000.]