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SEC. 874. PILOT PROGRAM TO INCENTIVIZE
CONTRACTING WITH EMPLOYEE-OWNED BUSINESSES.
(a) Qualified Business Wholly-owned Through
an Employee Stock Ownership Plan Defined.--The term ``qualified
businesses wholly-owned through an Employee Stock Ownership
Plan'' means an S corporation (as defined in section 1361(a)(1)
of the Internal Revenue Code of 1986) for which 100 percent of
the outstanding stock is held through an employee stock
ownership plan (as defined in section 4975(e)(7) of such Code).
(b) Pilot Program to Use Noncompetitive
Procedures for Certain Follow-on Contracts to Qualified
Businesses Wholly-Owned Through an Employee Stock Ownership
Plan.--
(1) Establishment.--The Secretary of
Defense may establish a pilot program to carry out the
requirements of this section.
(2) Follow-on
contracts.--Notwithstanding the requirements of section 2304
of title 10, United States Code, and with respect to a
follow-on contract for the continued development, production,
or provision of products or services that are the same as or
substantially similar to the products or services procured by
the Department of Defense under a prior contract held by a
qualified business wholly-owned through an Employee Stock
Ownership Plan, the products or services to be procured under
the follow-on contract may be procured by the Department of
Defense through procedures other than competitive procedures
if the performance of the qualified business wholly-owned
through an Employee Stock Ownership Plan on the prior contract
was rated as satisfactory (or the equivalent) or better in the
applicable past performance database.
(3) Limitation.--A qualified business
wholly-owned through an Employee Stock Ownership Plan may have
a single opportunity for award of a sole-source follow-on
contract under this section, unless a senior contracting
official (as defined in section 1737 of title 10, United
States Code) approves a waiver of the requirements of this
section.
(c) Verification and Reporting of
Qualified Businesses Wholly-owned Through an Employee Stock
Ownership Plan.--Under a pilot program established under this
section, the Secretary of Defense shall establish procedures--
(1) for businesses to verify status as
a qualified businesses wholly-owned through an Employee Stock
Ownership Plan for the purposes of this section by using
existing Federal reporting mechanisms;
(2) for a qualified businesses
wholly-owned through an Employee Stock Ownership Plan to
certify that not more than 50 percent of the amount paid under
the contract will be expended on subcontracts, subject to such
necessary and reasonable waivers as the Secretary may
prescribe; and
(3) to record information on each
follow-on contract awarded under subsection (b), including
details relevant to the nature of such contract and the
qualified business wholly-owned through an Employee Stock
Ownership Plan that received such contract, and to provide
such information to the Comptroller General of the United
States.
(d) Data.--
(1) In general.--If the Secretary of
Defense establishes a pilot program under this section, the
Secretary shall establish mechanisms to collect and analyze
data on the pilot program for the purposes of--
(A) developing and sharing best
practices relating to the pilot program;
(B) providing information to
leadership and the congressional defense committees on the
pilot program, including with respect to each qualified
business wholly-owned through an Employee Stock Ownership
Plan that received a follow-on contract under this section--
(i) the size of such business;
(ii) performance of the follow-on
contract; and
(iii) other information as
determined necessary; and
(C) providing information to
leadership and the congressional defense committees on
policy issues related to the pilot program.
(2) Limitation.--The Secretary of
Defense may not carry out the pilot program under this section
before--
(A) completing a data collection and
reporting strategy and plan to meet the requirements of this
subsection; and
(B) submitting the strategy and plan
to the congressional defense committees.
(e) Sunset.--Any pilot program
established under this section shall expire on the date that is
five years after the date of the enactment of this Act.
(f) Comptroller General Report.--
(1) In general.--Not later than three
years after the date of the enactment of this Act, the
Comptroller General of the United States shall submit to
Congress a report on any individual and aggregate uses of the
authority under a pilot program established under this
section.
(2) Elements.--The report under
paragraph (1) shall include the following elements:
(A) An assessment of the frequency
and nature of the use of the authority under the pilot
program.
(B) An assessment of the impact of
the pilot program in supporting the national defense
strategy required under section 113(g) of title 10, United
States Code.
(C) The number of businesses that
became qualified businesses wholly-owned through an Employee
Stock Ownership Plan in order to benefit from the pilot
program and the factors that influenced that decision.
(D) Acquisition authorities that
could incentivize businesses to become qualified businesses
wholly-owned through an Employee Stock Ownership
Plan,including an extension of the pilot program.
(E) Any related matters the
Comptroller General considers appropriate.
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Pilot program to incentivize contracting
with employee-owned businesses (sec. 874)
The Senate amendment contained a provision
(sec. 843) that would permit the Secretary of Defense to carry
out a 5-year pilot program that allows for the use of
noncompetitive
procedures for follow-on contracts to qualified businesses
wholly owned by an employee stock ownership plan (ESOP). The
provision would also require the Comptroller General of the
United States to submit a report to the Committees on Armed
Services of the Senate and the House of Representatives on the
Department of Defense's use of the pilot not later than 3 years
after the date of the enactment of this Act.
The House bill contained no similar
provision.
The agreement includes the Senate
provision with an amendment that would limit the follow-on
opportunity.
We recognize the innovative potential in
encouraging nontraditional companies, like businesses wholly
owned by an ESOP, to work with the Department of Defense. While
there are many companies that have a level of employee
ownership, a business wholly owned by an ESOP is different. We
are aware of concerns regarding correctly identifying businesses
wholly owned through an ESOP, and suggest the Department review
Internal Revenue Service form “Schedule K-1 (Form 1120-S)” when
looking to make that determination. Additionally, while we aim
to bolster the defense industrial base with the provision, we do
not intend to make it possible for a business other than a small
business to receive the award of a contract that would have
otherwise been set aside for small businesses under the
requirements of Federal Acquisition Regulation Subpart 19.502.
S. 2792--Senate Report117-39
Pilot program to
incentivize employee ownership in defense contracting (sec. 843)
The committee recommends a provision that would permit the
Secretary of Defense to carry out a 5-year pilot program that
allows for the use of noncompetitive procedures for follow-on
contracts to qualified businesses wholly owned by an Employee
Stock Ownership Plan (ESOP). The Department of Defense may
benefit from the workforce talent attracted by businesses that
are owned entirely by an ESOP. However, as a June 18, 2020,
Government Accountability Office (GAO) study, titled ``Defense
Contracting: DOD Contracts with Companies Having Employee Stock
Ownership Plans'' (GAO-20-514R), showed, there are no readily
available data to determine what percent of an entity is owned
by an ESOP. Therefore, a pilot program will provide the
Department with information to understand the potential use and
benefits of allowing such noncompetitive procedures and whether
these procedures create incentives for qualified businesses to
continue working with the Department.
In addition, the provision
would require the Comptroller General of the United States to
submit a report to the Committees on Armed Services of the
Senate and the House of Representatives on the Department's use
of the pilot not later than 3 years after the date of the
enactment of this Act. |
