Pilot program to gather subcontracting data moves forward

Federal acquisition executives have finalized details of a pilot program requiring contractors to report specific information about their subcontractors.

The final rules, published last week in the Federal Register, are the latest step by the Bush administration to comply with the 2006 Federal Funding Accountability and Transparency Act. The pilot already started under draft rules.

The law mandates the creation of a free, user-friendly Web site that will allow citizens to search for virtually all federal contracts and grants by January 2008 and subcontracting data one year later. The act also directs the Office of Management and Budget to develop a pilot program to determine a cost-effective and administratively simple approach to implementing a governmentwide subaward reporting process.

Unlike prime contract data, which can be found -- albeit with some difficulty -- in the Federal Procurement Data System-Next Generation, no such central repository exists for subcontracting.

But, while federal expenditure data will be available soon for public scrutiny, the data collected as part of the pilot program will not be released. The Federal Register notice stated that the pilot program was designed to "test the collection and accession of subcontract award data … However, information reported under the pilot program will not be disclosed to the public."

The Civilian Agency Acquisition and Defense Acquisition Regulations councils, which review all changes to the Federal Acquisition Regulation, approved the rule.

Those familiar with the negotiations establishing the pilot program said agreeing to keep the data private was a compromise aimed at appeasing interests that questioned both the veracity and the usefulness of the information.

Alan Chvotkin, senior vice president of the Professional Services Council, an Arlington, Va., group that represents contractors, said some businesses were concerned that the subcontracting data reported during the pilot program could be inaccurate and of little use to the public. Many contractors do not regularly collect data about their subcontractors and have never had to report such information publicly before.

"There is really nothing like it anywhere with all of these elements," Chvotkin said.

Once the kinks are worked out of the system, he said, contractors will feel more comfortable releasing the data for public analysis.

Not everyone is pleased with the councils' decision, however. A Senate source familiar with the funding transparency act said although the legislation did not specifically outline details of the pilot program, "there was an expectation that the data would be made public."

Since the subcontracting data will remain private for at least 15 more months, some advocates suggest that OMB find a way to keep the public informed about the program.

"I would like to see progress reports where they can outline how [the pilot program] is doing," said Adam Hughes, director of federal procurement policy for OMB Watch, a nonprofit watchdog that publishes its own federal contractor database.

Sens. Tom Coburn, R-Okla., and Barack Obama, D-Ill., who co-sponsored the Federal Funding Accountability and Transparency Act, are working on a "Version 2" update of the bill, the Senate source said. The new legislation would clarify, and possibly increase, the types of data that will be included on the public Web site, which Coburn has described as "Google for government spending."

The pilot program asked contractors to provide agencies with the names and addresses of their main subcontractors, the primary location of the subcontracting work, the amount and date of the award, the applicable North American Industry Classification System code and contract number, the name of the funding agency, and a short description of the work involved.

Most agree that the pilot program was the single most controversial aspect of the funding transparency act. When the FAR Council announced its proposed rules for the pilot program in March, it received 17 comments from affected parties; most were negative.

Many, including members of the Professional Services Council, maintained that the program was overly burdensome for contractors because companies would have to develop a new system to collect the information needed to comply with the law.

Others complained that the rule failed to address serious national security concerns -- information about nonclassified weapons systems could theoretically end up in the wrong hands -- and competitive issues. Critics argued that the identity and price paid to subcontractors constitute proprietary information that could provide competitors with an unfair advantage when bidding for future contracts.

Despite the complaints, the councils refused to change any of their proposed rules.

The pilot program applies to all prime contracts of $500 million or more performed inside the United States. The subcontractors must be in the first tier -- hired directly by the prime contractor, rather than through another subcontractor -- with deals exceeding $1 million. Proponents of the threshold requirements said larger federal contractors are more accustomed to providing relevant information to the government and can better verify the data's accuracy.

The rule excludes individual recipients of federal assistance and organizations with less than $300,000 in total income.

"The councils chose these thresholds to ensure that a sufficient number of subcontract award reports will be entered in the database to permit assessment of its effectiveness without imposing a significant burden on contractors," the rules stated.

Critics, however, argued that the threshold is too high to capture anywhere near all the relevant subcontracting awards. The threshold is expected to be lowered to subcontracts worth more than $25,000, regardless of the size of the original contract, when the data is made public in 2009, although a final decision has not yet been reached.

The pilot program is expected to conclude by the end of 2008. The main public database, meanwhile, is on schedule to meet its operational deadline of this January.

"The site is currently being developed and agencies are ensuring they have all data elements required by the act by the deadline," said OMB spokeswoman Andrea Wuebker.