Contractor Responsibility Rules Examined.

In one of its last regulatory actions, the Clinton administration issued the final rules expanding contractor responsibility determination requirements and cost principle limitations. The new rules became effective January 19. NDIA strongly opposed the rules from the outset and has called on the new administration to delay enforcement of the new rules because federal procurement officials oppose them, they are arbitrary and capricious, lack standards and they effectively amend public law through administrative rule-making, thus abrogating Congress' role to legislate such matters. NDIA seeks complete overturn of the new rules.

Small Business Update

The Omnibus Appropriations bill for fiscal year 2001 includes a boost for the Small Business Administration (SBA). The bill authorizes $14.5 billion for 7(a) loans for fiscal 2001, which grows to $16 billion in fiscal 2003. Loans directed towards specific public policy items--504 loans--such as minority owned business, will see an increase of $1 billion over the next three years, from $4 billion in fiscal 2001 to $5 billion in fiscal 2003. Additionally, the HUBZone program will receive $10 billion per fiscal year for the next three years.

For the first time since 1988, the maximum guaranteed loan amount for 7(a) and 504 loans has been increased to $1 million from $750,000. NDIA supports the increase, designed to incorporate over 10 years of inflation, as it allows greater flexibility and purchasing power for qualified small businesses. NDIA endorses the addition of women-owned businesses to the permanent list of public policy lending goals for the SBA. This list currently includes minority-owned businesses and low income and rural areas.

A new rule that went into effect on February 20, 2001, clarifies the definition of "principle office," decreases eligibility restrictions for affiliations of HUBZone small business concerns (SBC) and eases procurement restrictions for qualified HUBZone SBCs that operate as non-manufacturers. Under the new rule, the "principle office" regulation will no longer apply to those businesses whose primary industry is service or construction, for the nature of these industries requires workers to perform the majority of their work at different job-site locations. The SBA predicts that the final rule, released January, 17, 2001, will affect a large number of the 30,000-plus SBCs that are currently eligible or will become eligible. NDIA believes this flexibility will enable the HUBZone program to be more effective.

International Issues

A recent study managed by the Center for Strategic and International Studies (CSIS) and the Stimson Center identifies the current state of U.S. export controls as a major stumbling block to rationalizing international trade. The immediate strategic and economic environment has rendered U.S. export controls obsolete. The lack of a single compelling threat, an erosion of U.S. hegemonic power, a blurring of military and dual-use technology and the proliferation of suppliers demonstrate that the United States can no longer dictate export policy to its allies. There is a clear need for a new system of multilateral export controls.

NDIA agrees with the study's findings that a solution to export controls requires immediate and prolonged involvement of both Congress and the administration. Before the U.S. can concentrate on reforming the current system to minimize the sale of military and dual-use technology to in-between states and states of concern, it must reform its own export control system to reflect the new international environment and hi-technology market.

The study identifies a variety of options in creating a new export control regime, from adapting the current organizations to replacing them completely. NDIA believes that participation on the part of industry is paramount in the reorganization of the current system and stresses the importance and severity of this issue to the Bush Administration. NDIA International Committee member Frank Cevasco was a contributing participant to this study.

Committee Leadership

The 107th Congress opened with new leadership on the House Armed Services Committee (HASC). Bob Stump, R-Ariz., the second most senior Republican on the HASC, was elected to the chairmanship to replace the term-limited Floyd Spence, R-S.C. Leadership in the other three defense committees remains the same:

Senate Armed Services Committee (SASC):

John Warner, R-Va., chair; Carl Levin, D-Mich., ranking member

Senate Appropriations Subcommittee on Defense:

Ted Stevens, R-Alaska, chair; Daniel Inouye, D-Hawaii, ranking member

House Appropriations Subcommittee on Defense:

Jerry Lewis, R-Calif., chair; John Murtha, D-Pa., ranking member

House Armed Services Committee (HASC):

Bob Stump, R-Ariz., chair; Ike Skelton, D-Mo., ranking member

The unfinished work of the 106th Congress with respect to Social Security and Medicare reform, prescription drug coverage for seniors, combined with the new administration's stated goals of increasing education funding and balancing deficit reduction with a large tax cut will be a challenge for the 107th Congress. Clearly, the leadership of the defense committees will be required to compete with many new and old priorities to acquire the level of funding that the committees find appropriate.

Defense Secretary Donald Rumsfeld identified, in his confirmation testimony, specific priorities for the Defense Department: ensuring the readiness and sustainability of deployed forces, modernizing the defense intelligence and C-3 infrastructure, transforming the U.S. military into a 21st Century force capable of deterrence and defeating new threats, and reforming current department structures, processes and organizations. These priorities--coupled with the existing requirements for military pay increases, health care, retirement benefits and modernization, including recapitalization and transformation--can only be met with additional budget resources, which NDIA strongly supports.