March 15, 2005
                              
Hand Delivered

 The Honorable Jerry Lewis
 Chairman
 Committee on Appropriations
 House of Representatives
 2112 Rayburn House Office Building
 Washington, DC 20515

RE:  Small business opposes renewal of Section 8014 in the
FY 2006 Defense Appropriations Act

Dear Mr. Chairman:

The purpose of this letter is to seek your assistance in
addressing a provision from the FY 2005 Defense
Appropriations Act, Public Law 108-287, that is harming
small businesses.

Section 8014(a) (3) of the FY 2005 Defense Appropriations
Act precludes the Department of Defense(DOD)from moving work
from the public sector to the private sector following
competition pursuant to OMB Circular A-76 if  the
contractor's ability to lower the cost of its bid is
connected to:  (1) its failure to make an employer-sponsored
health insurance plan available to workers employed in
performance of the contract, or (2) lesser contributions
toward the premium or subscription share of an employee's
health-insurance plan than the amount paid by DOD for health
benefits for its civilian employees.
     
An important mission of the United States Small Business
Administration (SBA) and SBA's Office of Advocacy is
to identify and seek to remove artificial barriers that
prevent small business from competing on a level playing
field for federal procurement dollars.  While the intent of
Section 8014 (a)(3) may have been to encourage federal
defense contractors to provide health care coverage for
their employees, unfortunately, the practical effect of this
provision is to bar small businesses from competing for
these DOD contracts.  This is a significant consequence,
given that a substantial portion of the awards made by DOD
would otherwise go to small and disadvantaged enterprises.
     
Small businesses have historically been a significant
private sector contributor to the success of the
government's competitive sourcing program.  A mid-1980s
research study performed for the SBA's Office of Advocacy
showed that small businesses from 1985 to 1987 received 553,
or 70%, of the 793 A-76 activities awarded by the U.S.
Department of Defense and Federal civilian agencies.  More
recently, according to a DOD report provided to SBA, during
the period of 1995 to 2004, of the 678 contracts awarded as
a result of A-76 competitions, 460, or 68%, were awarded to
small businesses.  This data supports the position that
small businesses have been successful in winning A-76
contracts.

Circular A-76 competitions represent a significant part of
DOD's acquisition strategy for opening contracts to small
business.  Preliminary indications show DOD's increase in
contract awards for small businesses.  However, if section
8014(a)(3) is retained, its implementation will have the
unintended consequence of limiting small businesses' ability
to compete for DOD contracts which make up the largest
percentage of federal contracting opportunities.

In our view, Section 8014(a)(3) of Public Law 108-287
creates barriers for small businesses in bringing their
research, development and innovation to the federal
marketplace.  These barriers, in turn, stifle
entrepreneurship and hamper job creation.  An additional
concern is the precedent Section 8014(a)(3) sets with regard
to health care costs.  As noted by the Council for
Affordable Health Insurance in correspondence dated November
10, 2004 to Senator Ted Stevens:

     This language discourages employers from providing
     their  employees  with   health coverage  that  is
     more  cost  effective  than  federal  coverage  or
     encourages  consumer  control and  responsibility,
     such    as   Health   Savings   Accounts   (HSAs).
     Additionally,  it discourages competition  in  the
     health   market  place.   Finally,  it  robs   the
     American  taxpayer from reaping  the  benefits  of
     lower  governmental cost through innovative health
     care products and competition.
     
Given these concerns, we urge you to oppose renewal of this
provision in the FY 2006 Defense Appropriations.  Thank you
for your consideration of this matter.  Should you have any
questions, please feel free to contact any of us.




















The Office of Management and Budget advises that there is no
objection to the submission of this letter to Congress, and
that its contents are in accordance with the President's
agenda.
     
                              
     
     Sincerely,
     
     
     
                            Hector V. Barreto
     
     Administrator
     
     
                              
                      Melanie R. Sabelhaus
                      Deputy Administrator, Member

Service Acquisition Reform Panel



                     Thomas M. Sullivan
                        Chief Counsel for Advocacy
     
cc: The Honorable David Obey, Ranking Member
Appropriations Committee, U.S. House of Representatives