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Defense Dept. Poised to Dump Program One Expert Calls a 'Sham' and 'Seriously Hurtful' to Small Business


“Getting rid of this program will redirect about $100 billion a year in contracts to small businesses."

FILE - In this Feb. 7, 2014 file photo, Defense Secretary Chuck Hagel speaks during a briefing at the Pentagon. A U.S. official says that as part of the proposed 2015 defense budget, Pentagon chief Chuck Hagel is recommending shrinking the Army to its smallest size in decades. (AP Photo/Susan Walsh) AP Photo/Susan Walsh

The Pentagon is prepared to ditch a program that's been called a “sham” and “seriously harmful” to small businesses in a legal opinion under review by the Senate Armed Services Committee.

Committee staff will meet with Defense Department officials Thursday to discuss whether to renew the Comprehensive Subcontracting Plan Test Program, which has been around since 1990 but has yet to show that it meets its stated goal of improving access to federal subcontracting for small American firms.

Defense Secretary Chuck Hagel speaks at the Pentagon, July 3, 2014. (AP Photo/Pablo Martinez Monsivais)

Operating with almost no oversight, the program creates a loophole that allows big companies doing work for the Defense Department to skip out on obligations to provide subcontracts to small firms, while making taxpayer-funded contracts less transparent, said University of Baltimore law professor Charles Tiefer, who specializes in federal contract law and was a member of the Commission on Wartime Contracting in Iraq and Afghanistan from 2008 through 2011.

“Calling a 25-year-old program a 'test program' is like a test program of a two-year temporary amnesty program for tax evaders, or a two-year temporary program for illegal aliens, still being called a temporary 'test program' after 25 years,” Tiefer wrote. “If this initially 2-year-old 'test program' were a baby when it started then referring to it as just temporary is like still calling it a toddler when it reached its commencement ceremony for college graduation – except that it had never had to take a test to continue its education.”

Nevertheless, the Defense Department acquisition site states: “The purpose of the test is to determine whether comprehensive subcontracting plans will result in increased subcontracting opportunities for small business while reducing the administrative burden on contractors.”

While the test program operates under the Defense Department's Office of the Under Secretary for Acquisition, Technology and Logistics, the department says it is not a Pentagon program and wants it scrapped.

“This was a congressional program enacted in law in 1990 with the intention of saving large prime contractors money by allowing them to negotiate corporate wide goals, increase small business participation, strengthen the industrial base, and apply those saving into small business programs,” Pentagon spokeswoman Maureen Schumann told TheBlaze in a statement. “Although well-intended, the program has not produced quantifiable results. The Department of Defense position is to not have congress extend the CSP.”

Congress will be voting on the Fiscal Year 2015 National Defense Authorization Act in October.

The Democratic-controlled Senate Armed Services Committee has leaned toward following the Pentagon's suggestion, while the Republican-controlled House Armed Services Committee wants to reform the program to make it more transparent, but not end it altogether.

Tiefer's opinion states that the test program “frees the big defense contractors from doing individual small business subcontracting plans.”

“The program is a sham and its extension will be seriously harmful to vital opportunities for small business to get government contracting work,” Tiefer wrote.

The test program has been one small part of the National Defense Authorization Act, one of the largest bills Congress passes each year, so the test program has gotten renewed each year little or no debate.

Tiefer conducted the legal review at the request of the American Small Business League, a California-based advocacy group that has been the leading critic of the particular Pentagon program for more than a decade.

The organization's president, Lloyd Chapman, told TheBlaze he estimates that it has cost small businesses $2 trillion over last quarter of century.

Chapman arrived at that estimate because federal contractors are supposed to negotiate a certain percentage of subcontracts that go to small American businesses, rather than large companies or foreign firms. Chapman said that is typically around 23 percent. But he said that has “evaporated” since the test program was in place.

“Getting rid of this program will redirect about $100 billion a year in contracts to small businesses, or at least $50 billion,” Chapman predicted.

Chapman called the program a clear example of crony capitalism and believes that large defense firms like Lockheed Martin and Boeing have immense influence over Congress. He recalled a small business owner complaining to him about an Amsterdam company with 26,000 employees getting a small business set aside subcontract from a large defense firm.

The test program faced scrutiny only once over its existence, from a Government Accountability Office audit in April 2004.

“DOD created the test program to provide more small business opportunities and reduce the administrative burden for contractors in managing their subcontracting programs. Many of DOD’s largest contractors participate in the program,” the GAO report said. “Although the test program was started more than 12 years ago, DOD has yet to establish metrics to evaluate the program’s results and effectiveness. As a result, there is no systematic way of determining whether the program is meeting its intended objectives and whether further changes need to be made.”

Congress approved the program in the 1990 National Defense Authorization Act, and it was supposed to be in place until 1993 pending an evaluation to see if it effectively expanded small business subcontracts. But the evaluation didn't occur.

Neither the House nor the Senate believe the program works as it should, but there is disagreement, Government Executive reported.

“The test program authority provided under such section shall terminate on September 30, 2015,” unless the Defense Department certain conditions are met, the Senate version of the bill states.

The House Armed Services Committee wants reform the program with more transparency requirements.

“After nearly 24 years since the original authorization of the program, the test program has yet to provide evidence that it meets the original stated goal,” House Armed Services Committee Chariman Buck McKeon (R-Calif.) wrote in the chairman's markup of the fiscal year 2015 defense authorization bill. “Therefore, this section would include additional requirements to ensure that the test program collects the data necessary to assess its effectiveness and to standardize its requirements with other subcontracting programs.”

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