Members of a new House panel charged with finding ways to help companies contract with the Pentagon said government auditing requirements are a major frustration for smaller defense contractors.
While the members of the House Armed Services Committee’s (HASC) Panel on Business Challenges within the Defense Industry are still researching reforms they will propose, a consistent qualm they’ve heard from lower-tier firms has to do with the Defense Contract Auditing Agency (DCAA).
“These small businesses…and medium-sized businesses are being treating like a Boeing or a Lockheed when they’re audited, sometimes it shuts the business down because they’ve got to focus solely on going through the paperwork and the auditing process,” Rep. Bill Shuster (R-Pa.), chairman of the HASC panel, told reporters last Friday.
Panel members spoke on a conference call from Akron, Ohio, where they held a third field hearing with industry. The HASC said the meeting was intended to bring “businesses and the Department of Defense together to help improve the defense acquisition process and give American small and medium businesses the tools they need to create jobs.” The seven-member panel, which was formed last month and will work for six months, likely will propose business-friendly legislation to be included in the fiscal year 2013 defense authorization bill the HASC will craft next spring.
Asked what reforms they might propose, panel Ranking Member Rep. Rick Larsen (D-Wash.) said issues about the auditing requirements for smaller companies stand out as a consistent concern businesses have expressed to the group.
“They may not have the full capacity, smaller companies, to carry dollars on their books that they can’t then put to work until they complete their full audit from…the Defense Contracting Auditing Agency. That’s a challenge that faces small companies more than it faces larger companies for doing business with defense. And I think that’s going to be something that is going to be worthy to look at.”
Larsen, Shuster, and panel members Reps. Betty Sutton (D-Ohio) and Colleen Hanabusa (D-Hawaii) ticked off other concerns they’ve heard from small-and-mid-sized defense contractors.
They said such firms have concerns about the Pentagon changing the rules with contracts and also about complying with International Traffic in Arms Regulations. Research and development funding from the Pentagon can be difficult to secure. Companies are reticent to turning their intellectual property over to the Pentagon, and reveal it to their competitors, particularly when they’re merely competing for contracts. Defense contractors are concerned about not being able to sell some of their innovations to the private market and allied nations. Also, the panel members said, companies are concerned about the Pentagon’s recent decision to no longer bundle contracts.
The panel heard last Friday, as it had previously, from companies that want to improve communications with the Pentagon so they can “unleash their innovations” and show how their products could help warfighters, Sutton said.
One reform the panel could attempt could be “improving some of the transparency in programs to allow (companies) to have access to the information that they need in a timely way,” she added. Also, attendees at last Friday’s roundtable discussion in her district talked about “mentor-protégée partnerships” where larger contractors help smaller ones.
“A repeating theme in all our hearings and these panel discussions that we’re having (is) that by improving things, frankly, for our small and medium-sized businesses, it does impact and affect the effectiveness of all businesses, including our larger contractors,” Sutton said.
Shuster said that while the panel is charged with looking at how all-sized businesses struggle to do business with the Pentagon, it is focusing on the small-and-mid-sized firms.
“We’ve created at the Department of Defense almost a hostility towards doing business with the defense (firms), and Congress is culpable in that also in some of the rules and regulations we’ve passed over the years,” he told reporters. “So we’re looking at how we can turn this into a more friendly relationship, collaborative partnership between business and the Department of Defense, because that’s the way you’ll get the best ideas and the best solutions to helping our warfighters and in saving money for the American people.”
The HASC created the panel in September, saying it will “examine the current defense business environment, to identify contracting or regulatory issues facing the defense industry; the use of incentives and mandates to meet established goals; structural challenges facing various sectors within of the industrial base, including universities and research institutes; impact of the current fiscal environment on the defense industry, at both the prime and subcontractor levels; and opportunities to reduce barriers to entry.”
Shuster predicted lawmakers will need to spend multiple years trying to help small-to-mid-sized firms with Pentagon contracting.
“I think this is something that’s going to be a long-term project that I don’t think in six months we’re going to find all the answers,” he said. “So we’ll need to continue to work on this over the coming years.”