Background Federal statutes and a number of executive orders reflect the federal  government’s policy to encourage the participation of small businesses,  including those owned and controlled by socially and economically  disadvantaged individuals, in federal contracting. One key statute is the  Small Business Act, which established SBA and directed it to aid,  counsel, assist, and protect the interests of small business concerns,  among other things. The Small Business Act, as amended over the  years, as well as executive orders, emphasize the government’s policies  on contracting with SDBs and businesses owned by women and  minorities. The Small Business Act sets a minimum government-wide goal for small  business participation of not less than 23 percent of the total value of all  prime contracts for each fiscal year and makes SBA responsible for  reporting annually to the President and Congress on agencies’ progress  in meeting this goal, and making this information available on a public  website. SBA reported that the federal government reached this goal for  the fifth consecutive year in fiscal year 2017, awarding about 24 percent  of total federal contract dollars to small businesses. SBA also negotiates  specific goals with agencies to ensure the government-wide goal is met. Each agency’s progress toward meeting its goals is generally based on  the percentage of obligations on contracts with small businesses. Categories of Specified  Businesses The three categories of businesses we examined for this report are small  disadvantaged, minority-owned, and women-owned. Small disadvantaged business. Because SBA’s 8(a) business  development program and SDB criteria are similar, in this report we use  the term “small disadvantaged business” or “SDB” to refer to both  categories of businesses. Section 8(a) of the Small Business Act  established the 8(a) business development program, which authorizes the  SBA to enter into contracts with other agencies and award subcontracts  for performing those contracts to firms eligible for program participation.  To be certified under the 8(a) program, a business must, in general,  satisfy requirements for size, be at least 51 percent unconditionally  owned and controlled by one or more socially and economically  disadvantaged individuals who are U.S. citizens, and demonstrate  potential for success. Similar to the 8(a) program, SDBs are defined as  those that are primarily owned and controlled by one or more socially and  economically disadvantaged individuals, though there are some  differences in criteria for the 8(a) program and SDB classification. For  example, businesses in the 8(a) program must demonstrate the potential  for success and business principals must demonstrate good character,  but the requirements to demonstrate these do not apply to SDB  classification. A business’s self-identification as SDB in the federal  government’s System for Award Management does not automatically lead  to acceptance into SBA’s 8(a) business development program. Minority-owned business. Businesses of all sizes that are at least 51  percent owned by one or more members of a minority group may self- identify as minority-owned businesses in the federal government’s  System for Award Management. Minority-owned businesses are further  broken down into businesses owned by Asian-Pacific-, Subcontinent- Asian-, Black-, Hispanic-, Native-Americans, and other. Women-owned business. Businesses of all sizes that are at least 51  percent owned by one or more women and whose management and daily  business operations are controlled by one or more women may self- identify as a women-owned business in the System for Award  Management. These three categories of specified businesses overlap. For example, an  SDB may be women-owned and therefore be counted in FPDS-NG as  both an SDB and a women-owned business. To avoid double-counting  when presenting consolidated data, we counted obligations and  businesses classified under more than one category only once. Federal Advertising  Activities As we have previously reported, there are several types of activities that  are supported by federal advertising contracts. Table 1 provides  descriptions and examples of some of these activities. Federal Agencies  Have on Average  Directed 13 Percent  of Advertising  Contract Obligations  to Specified  Businesses over the  Past 5 Years Specified Businesses  Generally Received an  Increasing Share of  Advertising Dollars Over the past 5 fiscal years (2013 through 2017), federal agencies have  obligated on average about $870 million annually for advertising  contracts, with about 13 percent (approximately $114 million annually) of  these obligations going to specified businesses. This share of  advertising contract obligations going to these businesses over fiscal  years 2013 through 2017 was consistent with the share of total federal  contracting obligations going to these businesses (also on average 13  percent over this period). Advertising contract obligations to specified businesses and the number  of these businesses receiving advertising contract obligations have both  generally increased over fiscal years 2013 through 2017. The amount of  advertising contract obligations going to these businesses nearly doubled  from fiscal year 2013 to 2017 (from $75 million to $147 million) and also  increased as a percent of total advertising contract obligations (from 9  percent of these obligations to 16 percent). Specified businesses also  represented an increasing share of businesses receiving advertising  contract obligations, from 30 percent (194 businesses) in fiscal year 2013  to 39 percent (250 businesses) in fiscal year 2017. Figure 1 shows  advertising contract obligations to specified businesses and the number  of these businesses receiving these obligations over fiscal years 2013  through 2017. In the 5 years from fiscal year 2013 through 2017, a relatively small  number of specified businesses received a relatively large amount of  federal advertising contract obligations. For example, the top five  businesses received about 40 percent of annual advertising contract  obligations to specified businesses over the 5-year period. Consistent  with findings from our previous work, obligations were also concentrated  among a relatively small number of contracts. Figure 2 shows the  distribution of advertising contract obligations among specified  businesses, with amounts going to the five largest businesses (in terms of  advertising contract obligations received) and all others. Federal advertising contract obligations to all three categories of specified  businesses generally increased between fiscal years 2013 and 2017,  although some years showed decreases. (The amount going to women- owned businesses declined between fiscal years 2014 and 2015 and the  amounts going to minority-owned businesses and SDBs declined  between fiscal years 2016 and 2017.) The most notable increase over the  5-year timeframe, both in dollars and percentage terms, was in the  women-owned category, which increased by $56 million, or 93 percent.  Figure 3 shows the amounts obligated to each specified business  category, and to the three categories combined. Table 2 in appendix II  shows the amounts obligated to each specified business category, in  dollars and as a percentage of federal advertising contract obligations, in  each of the 5 years. SBA officials we interviewed told us that a program they started in 2011,  the Women-Owned Small Business Federal Contracting Program, may  have accounted for some of the increase in contracting rates with women- owned businesses over the past 5 years. This is because the program  aims to help women-owned small businesses have an equal opportunity  to participate in federal contracting and to assist agencies in achieving  their goals for contracting with women-owned small businesses. The  program generally allows women-owned small businesses to compete for  set-aside contracts or receive sole source awards in industries where  these businesses are underrepresented or substantially  underrepresented. Changes in advertising contract obligations to specified businesses were  in some cases associated with a small number of contracts. For example,  the $29 million increase in advertising contract obligations to women- owned businesses between fiscal years 2016 and 2017 was due in large  part to two contracts with an advertising agency with combined  obligations of about $22 million in fiscal year 2017. In addition, two  contracts that had each been classified under both the SDB and minority- owned categories contributed to the decrease in these two categories  between fiscal years 2016 and 2017. Obligations to these two contracts  declined by about $16 million over this period, a substantial portion of the  overall declines in these two categories. (Obligations to SDBs declined by  about $23 million; those to minority-owned businesses declined by about  $21 million.) Although obligations to the SDB and minority-owned  categories decreased from fiscal year 2016 to 2017, the numbers of these  businesses receiving advertising contract obligations both increased. The  number of SDBs receiving these obligations went from 123 to 134; the  number of minority-owned businesses went from 95 to 98. Federal agencies are also required to set-aside procurements exclusively  for small businesses or businesses in the 8(a) program under certain  circumstances, and specific authorities exist to allow award of a contract  on a sole source basis to a business in the 8(a) program. However, these  authorities were in place prior to fiscal year 2013 and therefore, according  to SBA officials, it is unlikely they would have caused a change in  contracting activity over the past 5 years. As mentioned above, businesses may be classified as more than one  category, and thus there is overlap in obligations and contracts among  specified business categories. For example, about one-quarter ($147  million) of the $570 million in advertising contract obligations directed to  specified businesses over the 5-year period went to businesses classified  under all three categories. Figure 4 shows the amount of advertising  contract obligations going to each business category and combination of  categories. Over Half of Federal  Advertising Contract  Obligations to Minority- Owned Businesses Went  to Those Owned by  Hispanic-Americans Among the different types of minority-owned businesses, those classified  as being owned by Hispanic-Americans received the most obligations  (just over half) from federal advertising contracts over fiscal years 2013  through 2017. Figure 5 shows the breakdown of amounts obligated over  these fiscal years to minority-owned businesses. As with the other specified business categories, advertising obligations to  specific minority groups were concentrated among a relatively small  number of businesses. For example, advertising contract obligations to  one particular Native-American-owned business—for graphic design,  print, and other communications services—represented 34 percent of all  obligations to Native-American-owned businesses. See table 3 in  appendix II for additional details on each business category’s contracts. DOD, DHS, and HHS  Directed the Most  Advertising Contract  Obligations to  Specified Businesses,  though Other  Agencies Directed  Greater Percentages  of These Obligations  to the Businesses DOD, DHS, and HHS  Were Responsible for  Nearly Three-Fourths of  Federal Advertising  Obligations to Specified  Businesses The departments of Defense (DOD), Homeland Security (DHS), and  Health and Human Service (HHS) were responsible for 73 percent of the  $570 million of federal advertising contract obligations that went to  specified businesses over fiscal years 2013 through 2017. Thirty four  other agencies were responsible for the remaining 27 percent of these  obligations. Figure 6 shows the breakdown of total federal advertising  contract obligations, with the amount of obligations going to specified  businesses, and amounts obligated by DOD, HHS, DHS, and all other  agencies. For each of the 5 years we reviewed, DOD, HHS, and DHS were  consistently the top three agencies in terms of the amount of advertising  contract obligations they directed to specified businesses. Additionally, all  three generally increased the amounts they obligated to these  businesses. For example, in fiscal year 2013, these three agencies  obligated over 60 percent of all federal advertising contract obligations to  specified businesses; in 2017 they accounted for more than 80 percent of  these obligations. Figure 7 shows breakdowns of these and all other  agencies’ advertising contract obligations to specified businesses. Much of the increase in these obligations from year to year is associated  with increases in obligations by DOD, DHS, and HHS. For example,  advertising contract obligations to these businesses increased by about  $37 million between fiscal years 2015 and 2016, with these three  agencies responsible for about $22 million, or 60 percent, of the increase. DOD, DHS, and HHS are also among the agencies that obligated the  most to advertising contracts overall. Together they obligated about $3.4  billion for these types of contracts over the 5-year period, which  represents 79 percent of the federal government’s obligations. DOD  obligated the most—over $2.6 billion—to advertising contracts over the 5- year period, which accounted for over 60 percent of these obligations  over fiscal years 2013 through 2017. Table 4 in appendix II provides more  details on the agencies that obligated the most overall for advertising  contracts and those that directed the most to specified businesses. In our prior report on advertising contract obligations going to small  disadvantaged and minority-owned businesses, we highlighted annual  obligations data for five agencies. As an update to that analysis, we  examined annual advertising contract obligations to the five agencies that  obligated the most on advertising contracts over the past 5 years – DOD,  DHS, HHS, and the departments of Transportation (DOT) and Veterans  Affairs (VA). Figure 8 illustrates these agencies’ advertising contract  obligations and the percent going to specified businesses in each year. As shown in the figure above, top-spending agencies’ obligations to  specified businesses fluctuated over fiscal years 2013 through 2017. DOD. DOD’s obligations to specified businesses increased for most of  the fiscal years over the 5-year period, regardless of whether its total  advertising obligations increased or decreased. For example, in fiscal  year 2016, DOD’s total advertising obligations declined by over $100  million; however, its obligations to specified business categories  increased. In fiscal year 2017, DOD obligated the most of any agency  to specified businesses. HHS. Similarly, HHS, which obligated approximately $151 million to  specified businesses, the most of any agency over the 5-year period,  also increased its obligations to those businesses regardless of its  overall advertising obligations from year to year. For example, from  fiscal years 2016 to 2017 HHS’ advertising contract obligations to  specified businesses increased from $35 to $37 million, even though  they declined as a percentage of its overall advertising contract  obligations, going from 65 percent to 57 percent. DOT. DOT generally increased its total advertising obligations during  the 5-year period from approximately $46 million in 2013 to $57  million in 2017. However, during this time DOT’s obligations to  specified businesses generally decreased, from approximately $1.8  million in 2013 to approximately $560,000 in fiscal year 2017. DHS. DHS generally increased its total advertising obligations each  year of the 5-year period and generally increased its obligations to  specified businesses. DHS obligated the third largest amount of  money (behind HHS and DOD) to these businesses from fiscal years  2013 through 2017. VA. VA has generally decreased its total advertising obligations from  approximately $63 million in fiscal year 2013 to approximately $15  million in fiscal year 2017, and its obligations to specified businesses,  from approximately $8 million in fiscal year 2013 to approximately  $1.3 million in fiscal year 2017. Table 5 in appendix II shows the 20 agencies that have obligated the  most for advertising contracts over fiscal years 2013 through 2017 and  the amounts they directed to specified businesses. Agencies with Greater  Percentages of Advertising  Contract Obligations  Going to Specified  Businesses Generally  Obligated Lower Amounts  Overall In several cases agencies directed more than half of their advertising  contract obligations to specified businesses, though these agencies in  general obligated less to advertising contracts than top-spending  agencies. Ten agencies with advertising contract obligations of at least $1  million over fiscal years 2013 through 2017, such as the departments of  Justice and Energy, directed at least half of their obligations to specified  businesses. With the exception of DHS, which obligated about $200  million for advertising contracts over the 5-year period, these agencies all  obligated less than $25 million for advertising contracts over this  timeframe. In contrast, DOD directed a relatively small share (5 percent)  of its advertising contract obligations to specified businesses, making it  29th out of 37 agencies when ranked according to the percentage of  advertising contract obligations going to these businesses. However,  because the department obligated a large amount for advertising  contracts ($2.6 billion over the 5-year period), it ranked second in terms of  the amount obligated to specified businesses. Some agencies directed all or nearly all of their advertising contract  obligations to specified businesses, but because these agencies’  advertising contract obligations were relatively low, the amounts they  directed to these businesses were also relatively low. For example, the  Nuclear Regulatory Commission directed all of its federal advertising  contract obligations—totaling approximately $1 million—to specified  businesses from fiscal years 2013 through 2017. Additionally, the  National Aeronautics and Space Administration directed 98 percent of its  approximately $21 million in advertising contract obligations to these  businesses from 2013 through 2017. Table 6 in appendix II shows the top  20 agencies in terms of share of advertising contract obligations going to  these businesses. Agency Comments We provided a draft of this report to the SBA Administrator for comment.  SBA provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional  committees, SBA, and other interested parties. In addition, the report is  available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact  me at (202) 512-6806 or nguyentt@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix III. Appendix I: Objectives, Scope, and  Methodology Our objectives were to identify and analyze (1) the amount federal  agencies have obligated on advertising contracts over the 5 most recent  fiscal years (2013 through 2017) and the amount going to small  disadvantaged businesses (SDB) and those owned by minorities and  women; and (2) the agencies that have directed the most advertising  contract obligations to these businesses and how this has changed over  time. To address both objectives, we analyzed data from the Federal  Procurement Data System-Next Generation (FPDS-NG) database for  fiscal years 2013 through 2017. This database captures information on  the federal government’s contract awards and obligations and includes  data for most federal contract actions that have an estimated value of  more than $3,500. We reviewed obligations data for contracts coded  under the “support – management: advertising” or “support –  management: public relations” product service codes. For reporting  purposes, we refer to these two contract types collectively as “advertising  contracts.” Every contract action reported in FPDS-NG is categorized by  a product service code to indicate what was purchased. Additionally,  contracts reported in FPDS-NG are categorized by a North American  Industry Classification System (NAICS) code, which indicates the industry  within which the product or service falls. For purposes of this report, we  used the product service codes mentioned above to identify advertising  contracts because product service codes are assigned at the individual  contract or order level. The Small Business Administration (SBA) uses  NAICS codes to identify the predominant service or supply on a contract.  NAICS codes are an integral element of size standards and the  determination whether the business receiving the contract award is a  small business. In addition to analyzing FPDS-NG data, we interviewed SBA officials  responsible for assessing government-wide and agency contracting with  small and other business categories about their perspectives on trends in  federal contracting. We assessed the reliability of these data by considering known strengths  and weaknesses of FPDS-NG data, based on our past work and looking  for obvious errors and inconsistencies in the data we used for our  analysis. We also interviewed SBA officials, who use FPDS-NG data in  assessing federal contracting, about the database’s reliability. Based on  these steps, we concluded that the data were sufficiently reliable for our  purposes. We focused our analysis of FPDS-NG data on those advertising contracts  categorized as being awarded to (1) SDBs, 8(a) businesses, or both; (2)  business owned by minorities and/ or (3) businesses owned by women.  SDBs, minority-owned, and women-owned businesses may self-identify  in the government’s System for Award Management as these types of  businesses. For purposes of this report, we refer to the three categories  of businesses we examined as “specified businesses.” Criteria for  certification as an 8(a) business are similar to those for SDB  classification, including that businesses be primarily owned by a person  or people who are socially and economically disadvantaged. In addition,  8(a) businesses must also demonstrate the potential for success and  business principals must demonstrate good character. Because of these  similarities, for analysis and reporting purposes we combined 8(a)  businesses and SDBs into one group, which we refer to in this report as  “small disadvantaged businesses” or “SDBs.” We interviewed SBA  officials to obtain their perspectives on the changes, but did not attempt to  identify root causes for changes over the past 5 years, as it was beyond  our scope. We analyzed FPDS-NG data at the government-wide level to identify  overall trends in obligations for advertising contracts and the amounts  going to specified business categories. We focused on the amount of  advertising contract obligations going to these business categories  individually and combined, and examined how these amounts had  changed over the past 5 fiscal years. Within the minority-owned business  category, we also analyzed the amounts of obligations going to  businesses owned by Asian-Pacific-, Subcontinent-Asian-, Black-,  Hispanic-, and Native-Americans, and “other minority” owned businesses.  Businesses self-identify as these categories in the federal government’s  System for Award Management. We also examined data on the number  of contracts and businesses receiving obligations through advertising  contracts. There is overlap among the three specified business categories—SDBs  and those owned by minorities and women. For example, a business may  be classified as both an SDB and a women-owned business. We  accounted for this overlap when calculating and presenting data on the  amount of advertising contract obligations going to the three business  categories combined so that we did not double or triple count obligations. We also analyzed FPDS-NG data on specific agencies’ obligations for  advertising contract obligations and the amounts they obligated to  specified businesses. We used these data to identify the agencies that  ranked highest (in dollars and as a percentage of total advertising  contract obligations) in advertising contract obligations to specified  businesses. We also examined how agency obligations to these  businesses have changed over the past 5 years. We conducted this performance audit from October 2017 to July 2018 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives. Appendix II: Agencies’ Advertising  Obligations to Specified Businesses Table 2 shows the amounts of advertising contract obligations that went  to specified businesses over fiscal years 2013 through 2017. As shown,  the amounts directed to these business categories generally increased  both in dollars and as a percentage of total advertising obligations. Specified business categories each received at least $300 million in  obligations over fiscal years 2013 through 2017. There were variations in  the number of businesses receiving obligations and the concentration of  obligations among contractors. Table 3 provides additional details on  these characteristics. Table 4 below shows the agencies that obligated the most for advertising  contracts overall, and those that obligated the most through these  contracts to specified businesses. Specified businesses are those classified as small disadvantaged  businesses (including those that self-identify as small disadvantaged  businesses and those that are certified by SBA for the 8(a) business  development program); minority-owned businesses; and women-owned  businesses. Minority-owned businesses include those categorized as  being owned by Asian-Pacific-, Sub-continent-Asian-, Black-, Hispanic-,  and Native-Americans, as well as “other minorities.” Table 5 shows the 20 agencies that obligated the most for federal  advertising contracts over fiscal years 2013 through 2017, with the  percentages of these obligations going to specified businesses. Specified businesses are those classified as small disadvantaged  businesses (including those that self-identify as small disadvantaged  businesses, and those that are certified by SBA for the 8(a) business  development program); minority-owned businesses; and women-owned  businesses. Minority-owned businesses include those categorized as  being owned by Asian-Pacific-, Sub-continent-Asian-, Black-, Hispanic-,  and Native-Americans, as well as “other minorities.” Table 6 shows the 20 agencies that directed the greatest share of these  obligations to specified businesses. Appendix III: GAO Contact and Staff  Acknowledgments GAO Contact Staff  Acknowledgments Other GAO staff who made contributions to this report include Carol Henn  (Assistant Director); Ann Marie Cortez; Jenny Chanley; Kristine  Hassinger; Julia Kennon; Kathleen Padulchick; and Erik Shive.
The federal government spends close to $1 billion annually for advertising activities that, among other things, inform the public about programs and services. The government seeks to provide procurement opportunities for these services to businesses such as SDBs and those owned by minorities and women. SDBs are those primarily owned by one or more socially and economically disadvantaged individuals. GAO was asked to analyze federal advertising obligations to these types of businesses. This report discusses (1) the amount federal agencies have obligated towards advertising contracts over the most recent 5 fiscal years (2013 through 2017) and the amount going to SDBs and businesses owned by minorities and women; and (2) the agencies that have directed the most advertising contract obligations to these businesses and how this has changed over time. GAO analyzed data on advertising contracts from the Federal Procurement Data System – Next Generation database for fiscal years 2013 through 2017. GAO also interviewed Small Business Administration officials. The Small Business Administration provided technical comments on this report, which GAO incorporated as appropriate. Federal advertising contract obligations to small disadvantaged businesses (SDB) and businesses of all sizes owned by minorities and women (specified businesses) generally increased from fiscal years 2013 through 2017, and constituted 13 percent of all advertising obligations over this period. This figure is consistent with the percentage of all federal contract obligations to these businesses over this period. Overall, advertising contract obligations to all three categories of businesses increased between fiscal years 2013 and 2017, as shown in the figure below. Within the minority-owned business category, which includes businesses owned by Asian-Pacific-, Subcontinent-Asian-, Black-, Hispanic-, and Native-Americans, over half of the obligations went to those owned by Hispanic-Americans. Three agencies—the departments of Defense (DOD), Health and Human Services, and Homeland Security—were responsible for nearly three-quarters of advertising contract obligations to the three categories of businesses from fiscal years 2013 through 2017. These agencies were associated with much of the increase in these obligations to specified businesses over the 5-year period. Although some agencies obligated higher shares of their advertising contract obligations to these businesses, they generally obligated fewer dollars than DOD and the two other agencies. For example, the National Aeronautics and Space Administration directed 98 percent of its obligations to these businesses, but the agency's total advertising contract obligations were $21 million over the 5-year period. DOD obligated $2.6 billion for these contracts over the same period.