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1975/12/31 HR5541 Small Business Emergency Relief Act
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1975/12/31 HR5541 Small Business Emergency Relief Act
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The original documents are located in Box 37, folder "12/31/75 HR5541 Small Business
Emergency Relief Act" of the White House Records Office: Legislation Case Files at the
Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
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copyright claim, please contact the Gerald R. Ford Presidential Library.
Exact duplicates within this folder were not digitized.
Digitized from Box 37 of the White House Records Office Legislation Case Files at the Gerald R. Ford Presidential
signed Library 12/31/75
APPROVED DEC 3 1 1975 DEC31 1975
ACTION
THE WHITE HOUSE
WASHINGTON
Last Day: December 31
December 30, 1975
Posted
MEMORANDUM FOR
THE PRESIDENT
1/1
FROM:
JIM CANNO
SUBJECT:
H.R. 5541 - Small Business Emergency
Relief Act
1/2
Attached for your consideration is H.R. 5541, sponsored
by Representative Smith and eleven others.
The enrolled bill would authorize Federal agencies to
terminate, modify or extend fixed-price government
contracts with small business firms upon application
for relief. Its termination and modification provisions
would only cover the period from August 15, 1971 to
October 31, 1974 and may not be acted upon after September
30, 1976.
This bill was prompted by the severe strain placed on
a large number of small businesses with Federal contracts
due to wage-price controls, material shortages and
high inflation from 1971 to 1974. It passed the House
402 to 0 and the Senate 82 to 10.
Additional discussion of the provisions of the enrolled
bill is provided in OMB's enrolled bill report at Tab A.
The Department of Justice recommends that you veto the
enrolled bill because it would include reimbursement for
more than the cost of work done, it would extend Federal
relief beyond the precedent of "defense contractors" and
could result in costly litigation.
OMB and SBA recommend that you sign the enrolled bill
because it would provide relief to small businesses who
were caught in a difficult economic bind and it would
involve little cost or litigation. Bill Seidman, Max
Friedersdorf, Counsel's Office (Lazarus) and I also
recommend approval.
BERALD FORD LIBRARY
DEC
2
DECISION
Sign H.R. 5541 at Tab B.
Disapprove H.R. 5541
and prepare veto message
OF THE
PRESIDENT
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE
UNITED
OFFICE OF MANAGEMENT AND BUDGET
STATE
STATES
WASHINGTON, D.C. 20503
DEC 27 2 1975
MEMORANDUM FOR THE PRESIDENT
Subject: Enrolled Bill H.R. 5541 - Small Business Emergency
Relief Act
Sponsor - Rep. Smith (D) Iowa and 11 others
Last Day for Action
December 31, 1975 - Wednesday
Purpose
To authorize Government agencies to terminate, modify or extend
fixed-price Government contracts entered into with small
business firms.
Agency Recommendations
Office of Management and Budget
Approval
Small Business Administration
Approval
Department of Defense
No objection (Informally)
Department of Commerce
No objection
General Services Administration
No objection (Informally)
Department of Housing and Urban
Development
Defer
Department of Justice
Disapproval (Veto
message attached)
Discussion
H.R. 5541 would provide emergency relief to small business firms
that were caught in the economic squeeze between fixed-price
Federal contractual commitments and the rising costs of
materials, supplies and energy. The bill would authorize the
head of any Executive Branch agency, upon application by a small
OTHER
2
business, to assist such a firm in three ways:
-- terminate for the convenience of the Government
any fixed-price Government contract entered into
between the agency and a small business firm if
it is found that (1) the business suffered or can
be expected to suffer serious financial loss due
to unanticipated cost increases directly related
to the contract, and (2) the cost increases were
or are being experienced by other small businesses
in general rather than from factors peculiar to
that firm such as mismanagement or underbidding.
-- modify terms of the contract, in lieu of termina-
nation, only if two conditions exist:
(1) if the contract were terminated, the agency
would have to reprocure the supplies and services
at a cost higher than the modified contract, and
(2) any modification would be made in compliance
with guidelines issued by the Office of Federal
Procurement Policy not later than ten days after
enactment of the bill.
-- extend the contract performance date in order to
compensate for delays due to shortages of energy
or petroleum (or of products or components made
from petroleum or "impacted" by such shortage).
In order to qualify for termination or modification of
contracts, the enrolled bill requires extensive documentation
about the small business to be filed with the agency. The
provisions of the bill relating to contract termination and
modification pertain only to uncompleted contracts entered
into between August 15, 1971 and October 31, 1974. This was
a period when the Administration set voluntary price and wage
controls and when escalation clauses were not included in
most contracts. No contract may be terminated or modified
after September 30, 1976.
A version of H.R. 5541 quite similar to the enrolled bill passed
the House 402 to 0 and the Senate 82 to 10.
FORD à
3
This legislation has been consistently opposed by the Administra-
tion through agency reports to the Congress for several reasons.
First, Government agencies have already taken steps to ease
the burden of cost increases due to inflation and material
shortages through flexible contractual provisions such as
price adjustment clauses and short-term contracts. Second,
since most of the contracts held by small business firms from
August 1971 to October 1974 have been completed by this time,
and thus could not be terminated or modified by this bill,
enactment may give small business firms a false expectation
of financial assistance. Third, the Act unfairly excludes
firms outside the category of small business. Finally, the
extensive documentation required of small businesses in order
to support their requirements for contract termination or
modification would probably be prohibitively expensive for
many.
In its letter on the enrolled bill, Justice opposes enactment
for three reasons. First, under the Standard Termination for
Convenience contract clause, the contractor would be entitled
to be reimbursed not only for the costs of work performed,
but also for the costs of settling subcontractor claims, the
cost of materials delivered to the site but not used, the
attorneys' and accountants' fees for preparing termination
claims, plus profit (unless there is showing a loss would
have been sustained).
Second, enactment would be a departure from established
legislative policy. Relief to contractors has been limited
under the War Powers Act to defense-related contracts and
only if it would "facilitate the national defense." Further-
more, case law shows that this statute was passed not for
relief of contractors from an unprofitable contract, but
rather for the benefit of the nation.
Third, Justice believes the bill would result in costly liti-
gation. In a settlement under a convenience termination, the
contractor may appeal an agency decision to the district court
or the Court of Claims. Also, if the agency refuses to grant
the time extension required by the bill in the case of energy-
related delays, but terminates the contract for failure to
perform, similar litigation is likely.
BERALD
4
We believe that while the Justice Department's objections
to the bill are not without weight and the Administration has
consistently opposed similar bills, there are offsetting
factors which warrant your approval of the enrolled bill.
First, very few fixed-price small business contracts would
apparently be able to qualify for this type of assistance.
In this connection, the General Services Administration
informally advises us that to its knowledge, none of its
outstanding contracts would be affected. Thus, the costs
of settling and litigating contracts which do qualify will
probably be smaller than feared by Justice.
Although assistance has never previously been given to
contractors for purposes other than national defense, the
combination of circumstances that gave rise to this legis-
lation -- a Federal policy of wage and price restraint, a
high rate of inflation, and a lack of escalation clauses
in government contracts -- was quite unusual. Measures have
now been instituted to peg fixed price government contracts
to inflation and energy shortages. Hence, we believe the
precedential effect of this legislation may be more con-
strained than it might otherwise be.
On balance, we believe that the effect of the bill on the
operations and budget of the Federal Government will be mini-
mal and we recommend you sign the enrolled bill.
James m. Trey
Assistant Director
for Legislative Reference
Enclosures
ASSISTANT ATTORNEY GENERAL
LEGISLATIVE AFFAIRS
Department of Justice
Mashington, D.C. 20530
December 24, 1975
Honorable James T. Lynn
Director, Office of Management
and Budget
Washington, D.C. 20503
Dear Mr. Lynn:
In compliance with your request, I have examined a facsimile
copy of the enrolled bill H.R. 5541, a bill, "To provide for
emergency relief for small business concerns in connection with
fixed-price Government contracts."
We previously opposed a similar bill in the 94th Congress,
S. 1259. Our letter to Senator Ribicoff is attached hereto. The
instant bill is, in our view, even more objectionable in that
it offers additional gratuitous and preferential relief and will
undoubtedly result in much costly litigation.
For the reasons stated in the above-referenced letter and in
the attached proposed veto message, the Department recommends
against Executive approval of this bill.
Sincerely,
Michael M. Uhlmann
CERALE
AMERICANA REVOLUTION WEENTENNING
1776-1976
OF D OFFICE UNITED 130000 $ AMERICA
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
o
DATE: 12-31-75
TO:
Bob Linder
FROM: Frey
Attached is the DOD views
letter on H.R. 5541, for inclusion
in the enrolled bill file.
Also, House Reports 94-587 and
94-588 to be included in the files
on S. 55 and S. 447, respectively.
OMB FORM 38
REV AUG 73
WATMENT OF DETENSE
GENERAL COUNSEL OF THE DEPARTMENT OF DEFENSE
WASHINGTON, D. C. 20301
UNITED STATES OF AMERICA
December 24, 1975
Honorable James T. Lynn
Director, Office of Management
and Budget
Washington, D.C. 20503
Dear Mr. Lynn:
This is in response to your request for the views of the Department of
Defense on H.R. 5541, 94th Congress, a bill "To provide for emergency
relief for small business concerns in connection with fixed-price Govern-
ment contracts.¹ "
The Department of Defense will not oppose H.R. 5541 being signed into
law by the President.
Sincerely,
L. Niederlehner
Acting General Counsel
PRARTMENT OF COMMERCE
THE UNDER SECRETARY OF COMMERCE
Washington, D.C. 20230
UNITED STATES OF AMERICA
DEC 24 1975
Honorable James T. Lynn
Director, Office of Management
and Budget
Washington, D. C. 20503
Attention: Assistant Director for Legislative Reference
Dear Mr. Lynn:
This is in reply to your request for the views of this Department
concerning H.R. 5541, an enrolled enactment
"To provide for emergency relief for small business
concerns in connection with fixed-price Government
contracts, 11
to be cited as the "Small Business Emergency Relief Act".
The purpose of H.R. 5541 is to authorize the head of any executive
agency to terminate or modify, for the convenience of the Govern-
ment, any fixed-price contract between that agency and a small
business concern. The authority would be applicable to the con-
tracts of such concerns upon findings that they have suffered, or
can be expected to suffer, serious financial loss from the energy
crisis or unexpected cost increases. The authority applies only to
contracts which have not been completely performed or otherwise
terminated, and which were entered into during the period from
August 15, 1971, through October 31, 1974. The authority termi-
nates September 30, 1976.
This Department would have no objection to approval by the
President of H.R. 5541.
We are unable at this time to provide information concerning the
budgetary effect of the legislation on this Department.
Sincerely,
James A. Bah Baker, III
SMALL
BUSINESS
U.S. SMALL BUSINESS ADMINISTRATION
ADMINISTRA
WASHINGTON, D.C. 20416
1953
OFFICE OF THE ADMINISTRATOR
DEC 2 3 1975
Mr. James M. Frey
Assistant Director for
Legislative Reference
Office of Management and Budget
Washington, D. C. 20503
Dear Mr. Frey:
This is in response to your Enrolled Bill request asking for the views
of the Small Business Administration with respect to H.R. 5541, an
Act "To provide for emergency relief for small business concerns in
connection with fixed-price Government contracts. 11
H.R. 5541 would provide a measure of much needed relief to small
business concerns having fixed-price Government contracts by
granting to procuring agencies the authority to terminate such con-
tracts for the convenience of the Government subject to the specific
conditions enumerated in Section 4(a). Upon application by a small
business, procuring agencies would also have authority to modify
the terms of the contract in lieu of termination for the convenience
of the Government subject to specific criteria enumerated in Sec-
tion 4(b).
Losses on contracts which would fall within the scope of this legis-
lation have decreased working capital, reduced employment, and
caused bankruptcies through no fault of the small businessmen in-
volved. Such losses may cause many excellent suppliers and manu-
facturers to withdraw from Government procurement, thereby de-
priving the Government of optimum procurement competition and
savings which result from such competition.
2
SBA has explored every available avenue of relief (as have most pro-
curing agencies) for small contractors suffering such losses and has
found no solution. Public Law 85-804, authorizing extraordinary
contractual action to facilitate the national defense, has very limited
applicability and generally will not provide adequate relief: additional
help is required.
The Small Business Administration supports the concepts of H.R. 5541
and recommends its enactment.
Sincerely,
Juis Law Law
Louis F. Laun
Acting Administrator
DEPARTMENT
OF
U.S.
*
HOUSING
THE GENERAL COUNSEL OF HOUSING AND URBAN DEVELOPMENT
AND
URBAN
WASHINGTON, D.C. 20410
DEC 24 1975
Mr. James M. Frey
Assistant Director for
Legislative Reference
Office of Management and Budget
Washington, D. C. 20503
Attention: Miss Martha Ramsey
Dear Mr. Frey:
Subject: H. R. 5541, 94th Congress
Enrolled Enactment
This is in response to your request for your views on the
enrolled enactment of H. R. 5541, the proposed "Small Business
Emergency Relief Act".
Section 4 (a) and (b) of the enactment would permit Federal
executive agencies to terminate for the convenience of the
Government -- or, under certain circumstances, to modify --
any fixed-price contract between an agency and a small
business concern. Such relief could be granted, however,
only if the agency made a finding that the concern has
suffered or is expected to suffer serious financial loss due
to significant unanticipated cost increases directly affecting
the cost of contract compliance, and that the conditions which
have caused or are causing such increases were or are being
experienced generally by other small businesses in the market
at the same time.
The above authorities would terminate on September 30, 1976,
and would apply only to contracts which have not been
completely performed or otherwise terminated, and which were
entered into during the period from August 15, 1971 through
October 31, 1974.
2
Another provision -- section 4(c) -- would require Federal
executive agencies to provide an appropriate extension of
contract delivery or performance dates where a small business
concern will experience delay in the performance of a
fixed-price Government contract resulting from shortages
of energy, petroleum products, or of products manufactured
or derived from or impacted by petroleum products.
The enrolled enactment would have a very limited impact on
the overall operations of this Department. We do not enter
into direct contractual relationships with building contractors
under the various housing programs under our jurisdiction.
This Department does, however, contract directly for repair
to properties acquired after foreclosure on a HUD-insured
mortgage. If we terminated or modified such a contract and
entered into a new or renegotiated contract in a higher amount,
the resulting increases in the sales price of the property
could have an adverse affect on marketability of the property
and, in turn, adversely affect the FHA insurance funds. The
enactment wisely makes the termination and modification
authorities discretionary, and we would administer these
provisions so as to avoid any adverse impact on the sales
price of these properties or on the insurance funds.
The provisions of section 4 (c) requiring extensions in the
case of delays resulting from energy or petroleum shortages
would affect contracts for repair of HUD-acquired properties,
and may be difficult to administer in view of the absence of
guidelines for determining that such a shortage exists.
However, we do not believe that a veto of the enactment would
be warranted on this basis alone, since this provision would
affect a limited area of HUD's operations, and since its
impact on the cost of repairing HUD-acquired properties would
not in any event be as significant as that of termination or
modification.
3
Instead, the Department of Housing and Urban Development
defers to those agencies, such as the General Services
Administration and the Department of Defense, which are
engaged in direct contracting on a widespread basis and
would be more significantly affected by the provision of
H. R. 5541.
Sincerely,
Robert R. Elliottt
TO THE HOUSE OF REPRESENTATIVES
I return herewith, without my approval, H.R. 5541, a bill
to provide for emergency relief for small business concerns in
connection with fixed-price Government contracts.
This bill is intended to provide some relief to small
business firms faced with a loss caused, without fault of their
own, by significant unanticipated cost increases directly affect-
ing their fixed-price Government contracts entered into during
the period from August 15, 1971 through October 31, 1974. For
such a contractor the contracting agencies are authorized to
terminate the contract for the convenience of the Government.
Under the Standard Termination for Convenience contract
clause, the contractor would be entitled to be reimbursed for
the costs of work performed to the date of termination, the
cost of settling subcontractor claims, the cost of materials
and articles delivered to the site but not incorporated in the
work, and attorney's and accountant's fees for preparing termi-
nation claims, plus profit (unless there is a showing that the
contractor would have sustained a loss on the entire contract
in which event no profit would be allowed). See, Nolan Brothers
V. United States, 186 Ct. Cl. 602, 405 F.2d 1250 (1969), appeal
after remand 194 Ct. Cl. 1, 437 F.2d 1371 (1971).
Since the Government might still desire the goods or ser-
vices promised under the terminated contract and would have to
procure them by letting a new contract, the agency is given the
option of increasing the price of the affected small business
contract, in lieu of termination, if it finds that the costs
awarded under the proposed convenience termination plus the
cost of reprocurement would exceed the amount of the contract
as modified; any such modifications would be made pursuant to
guidelines promulgated by the Office of Federal Procurement
Policy.
While the foregoing gratuitous relief appears to be dis-
cretionary, another provision of the bill would make it mandatory
for the agency to extend the completion date provided in a small
business contract upon a showing that the contractor had been delayed
by shortages of energy or petroleum (or of products or components
made from petroleum or "impacted" by such shortage).
The Congress has traditionally been reluctant to grant relief
when any payment of a private relief calim would amount to a
gratuity. See Bennett, Private Claims Acts and Congressional
References, 9 A.F. JAG L. Rev. (No. 6, Nov. -Dec. 1967). It is
evident that the instant bill amounts to a blanket provision for
- 2 -
gratuitous payments to one class of Government contractors.
In view of the broad coverage of the bill, substantial amounts
of the taxpayers' money would be given to contractors with no
consideration whatsoever being received in return.
In my view, the enrolled enactment would be an unwise and
unjustified departure from established legislative policy, in
that prior provisions for gratuitous relief to contractors has
been limited to defense-related contracts and have required
that prior to such relief being granted, a determination must
be made that it would "facilitate the national defense. 11 War
Powers Act, P.L. 85-804, 72 Stat. 972, 50 U.S.C. § 1431. The
case law pertinent to that statute is to the effect that it was not
passed for the benefit of contractors or for their relief from an
unprofitable contract. Instead, the purpose of that act was for
the benefit of the nation and committed to the sole discretion of
the President or his delegates the determination of whether or
not the contractor should be granted relief. This decision was
held not to be subject to review by the courts.
In contrast, the terms of the instant bill indicate that it
is enacted solely for the benefit of small business concerns, and
not for the benefit of the Government (much less in aid of the
nation's defense). Moreover, no reason appears for denying relief
to slightly larger contractors (those not meeting the size
criteria of the Small Business Administration) who were hurt
equally or more than covered contractors by inflation or the
energy crisis.
Moreover, unlike the case of discretionary relief under
P.L. 85-804, which is not reviewable in the courts, the present
bill will undoubtedly result in costly litigation. If the con-
tractor disagrees with the amount of costs awarded under a con-
venience termination effected pursuant to the bill, it may appeal
the decision to the appropriate agency contract appeals board for
a full-fledged adversary proceeding. Moreover, if it is dis-
satisfied with the Board decision, it can then file suit pursuant to
the Tucker Act in the district court or the Court of Claims,
pursuant to 28 U.S.C. §§ 1346 and 1491. Similarly, if the agency
refuses to grant the time extension required by the bill in the
case of delays attributed to the energy shortage, but terminates
the contract for default, similar prolonged litigation is likely
to ensue.
In view of this bill's great potential for causing increased
costs for Government procurement, its discriminatory favoring of
one class of contractors, its deviation from the long-standing
- 3 -
and sound Congressional policy of not authorizing gratuitous
benefits for Government contractors in the absence of a show-
ing that such relief would aid the national defense, and its
lack of any provision to insure that any relief offered by
the contracting agency would be completely discretionary and
not subject to review in any court or administrative tribunal,
I believe this bill should not become law.
For these reasons, I return H.R. 5541 without my approval.
THE WHITE HOUSE
December
, 1975
THE WHITE HOUSE
ACTION MEMORANDUM
WASHINGTON
LOG NO.: 1572
Date:
Time: 1100am
December 29
FOR ACTION:
cc (for information): Jack Marsh
Lynn May
Jim Cavanaugh
Paul Leach
Warren Hendriks
Max Friedersdorf
Ken Lazarus
Bill Seidman
FROM THE STAFF SECRETARY
DUE: Date: December 30
Time:
200pm
SUBJECT:
H.R. 5541 - Small Business Emergency Relief Act
ACTION REQUESTED:
For Necessary Action
For Your Recommendations
Prepare Agenda and Brief
Draft Reply
X
For Your Comments
Draft Remarks
REMARKS:
Please return to Judy Johnston, Ground Floor West Wing
No objection. -- Ken Lazarus 12/30/75
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
delay in submitting the required material, please
telephone the Staff Secretary immediately.
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
2,09.m.
DEC 27 7 1075
MEMORANDUM FOR THE PRESIDENT
Subject: Enrolled Bill H.R. 5541 - Small Business Emergency
Relief Act
Sponsor - Rep. Smith (D) Iowa and 11 others
Last Day for Action
December 31, 1975 - Wednesday
Purpose
To authorize Government agencies to terminate, modify or extend
fixed-price Government contracts entered into with small
business firms.
Agency Recommendations
Office of Management and Budget
Approval
Small Business Administration
Approval
Department of Defense
No objection
Department of Commerce
No objection
General Services Administration
No objection
lly)
Department of Housing and Urban
Development
Defer
Department of Justice
Disapproval (Veto
message attached)
Discussion
H.R. 5541 would provide emergency relief to small business firms
that were caught in the economic squeeze between fixed-price
Federal contractual commitments and the rising costs of
materials, supplies and energy. The bill would authorize the
head of any Executive Branch agency, upon application by a small
FORDS is
Attached document was not scanned because it is duplicated elsewhere in the document
THE WHITE HOUSE
ACTION MEMORANDUM
WASHINGTON
LOG NO.: 1572
Date:
Time: 1100am
December 29
FOR ACTION: Lynn May the
CC (for information): Jack Marsh
Jim Cavanaugh
Paul Leach
oh
Warren Hendrike
Max Friedersdorf and
Ken Lazarus on
Bill Seidman
an
FROM THE STAFF SECRETARY
DUE: Date: December 30
Time: 200pm
SUBJECT:
H.R. 5541 - Small Business Emergency Relief Act
ACTION REQUESTED:
For Necessary Action
For Your Recommendations
Prepare Agenda and Brief
Draft Reply
X
For Your Comments
Draft Remarks
REMARKS:
Please return to Judy Johnston, Ground Floor West Wing
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
delay in submitting the required material, please
K. R. COLE, JR.
telephone the Staff Secretary immediately.
For the President
THE WHITE HOUSE 29 REC'D
ACTION MEMORANDUM
WASHINGTON
LOG NO.: 1572
Date:
Time: 1100am
December 29
FOR ACTION:
CC (for information): Jack Marsh
Lynn May
Jim Cavanaugh
Paul Leach
Warren Hendriks
Max Friedersdorf
Ken Lazarus
Bill Seidman
FROM THE STAFF SECRETARY
DUE: Date: December 30
Time:
200pm
SUBJECT:
H.R. 5541 - Small Business Emergency Relief Act
ACTION REQUESTED:
For Necessary Action
For Your Recommendations
Prepare Agenda and Brief
Draft Reply
X
For Your Comments
Draft Remarks
REMARKS:
Please return to Judy Johnston, Ground Floor West Wing
approved
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
delay in submitting the required material, please
telephone the Staff Secretary immediately.
THE WHITE HOUSE
WASHIN GTON
December 30, 1975
MEMORANDUM FOR:
JIM CAVANAUGH
FROM:
MAX L. FRIEDERSDORF m.b.
SUBJECT:
H.R. 5541 - Small Business Emergency Relief Act
The Office of Legislative Affairs concurs with the agencies
that the subject bill be signed.
Attachments
BERALD
94TH CONGRESS
HOUSE OF REPRESENTATIVES
REPORT
1st Session
No. 94-724
SMALL BUSINESS EMERGENCY RELIEF ACT
DECEMBER 12, 1975.-Ordered to be printed
Mr. EVINS of Tennessee, from the committee of conference,
submitted the following
CONFERENCE REPORT
[To accompany H.R. 5541]
The committee of conference on the disagreeing votes of the two
Houses on the amendment of the Senate to the bill (H.R. 5541) to
provide for emergency relief for small business concerns in connection
with fixed-price Government contracts, having met, after full and free
conference, have agreed to recommend and do recommend to their
respective Houses as follows:
That the House recede from its disagreement to the amendment of
the Senate and agree to the same with an amendment as follows:
In lieu of the matter proposed to be inserted by the Senate amend-
ment insert the following:
SHORT TITLE
Section 1. This Act may be cited as the "Small Business Emergency
Relief Act".
POLICY
SEC. 2. It is the policy of Congress to provide relief to small business
concerns which have fixed-price Government contracts in cases where
such concerns have suffered or can be expected to suffer serious financial
loss because of significant and unavoidable difficulties during per-
formance because of the energy crisis or rapid and unexpected escala-
tions of contract costs.
DEFINITIONS
SEC. 3. As used in this Act-
(1) the term "executive agency" means an executive depart-
ment, a military department, and an independent establishment
within the meaning of sections 101, 102, and 104(1), respectively,
of title 5, United States Code, and also a wholly owned Govern-
ment corporation within the meaning of section 101 of the Govern-
57-006
2
3
ment Corporation Control Act; and
(2) a history of performance indicating when work under the
(2) the term "small business concern" means any concern which
falls under the size limitations of the "Small Business Adminis-
trator's Definitions of Small Business for Government
the date of the application, an exact statement of the contractor's
contraet or commitment was begun, the progress made as of
Procurement."
remaining obligations, and the contractor's expectations regard-
ing completion thereof;
AUTHORITY
(3) a statement of the factors which have caused the loss under
Sec. 4. (a) Pursuant to an application by a small business concern,
the contract;
the head of any executive agency may terminate for the convenience of
(4) a statement as to the course of events anticipated if the
the Government any fixed-price contract between that agency and such
request is denied;
small business concern, upon a funding that-
(5) a statement of payments received, payments due and pay-
(1) during the performance of the contract, the concern has
ments yet to be received or to become due, including advance
suffered or can be expected to suffer serious financial loss due to
and progress payments, and amounts withheld by the Govern-
significant unanticipated cost increases directly affecting the cost
ment, and information as to other obligations of the Government,
of contract comptiance; and
if any, which are yet to:be performed under the contract;
(2) the conditions nokich have caused or are causing such cost
(6) a statement and evidence of the contractor's original break-
increases were, or are being, experienced generally by other small
business concerns in the market at the same time and are not
down profit; of estimated oasts, including contingency allowances and
caused by negligence, underbidding, or other special management
(7) a statement and evidence of the contractor's present esti-
factors peculiar to that small business concern.
mate of total costs under the contract if enabled to complete,
(b) Upon application under subsection (a) by a small business con-
broken down between costs accrued to date of request, and run-
cern to terminate a fixed-price contract between an executive agency
out costs, and as between costs for which the contractor has
and such small business concern, the head of the executive agency may
made payment and those for which he is indebted at the time
modify the terms of the contract in lieu of termination for the con-
of the request;
venionce of the Government only if he finds after review of the appli-
(8) a statement and evidence of the contractor's estimate of
cation thank
the final price of the contract, giving effect to all escalation,
(1) (a) the agency would reprocure the supplies or services in
changes, extras, and other comparable factors known or con-
the event that the contract was terminated for the convenience of
templated by the contractor;
the Government; and
(9) a statement of any claims known or contemplated by the
(3) the cost of terminating the contract for the convenience of
contractor against the Government involving the contract in
the Government plus the cost of reproourement would exceed the
question, other than those referred to under (8) above;
amount of the contract as modified; and
(10) an estimate of the contractor's total profit or loss under
(2) Any such modification shall be made in compliance with
the contract if required to complete at the original contract price;
cost comparison and compensation guidelines to be issued by the
(11) an estimate of the total profits from other Government
Administrator of the Office of Federal Procurement Policy. Such
business, and all other sources, during the period from the date
cost comparison and compensation guidelines shall be promul-
of the first contract involved to the latest estimated date of com-
gated by the Administrator not later than 10 days after enact-
pletion of any other contracts involved;
ment of this Act.
(12) balance sheets, certified by a certified public accountant,
(e) If a small business concern in performance of a Axed-price
as of the end of the contractor's fiscal year first preceding the
Government contract experiences or has experienced shortages of
date of the first contract, as of the end of each subsequent fiscal
energy, petroleum products, or products or components manufactured
year, and as of the date of the request together with income state-
or derived therefrom or impacted thereby, and such shortages result
ments for annual periods subsequent to the date of the first bal-
in a delay in the performance of a contract, the head of the agency, or
ance sheet; and
his designee, shall provide by modification to the contract for an appro-
(13) a list of all salaries, bonuses, and all other forms of com-
priate extension of the contract delivery date or period of performance.
pensation of the principal officers or partners and of all dividends
(d) A small business concern requesting relief under subsection (a)
shall support that request with the following documentation and
form since the date of the first contract involved.
and other withdrawals, and all payments to stockholders in any
certification:
(1) a brief description of the contract, indicating the date of
DELEGATION
execution and of any amendment thereto. the items being pro-
cured, the price and delivery schedule, and any revision thereof,
SEC. 5. The head of each executive agency shall delegate authority
and any other special contractual provision as may be relevant
level that will permit the expeditious processing of applications under
conferred by this Act, to the extent practicable, to an appropriate
to the request;
this Act and to insure the uniformity of its application.
H.R. 724
H.R. 724
4
LIMITATIONS
SEC. 6. (a) The authority prescribed in section 4(a) shall apply
wise terminated and which were entered into during the period from
only to contracts which have not been completely performed or other-
August 15, 1971, through October 31, 1974.
(b) The authority conferred by section 4(a) of this Act shall
JOINT EXPLANATORY STATEMENT OF THE COMMITTEE
OF CONFERENCE
terminate September 30, 1976.
And the House agree to the same.
JOE L. EVINS,
The managers on the part of the House and the Senate at the con-
NEAL SMITH,
ference on the disagreeing votes of the two Houses on the amendment
BoB BERGLAND,
of the Senate to the bill (H.R. 5541) to provide for emergency relief
H. B. GONZALEZ,
for small business concerns in connection with fixed-price Govern-
JAMES CORMAN,
ment contracts, submit the following joint statement to the House
JIM HANLEY,
and the Senate in explanation of the effect of the action agreed upon
Gus YATRON,
by the managers and recommended in the accompanying conference
JOHN BRECKINRIDGE,
report:
WILLIAM L. HUNGATE,
The Senate amendment struck out all of the House bill after the
SILVIO O. CONTE,
enacting clause and inserted a substitute text.
J. WILLIAM STANTON,
The House recedes from its disagreement to the amendment of the
MILLICENT FENWICK,
Senate with an amendment which is a substitute for the House bill
WILLIAM F. GOODLING,
and the Senate amendment. The differences between the House bill,
M anagers on the Part of the House.
and the Senate amendment, and the substitute agreed to in conference
are noted below, except for clerical corrections, conforming changes
LAWTON CHILES,
made necessary by agreements reached by the conferees, and minor
SAM NUNN,
drafting and clarifying changes.
JOHN GLENN,
LOWELL WEICKER, Jr.,
(1) SERIOUS FINANCIAL LOSS
BILL BROCK,
M anagers on the Part of the Senate.
The Senate amendment states that it is Congressional policy to
provide relief to small businesses which "have suffered or can be
expected to suffer" serious financial loss because of the energy crisis
or rapid and unexpected escalation of contract costs.
The House bill does not contain any comparable provision requiring
serious financial loss.
The Conference substitute adopts the Senate amendment.
The Conference substitute also imposes a similar requirement in
section 4 of the bill which authorizes the relief.
(2) DEFINITION OF SMALL BUSINESS CONCERN
The House bill defines a small business concern as having the same
meaning as such term is given under Section 3 of the Small Business
Act.
The Senate amendment defines a small business concern as any con-
cern which falls under the size limitations of the small business Ad-
ministrator's definitions of small business for Government procure-
ment or for SBA loans.
The Conference substitute adopts the Senate amendment but deletes
the reference to SBA loans.
(5)
H.R. 724
H.R. 724
6
7
(3) TERMINATION AND MODIFICATION
The Conference substitute adopts the House provision applying the
The House bill authorizes the head of any executive agency to
authority to contracts entered through October 31, 1974 but termi-
terminate for the convenience of the Government "or make appropriate
nates the authority of the agency to grant relief on September 10, 1976.
modification in the terms of" any fixed-price contract if certain speci-
JOE L. EVINS,
fied conditions are found to exist.
NEAL SMITH,
The Senate Amendment authorizes termination but does not contain
BoB BERGLAND,
any provision authorizing modification.
H. B. GONZALEZ,
The Conference substitute adopts the Senate termination authority
JAMES CORMAN,
but provides for limited application of modification to contracts which
JIM HANLEY,
have not been fully performed or terminated only when the amount
Gus YATRON,
of the modification plus the original contract amount would be less
JOHN BRECKINRIDGE,
than the expense incurred by the Government in reprocuring the item
WILLIAM L. HUNGATE,
from another source.
SILVIO O. CONTE,
The Conferees intend that the authority to modify a contract be
J. WILLIAM STANTON,
usedionly to save the Government money. Such a savings would result
MILLICENT FENWICK,
by limiting the amount of the modification plus the original contract
WILLIAM F. GOODLING,
amount to a figure not to exceed the cost of terminating the contract
for the convenience of the Government plus the cost of reprocurement.
Managers on the Part of the House.
In order to insure consistency and equity in determining which con-
LAWTON CHILES,
tracts are eligible for modification and compensation thereunder, the
SAM NUNN,
Administrator of the Office of Federal Procurement Policy is required
JOHN GLENN,
to issue appropriate government-wide guidelines not later than 10
LOWELL WEICKER, Jr.,
days after enactment.
BILL BROCK,
Managers on the Part of the Senate.
(4) ENERGY SHORTAGE AS AN EXCUSABLE DELAY
o
The House bill provides that if a small business concern in the per-
formance of a fixed-price Government contract experiences shortages
of energy or energy products which result in a delay in the perform-
ance of the contract, the delay may be deemed to be an excusable delay.
The Senate amendment contains no comparable provision.
The Conference substitute adopts the House provision except that
in the event of such a delay the head of the agency is specifically di-
rected to modify the contract by extending the contract delivery date
or period of performance.
(5) EFFECTIVE DATES
The House bill limits the application of the provisions authorizing
modification or termination to contracts entered into during the period
from August 15, 1971 through October 31, 1974. The House bill also
provides that the authority of the agency to grant relief expires De-
cember 31, 1976.
The Senate amendment outs off the date of the contracts to those
entered through April 30, 1974 and provides that the authority of the
agency to grant relief expires December 31, 1975.
H.R. 724
H.R. 724
Calendar No. 372
94TH CONGRESS
1st Session
}
SENATE
{
REPORT
No. 94-378
SMALL BUSINESS EMERGENCY
RELIEF ACT
REPORT
OF THE
COMMITTEE ON GOVERNMENT OPERATIONS
UNITED STATES SENATE
ON
S. 1259
TO PROVIDE FOR EMERGENCY RELIEF FOR SMALL BUSI-
NESS CONCERNS IN CONNECTION WITH FIXED-PRICE
GOVERNMENT CONTRACTS
SEPTEMBER 17 (legislative day, SEPTEMBER 11), 1975.-Ordered to be printed
U.S. GOVERNMENT PRINTING OFFICE
57-010
WASHINGTON : 1975
CONTENTS
Page
I. Purpose and summary
1
II. Need for the legislation
1
III. Legislative history
2
IV. Analysis of the bill
4
V. Estimated cost of legislation
6
VI Changes in existing law
6
Appendixes:
COMMITTEE ON GOVERNMENT OPERATIONS
(A) Letter from Subcommittee on Federal Spending
ABRAHAM RIBICOFF, Connecticut, Chairman
Practices, Efficiency and Open Government, Com-
JOHN L. McCLELLAN, Arkansas
CHARLES H. PERCY, Illinois
mittee on Government Operations, to Comptroller
HENRY M. JACKSON, Washington
JACOB K. JAVITS, New York
General, General Accounting Office, July 1, 1975,
EDMUND S. MUSKIE, Maine
WILLIAM V. ROTH, JR., Delaware
and reply received by subcommittee, July 29, 1975
7
LEE METCALF, Montana
BILL BROCK, Tennessee
(B) Agency comments: General Accounting Office letter to
JAMES B. ALLEN, Alabama
LOWELL P. WEICKER, JR., Connecticut
the Committee on Government Operations, June 3,
LAWTON CHILES, Florida
1975
9
SAM NUNN, Georgia
JOHN GLENN, Ohio
Office of Management and Budget letter to the Com-
RICHARD A. WEGMAN, Chief Counsel and Staff Director
mittee on Government Operations, June 19, 1975
10
PAUL HOFF, Counsel
Department of Defense letter to the Committee on
PAUL L. LEVENTHAL, Counsel
Government Operations, August 15, 1975
11
ELI E. NOBLEMAN, Counsel
(C) Letter from Senator Hathaway to Senator Chiles,
MATTHEW SCHNEIDER, Counsel
March 12, 1975
17
JOHN CHILDERS, Chief Counsel to the Minority
BRIAN CONBOY, Special Counsel to the Minority
(III)
CHARLES PLATT, Assistant to the Majority
MARK BRAVIN, Assistant to the Minority
MARILYN A. HARRIS, Chief Clerk
ELIZABETH A. PREAST, Assistant Chief Clerk
HAROLD C. ANDERSON, Staff Editor
(II)
Calendar No. 372
94TH CONGRESS
SENATE
REPORT
1st Session
No. 94-378
SMALL BUSINESS EMERGENCY RELIEF ACT
SEPTEMBER 17 (legislative day, SEPTEMBER 11), 1975.-Ordered to be printed
Mr. CHILES, from the Committee on Government Operations,
submitted the following
REPORT
[To accompany S. 1259]
The Committee on Government Operations, to which was referred
the bill (S. 1259) to provide for emergency relief for small business
concerns in connection with fixed-price Government contracts having
considered the same, reports favorably thereon with an amendment and
recommends that the bill do pass.
I. PURPOSE AND SUMMARY
The purpose of the bill is to provide relief to small business concerns
caught in the economic squeeze between fixed-price Federal contract
commitments and soaring costs of material, supplies and energy.
This bill would grant executive agencies the latitude to terminate
for the convenience of the government any fixed-price contract be-
tween that agency and a small business concern upon a finding that
(1) during the performance of the contract, the concern has experi-
enced or is experiencing significant unanticipated cost increases di-
rectly related to the contract; and (2) the conditions which have
caused or are causing such cost increases were, or are being, experienced
generally by other small business concerns in the market at the same
time and are not caused by negligence, underbidding, or other special
management factors peculiar to that small business concern.
II. NEED FOR THE LEGISLATION
During the period from mid-1971 until early 1974, executive agencies
required contractors to submit proposals on the basis of some phase
of price controls. Escalation factors were not included in most con-
tracts and material contingencies exceeding the President's guidelines
were frowned upon. Since that time all controls have been lifted and,
(1)
2
3
consequently, material prices have skyrocketed while fixed-price com-
concluded that some form of relief was urgently needed for these
mitments remained. In addition, the unanticipated oil embargo led
small businesses. However, after discussions with the General Services
to severe material shortages and ultimately higher prices for these
Administration (GSA), the Department of Defense (DOD), and the
materials when they do become available.
General Accounting Office (GAO), it became apparent that S. 3619,
Notwithstanding the enormous inflationary spiral on material
as introduced, was unacceptable.
prices, the small businessman has been obligated to perform at the
First, the original bill would have granted the head of an executive
fixed prices appearing in his contract-prices which were established
agency the latitude to modify existing fixed price contracts to provide
under an entirely different set of ground rules. In many cases, this
equitable relief to small business concerns which have encountered
cost to perform now exceeds the prices set by the contract. Small
these difficulties. The bill envisioned that such relief would be mone-
businesses do not generally have the economic resilience to withstand
tary and, as such, could be characterized as a specialized Federal
this type of loss on their government contracts as larger businesses
"bailout."
might. Nor do they have the capital backing or the borrowing capacity
Second, no standards were provided for assessing the merits of a
to ride out this crisis.
contractor's claim. Consequently, there could have been no assurance
It seems clear, therefore, that some form of relief is urgently needed
that such legislation would be uniformly and equitably implemented.
for small business concerns caught between fixed price contract com-
mitments and exploding costs due to inflation, material shortages,
Finally, as introduced, S. 3619 provided for excusable delays re-
and the energy crisis. The procuring agencies of the government
sulting from energy shortages and the incorporation of economic price
recognize the source of the problem and have been sympathetic to the
adjustment clauses in contracts with small business concerns. How-
small businessman caught in this bind. However, they are helpless
ever, since both of these practices are currently being encouraged
to provide any form of relief absent some authority provided by
within the agencies and departments, such provisions would appear
legislation.
unnecessary. The committee remains concerned, however, that
The absence of any relief for existing contracts has resulted in fewer
policies to deal with economic fluctuations on future contracts are not
small firms willing to propose on new government contracts. Instead,
being fully implemented, a concern communicated to both the Depart-
they are turning away from government procurement opportunities
ment of Defense and the General Services Administration.
for short term and higher profit contracts with commercial estab-
As a result of these inadequacies with S. 3619, the committee con-
lishments. Others have been forced out of business by their losses.
sidered and accepted a substitute amendment offered by the Chairman
The government simply cannot afford the loss of these valuable
of the Ad Hoc Subcommittee on Federal Procurement on September
suppliers.
24, 1974. Unlike the original bill, this committee substitute would not
III. LEGISLATIVE HISTORY
require any additional outlay of money to contractors seeking relief.
Under the provisions of this amendment, the only relief a contractor
In March, 1974, the Government Procurement Subcommittee of
would be entitled to is a release from his obligations to perform.
the Select Committee on Small Business sent a questionnaire to small
The committee substitute was passed by the Senate on October 9,
businesses around the country. The questionnaire was designed to
1974. The House failed to consider the bill before the close of the 93rd
cover their response to all phases of the government procurement
Congress.
process. The returns from 135 small businesses holding 1,349 govern-
S. 1259
ment contracts indicated that 83 percent were concerned with signifi-
cantly higher than anticipated prices for supplies-in many instances,
Senator William Hathaway introduced S. 1259 on March 20, 1975,
high enough prices to put the contractor into the position of perform-
which is identical to S. 3619. It was referred to the newly established
ing contracts at a loss.
Senate Government Operations Subcommittee on Federal Spending
To look more closely at these problems, the Government Procure-
Practices, Efficiency, and Open Government, which proceeded directly
ment Subcommittee of the Senate Select Committee on Small Business
to markup the legislation on May 12th. The full Government Opera-
held hearings on May 21, 1974, at which small businesses testified. As
tions Committee considered and accepted the subcommittee's recom-
a result of these hearings, Senator Hathaway, Subcommittee Chair-
mendation to favorably report S. 1259 on June 18th, pending notifi-
man, on June 11, 1974, introduced S. 3619, the Small Business Emer-
cation by the General Accounting Office of a cost study of the bill.
gency Relief Act for himself, Senator Javits, Ranking Committee Mi-
(See Appendix A.)
nority Member, and Senators Bible and Scott of Virginia.
Several measures were introduced in the House of Representatives
The purpose of the bill was to give expenditious relief to small busi-
that incorporated both modification and termination provisions. The
ness contractors under fixed price contracts with the Federal Govern-
House Small Business Committee considered these bills and reported
ment who are experiencing pricing and delivery problems as a result
a clean measure, H.R. 5541, that passed the House on April 22, 1975.
of the energy crisis and the very rapid rate of inflation.
The Senate bill does not offer or attempt to remedy a contractor's
On July 2, 1974, S. 3619 was referred to the Ad Hoc Subcommittee
past losses. It merely prevents a contractor from incurring additional
on Federal Procurement of the Committee on Government Operations.
losses which may result in the demise of a valuable supplier.
The subcommittee, having undertaken a thorough review of the bill,
In addition, this amendment would require the contractor to supply
evidence that his predicament was not the result of negligence or a
4
5
deliberate underbidding. This supporting documentation would assure
the uniformity of this statute's application and ultimately its equity.
Section 3(2). The definition of "small business concern" is intended
Finally, the bill contains strict time limitations. The termination
to limit the eligibility under this bill to those concerns meeting the
authority would only cover contracts entered into during the period
definition provided in the Small Business Act.
influenced by price controls (August 15, 1971 through April 30, 1974).
Moreover, contractors would be held to a specific period in which to
AUTHORITY
apply for and receive relief under this bill the authority to terminate
contracts is to expire December 31, 1975.
Section 4(a) grants the head of any executive agency the latitude to
The intent of the time limitations is to permit contractors a reason-
terminate for the convenience of the government any fixed-price
able opportunity to obtain relief from contracts priced under abnormal
contract between that agency and a small business concern upon the
circumstances but not to perpetuate allowances for economic abnor-
agency's finding that the unanticipated cost increase was directly
malities that could undermine the whole business of Federal contract-
related to the contract and that the cost increases were a market
ing if continued or used as a precedent.
phenomenon and not a result of negligence, deliberate underbidding,
In this regard, the committee's legislative intent should not be mis-
or other management factors peculiar to the small business concern
taken. This bill is unique and serves to resolve only a unique set of
in question.
circumstances created after lifting price controls. This bill does not
This section grants the agency the authority heretofore unavailable
create a precedent for relief in any but the special conditions described
to terminate a contract for reasons other than a change in require-
herein, nor is there any intention to repeat legislation of this nature for
ments and, therefore, the ability to immediately reprocure like items
any other situations.
upon completion of a termination action. However, the exercise of
It is expected that the criteria used by executive agencies in exer-
this authority is discretionary and, at best, applicable only to those
cising the authority granted would concentrate first and foremost on
situations where it is apparent that a small business government
the ability of a small business concern to remain a viable functioning
supplier will be in jeopardy of losing his business if the agency does
economic unit if forced to complete contract obligations. Mere loss
not release him from his obligations to perform.
of profits or loss incurred on a particular contract are not, by them-
The agency is not required to initiate or be alert to the need for
selves, sufficient grounds for termination but should be assessed in the
such an action to terminate. Rather, it is the contractor who must
context of the small business concern's ability to recover from such
submit an application for this relief.
losses. The committee believes the documentation required to support
It is expected that in implementing the authority granted by this
each case will be sufficient for the agencies to make such a determina-
legislation, agencies will follow established regulatory procedures
tion on a fair and equitable basis.
for termination for convenience.
Section 4(b) requires that this application be accompanied by
IV. SECTION-BY-SECTION ANALYSIS
detailed documentation supporting the small business concern's
eligibility under the intent of the bill. It is this documentation that
Section 1 states the short title-"Small Business Emergency
will permit the agency to ensure a uniform and equitable application
Relief Act."
of the provisions of the bill. This list of documentation is as follows:
POLICY
Section 4(b) (1) provides a basic accounting of just what is
involved in the contract. It provides insight into contract duration
Section 2 is a declaration of the policy of Congress to provide
and materials involved an therefore would also provide insight
relief to small business concerns which have fixed price government
as to eligibility.
contracts where such concerns have encountered financial difficulties
Section 4(b) (2) brings the accounting up to date and sets out
as a result of the energy crisis or the unanticipated inflationary
the remaining obligations and a forecast as to completion
spiral. This congressional concern does not envision granting relief
possibilities.
to contractors suffering a reduction in profits on government business.
Section 4(b) (3) expresses, in the contractor's opinion, the vari-
Rather, its intended application would be to those small businesses
ous factors which have caused the loss under the contract.
whose very existence has been placed in jeopardy as a result of the
Section 4(b) (4) gives the contractor the opportunity to state
problems brought about by their fixed-price government contract
his case as to what will happen if his request is denied. When
commitments.
properly prepared, this becomes useful to the agency head in
DEFINITIONS
determining a company's ability to remain viable.
Section (1). The definition "executive agency" serves to delineate
Section 4(b) (5) provides an up to date financial accounting
the agencies empowered to exercise the authority granted by this
concerning the contract.
bill. These include the executive departments, military departments,
Section 4 (b) (6) through (11) is intended to demonstrate the
independent establishments, and wholly owned government
financial "health" of the small business concern. Starting with the
corporations.
baseline established in the original breakdown, it provides
financial adjustments information to reflect stages of completion
and estimates to complete, as well as adjustments for claims or
S. Rept. 94-378-2
6
contract changes. In addition, it will portray the total profit and
loss picture of the company both from government contracts and
all other sources. This last point is significant in view of the intent
to limit relief to those small business concerns on the verge of
being driven to close their doors.
Section 4(b) (12) requires the submission of balance sheets and
income statements from the year preceding the "loss" contracts
APPENDIX A
up to the present time. This information will contribute to the
COMMITTEE ON GOVERNMENT OPERATIONS,
agencies ability to determine the cause or causes for the current
SUBCOMMITTEE ON FEDERAL SPENDING PRACTICES,
financial situation of the company. The balance sheets and
EFFICIENCY, AND OPEN GOVERNMENT,
income statements should be both consolidated, and by affiliates,
Washington, D.C. July 1, 1975.
and should show all transactions between the contractor and his
affiliates, stockholders, and partners, including loans to the
Hon. ELMER B. STAATS,
contractor guaranteed by any stockholder or partner.
Comptroller General, General Accounting Office,
Section 4(b) (13) requires the listing of all salaries, bonuses, and
Washington, D.C.
other forms of compensation of the principal officers or partners.
DEAR MR. STAATS: During consideration by the Senate Government
Information of this nature, as well as payments to stockholders,
Operations Committee of S. 1259, the Small Business Emergency Re-
further contributes to determining a trend as to the financial
lief Act, questions were raised relative to the cost of the program pro-
"health" of the company.
vided in the bill.
Would you please furnish the Committee with your estimates of the
DELEGATION
cost covered by this proposed legislation at your earliest convenience.
With kindest regards,
Section 5 authorizes the head of each executive agency to delegate
Sincerely,
the authority conferred by this bill to the appropriate level that will
LAWTON CHILES, Chairman.
permit expectations processing of applications as well as ensure
uniformity in its application. It is assumed that this could best be
COMPTROLLER GENERAL OF THE UNITED STATES,
achieved at the level of the Director of Contracts within the agency.
Washington, D.C., July 29, 1975.
Hon. LAWTON M. CHILES,
LIMITATIONS
Chairman, Subcommittee on Federal Spending Practices, Efficiency,
and Open Government, Committee on Government Operations,
Section 6(a) limits the applicability of this bill to contracts, still in
U.S. Senate.
effect, which were written during the period from August 15, 1971,
DEAR MR. CHAIRMAN: This is in response to your request for esti-
through April 30, 1974.
mates of the cost of the program provided in the bill S. 1259, the
Section 6(b) limits the time a contractor may have to file an ap-
"Small Business Emergency Relief Act." The bill, if enacted, would
plication for relief. In any event, the government's authority under
provide relief to small business concerns which have fixed-price Gov-
this bill would expire on December 31, 1975.
ernment contracts in cases where such concerns encounter significant
and unavoidable difficulties during perfermance because of the energy
V. ESTIMATED COST OF LEGISLATION
crisis or rapid and unexpected escalations of contract costs.
In accordance with section 252 (a) of the Legislative Reorganization
Because of the many variable or unknown factors that are present,
Act of 1946, as amended, the committee estimates that there will be
including the number of contractors who may request that their con-
no direct expenditure of additional Federal funds required by enact-
tracts be terminated and the unanticipated inflationary costs that may
ment of S. 1259.
be incurred, we cannot estimate what program costs may be.
There will be some additional workload placed on agency procure-
Your office also requested that we assess whether the legislation
ment activities in order to process submissions for relief under the
would limit relief to recovery of costs incurred and exclude any provi-
sion for contractor profit.
bill and, where termination is found appropriate, to process contract
S. 1259 would provide for termination for the convenience of the
close-outs. Due to the time limits placed on eligible contracts, however,
Government. S. 3619, introduced in the last Congress, used the same
it is expected that this incremental indirect cost can be borne within
existing funds for agency procurement activities.
language. The legislative history of the earlier bill clearly indicates
that the termination was intended to be at no cost to the Government.
VI. CHANGES IN EXISTING LAW
We assume that the language in the current bill relating to termination
is intended in the same sense.
In accordance with subsection (4) of rule XXIX of the Standing
In a letter dated June 3, 1975, to the Chairman of the Senate Com-
Rules of the Senate, the committee reports that there are no changes
mittee on Government Operations we commented on the bill and made
in existing law required by the bill, as amended.
(7)
8
recommendations for several changes. We recommended, for example,
that provision be made for the alternative to modify rather than
terminate contracts SO that the Government could obtain needed sup-
plies and services. We also made recommendations for changes that
would limit any contract price adjustments to costs that exceed con-
tract prices.
APPENDIX B
We trust that the above satisfies the purpose of your inquiry.
Sincerely yours,
COMPTROLLER GENERAL OF THE UNITED STATES,
R. F. KELLER,
Washington, D.C., June 3, 1975.
Deputy Comptroller General of the United States.
Hon. ABRAHAM RIBICOFF,
Chairman, Committee on Government Operations,
U.S. Senate.
DEAR MR. CHAIRMAN: By letter of April 2, 1975, you requested our
views regarding S. 1259, 94th Congress 1st Session which, if enacted,
would be cited as the "Small Business Emergency Relief Act."
This bill would allow Federal Government agencies, at the request
of small business contractors, to terminate certain fixed-price contracts
entered into during the period from August 15, 1971 through April 30,
1974, until the authority terminates on December 31, 1975. Section (a)
of this bill provides that the termination authority may be exercised
upon a finding that (1) during the performance of the contract, the
concern has experienced or is experiencing significant unanticipated
cost increases directly affecting the cost of contract compliance; and
(2) the conditions which have caused or are causing such cost in-
creases were, or are being, experienced generally by other small busi-
ness concerns in the market at the same time and are not caused by
negligence, underbidding, or other special management factors pecu-
liar to that small business concern.
Recognizing the urgent need to provide relief for small business
contractors having fixed-price contracts with the Federal Government,
we generally favor the enactment of this bill. Contract termination
would provide a form of relief to a small business contractor unable
to economically perform an existing fixed-price contract because of
inflation, thus avoiding the harsh consequences of a termination for
default. We also believe that the purpose intended to be served by
this bill could be better achieved by adding a provision authorizing
modification of existing small business contracts entered into during
the period covered by the bill. Modification authority would allow
the Government to satisfy its procurement needs and, at the same time,
provide relief to the small business contractor. Therefore, your com-
mittee may wish to consider providing in a single bill modification au-
thority together with termination authority, We believe that the com-
bined remedies would provide the degree of flexibility needed to cope
with the emergency situation.
In this connection we recommend that Section 4(a) be amended to
include the following language immediately preceding the word "any"
on page 2, line 18: "or make appropriate modification in the terms of".
It is further recommended that a new subsection (b) be inserted to
include the following language: "Any contract price adjustment un-
der subsection (a) shall be authorized only to the extent that contract
costs exceed the contract price." The language in the existing subsec-
tion (b) should be retained as subsection (c). Furthermore, we suggest
the inclusion of a provision which would authorize the contracting
(9)
10
11
agency and this Office access to all of the records of the contractor
small business firms. Such relief would be granted if small business
relating to the contract being modified SO that the Government may
firms holding fixed price type contracts experienced difficulties caused
have the opportunity to assure itself that the modification it negotiates
by the energy crisis or unexpected cost increases resulting from infla-
is equitable and reasonable. In this connection, we recommend a new
tion. The two bills are H.R. 5541, which passed the House of Repre-
subsection (d) to include the following language:
sentatives on April 22, 1975, and S. 1259, which is an update of a bill
(d) The agency head and the Comptroller General of the United
(S. 3619) passed by the Senate last year.
States, or any of their duly authorized representatives shall, until the
The Administration has opposed this type of legislation for several
expiration of three years after final payment of any contract modified
reasons. First, Government agencies have already taken steps to ease
under subsection (a), have access for the purpose of audit and exam-
the burden of cost increases due to inflation and material shortages
ination to any books, documents, papers, and records of such receipts
through flexible contractual provisions such as price adjustment clauses.
which in the opinion of the agency head or the Comptroller General
and short-term contracts. Second, while contractors were most affected
may be related or pertinent to any such contract modification."
by energy and inflation problems in late 1973 and early 1974, they
In addition we believe that Section 4(a) (1) should be amended to
can now more accurately predict difficulties related to cost increases.
include the following language after the word "compliance": SO that
Third, most contracts held by small business firms during the 1971-
the cost of performance exceeds, or will exceed, the contract price".
1974 period covered by the legislation have been completed at this
Consistent with the purpose of the legislation we believe that the termi-
time. Finally, there is no way to be certain of the ultimate cost to the
nation authority should not be exercised unless it is clear that the con-
taxpayer resulting from this legislation.
tract cannot be economically performed because of inflationary
The Office of Management and Budget prefers S. 1259 to H.R. 5541.
conditions.
Specifically, the House bill would authorize Government agencies not
Notwithstanding the use in Section 4(a) of the term "termination
only to terminate contracts for the convenience of the Government but
for the convenience of the Government," the termination contemplated
also to make modifications in the contract if it can be shown that the
by this bill appears essentially to be in the nature of a no cost settle-
firm experienced "significant unanticipated cost increases" which were-
ment initiated at the contractor's request, for its convenience and in
experienced by other small businesses at the same time. The Senate-
its best interests. On the other hand, a termination which is in fact
version, on the other hand, would only permit termination of a con-
for the Government's convenience will result in a settlement to compen-
tract for the convenience of the Government. The termination provi-
sate the contractor fairly for the work done and the preparations made
sion could be administered by the executive agencies with much more
for the terminated portions of the contract, including an allowance
ease and equity than the provisions of the House bill. We believe the
for profit thereon which is reasonable under the circumstances. Since
House version would result in strong pressure on Government con-
the matter of the contractor's entitlement to termination costs is not
tracting personnel to modify large numbers of contracts, thus pro-
covered under the bill, we recommend inclusion of a provision to spell
viding a potential for price increases in many goods and services. This
out whether or not entitlement to costs in the event of termination is
type of contract modification goes beyond the need for limited relief
intended. In any event, we recommend that Section 4(a) be further
to meet emergency circumstances and not only tends to destroy the-
amended to delete the term "for the convenience of the Government"
integrity of fixed-price contracting but also is inflationary in nature.
which appears after the word "terminate".
Sincerely,
We further suggest that the termination and modification authority
JAMES M. FREY,
be expressly made discretionary by inserting after the word "may" in
Assistant Director for Legislative Reference.
Section 4(a) a comma and the following language: "in his or her
discretion".
Finally, a technical change should be made. We suggest that the
reference to "Section 3(a) on page 5, line 25 be changed to "Sec-
GENERAL COUNSEL OF THE DEPARTMENT OF DEFENSE,
tion 4(a)".
Washington, D.C., August 15, 1975.
We think the above satisfies the purpose of your inquiry and we
Hon. ABRAHAM RIBICOFF,
appreciate the opportunity to comment on this matter.
Chairman, Committee on Government Operations, U.S. Senate, Wash-
Sincerely yours,
ington, D.C.
R. F. KELLER,
DEAR MR. CHAIRMAN: This is in response to your letter dated 27 May
Deputy Comptroller General of the United States.
1975 requesting a Department of Defense report on S. 1259 entitled an
act "To provide for emergency relief for small business concerns in
OFFICE OF MANAGEMENT AND BUDGET,
connection with fixed-price contracts."
Washington, D.C., June 19, 1975.
S. 1259 would state it is the policy of Congress to provide relief to
Hon. ABRAHAM A. RIBICOFF,
small business concerns which have fixed price Government contracts.
Chairman, Committee on Government Operations, U.S. Senate,
This relief would be provided in cases where such concerns encounter
Dirksen Senate Office Building, Washington, D.C.
significant and unavoidable difficulties during contract performance
DEAR MR. CHAIRMAN: It is my understanding that the Senate is
because of the energy crisis or rapid and unexpected escalations of
considering two similar bills that would provide emergency relief to
contract costs. Under the bill, upon application by a small business
12
13
concern, the head of the procuring agency would be authorized to
firm's profits. Diminution of profit should not be considered a basis for
terminate for the convenience of the Government any fixed price con-
termination for convenience.
tract between the agency and the small business concern upon a show-
C. Although small business firms undoubtedly are impacted more
ing that-
seriously by inflation and the energy shortage than are large business
(1) during the performance of the contract, the concern has experi-
firms, they are not the only ones who are encountering difficulties. In-
-enced or is experiencing significant unanticipated cost increases di-
flation may strike just as heavily, or even more so, on a firm which
rectly affecting the cost of contract compliance; and
barely exceeds the small business size standards for a given commodity.
(2) the conditions which have caused or are causing such cost
Such a firm would not qualify for relief under this bill.
increases were, or are being, experienced generally by other small
d. Determination of eligibility for relief on a contract-by-contract
business concerns in the market at the same time and are not caused
basis would impose a tremendous administrative burden on Depart-
by negligence, underbidding, or other special management factors
ment of Defense, and could delay relief to many firms to the extent that
peculiar to that small business concern.
they could not survive the delay. This would be further complicated by
Termination of a loss contract for convenience under current pro-
the fact that most firms which do business with the Government have
curement regulations involves paying the contractor for all costs of
more than one contract, and many have numerous contracts with sev-
performance incurred up to the date of termination, adjusted to reflect
eral different agencies. Thus, the filing and coordination of several in-
a proportionate share of the loss as applied to the work performed.
dividual requests for termination would be necessary. Even if a firm
The bill sets forth various documentation to be submitted by the
which held several contracts only requested termination of one of
applicant and provides that the head of the agency may delegate to
them, in order to insure that relief was in fact warranted it would be
appropriate levels. Finally, it provides that its provisions shall ex-
necessary to review the status of all the firm's other contracts. Other-
pire on December 31, 1975 and shall apply only to contracts entered
wise, this bill could become the vehicle for getting rid of a losing con-
into during the period from August 15, 1971 through April 30, 1974.
tract while keeping the profitable ones.
The Department of Defense is aware of the plight of contractors
e. The potential cost of S. 1259 could be significant. We can be quite
who have encountered significant price increases, material shortages,
certain that the passage of this legislation could elicit a flood of re-
late deliveries from suppliers and other problems arising from the
quests, many without merit. The administrative cost alone of process-
energy shortage and inflation. The Department is particularly aware
ing such claims and determining which have merit would be an oner-
of the impact these factors have had on some small business concerns.
ous burden and extremely costly to the taxpayer. It is difficult to esti-
However, while there are some hardship cases, we have no evidence
mate the total cost. While S. 1259 itself would not appear to result in
that these are sufficient to warrant special legislation. Also, as the bill
the outlay of money directly to contractors seeking relief, it would
itself recognizes, the problem is not a continuing one. It is, we believe,
eventually result in higher outlays by the Department of Defense to
confined primarily to competitive contracts awarded prior to mid-1974
reprocure the items covered by the termination contracts. It would
and requiring deliveries after the first quarter of calendar year 1974.
seem reasonable to expect that the vast majority of small business firms
The current marketplace conditions are being adequately considered
have experienced some increases in their costs, some diminution of
in the pricing of new contracts, because both buyers and sellers are
profit or varying degrees of losses. How many of these firms would
attuned to the potential problems. Furthermore, not all cases in which
merit relief under the terms of S. 1259 is highly conjectural at best.
firms have experienced difficulty can be traced directly to shortages
Department of Defense awards to small business firms exceeded $6
or inflation. Legislation authorizing relief even for those cases which
billion in FY 1973. With over six million procurement awards to small
-could be traced to shortages or inflation would set a dangerous prece-
business potentially involved, processing such claims and determining
dent for similar actions in the future merely because of variations in
which were meritorious would be an administrative burden.
the open marketplace. Of even greater concern is the fact that such leg-
f. There is no provision for finality of decisions made by the head of
lation tends to destroy the very fiber of competitive procurement. For
an agency. If he denied a contractor's request for termination, would
these and other reasons, detailed below, we are opposed to the enact-
this decision be subject to appeal? And would the contractor be re-
ment of S. 1259.
quired to continue performance pending outcome of his appeal?
We foresee a number of very serious substantive and administrative
g. One of the more difficult aspects of processing any such requests
problems in the proposal to authorize the convenience termination of
for relief would be determining the question of fairness to other bid-
individual contracts:
ders under that same procurement. Under our competitive bidding
a. The criteria for meriting consideration for relief are vague and
process, and most of these awards were made as the result of competi-
would not necessarily provide relief to those who need it or deserve
tion, we rely on the forces of the marketplace to establish a fair and
it the most. What are "significant unanticipated cost increases"?
reasonable price. Award is generally made to the low responsible bid-
Against what standard is this to be measured? Many firms may have
der. To now relieve the contractor of his obligation to perform, simply
encountered difficulties, but do not meet the criteria for relief, or they
because he has lost or is losing money, may be unfair to the other bid-
have taken other measures to mitigate those difficulties.
ders who might have been able to perform the contract without such
b. The language of Section 4(a) would seem to authorize relief
relief.
even though the cost increases might do nothing more than decrease a
S. Rept. 94-378-3
14
15
h. Legislation such as this could have an adverse impact on an al-
rently present. Hence, we see a very limited opportunity for relief as
ready inflationary economy. While it does not necessarily authorize
envisioned by the proposed legislation. On the other hand, we foresee
payment of additional money to a contractor, it nevertheless relieves
the possibility that there would be a large number of claims for such
him of an obligation, and the Department of Defense will eventually
relief.
incur additional costs in the award of a new contract. There is no in-
The magnitude of the administrative task to sort from amongst a
centive to do business by the rules of the marketplace if there is a handy
large body of claimants those relative few whose position would merit
procedure available whenever a firm gets into financial difficulty. There
consideration, would make this a very costly program to administer.
is no incentive to economize on those contracts already awarded and
The Department of Defense believes that enactment of S. 1259 is
being performed if the contractor can in effect walk away from his
undesirable and unnecessary. However, this legislation is preferable
obligations as soon as it is no longer profitable to continue.
to H.R. 5541 which extends even further relief to contractors.
i. There is also the question of subcontractors who would contend
S. 1259 is identical in most respects with H.R. 5541 passed by the
they have not received equal treatment. We estimate there are many
House on April 22, 1975. It is our understanding that H.R. 5541 has
more subcontractors than prime contractors that are small business
been referred to your Committee. There are two primary differences
firms.
between these bills:
The Department of Defense is concerned with the plight of small
H.R. 5541 includes the words "or make appropriate modification in
business and the maintenance of our small business program, which
the terms of" after the "Government" in line 3 of Section (a). H.R.
now equates to about 20% of Defense procurement expenditures. We
5541 provides that the authority contained in Section 4(a) of the bill
do not want to lose our reliable and long-proven small business sup-
would apply only to contracts entered into during the period from
pliers, but we do feel that emergency relief of this broad scale should
August 15, 1971, through October 31, 1975, while S. 1259 provides that
not be handled on a contract-by-contract basis in the proceurment
the above period would end on April 30, 1975. Also, H.R. 5541 states
arena.
that the authority conferred by Section 4(a) of the Act shall terminate
The Department of Defense has authority now under P.L. 85-804 to
December 31, 1976, while the authority in S. 1259 would terminate
amend contracts without consideration in limited cases where the con-
December 31, 1975.
tinued performance of a contractor is considered essential to the na-
With regard to the inclusion of the additional words in Section (a)
tional defense. However, only a few contractors who are currently
as provided by H.R. 5541, this office has no information or knowledge
experiencing difficulties will be able to meet all of the criteria necessary
as to what kinds of modification were contemplated. It is, therefore,
to support a finding of essentially, since in most cases there are other
conceivable that such modifications could involve payment of addi-
competing firms willing and able to bid on contracts for Department
tional monies to contractors, reduction of performance or quality as-
of Defense's needs. Department of Defense has taken and is taking
surance requirements, relief from delivery schedules, or any com-
other steps to ease the problems which inflation and material shortages
binations of these. The substantive and administrative problems ex-
have on contractors-measures such as using shorter term contracts,
pressed above in subparagraphs (a) through (i) that we foresee with
curbing the use of options, and more frequent use of Economic Ad-
regard to convenience terminations authorized under S. 1259 will be
justment clauses. The Assistant Secretary of Defense (Installations
even more complicated if applied to the additional authority to make
and Logistics) issued a memorandum of June 12, 1974 to the Military
"appropriate modifications" under H.R. 5541.
Departments and Defense Agencies alerting them to the problems and
While the primary thrust of S. 1259 is to relieve the contractor of
the various techniques to be employed during this period of price in-
his obligations under the contract, the additional language in H.R.
stability. A similar memorandum was issued on November 27, 1974
5541 would appear to require the payment of substantial additional
relating to consideration of these problems in consenting to major de-
costs. In addition, such costs would seem to be payable even though
fense system subcontracts. We recognize that none of these measures
the cost increases might do nothing more than decrease a firm's profits.
will fully satisfy the needs of those firms which have already experi-
Diminution of profit should not be considered as a basis for price ad-
enced cost increases. However, these actions should prevent a recur-
justment. The possibility of such payments substantially increases the
rence of the problem, or at least the impact of price instability, in fu-
magnitude of any administrative task in processing contractor's
ture contracts.
claims, and in assuring through audit, hearings, and other analysis,
Of the 9.2 million procurement transactions under $10,000 made last
that funds expended for such claims can be properly and completely
year in the Department of Defense, it is our estimate that the over-
justified.
whelming majority of these awards had delivery cycles of less than six
With regard to extending the applicability of the authority to con-
months. Of those awards of less than $2,500, the vast proportion had
tracts entered into through October 31, 1974, instead of April 30, 1974,
delivery schedules of 30 days or less. Thus, in either case, both the
we are convinced that the problem is primarily confined to contracts
buyer and seller were fully conversant with the inflationary pressures
awarded prior to mid FY 1974 and requiring deliveries after the first
of the market and, we think, able to respond satisfactorily to them in
quarter of calendar year 1974. We are of the view that marketplace
pricing their products.
conditions are adequately reflected on contracts entered into since
It is further our observation that the sudden increase in the rate of
that time, and therefore, we are opposed to extending the authority to
inflation which took place from late 1973 until late 1974 is not cur-
16
contracts entered into during the period between April 30, 1974 and
October 31, 1974.
For these reasons set forth above regarding S. 1259 and for these
additional reasons, the Department of Defense opposes enactment of
H.R. 5541.
The Office of Management and Budget advises that from the stand-
point of the Administration's program, there is no objection to the
APPENDIX C
presentation of this report for the consideration of the Committee.
Sincerely,
U.S. SENATE,
SELECT COMMITTEE ON SMALL BUSINESS,
L. NIEDERLEHNER,
Acting General Counsel.
Washington, D.C., March 12, 1975.
Hon. LAWTON CHILES,
U.S. Senate,
Washington, D.C.
DEAR LAWTON: In the next few days, I plan to introduce the, "Small
Business Emergency Relief Act," which would provide that a gov-
ernment agency could terminate, for the convenience of the govern-
ment, a small business fixed price contract upon a showing by the small
business contractor that he is experiencing significant unanticipated
cost increases in the performance of his contract.
The Senate Small Business Subcommittee on Government Procure-
ment, of which I am Chairman, held a hearing last year looking into
this and other problems of small business contractors. During the hear-
ing and subsequent to it, the Subcommittee learned that increasing
numbers of small business firms performing fixed price contracts with
the Federal Government are experiencing great difficulty in perform-
ing their contracts due to the energy crisis and the rapid rate of in-
flation. Many of these contractors who obtained their contracts by
competitive bidding have found inflation has driven up the price of
materials during the contract period to the point where they are being
dragged to the brink of bankruptcy in performance of the contract.
The bill which I propose to introduce would not authorize a modi-
fication of the contract to provide additional money to the contractor,
but it would authorize the government to terminate, for the con-
venience of the government, a small business fixed price contract where
the contractor could show that he is suffering a serious financial loss.
The language of the proposed legislation is the same as S. 3619, re-
ported unanimously by the Government Operations Committee and
passed unanimously by the Senate on October 9, 1974
I solicit your cosponsorship of this bill. If you wish to cosponsor,
or if you have any questions about the bill, please have your staff con-
tact Jim Medill, 4-8482.
With best regards,
Sincerely,
WILLIAM D. HATHAWAY,
U.S. Senator.
(17)
O
94TH CONGRESS
HOUSE OF REPRESENTATIVES
REPORT
1st Session
No. 94-154
SMALL BUSINESS EMERGENCY RELIEF ACT
APRIL 18, 1975.-Committed to the Committee of the Whole House on the State
of the Union and ordered to be printed
Mr. EVINS of Tennessee, from the Committee on Small Business,
submitted the following
REPORT
[To accompany H.R. 5541]
The Committee on Small Business, to whom was referred the bill
(H.R. 5541) to provide for emergency relief for small business con-
cerns in connection with fixed-price Government contracts, having
considered the same, report favorably thereon without amendment
and recommend that the bill do pass.
INTRODUCTION AND BACKGROUND OF BILL
The bill, H.R. 5541, is a product of congressional concern with the
economy and particularly with the effect of the tremendous increases
in the cost of goods, materials, and labor to small business contractors
who entered fixed-price contracts with the Federal Government dur-
ing the period of August 15, 1971, through October 31, 1974. The small
business sector was experiencing significant unanticipated cost in-
creases directly affecting the cost of performing under the contract,
and was also being affected by shortages of energy, petroleum prod-
ucts, or products or components manufactured or derived therefrom
or impacted thereby. These factors resulted in the small business con-
tractor being unable to perform under the contract in a timely manner
which caused him to default.
The result to the small businessman is oftentimes financial ruin.
From the standpoint of the Government's interest, enforcement of the
contract and the lack of ability to modify its terms may force the con-
cern to go bankrupt and frequently hinders or even prevents the Gov-
ernment from obtaining the product for which it contracted. Thus it
may also be in the interest of the Government to adjust the terms of the
contract since granting the Government the authority to make such
price adjustments, where justified, will permit the contracting agency
to obtain the needed materials and services in a timely fashion.
38-006
2
3
Under existing law a contracting agency of the Federal Government
In some cases, the Government agencies have adopted administrative
is not authorized to assist the small businessman who may be bank-
steps designed to mitigate the detrimental impact of unanticipated
rupted by enforcement of the contract, except in a very few limited
price escalation on the small contractor, such as not exercising the Gov-
situations under Public Law 85-804, which authorizes the agency to
ernment's option for renewal or for additional requirements at the price
amend contracts without consideration in limited cases where the con-
fixed in the original contract. Such administrative action is not ap-
tinued performance of a contractor is considered essential to the na-
plied uniformly and is not Governmentwide. Furthermore, the ques-
tional defense. However, only a few contractors experiencing such dif-
tionable legality of such mitigating actions inhibits their use.
ficulties are able to meet all of the criteria necessary to suppot a finding
The procuring agencies generally recognize the no-fault predica-
of essentiality since in most cases there are other competing firms will-
ment of their shmall business suppliers who are caught in the price
ing and able to bid on contracts for the agency's needs.
squeeze and material shortage situation. However, they are without au-
Hearings on emergency relief legislation (H.R. 2879, 3207, 3886 and
thority under existing law to provide any relief. To the contrary, they
4544) were held by the Subcommittee on SBA and SBIC Legislation
find themselves constrained under present law to default the contractor,
on March 21, 1975. The subcommittee held markup sessions on H.R.
buy against the contract at higher costs, and institute proceedings to
3207, the "Small Business Emergency Relief Act" on March 25, 1975.
attempt to recover the excess cost and damage from their small busi-
The subcommittee made numerous changes in H.R. 3207 and reported
ness suppliers. This is done even though the small business concerns
out a clean bill, H.R. 5541, which the full committee ordered reported
have been historically good, dependable suppliers to the Government.
on April 10, 1975.
This occurs even though such actions ultimately reduce the Govern-
NEED FOR THE LEGISLATION
ment agencies' sources of supply and decrease competition for their re-
Based upon the committee's studies, investigations, and hearings the
quirements, thereby increasing future costs for such items to the Gov-
ernment. This is contrary to our National policy and the best interests
committee finds that there are many small business concerns currently
encountering serious problems and facing the possibility of financial
of the small business Government contractors, the Government agen-
cies, and the taxpayer.
ruin in attempting to perform fixed-price Government contracts under
Legislation is needed to enable the Government agencies to grant
prevailing conditions of price escalations and energy impacted material
relief at their discretion to eligible small business fixed-price con-
shortages
tractors.
The fixed-price contracts were awarded by the Government agencies
The committee finds that in many instances small business con-
during a period when the successful small business bidders submitted
tractors are encountering difficulty in meeting delivery schedules under
their bids based upon prices then under some phase of price controls
the contract due to unavailability and shortages of energy or petroleum
established by the Government. Price escalation clauses were not in-
cluded in most of these contracts. Default clauses in the contracts did
products even at escalated prices.
Under default clauses contained in fixed-price contracts, the Fed-
not take into consideration delays in scheduled deliveries beyond the
eral agency is required to terminate the contract in the event of a de-
contractor's control due to energy or petroleum shortages.
fault in deliveries by the small business contractor even though he is
Subsequent to the granting of such awards, the Government lifted
encountering difficulty in obtaining energy and petroleum related
its price controls. This resulted in substantial increases in labor and
materials or may even be unable to obtain such needed materials. This
material costs while the fixed-price commitments of the small business
concerns to the Government remained intact. In addition, unantici-
problem is a serious one and is being experienced by many small busi-
ness contractors.
pated oil embargos led to severe material shortages and substantially
Upon termination for default, the small business contractor finds
higher prices for any such materials which became available.
The small business contractor under these circumstances is in a di-
himself liable to the Government for increased costs and for damages
arising out of his failure to deliver on time.
lemma. He is left without any alternative relief. In most instances he
Legislation is needed in such instances to give the Federal agencies
faces financial hardships or bankruptcy if he tries to live up to the
the authority, where justified, to terminate the contract for the con-
terms of the contract, and he meets the same fate if he should default
venience of the Government at no cost to the contractor and to enable
on the contract.
the Federal agency in its discretion, to consider such delays or defaults
Under existing law, Public Law 85-804, extraordinary relief from
in performance as excusable in appropriate cases.
such hardship is available for the fixed-price Government contractor
In addition, legislation is needed in order to give the procuring Gov-
only if the Government agency determines that he is essential to the
ernment agencies the authority to modify the terms of the fixed-price
national defense. In practice, however, the application of Public Law
contract whenever it appears that it would be more economical, effi-
85-804 is rare. The essentiality requirement eliminates most of the
cient and effective for the Government to change the terms of an exist-
small business contractors caught in the price squeeze and material
ing fixed-price contract as to price or delivery rather than undergo
shortage situation. Public Law 85-804 does not provide an adequate
costly delavs and expense in reprocuring the item. Such remedial action
remedy to the problem. More than this is needed in order to provide
cannot be taken under existing law even though the modification would
relief to the average small business contractor.
be in the best interests of the Government.
H.R. 154
H.R. 154
4
5
WHAT THE BILL WOULD DO
According to information received by the committee the price of
these goods, materials, and labor appears to have stabilized now and
H.R. 5541 would provide limited relief to small businessmen who
it is not believed that any concerns which contracted after the begin-
enter fixed-price contracts with an agency of the Federal Government
ning of the stabilization period, November 1, 1974, should be entitled
if during the performance of the contract they experienced or are ex-
to any such emergency relief since they are now in a better position
periencing significant unanticipated cost increases directly affecting
to estimate their cost of materials and labor needed to perform their
the cost of contract compliance, provided the conditions which have
contracts. The committee also has been informed that the Federal
caused or are causing such cost increases were or are being experienced
Government is now using price adjustment clauses in Government con-
generally by other small business concerns in the market at the same
tracts where appropriate. The committee believes that this legislation
time and are not being caused by negligence, underbidding, or other
represents reasonable and adequate means of resolving this problem.
special management factors peculiar to the small business concern. The
bill would not require that the executive agency provide any relief but
MATTERS REQUIRED TO BE DISCUSSED UNDER HOUSE RULES
would merely authorize the head of the agency to either terminate the
contract for the convenience of the Government without cost to the
In compliance with clause (1) (2) of Rule XI of the House of Repre-
contractor or to modify the terms of a fixed-price contract, i.e., to
sentatives the following statement is made relative to the record vote
grant a price increase, which was entered during the period from Au-
on the motion to report H.R. 5541
gust 15, 1971 through October 31, 1974. In order to obtain relief, the
A majority of the committee was actually present and the motion
contractor must make a request for relief and document the request
was approved by voice vote with no roll call vote being requested.
with data and information on his costs, profits, and losses as specified
In compliance with clause 2(1) (3) of Rule XI of the Rules of the
in the bill. The authority of the contracting agency to grant such relief
House of Representatives the following statements are made:
would terminate on December 31, 1976.
With regard to subdivision (A), relating to oversight findings, the
This bill would also provide that any delay by a small business con-
committee finds, in keeping with clause 2(b) (1) of Rule X, that this
cern in the performance of a fixed-price Government contract which
legislation is in full compliance with the provision of this Rule of the
is a result of a shortage of energy, petroleum products, or products or
House, which states:
components manufactured or derived therefrom or impacted thereby,
"In addition, each such committee shall review and study any con-
may be deemed to be an excusable delay under the terms of any default
ditions or circumstances which may indicate the necessity or desir-
clause in the contract. Similarly, these provisions of this bill are not
ability of enacting new or additional legislation within the jurisdic-
tion of that committee.
*
*
*"
mandatory but merely authorize the contracting agency to excuse a
delay in the performance of the contract.
The objectives of this legislation are to provide limited financial
relief for small business contractors caught in a price squeeze under
fixed-price contracts with the Federal Government and to assist the
CONCLUSION
Federal Government in obtaining a continued, assured supply of goods
In conclusion, H.R. 5541 presents a viable method of dealing with
and services from reliable small business contractors at a minimal
the problem of small business contractors who entered fixed-price
price.
contracts with the Federal Government during a period of severe
With regard to subdivision (B), relating to the statement required
inflation. The committee notes that contracts between businesses in
by section 308 (a) of the Congressional Budget Act of 1974, the fol-
the private sector of the economy may be and often are modified in
lowing statement is made relative to the legislation:
order to take into account the substantial increases in the cost of goods,
The measure does not provide new budget authority or new or in-
materials, and labor needed by the contractor to perform under the
creased tax expenditures.
contract and it believes that similar discretionary authority should be
With regard to subdivisions (C) and (D), the committee advises
granted where justified in situations where the Federal Government
that no estimate or comparison has been prepared by the Director of
is doing the contracting. Not only will this be beneficial to the small
the Congressional Budget Office relative to any of the provisions of
business, but it is in the Government's best interests as in many situa-
H.R. 5541 nor have any oversight findings or recommendations been
tions the contractor may be unable to perform at the price specified
made by the Committee on Government Operations with respect to
in the contract. Thus the lack of authority for the agency to grant
the subject matter contained in H.R. 5541.
price increases, where justified, may not only cause the demise of the
In compliance with clause 2(1) (4) the committee believes that the
small business, but it may also hinder the Government by causing a
provisions of this legislation in and of themselves will have little, if
delay and reprocurement costs in the agency's obtaining vitally needed
any, inflationary impact on prices and costs in the operation of the
goods and materials.
National economy.
The committee believes that such relief is especially appropriate
The committee estimates that there will be no substantial direct
since many of these price increases may be attributable to the action
expenditure of additional Federal funds required by enactment of
of the Federal Government in modifying and eliminating price
H.R. 5541. Although additional payments may be made to some con-
tractors in certain situations, such payments may be fully or partially
controls.
H.R. 154
H.R. 154
6
7
offset by a savings of additional costs which the Government might
ness concerns in the market at the same time and are not caused by
incur if the goods and services had to be reprocured at higher prices
negligence, underbidding, or other special management factors pecu-
upon the contractor's default.
liar to that small business concern.
There will be some additional workload placed on agency procure-
Subsection (c) of this section requires a small business concern
ment activities in order to process submissions for relief under the
requesting such relief to support the request with the following docu-
bill and, where modification or termination is found appropriate, to
mentation and certification:
process the request for relief. Due to the time limits placed on eligible
(1) A brief description of the contract;
contracts, however, it is expected that this incremental cost can be
(2) A history of performance under the contract, and the con-
borne within existing funds for agency procurement activities.
tractor's expectations regarding completion thereof;
In your committee's opinion, the above statements fully comply
(3) A statement of the factors which have caused the loss;
with the Rules of the House of Representatives.
(4) A statement as to the anticipated course of events if the request
is denied;
SECTION-BY-SECTION SUMMARY OF THE BILL
(5) A statement showing an accounting of payments received and
to be received and information as to obligations of the Government
SECTION 1. Short title.
yet to be performed under the contract;
This section of the bill provides that upon enactment it may be
(6) A statement and evidence of the contractor's original break-
cited as the "Small Business Emergency Relief Act".
down of estimated costs;
SEC. 2. Statement of Congressional policy.
(7) A statement and evidence of the contractor's present estimate
This section sets forth that it is the policy of Congress to provide
of total costs under the contract if enabled to complete;
relief to small business concerns which have fixed-price Government
(8) A statement and evidence of the contractor's estimate of the
contracts in cases where such concerns encounter significant and un-
final price of the contract;
avoidable difficulties during performance because of the energy
(9) A statement of any additional claims known or contemplated
crisis or rapid and unexpected escalations of contract costs.
by the contractor against the Government involving the contract in
SEC. 3. Definitions.
Subsection (1) defines the term "executive agency" as an executive
question; (10) An estimate of the contractor's total profit or loss under the
department (Departments of State; Treasury; Defense; Justice: In-
contract if required to complete at the original contract price;
terior; Agriculture; Commerce; Labor; Health, Education and Wel-
(11) An estimate of the contractor's total profits from all sources
fare; Housing and Urban Development and Transportation) ; a mili-
during the period from the date of the first contract involved to the
tary department (Departments of the Army, Navy and Air Force),
latest estimated date of completion of any other contracts involved;
and independent establishment (an establishment in the executive
(12) The contractor's certified balance sheets together with income
branch, other than the U.S. Postal Service or the Postal Rate Com-
statements; and
mission, which is not an executive department, military department,
(13) A list of compensation provided the principal officers or part-
Government corporation, or part thereof, or part of an independent
ners and of all dividends or other payments to stock holders in any
establishment), and a wholly owned Government corporation.
form since the date of the first contract involved.
Subsectioin (2) defines the term "small business concern" as one
Subsection (b) of this section provides that if a small business con-
which is independently owned and operated and which is not domi-
cern in the performance of a fixed-price Government contract experi-
nant in its field of operation and which is SO defined by the Admini-
ences or has experienced shortages of energy, petroleum products, or
strator of the Small Business Adminstration who shall make a de-
products or components manufactured or derived therefrom or im-
tailed definition, using among the criteria, the number of employees
pacted thereby, and if such shortages result in delay in the perform-
and dollar volume of business.
ance of a contract, the delay may be deemed to be an excusable delay
SEC. 4. Authority to grant relief.
under the terms of any default clause in the contract.
Subsection (a) of this section authorizes the head of an executive
SEC. 5. Delegation.
agency, upon the application of a small business concern, to termi-
This section provides that to the extent practicable the head of each
nate for the convenience of the Government, without cost to the small
executive agency shall delegate the authority conferred by this Act
business contractor, or to make appropriate modification in the terms
in order to permit the expeditious processing of applications for relief
of any fixed-price contract between that agency and such small busi-
and to insure uniformity of the Act's application.
ness upon a finding that (1) during the performance of the contract,
SEC. 6. Limitations.
the concern has experienced or is experiencing significant unantici-
Subsection (a) of this section provides that the authority of an
pated cost increases directly affecting the cost of contract compliance,
executive agency to either terminate the contract for the convenience
and (2) that the conditions which have caused or are causing such cost
of the Government or to make appropriate modification in its terms
increase were, or are being, experienced generally by other small busi-
shall apply only to contracts entered into during the period from
August 15, 1971, through October 31, 1974.
H.R. 154
H.R. 154
H. R. 5541
Rinety-fourth Congress of the United States of America
AT THE FIRST SESSION
Begun and held at the City of Washington on Tuesday, the fourteenth day of January,
one thousand nine hundred and seventy-five
An Act
To provide for emergency relief for small business concerns in connection with
fixed-price Government contracts.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SHORT TITLE
SECTION 1. This Act may be cited as the "Small Business Emergency
Relief Act".
POLICY
SEC. 2. It is the policy of Congress to provide relief to small busi-
ness concerns which have fixed-price Government contracts in cases
where such concerns have suffered or can be expected to suffer serious
financial loss because of significant and unavoidable difficulties during
performance because of the energy crisis or rapid and unexpected
escalations of contract costs.
DEFINITIONS
SEC. 3. As used in this Act-
(1) the term "executive agency" means an executive depart-
ment, a military department, and an independent establishment
within the meaning of sections 101, 102, and 104(1) respectively,
of title 5, United States Code, and also a wholly owned Govern-
ment corporation within the meaning of section 101 of the
Government Corporation Control Act; and
(2) the term "small business concern" means any concern which
falls under the size limitations of the "Small Business Admin-
istrator's Definitions of Small Business for Government
Procurement."
AUTHORITY
SEC. 4. (a) Pursuant to an application by a small business concern,
the head of any executive agency may terminate for the convenience
of the Government any fixed-price contract between that agency and
such small business concern, upon a finding that-
(1) during the performance of the contract, the concern has
suffered or can be expected to suffer serious financial loss due to
significant unanticipated cost increases directly affecting the cost
of contract compliance; and
(2) the conditions which have caused or are causing such cost
increases were, or are being, experienced generally by other small
business concerns in the market at the same time and are not
caused by negligence, underbidding, or other special management
factors peculiar to that small business concern.
(b) Upon application under subsection (a) by a small business
concern to terminate a fixed-price contract between an executive
agency and such small business concern, the head of the executive
agency may modify the terms of the contract in lieu of termination
for the convenience of the Government only if he finds after review of
the application that-
H. R. 5541-2
(1) (a) the agency would reprocure the supplies or services in
the event that the contract was terminated for the convenience
of the Government; and
(b) the cost of terminating the contract for the convenience of
the Government plus the cost of reprocurement would exceed the
amount of the contract as modified and
(2) Any such modification shall be made in compliance with
cost comparison and compensation guidelines to be issued by the
Administrator of the Office of Federal Procurement Policy. Such
cost comparison and compensation guidelines shall be promulgated
by the Administrator not later than 10 days after enactment of
this Act.
(c) If a small business concern in performance of a fixed-price
Government contract experiences or has experienced shortages of
energy, petroleum products, or products or components manufactured
or derived therefrom or impacted thereby, and such shortages result
in a delay in the performance of a contract, the head of the agency,
or his designee, shall provide by modification to the contract for an
appropriate extension of the contract delivery date or period of
performance.
(d) A small business concern requesting relief under subsection (a)
shall support that request with the following documentation and
certification:
(1) a brief description of the contract, indicating the date of
execution and of any amendment thereto, the items being pro-
cured, the price and delivery schedule, and any revision thereof,
and any other special contractual provision as may be relevant
to the request;
(2) a history of performance indicating when work under the
contract or commitment was begun, the progress made as of the
date of the application, an exact statement of the contractor's
remaining obligations, and the contractor's expectations regard-
ing completion thereof;
(3) a statement of the factors which have caused the loss under
the contract;
(4) a statement as to the course of events anticipated if the
request is denied;
(5) a statement of payments received, payments due and pay-
ments yet to be received or to become due, including advance and
progress payments, and amounts withheld by the Government,
and information as to other obligations of the Government, if any,
which are yet to be performed under the contract;
(6) a statement and evidence of the contractor's original break-
down of estimated costs, including contingency allowances and
profit;
(7) a statement and evidence of the contractor's present esti-
mate of total costs under the contract if enabled to complete,
broken down between costs accrued to date of request, and runout
costs, and as between costs for which the contractor has made pay-
ment and those for which he is indebted at the time of the
request;
(8) a statement and evidence of the contractor's estimate of the
final price of the contract, giving effect to all escalation, changes,
extras, and other comparable factors known or contemplated by
the contractor;
H. R. 5541-3
(9) a statement of any claims known or contemplated by the
contractor against the Government involving the contract in
question, other than those referred to under (8) above;
(10) an estimate of the contractor's total profit or loss under
the contract if required to complete at the original contract price;
(11) an estimate of the total profits from other Government
business, and all other sources, during the period from the date
of the first contract involved to the latest estimated date of com-
pletion of any other contracts involved;
(12) balance sheets, certified by a certified public accountant, as
of the end of the contractor's fiscal year first preceding the date
of the first contract, as of the end of each subsequent fiscal year,
and as of the date of the request together with income statements
for annual periods subsequent to the date of the first balance
sheet; and
(13) a list of all salaries, bonuses, and all other forms of com-
pensation of the principal officers or partners and of all dividends
and other withdrawals, and all payments to stockholders in any
form since the date of the first contract involved.
DELEGATION
SEC. 5. The head of each executive agency shall delegate authority
conferred by this Act, to the extent practicable, to an appropriate
level that will permit the expeditious processing of applications under
this Act and to insure the uniformity of its application.
LIMITATIONS
SEC. 6. (a) The authority prescribed in section 4(a) shall apply only
to contracts which have not been completely performed or otherwise
terminated and which were entered into during the period from
August 15, 1971, through October 31, 1974.
(b) The authority conferred by section 4(a) of this Act shall termi-
nate September 30, 1976.
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.
December 19, 1975
Dear Mr. Director:
The following bills were received at the White
House on December 19th:
H.R. 3474
M.R. 8631
K.R. 4073
H.R. 10555
H.R. 5541
H.R. 10792
K.R. 6461
H.R. 11016
H.R. 7862
E.R. 11172
Please let the President have reports and
recommendations as to the approval of these
bills as soon as possible.
Sincerely,
Robert D. Linder
Chief Executive Clerk
The Nonorable James T. Lynn
Director
Office of Management and Budget
Washington, D. C.
BERALO 7. FORD