[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]





 
    CONTRACT BUNDLING AND FEDERAL PROCUREMENT PROBLEMS FACING SMALL 
                               BUSINESSES

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                             WASHINGTON, DC

                               __________

                             AUGUST 4, 1999

                               __________

                           Serial No. 106-27

                               __________

         Printed for the use of the Committee on Small Business

                     U.S. GOVERNMENT PRINTING OFFICE
60-797                       WASHINGTON : 2000






                      COMMITTEE ON SMALL BUSINESS

                  JAMES M. TALENT, Missouri, Chairman
LARRY COMBEST, Texas                 NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado                JUANITA MILLENDER-McDONALD, 
DONALD A. MANZULLO, Illinois             California
ROSCOE G. BARTLETT, Maryland         DANNY K. DAVIS, Illinois
FRANK A. LoBIONDO, New Jersey        CAROLYN McCARTHY, New York
SUE W. KELLY, New York               BILL PASCRELL, New Jersey
STEVEN J. CHABOT, Ohio               RUBEN HINOJOSA, Texas
PHIL ENGLISH, Pennsylvania           DONNA M. CHRISTIAN-CHRISTENSEN, 
DAVID M. McINTOSH, Indiana               Virgin Islands
RICK HILL, Montana                   ROBERT A. BRADY, Pennsylvania
JOSEPH R. PITTS, Pennsylvania        TOM UDALL, New Mexico
JOHN E. SWEENEY, New York            DENNIS MOORE, Kansas
PATRICK J. TOOMEY, Pennsylvania      STEPHANIE TUBBS JONES, Ohio
JIM DeMINT, South Carolina           CHARLES A. GONZALEZ, Texas
EDWARD PEASE, Indiana                DAVID D. PHELPS, Illinois
JOHN THUNE, South Dakota             GRACE F. NAPOLITANO, California
MARY BONO, California                BRIAN BAIRD, Washington
                                     MARK UDALL, Colorado
                                     SHELLEY BERKLEY, Nevada
                     Harry Katrichis, Chief Counsel
                  Michael Day, Minority Staff Director
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on August 4, 1999...................................     1

                               Witnesses

Lee, Deidre A., Administrator, Office of Federal Procurement 
  Policy.........................................................     4
Hayes, Richard L., Associate Deputy Administrator, U.S. Small 
  Business Administration........................................     6
Neal, Robert L., Director, Office of Small and Disadvantaged 
  Business Utilization Office of the Under Secretary of Defense 
  for Acquisition and Technology.................................     8
Head, Terry, President, Household Goods Forwarders Association of 
  America, Inc...................................................    39
Smith, James, President, United Janitorial Services..............    42
Slater, Phyllis Hill, President, Hill Slater, Inc................    43
Ritter, Cathy S., Vice President, American Consulting Engineers 
  Council........................................................    45
Moore, Dan, President, Moore's Cafeteria Services, Inc...........    47

                                Appendix

Opening statements:
    Talent, Hon. Jim.............................................    65
    Velazquez, Hon. Nydia........................................    67
    Davis, Hon. Danny K..........................................    69
    Abercrombie, Hon. Neil.......................................    73
    Filner, Hon. Bob.............................................    75
Prepared statements:
    Lee, Deidre A................................................    78
    Hayes, Richard L.............................................    85
    Neal, Robert L...............................................    99
    Head, Terry..................................................   110
    Smith, James.................................................   118
    Slater, Phyllis Hill.........................................   122
    Ritter, Cathy................................................   126
    Moore, Dan...................................................   133
Additional material:
    Prelimary Bundled Contract Statistics, Eagle Eye Publishers, 
      Inc........................................................   147
    Letter to Chairman Talent from Shane C. Downey, Associated 
      Builders and Contractors, Inc..............................   148
    Letter to Chairman Talent from Maurice J. Allain, Phoenix 
      Scientific Corporation.....................................   151
    Testimony of Ms. Bernadette Paik-Apau, Anonui Builders, Inc..   157
    Letter to Chairman Talent and Hon. Nydia Velazquez from Kevin 
      Kelleher, Cendant Mobility.................................   160
    Proposed Bundling Regulations................................   162
    Frequently Asked Questions...................................   166
    Federal Register, Vol. 64, No. 8, January 13, 1999...........   171
    Citation from Small Business Reauthorization Act of 1997.....   176
    Rule submitted by SBA to OFPP................................   180


                     CONTRACT BUNDLING AND FEDERAL 
              PROCUREMENT PROBLEMS FACING SMALL BUSINESSES

                              ----------                              


                       WEDNESDAY, AUGUST 4, 1999

                          House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:00 a.m., in room 
2360, Rayburn House Office Building, Hon. Jim Talent [Chairman 
of the Committee] presiding.
    Chairman Talent. Good morning, ladies and gentlemen. 
Welcome. Thank you for joining me this morning to examine the 
impact of contract bundling on small businesses. I am hopeful 
that through today's hearing we can begin working together 
towards a solution to the contract bundling issue that best 
utilizes limited Federal dollars but also safeguards the 
ability of small businesses to compete for those dollars.
    Let me just say that I certainly will concede that there 
are instances where bundling can be done responsibly. I don't 
believe in most instances that there is a conflict between 
small business participation and the wise use of limited 
Federal dollars. The assumption that there is basically the 
assumption that competition does not reduce costs. That is not 
an idea that is accepted in any other context, yet it is one of 
the premises behind contract bundling.
    But at any rate, whatever you think of the concept, unless 
it is undertaken responsibly, the cost cutting elements are 
penny wise and pound foolish. Simple economics dictate that if 
small businesses are locked out of competition, the remaining 
competitors will face escalating demand and raise their prices 
accordingly. This is a blueprint for a kind of monopolization 
that lowers quality and raises cost to the government. That is 
why Congress took legislative action on this issue in 1997.
    On December 2, 1997, the Small Business Reauthorization Act 
of 1997 was enacted. In this act, Congress specifically 
addressed the problem of unrestricted contract consolidation. 
Troubled by the fact that many contracting agencies favored 
consolidated requirements based solely on administrative 
settings, Congress sought to design a system of review aimed at 
identifying these requirements through market research and 
providing a mechanism for appeal on behalf of small business. 
Yet as of today the provisions of PL 105-135 that I just 
referred to, remain enforceable.
    The SBA has not completed promulgating regulations even 
though the law specifically required a final rule within 270 
days within enactment. This past January SBA finally printed a 
proposed regulation in the Federal Register to solicit 
comments. In the introduction to the proposed rules it states 
``It is also clear from the statutory language requiring 
contracting officers to demonstrate measurable substantial 
benefits of bundling. And from the joint explanatory statement, 
that Congress intends that meaningful controls should be in 
place that are capable of enforcement to preclude unnecessary 
and unjustified bundling.''
    If SBA understands that, why don't the proposed regulations 
include actual measures, those concrete numbers indicating what 
a measurable substantial benefit is? As it stands now, these 
regulations define as measurably substantial benefit: cost 
savings and or price reduction; quality improvements that will 
save time or improve or enhance performance efficiency, 
reduction in acquisition cycle times; better terms and 
conditions; or any other quantifiably substantial benefits.
    In my judgment, this test is far too loose. How are these 
measurable? One contracting officer could very easily say that 
some marginal savings or changes in acquisition times were a 
measurable substantial benefit, whereas another contracting 
officer might challenge the same contract in a different part 
of the country. What contracting officer is going to want to 
buck the force of the Federal procurement system to say that 
the benefits aren't substantial enough when he only has such 
vague criteria to go on?
    I am glad that Dee Lee from OFPP and Richard Hayes from SBA 
are here today. I would like them to explain why these 
measurably substantial benefits aren't more measurable. I want 
to know when we can expect to see a strong final rule. Let me 
just add on this ad hoc here that it has become very clear to 
me that within the Congress, if this Committee and the measures 
that we pass don't stand up for the rights of small business 
people to participate in procurement, both on their behalf and 
on behalf of the taxpayers, it is not going to happen.
    You three at this table are counterparts in that sense in 
the executive branch. I hope that you take this very seriously. 
Really, this concept that contract bundling generally saves 
money and produces higher quality for the government I just 
believe is a chimera. So we are not getting anything for small 
business and I think that we are hurting the taxpayers as well. 
I also would like our witnesses to address what they see as the 
current problems with small business participation in Federal 
procurement programs and how they would suggest remedying those 
problems.
    I am particularly interested in hearing about problems 
small businesses face as subcontractors. I am hoping Mr. Neal 
from DOD's office of Small and Disadvantaged Business 
Utilization will be able to give us some insights into ways 
those problems could be addressed. I also hope our first panel 
will comment on the problems small businesses encounter with 
alternative contracting mechanisms, particularly ID/IQs.
    I have a statement paragraph in here indicating that I was 
going to welcome my friend, Congressman Abercrombie, who was 
going to sit in on the Committee today, but he is not here. 
When he comes in I will welcome him here. I want to welcome our 
other witnesses who I will introduce later in the hearing. Now, 
I will yield to Ms. Velazquez for any opening remarks she would 
care to make.
    [Mr. Talent's statement may be found in the appendix.]
    Ms. Velazquez. Thank you, Mr. Chairman, and good morning to 
everyone, all of the witnesses. Thank you for being here. Mr. 
Chairman, I want to thank you for today's hearing on contract 
bundling practice used by the Federal Government and its effect 
on small businesses. Our Nation is currently experiencing one 
of the largest economic booms of the century. Just in the first 
two quarters of 1999 the GDP increased over $125 billion over 
last year. I am convinced that this incredible growth has small 
business at its base.
    According to the Small Business Administration Office of 
Advocacy, over 50 percent of all private sector output is 
attributed to small businesses. Small businesses are creating 
the majority of the jobs in our Nation with new and dynamic 
technologies coming from every corner of this country. When a 
difficult problem arises in corporate America, it is often a 
small business thatthey turn to. Entrepreneurs are the 
innovators and the risk takers that keep this country in the lead. They 
are in demand everywhere but in the Federal Government.
    Just as with corporate America, our Federal Government 
should be utilizing the skills and expertise of our nation's 
small businesses. But instead the agencies are looking for ways 
to cut costs. While this is a very important goal, it seems the 
only thing they are cutting is quality and service and access 
to government for our nation's small businesses. In 1997, we 
recognized the challenges small businesses were facing and made 
changes in the SBA reauthorization act. These changes 
strengthened the tools that the SBA had to monitor and review 
Federal agency bundling.
    Today, we need to discuss if those changes are working. But 
even if they are effective, those changes are not enough. For 
example, the recent language in the Senate DOD authorization 
further attacks small businesses. This legislation actually 
makes it easier to bundle contracts and grants DOD the ability 
to award contracts without competition. These will likely lead 
to more awards to large businesses and less awards to small 
businesses. This is a backward step on the path to fairness for 
small businesses.
    The story is even worse for minority small businesses, even 
though they represent some of the fastest growing sectors of 
the business community. The SBA Office of Advocacy estimates 
there were 3.25 million minority-owned businesses in 1997 
generating $495 billion in revenues and employing 4 million 
workers. Their numbers have been growing, 168 percent over the 
last decade; and their growth in revenues have been even more 
impressive, 343 percent over the past decade.
    With this kind of growth, it should seem logical that 
united businesses would be an integral part of the failure of 
contracting, but that is just not the case. With a lot more 
responsibility now given to the contracting officers to 
determine who wins the contract, minority businesses who do not 
have the relationship with those officers are routinely shut 
out of the process. For example, DOD's goal for women-owned 
businesses was to award them 5 percent of contract dollars. A 
reasonable goal based on past performance.
    However, so far this year only 1.7 percent of the work has 
been contracted to these businesses. This is well under our 
expectations. DOD is about 15 percent below its goal for small 
business procurement. If this trend continues, it will result 
in $4 billion less to small businesses this year. With these 
types of numbers it is hard to tell if we are looking at a 
genuine effort.
    To address some of the problems with DOD, I introduced 
legislation to help close that gap. The ACE bill will restore 
vital minority contracting rules which were stripped away last 
year. This bill will make changes to recognize the reality of 
discrimination and its direct impact on minority businesses. 
Since then my concern over minority business contracting has 
grown because this is not just happening within DOD. This is a 
problem throughout the agencies.
    I have initiated a review of contracting practices within 
the Federal Government. We are going to hold agencies 
accountable by scoring their contract awards. When we are 
through, we will have a complete picture of how agencies are 
contracting and in what ways they need to be improved. Ensuring 
that small businesses are a part of the solution for our 
Federal Government's problems is a priority for all of us here 
today. With that equation, everybody wins. And taxpayers get 
more value for their money with vastly superior services. Small 
business are able to sell their services while creating jobs 
for communities throughout our country. I look forward to 
hearing from our witnesses today, Mr. Chairman. Thank you again 
for holding this hearing.
    Chairman T4Talent. I thank the gentlelady as always for her 
strong and incisive comments. We will go to the witnesses now. 
I do want to recognize the presence of Mr. Abercrombie. He is 
not a member of the Committee but is a very powerful advocate 
for this issue. And I thank the gentleman for coming.
    Mr. Abercrombie. Mr. Chairman, will I be allowed to put in 
a statement?
    Chairman Talent. Without objection. It is the practice in 
the Committee just because we want to get to the witnesses and 
ask questions that normally only I and the ranking member 
actually make opening statements. We are happy to put anything 
in the record. The gentleman will have the opportunity to ask 
questions, too, when the Committee members have a chance. 
Without objection, your written statement will be entered into 
the record
    [Mr. Abercrombie's statement may be found in the appendix.]
    Chairman Talent. We will go right to the first panel of 
witnesses. As these government witnesses can see, we are all 
very interested in every aspect of this issue. We welcome them 
here and their partnership in trying to achieve these goals.
    The first witness is the Honorable Deidre Lee, who is the 
Administrator of the Office of Federal Procurement Policy.

STATEMENT OF HONORABLE DEIDRE A. LEE, ADMINISTRATOR, OFFICE OF 
 FEDERAL PROCUREMENT POLICY, EXECUTIVE OFFICE OF THE PRESIDENT

    Ms. Lee. Good morning. Chairman Talent, Congresswoman 
Velazquez, and members of the Committee. I appreciate appearing 
at this hearing today to focus on the impact of Federal 
procurement policy on small business competitiveness including 
contract bundling. First and foremost, I would like to 
emphasize the administration's ongoing commitment to and 
support of small business. Over the past several years, much 
has changed in the government with the critical focus of 
delivering results for the taxpayer and achieving discipline 
with a balanced budget. A strategic underpinning of this 
results-based performance has been acquisition reform; or quite 
simply, how can we best buy the goods and services the taxpayer 
needs to deliver great results.
    Chairman Talent. Could you move your mike a little closer? 
That is much better.
    Ms. Lee. Broad inclusion of the small business community in 
government business is a measure of great results. So what has 
been done to deliver for the taxpayer including more 
opportunity for small business? Let me cite just a few 
examples. The vast array of potential for simplified 
acquisition, which means that acquisitions under $100,000 
versus the old threshold of $25,000 are set aside for small 
business. We are buying more commercial products and services 
versus Government-unique specifications. This opens 
opportunities for small businesses that may not have had the 
expertise and Government uniqueness but now can participate.
    We are focusing on best-value procurement, looking at the 
whole picture and selecting the best results. Small businesses 
are particularly adept at offering unique solutions. We have 
shortened the time frame for acquisitions, tried to lessen the 
bureaucratic proposal process, and opened up communications. 
Small businesses are responding. They want to participate in 
procurements that do not take years and endless resources just 
to propose, where through an hour long presentation, the 
government can really evaluate their capability and solutions.
    Multiple award, task, and delivery order contracts have 
become vehicles of choice for interagency acquisitions of 
information technology. They make current technology available 
in atimely way. And small businesses are there. In the 
Transportation Department's Information Technology Omnibus Procurement, 
ITOP--we need an acronym for everything--40 percent of the more than 
750 million in total prime contract dollars were awarded to small 
business firms.
    The Department of Commerce recently awarded the Commerce 
Information Technology Solution, another acronym, COMMITS, 
contract, a $1.5 billion five-year multiple award contract for 
IT services set aside exclusively for small businesses. The 29 
contract holders include SDBs, 8(a) businesses, and women-owned 
small businesses. With the SBA we put in place last fall the 
Small Business Service Contractor Streamlining pilot project. 
Under this pilot project, agencies waive the CBD and use PRO-
Net to competitively solicit only small businesses.
    In conjunction with these more global changes, we have 
emphasized several specific small business initiatives 
including the Very Small Business pilot programs, Mentor 
Protege, Hub Zone, Small Businesses Demonstration program, 
Small Business Disadvantaged Reform program, and Goals. Goaling 
is critical to delivering on these expectations the Congress 
has established. Together with the SBA and the agencies, small 
business goals are working.
    With acquisition reform, the goal for small business was 
raised from 20 to 23 percent. The SBD goal is 5 percent. The 
women-owned goal is 5 percent and we monitor 8(a) awards. 
Although much has been improved, we are not finished and much 
is left to be done. You specifically identified contract 
bundling as a topic of discussion. The administration's 
challenge in implementing the bundling provisions of the Small 
Business Reauthorization Act of 1997 is to provide guidance 
that ensures agencies provide opportunities to small business 
and also maintains discretion to effectively and efficiently 
meet their mission needs, including consolidations where 
appropriate.
    Since the enactment of the legislation, we have been 
working closely with the SBA and the procuring agencies to 
develop an effective rule. A proposed rule was published in 
January 1999. SBA received and analyzed public comments and OMB 
received--SBA's draft final rule at the beginning of this week. 
As the statute recognizes, there can be a variety of reasons 
that singularly or jointly form the basis for necessary and 
justified bundling, such as cost savings, quality improvement, 
reduction of cycle times, better terms and conditions, et 
cetera.
    The statute further speaks to agencies demonstrating that 
the benefits of bundling be measurably substantial as a 
foundation for necessary and justified bundling. We are working 
with SBA and the procuring agencies to determine how best to 
implement these requirements. Through deliberations we want to 
develop a rule that achieves strong business participation 
consistent with the most efficient implementation of agency 
missions. We hope to complete this rule shortly. In the 
meantime, agencies are working cooperatively with SBA in 
discussing potential contract bundlings and considering 
alternative strategies that promote small business 
participation.
    Mr. Chairman and members of the committee, let me reiterate 
that the great results delivered to the taxpayer include small 
business and we will continue to focus on these goals. I would 
be pleased to answer any questions.
    Chairman Talent. Thank you, Ms. Lee.
    [Ms. Lee's statement may be found in the appendix.]
    Chairman Talent. The next witness is Mr. Robert Neal, the 
director of the Office of Small and Disadvantaged--wait a 
minute. I didn't go in order here. We will go in the order you 
are sitting there.
    Dr. Richard Hayes, associate deputy administrator, the 
Office of Government Contracting, Minority Business Development 
of the Small Business Administration.

STATEMENT OF DR. RICHARD HAYES, ASSOCIATE DEPUTY ADMINISTRATOR, 
    OFFICE OF GOVERNMENT CONTRACTING AND MINORITY BUSINESS 
           DEVELOPMENT, SMALL BUSINESS ADMINISTRATION

    Dr. Hayes. Good morning, Mr. Chairman, and members of the 
Committee. It is a pleasure to testify before the Committee 
this morning. We are pleased by your willingness to give 
consideration to an issue of great importance to this 
administration, namely contract bundling and its impact on 
America's small business contractors. At the outset, I believe 
that we can successfully achieve significant and meaningful 
opportunities for small businesses in procurement as we 
continue to streamline and reform the government's acquisition 
processes.
    In fiscal year 1998, Federal agencies reported total 
purchases of $181.8 billion. $42.5 billion or 23.39 percent 
were awarded to small business firms above the Government award 
goal of 23 percent. We find this achievement very encouraging. 
The key is balance between obtaining quality goods and services 
at fair and reasonable prices while assuring the small 
businesses who are excluded from participating in the Federal 
acquisition process because contracts are unnecessarily large, 
complex, or geographically dispersed. In today's procurement 
environment, agencies use streamlined procedures such as the 
schedules and Government-wide Acquisition Contracts to purchase 
goods and services in an efficient and cost efficient manner.
    Agencies are also using commercial purchase cards to 
streamline the procurement and payment functions. We applaud 
the use of the card, but want to assure that small businesses 
are not adversely impacted. In many cases, agencies are 
consolidating their supply requirements to take advantage of 
volume discounts and better terms and conditions. We understand 
their need for doing so, but our concern is when they combine 
different or geographically dispersed service requirements into 
one contract, often too large for effective small business 
participation.
    To offset such actions, SBA works with Federal agencies to 
develop alternative strategies that will maximize small 
business participation at both the prime and subcontracting 
levels. As an example, the DOT proposal, or GWACs, furnished 
technology services structured so that small businesses and 
8(a) firms were among the winners. Recently the Department of 
Commerce awarded its multiple award GWACs as a total small 
business set-aside to enable agencies to reach small, small 
disadvantaged, 8(a) and women-owned small businesses. We 
actively support these innovative strategies and encourage 
other agencies to use them as models. In addition to these 
efforts, we require our procurement center representatives to 
keep detailed records of instances of contract bundling. The 
public advises the SBA of contract bundling cases by using our 
bundling hot line on the Internet at www.sba.gov/gc.
    In fiscal year 1998, our PCRs investigated 60 cases of 
contract bundling valued at more than $5 billion and were 
successful at changing the procurement strategy to be more 
inclusive of small businesses in almost 90 percent of the 
cases. Two sets of success stories involve the Air Force in 
which through our actions we were able to ensure that $86.9 
million requirement for Patrick Air Force Base in Florida and 
that a $90 million acquisition for an aeronautical system 
center in Wright Patterson Air Force Base in Ohio, were 
retained as small business set-asides.
    The SBA Reauthorization Act of 1997 established guidelines 
to assist agencies in evaluating planned bundle acquisitions. 
This act provides the consolidation of contracts is permissible 
only when the agency proves there are measurably substantial 
benefits associated with bundling thecontract. The major 
provisions of the statute include a definition of contract bundling, a 
requirement that agencies show that bundling procurement is necessary 
and justified, a provision for small business teaming arrangements, and 
an evaluation credit to large business bidders with the strongest 
subcontracting requirements.
    SBA published its proposed rule on January 13, 1999, in 
which we asked for suggestions on defining two key terms found 
in statutory language, ``substantial bundling'' and 
``measurably substantial benefits.'' these terms are important 
in determining when a bundling of contracts may be necessary 
and justified and in citing the levels of documentation 
required by an agency. Unfortunately, none of the commenters 
provided a clear direction on how to develop the methodology 
for measuring the benefits of contract bundling.
    Some at Commerce suggested that we measure potential 
benefits in terms of cost of savings. Other comments wanted SBA 
not to attempt to define an overall benefit one-size standard. 
We have forwarded a draft rule to OMB for clearance. We will 
strive to resolve any of the remaining issues or conflicts as 
quickly as possible so that we may publish the final rule in 
the near future. Once published, the regulatory guidance will 
be added to the Federal Acquisition Regulation. In addition, 
SBA will work vigorously with OFPP to educate the Federal 
acquisition workforce about the procedures required in the new 
rule and ensure that these procedures are in enforced.
    In conclusion, SBA pledges to ensure that each of the 
contract bundling activities is fully justified and reported to 
the Federal Procurement Data System. Through these efforts we 
will be able to both further procurement reform and also ensure 
the small businesses are a significant player in Federal 
acquisitions. Thank you for inviting me to discuss contract 
bundling this morning. I would be glad to answer any questions 
that you might have.
    Chairman Talent. Thank you.
    [Dr. Hayes' statement may be found in the appendix.]
    Chairman Talent. Then our final witness on this panel, Mr. 
Robert Neal, the director of the Office of Small and 
Disadvantaged Business Utilization, the office of the Deputy 
Undersecretary of Defense.

  STATEMENT OF MR. ROBERT NEAL, DIRECTOR, OFFICE OF SMALL AND 
    DISADVANTAGED BUSINESS UTILIZATION, OFFICE OF THE UNDER 
        SECRETARY OF DEFENSE, ACQUISITION AND TECHNOLOGY

    Mr. Neal. Good morning, Mr. Chairman, and distinguished 
members of the Small Business Committee. It is a pleasure to 
appear before the committee and discuss the importance of small 
business to the Department of Defense and to outline some small 
business initiatives. It is timely that you, the Congress, and 
we, the executive departments of the Federal Government, turn 
our collective attention to the important issue of contract 
bundling. We have a shared concern that the practice of 
contract bundling may have to some extent limited the ability 
of small businesses to participate as prime contractors in the 
defense marketplace.
    In order for us to address this issue, we need to 
understand the magnitude of contract bundling, collect and 
analyze data, and develop policies that balance the needs of 
the small business community with the objectives of acquisition 
reform. Congress under the Small Business Reauthorization Act 
of 1997 modified the Small Business Act to reflect your concern 
in this area. According to S. 412 of the Small Business 
Reauthorization Act, the term ``bundled contract'' means a 
contract that is entered into to meet the requirements that are 
consolidated in a bundling of contract requirements.
    It is important to recognize that contract bundling has 
been occurring in procurement for some time. This reality is 
driven in part by the substantial downsizing that has occurred 
in the Federal acquisition workforce and the need to improve 
efficiencies within our procurement system. These conditions do 
not appear to be diminishing. Therefore, we must recognize the 
need to develop balanced policies that foster acquisition 
reform objectives and opportunities for small business.
    The question before us is this: What is the impact of 
bundling on prime and subcontracting opportunities for small 
business? With respect to prime contracts, two major 
initiatives have been undertaken by the Department: one, a 
strong bundling policy; and, two, testing of the concept 
through the Air Force on teaming of small businesses. The 
Department of Defense recognized early on that the practice of 
contract bundling may negatively impact the ability of small 
businesses to participate in the DOD marketplace.
    Accordingly, we issued a policy memorandum, entitled 
``Consolidation of Contract Requirements,'' which predates the 
Small Business Reauthorization Act of 1997. That policy 
memorandum signed by the Deputy Secretary of Defense is still 
in effect. It is noted that a significant amount of the 
language, tone, and intent present on sections 411 through 417 
of the Public Law 105-135, is also present in the DOD policy 
memorandum. I have included a copy of this memorandum for the 
record.
    In addition, the Air Force is currently testing a concept 
that is authorized by section 413 of the Small Business 
Reauthorization Act which encourages the joint venturing and 
teaming of interested small business concerns for the 
performance of a bundled or otherwise large contract 
requirement. While the forgoing policies address prime 
contracting opportunities, the current environment has resulted 
in increased subcontracting opportunities for small business 
concerns. In response, the Department has implemented several 
initiatives to address subcontracting opportunities.
    First, the Department developed an outreach initiative 
through its contact with the top 120 DOD prime contractors. We 
solicited top-level management support for the small business 
subcontracting program, and we asked each chief executive 
officer to reemphasize their responsibility to carry out the 
intent of Congress to provide maximum practical opportunities 
for small business participation in subcontracting.
    These letters were signed by the Under Secretary of Defense 
for Acquisition and Technology and addressed each of the 
corporate CEOs soliciting their personal commitment to 
reenergize the small business subcontracting program. The 
letter also asked the CEOs to assess their small business 
program and to identify initiatives, best practices, and 
performance-based metrics that have improved their 
subcontracting performance. As a follow-up to the Under 
Secretary's letter, I have received many response letters and 
conducted personal visits to many corporate headquarters. I 
plan to continue my extensive personal visitations with the 
prime contractors to convey the Department's message and to get 
their commitment for increased involvement in this meaningful 
activity.
    Second, DOD is reviewing our oversight and compliance of 
major prime contractor's participation in our comprehensive 
subcontracting test program. Based on this review, the 
Department may revise the oversight and compliance guidelines 
to improve program efficiencies. The third item that I would 
like to bring to your attention is that the Department has made 
subcontracting with small, small disadvantaged, and women-owned 
small business an importantelement of past performance.
    As you know, past performance is a critical element of 
acquisition reform and is one that we think affirmatively 
fosters the inclusion of small businesses as active 
participants in contracts. Past performance is now a key 
criterion in proposal evaluation. The Department will continue 
to explore creative approaches to increase both prime and 
subcontracting opportunities for small business concerns within 
the current environment. In this vein, we continue to meet 
regularly with representatives from large business concerns, 
various trade associations, and small business concerns in 
order to gather input and gauge response to these initiatives.
    In conclusion, Mr. Chairman, the Department of Defense is 
committed to providing to the maximum extent practical small 
business prime and subcontracting opportunities. The Department 
shares your belief that the small business community is the 
cornerstone of this Nation's economic success and technological 
innovation.
    Thank you for this opportunity to discuss the Department of 
Defense's views on the importance of small business programs 
and our efforts that are underway to mitigate the impact of 
contract bundling on small businesses, small disadvantaged 
businesses, and women-owned small businesses. I would be happy 
to answer any question that you would ask.
    Chairman Talent. Thank you, Mr. Neal.
    [Mr. Neal's statement may be found in the appendix.]
    Chairman Talent. Also the committee also wants to welcome 
Mr. Albert Wynn of Maryland, who is sitting in with us this 
morning and is very welcome and has a longstanding interest and 
record of advocacy on these issues.
    Well, let's get right to the questions. I want to lay out 
for the members where my concerns are here. I am not going to 
take too much time because this is a well-attended meeting and 
many of you have questions that you want to ask these 
witnesses. In the Small Business Reauthorization Act of 1997, 
we were able to get inserted into the law some measures which 
really don't prevent unjustified contract bundling but at least 
got us on the road to being able to track it and to protest a 
little more effectively where it was occurring.
    I want to emphasize these are not what I would consider 
very powerful measures, unfortunately. We were able to get them 
into the law. But such as they are, they do permit the SBA to 
be more involved and to protest more effectively any contract 
bundling which they think violates the regulations that they 
are supposed to enact pursuant to that law. In addition, it 
allows to at least keep track of how much contract bundling is 
going on by having a uniform definition of it. Of course, it 
assumes that we get the regulations to implement that law.
    So let me just ask, first, and I guess this would be--let 
me ask you, Dr. Hayes, my understanding is that the agency was 
supposed to have these regulations completed within 270 days, 
which would have been August of last year. We still don't have 
them done. Could you tell me what you would attribute the delay 
to and why we can't get these regulations into law?
    Dr. Hayes. I also want to say even though the regulations 
are not in place, SBA is very diligently pursuing contract 
bundling instances and is, in fact, being aggressive about 
investigating those cases. At the same time, we have been 
working very hard to get the regulations out. These are very 
complicated issues. The statute did not precisely define two 
very key issues, substantial bundling and substantial 
measurable results. We have been trying to figure out a way to 
do this in a way that would produce an effective regulation. A 
proposed rule asked the public for comments on how it would, in 
fact, define those in a way that you could make it 
quantifiable. Unfortunately, we did not get any answers that 
were very clear from the public as to how best to do that. So 
we have been working very hard and we apologize for not having 
the regulation in place. We are still in discussions about how 
best to, in fact, implement those aspects of the statute so 
that it would, in effect, be effective.
    Chairman Talent. I understand that. No, these are not easy 
to define. The statute does not define it precisely. That is 
what we wanted you to do. We felt that you had the expertise to 
do it. I do think that the SBA has been an advocate and at 
times, I believe, the sole advocate for small business. That is 
why it is all the more crucial that you get this done. In 
particular because, yes, I know you are advocating now, but we 
don't know how much is going on. Until we get these regulations 
in place, we can't even track this.
    Then what happens is, as we try within the Congress to pass 
or to exert some additional pressure on this, we can't get a 
handle on how much is out there. We are told things by these 
agencies, and we are not in a position to know whether or not 
that is true. I want to emphasize to you that I see this 
slipping in the wrong direction statutorily. We need to 
organize our resources and get in this game. We really need 
these regulations to do it.
    Now, I want to bring up another thing to the members. The 
law allows bundling under certain circumstances, one of which 
is when by bundling the agency would enjoy measurably 
substantial benefits for the government. Now, measurably 
substantial benefits, we are all legislators here and we know 
that is the kind of word you put in when you want it to be--you 
want to have a bar and you want it to be fairly high but you 
can't agree on exactly what. So I would agree with you that 
this is vague.
    For precisely that reason, it seems that your regulations 
have to quantify what constitutes measurably substantial 
benefits. I understand in an earlier draft you did that. Let me 
read for the members. This is what the agency was proposing in 
an earlier draft, that measurably substantial benefits would be 
one of the following: cost savings of more than 20 percent; 
quality improvements that would save time, improve or enhance 
performance efficiency by more than 10 percent; reduction of 
acquisition cycle times of at least 30 percent; better terms 
and conditions by at least 10 percent; or any other benefits of 
at least 50 percent.
    Now, whatever you think of those particular levels, maybe 
it shouldn't be 30 percent off acquisition cycle times, maybe 
it should be 25--but if you have some concrete quantity in 
there, then you have a bar that you can use to judge whether or 
not the bundle actually meets that. But the proposed final 
draft you have published doesn't have that. It is extremely 
vague.
    It is the same criteria but without the numbers. So cost 
savings, quality improvements, reduction of acquisitions, and 
cycle times. So I guess what I would like you to explain to me 
is how the contract officers are supposed to know whether the 
bundle satisfies that or whether the proposed bundling 
satisfies that. There isn't any quantities in there. Aren't we 
going to get inconsistency from the process if we don't have 
some kind of actual quantified numbers?
    Dr. Hayes. Yes, Mr. Chairman. I think you are referring to 
the July 1998 internal proposed regulation that was never 
actually put forth. We did propose some initial sort of 
quantifiable measures. But they were just really the first step 
out of the gate. The bundling issues are justified in some 
cases. Again, a very complicated issue. We are trying in the 
context of the entire administration to put together a rule 
that would be quantifiable, that would, in effect, be 
effective. These are the discussions that we are engaged in now 
with OMB. We feel strongly that we will be able to come to 
agreement in the very near future with a very good rule, with a 
rule that would be effective, that would be implemented in the 
very near future.
    Chairman Talent. Well, let me ask you a question. So it is 
your agency's opinion nowthat you don't need these specific 
numbers in it?
    Dr. Hayes. No. Again, we feel very strongly that in order 
for us to effectively do this, there needs to be some 
quantifiable measures. The question may be what is the proper 
level. We are, as I said, engaged in discussions with OMB and 
others as to how best to go about doing it. We think that it is 
important for the agencies to meet their procurement 
objectives, but as you know we are concerned and want to make 
sure that small businesses are integral players in that 
process.
    But do you take one-size-fits-all? Some of the commenters 
said don't give us the precise standard, let the agencies look 
at it in the context of a particular procurement because it may 
be circumstances that justify one thing versus the other. Other 
commenters said be very precise in your estimates. And the 
other comments that we received, there was no clear sort of 
recommendations in one area or the other.
    Chairman Talent. I want to urge to you have the standards 
in there because at least it gets you in the door. It doesn't 
mean they can't do it. It just means that you have to explain 
it. And you have some increased role in a possible protest or 
comments. So at least they get you in the door. I am concerned 
that otherwise they will use vague standards as an excuse for 
saying that nothing is ever being bundled. All of the impetus 
of the system would be against that. If they say that it is not 
a bundle that qualifies or a contract that qualifies under the 
law, then they don't have to explain all of this to you, 
Congress doesn't know they are doing it, they don't have to 
report it as a contract bundling. So I would hope--did I just 
hear you tell me that you would anticipate that when this whole 
regulatory process is done you are going to have quantifiable 
standards in there?
    Dr. Hayes. There should be quantifiable standards, but it 
is a negotiated process that this rule is going to be 
effective, that it is going to work.
    Chairman Talent. Who are you primarily negotiating this 
with? Is this Ms. Lee that we have here? I am going to ask her 
next. I want to help you in the negotiations. Seriously, let me 
go to you, Ms. Lee. What do you feel about this? Would you be 
agreeable to quantify the numbers in here as a measurement of 
measurably substantial benefits?
    Ms. Lee. I am going to echo what Dr. Hayes has just said. 
What we are trying to do is make sure that we have full 
inclusion of small business, but that we do not get a one-size-
fits-all solution because in some agencies a 25 percent 
differential is not significant. In other small agencies, that 
could have a significant impact for them from a more 
programmatic standpoint. What we are trying to do is to include 
small businesses but tailor it so that we don't end up with a 
cookie cutter that doesn't meet the overall needs.
    Chairman Talent. I would say the same things with regard to 
measuring the cost savings. The draft regulations said in 
determining whether a cost savings of at least 20 percent would 
be achieved through bundling, the procuring activity in the SBA 
must compare the price that has been charged by small 
businesses for the work that they performed and where available 
the price that could be charged by small businesses for work 
not previously performed. They had a 20 percent level in there.
    I think, again, some numbers in here to put some teeth in 
this, which is not that strong a measure anyway, are absolutely 
essential. We are going to hear on the second panel what is 
going on out there in the real world when they are bundling 
contracts which they claim save money and improve quality. Let 
me just read you one here that the staff gave me. We are going 
to have testimony about this. Perhaps, Mr. Neal, you might want 
to comment on this. It says that the Marine Corps is proposing 
bundling food services into two regions, the East and West 
Coast and to reengineer food service by converting to a cook-
and-chill method of food preparation.
    So the members understand, cook-and-chill is what you get 
on the airplane. That, in my judgment, is not an increase in 
quality. Right there we have quality going down.
    There are currently five Marine Corps food service regions 
and many of the contracts are held by small businesses, 
naturally. If the proposed consolidation takes effect, only 
three very large corporations have been identified as having 
the ability to handle the work. The Marines propose to save $20 
million annually with cook-and-chill regionalization. However, 
past cook-and-chill attempts have failed. West Point currently 
has an inoperational cook-and-chill facility and a cook-and-
chill facility in Japan is only producing salads after being 
operational for two months. Even if a cook-and-chill facility 
can function, the quality of the food will suffer.
    These are the stories that we are hearing over and over 
again. I am having people come up to me because I am the 
Chairman of this Committee and telling me this is happening. 
These are credible people. So we have to have these regulations 
in place so that we can watch this and do something about this. 
If you are not doing this, it is not being done.
    Do you want to comment, Mr. Neal, on what I just said? I 
don't want to throw that out there without giving you a chance 
to comment on it if you want to.
    Mr. Neal. In terms of the details of that particular 
activity, we would be more than willing to provide you with the 
Department's take on what is going on with respect to the cook-
and-chill initiative in the Marine Corps. But with respect to 
the quantitative measures--we have made these comments to both 
SBA and OFPP--we need flexibility. When you look at a bundled 
contract in the Department of Defense, a 25 percent yardstick 
is fairly significant. For some of our larger contracts where 
bundling has occurred, when you look at the dollars involved, 
it may be more appropriate to look at a yardstick on the 
magnitude of 10 percent, which would be fairly significant. We 
would like the flexibility of being able to look at the 
application of a yardstick on a case-by-case basis. While some 
guidelines would be very useful, we recognize that depending 
upon the size of the bundled contract, the savings could be 
very significant when you look at how much we contract out as a 
Department.
    Chairman Talent. Again, I am going to recognize the ranking 
member, and I appreciate the Committee's indulgence. If 
something fails on these regulations, that doesn't mean that 
you can't do it. It just means that there is the kind of 
increased scrutiny that Congress intended to make sure that the 
taxpayer is protected and small businesses still have the 
opportunity to compete. It has a lot of implications, not just 
the small business community in general, but of course minority 
contractors and ones that are particularly on the bundle and a 
lot of interest that we are very interested in.
    Let me say also, Mr. Neal, I know that this--that you 
operate above this level. But whoever on your staff was 
responsible for getting your statement in got it to us after 
9:00 a.m. This morning, which is less than an hour before the 
hearing started. The Committee rules require 48 hours. People 
on the Committee know--I am not a stickler for rules, but we 
have to have it in enough time so people can read and ask 
questions. We may have further hearings on this. If you do 
testify before the Committee, I want you to get the statement 
in at least a day in advance.
    I would be happy to recognize the gentlelady from New York.
    Ms. Velazquez. Thank you, Mr. Chairman. Mr. Hayes, Dr. 
Hayes, when do you think that you would have the final rule? 
You said in your testimony that it would be ready in the not-
too-distant future. Next year? Two years from now?
    Dr. Hayes. I strongly believe that we will have it done 
shortly. My staff is ready to start working on it. Like I said, 
the rule is over at OMB. We are ready to begin discussions on 
crafting the final rule today. We were hoping to get this out 
very quickly. It is an added tool that we can use. It is very 
important to us, and we want to get it done.
    Ms. Velazquez. So now you are expecting a reaction from 
OMB? Ms. Lee, you are telling us today that you are going to be 
working in collaboration with SBA and make sure that we reach a 
final proposal rule?
    Ms. Lee. Absolutely. We take the proposed rule that came in 
and through our review process we do give the agencies an 
opportunity to comment on it. And we get the agencies' 
comments, and then we work them through and finalize the rule.
    Ms. Velazquez. I hope if you look at the members' 
attendance here today--this is an important issue, and an 
important issue for this side of the aisle. We will do 
everything within our power to make sure that this rule is 
finalized and that we deal with this issue. This issue is not 
going away. I promise you, it will not go away.
    Dr. Hayes, you mentioned in your testimony that you met 
this small business goal for 1998. How are we doing in 1999?
    Dr. Hayes. We recently issued a 6-month report card, which 
I think is a first, to all of the agencies with respect to 
their 1999 goal achievements. Overall with respect to the 
various goals, agencies are meeting those goals. Overall 
procurement is down with respect to previous years, but the 
agencies are meeting or at least addressing the various goals 
for small businesses and SDBs. Women-owned businesses, as you 
know, tends to be a problem, but we are working very hard to 
close that gap.
    Ms. Velazquez. Dr. Hayes, we saw the report card. It is 
dismal.
    Dr. Hayes. I guess I would take a different take on it. The 
Government, the administration is committed to meeting both the 
small business goals, the SDB goals, and the women-owned small 
business goals.
    Ms. Velazquez. We need to see numbers here. One thing is to 
be committed and the other thing is to have the numbers.
    Dr. Hayes. Yes. But I think if you go back to the tables 
and if you look at and compare the same data points, the 6-
month data point of last year with this year, the agencies are 
in effect on target to meet their goals. There seems to be a 
lot of things that have occurred in the last quarter of the 
fiscal year. So we are not there yet. But in terms of the 
expenditure of dollars of the various agencies, we are very 
close to where we have been historically.
    Ms. Velazquez. Isn't it true that for 1998 you counted all 
contracts, as the law says. If you counted contracts to be 
performed overseas and military sales, you would be well below 
your 25 percent in 1998?
    Dr. Hayes. I think that you are addressing the issue about 
how SBA and OFPP and others carry out the goaling process. 
There are certain contracts which are not currently in the base 
of how we count goal accomplishments because in our view those 
contracts aren't available to small businesses. There are a 
couple of other exceptions about how we count what is in the 
base versus in the overall numbers. But again----
    Ms. Velazquez. Aren't you supposed to count all contracts, 
Mr. Hayes?
    Dr. Hayes. The statute says to count all contracts. We can 
discuss how the Committee wants us to go about doing it, but in 
looking at the dollars that are available to small businesses, 
there are certain procurements. Those businesses in the 
formula, they are not really available to small business to bid 
on. So we believe that it is erroneous and gives no one a full 
picture to, in fact, include those in the overall base.
    Ms. Velazquez. Mr. Chairman, I will continue. We should go 
and vote; and when we come back, I will continue my questions.
    Chairman Talent. We have a vote on the patent bill on 
suspension. I am going to go ahead and recess the committee and 
we will come back promptly and reconvene with questions.
    [Recess.]
    Chairman Talent. Let me reconvene the hearing. If we could 
have the regular order.
    I am going to go ahead and ask a couple of questions I had. 
Ms. Velazquez was in the middle of her questioning, but I am 
informed by her staff that she is at a press conference and 
wants to pick up her questioning when she returns. So what I 
will do is ask some questions I had and then if she is not back 
at the time I am finished, then we will go ahead and recognize 
one of the other members. She was right in the middle of some 
good questions, and I want to give her a chance to continue as 
soon as she gets back.
    So let me turn to a couple of issues that are not directly 
involved in the issue of the new regulations but nevertheless 
are problems that small businesses face with regard to 
procurement, and I want the panel to comment on them.
    Let me go first to these ID/IQ contracts, or indefinite 
delivery indefinite quantity contracts, which permit a 
contracting officer to award contracts without specifying the 
project or the actual size of the contract.
    Now as originally conceived, this is not an objectionable 
mechanism, particularly with regard to supply contracts or 
contracts for goods; smaller type contracts where they were not 
sure how much they wanted to procure but they wanted to make 
sure they had a regular supply and it makes sense in that 
context. But what is happening, what we are hearing is 
happening, is that it is being used with regard to service 
contracts and what is happening is they are bidding out rather 
large service or consulting contracts and the problem for small 
businesspeople is that they have to obligate themselves and 
hold the resources to be able to perform large service 
contracts, and then they may or may not get any business.
    This is very difficult for small businesses. For larger 
businesses, they can say, okay, we can hold the ability to do 
up to a couple of million dollars and if we get the business, 
great, and if we don't get the business it isn't that big a 
deal for us. But for a small business to put in the time and 
the effort to have that capacity and then not get the business 
really puts them at a disadvantage.
    So as a practical matter when they get these ID/IQ 
contracts, particularly for services or consulting type 
businesses, IT or other types of consulting businesses, they 
just don't bid because they are damned if they don't get the 
contract, but they may be worse off if they do because they are 
committing a lot of their resources to something that may not 
be profitable for them.
    Let me just ask the panel whether you are sensitive to 
that, whether you think that is a problem, and what you are 
trying to do either within the system as a whole--this would be 
for Dr. Hayes and Ms. Lee, or Mr. Neal, within the DOD--and 
give us your comments on that, and then we will see if the 
ranking member has returned and if not, I will recognize 
somebody else.
    Ms. Lee. Mr. Talent, the panel says I may begin on this 
one. On the multiple award contracts, GWACS MACs--like I said 
we have to have an acronym for everything, that is what we call 
them--we are focussing on more effective implementation. And we 
have some additional rules coming out shortly to guide the 
contracting officer. The concept is that these are large 
contracts at the award, but then every task underneath them is 
fair competition among the holders of the vehicle.
    So we tried to at that point clearly describe what the task 
is for that and then give everyone an opportunity to bid on 
that task.
    So the small business can bid on the task or perhaps if 
they have got their resources employed somewhere else, may pass 
from time to time on a specific task bid. But we want to 
continue to give them that opportunity as the work evolves.
    Chairman Talent. Well, see, they have the opportunity in 
theory. The problem is in practice, without--first of all, they 
get very big, these contracts. Second of all, if they have no 
assurance that they are going to get a regular line of the 
business, you can see why it is much tougher for them.
    I will give an example, and I don't expect you to comment 
on this specifically because I am just confronting you with 
this, but what I am trying to get across to you all is that we 
are hearing these things. We are representatives. We go home 
and have town hall meetings, and we meet with our constituents; 
and they come and tell us, and I am personally hearing too many 
of these things to believe that this is isolated instances. I 
think we have a problem, and we count you all to be able to 
quantify this and tell us whether, in your judgment, there is a 
systematic problem and what we can do.
    Now, browsing the GSA web site--and staff did this; I am 
not up to browsing a lot of web sites--for region 7, which 
happens to be our region, my district, ID/IQ contracts, and 
some of them were working as intended. But we came across five 
contracts for modular buildings which had been awarded to small 
businesses. In one case the company was in the second year of a 
$2.5 million contract but had only received $239 worth of 
business. The other four contracts were for the same size and 
were also in the second year but had received no business at 
all.
    Now, I mean, you tell me, Ms. Lee, if this is becoming 
systematic in the government, don't you think that it puts 
small businesses at a disadvantage for the reasons I indicated?
    Ms. Lee. We are working to try and focus that ordering. I 
don't want to say it is totally at a disadvantage to small 
business, because I certainly do not see it to the extent you 
do, but we all three try to get out and meet with the small 
businesses and see what is happening, what is going on, and how 
is this working. And from some segments of the community you 
also hear favorable things, that they like to have the 
opportunity to fairly compete, and what we are trying to get 
the procurement community to do--and we are not there yet--is 
to put these in more results-oriented packages so we don't try 
to buy a long-term solution but rather have a task that is 
doable in one bite: We think that gives small businesses more 
opportunity to participate. There is still work to be done on 
these.
    Chairman Talent. Dr. Hayes, would you care to comment?
    Dr. Hayes. As you indicated, the ID/IQ and other such 
vehicles are very popular these days. Our approach has been 
when agencies want to use these procurements that we figure out 
ways that small businesses and others can be part of the 
process. I think the ITOP contract, the COMMITS contract are 
successful examples of how that might, in fact, work.
    There also was a very large contract recently awarded by 
the IRS over a number of years, and the goals for small 
businesses are very aggressive and we fully expect them to, in 
fact, meet those overall goals. So while there are problems, I 
think we can still do better; and we are going to keep doing 
better to make sure that small businesses actually get awards 
when they, in fact, win these various procurements.
    Chairman Talent. Mr. Neal, you want to comment on behalf of 
the DOD?
    Mr. Neal. Mr. Chairman, one of the things that, with 
respect to GWACS, we find them to be very, very beneficial to 
the Department. We--in my travels around and talking to small 
businesses, the thing they have asked us to do is to be 
sensitive to the types of industries that they operate in. For 
example, in information technology, GWACS seem to be working 
very well because there is not a substantial commitment of 
resources; but in some of the other industries, we are still 
learning, and as Ms. Lee has said earlier, we are trying to 
work out a lot of bugs; but we do see that there are 
substantial benefits to using GWACS, and it is just a matter 
for time of us working through some of the bugs and getting the 
information like that you have been receiving, so that we may 
find that there may be industry-specific problems that we need 
to deal with in terms of the guidance we give our contracting 
officers for setting up GWACS.
    Chairman Talent. All right. Ms. Velazquez has not returned, 
and I know Mrs. McCarthy you are next but I know that you 
wanted to yield to Mr. Abercrombie, so let me go ahead and go 
with Mrs. Kelly for any questions she may have and then Mrs. 
McCarthy.
    Mrs. Kelly. Thank you very much, Mr. Chairman. I do have 
some questions. I want to go back to the testimony of Ms. Lee. 
In reading your testimony, you spoke of the cost savings that 
could be realized as being one of the factors, the decrease in 
supply times and improved quality as being one of the factors 
that you would like to look at in making determinations for 
small business participation. And I am interested in whether or 
not you are doing any outreach to other agencies to enhance 
their ability to reach small businesses through their 
procurement contracts.
    My reason for asking this is that I have asked agency 
procurement officers about, for instance, the women-owned 
business part, and they did not know. They do not know that 
they should at least try to achieve the 5 percent number for 
women-owned businesses. It is something that they are a 
procurement officer for an agency but they have not been told. 
It seems to me that either you told them and they did not know 
that, or they are new in the job. There must be some rationale.
    I want to know what your outreach efforts are in that 
regard, and I want to know how you are going about it. And I 
want to know, since obviously it is not getting through, what 
you have in mind to enhance your education efforts.
    Ms. Lee. That concerns me greatly. I have a procurement 
executive council meeting tomorrow. This has just moved up to 
item number one on the agenda. It concerns me that the 
procurement executives are not aware of that. Just last month, 
Dr. Hayes and I in our collective effort pulled the midterm 
data. We sent a letter to every major procurement exec on where 
they were midterm. We then took those letters to the 
President's Management Council, which is attended by the second 
in command or chief operating officer for the agencies, and 
gave a presentation at that committee meeting. This assured 
that the agency heads or their number two person were aware of 
where their agency was midterm performing against their goals.
    So I am very concerned if procurement execs are telling you 
that we have not been there and are not out there advocating 
these issues. From the women's business issues----
    Mrs. Kelly. Excuse me, they didn't tell me that you were 
not there. They told me that they simply were unaware of it, 
nobody told them that. It seems that the education job is not 
getting done. If we are going to get the women to have some 
procurement at 5 percent, somebody is going to have to tell 
them.
    Ms. Lee. I would be happy to work with those individuals. I 
will make the visits and the calls myself, but they should be 
aware.
    Mrs. Kelly. I look at where you are for your indications 
for the first 6 months of fiscal year1999, and the agency 
awards 1.8 percent to women. If you double that for the next 6 months 
they still are not at the 5 percent.
    Ms. Lee. That is correct. There are some unique challenges 
with women-owned businesses and, although we have a goal, we do 
not have a set-aside or special provision, and therefore we 
cannot make a women-owned business set-aside. Women win 
competitively. We are working with many of the women's 
councils----
    Mrs. Kelly. Women do win and can win, and there are good 
businesswomen out there. The same with minorities. It is 
important that we address this issue.
    And that takes me to you, Mr. Hayes. I know that you say 
that you are working hard to close the gap for women-owned 
businesses, so why is this 5 percent number so difficult?
    Dr. Hayes. It is a complicated issue. I want to make a 
point that while we are at actually 2.1 percent for last year 
for women's procurement, the rate at which we are reaching the 
5 percent is actually quite precipitous. We have done a lot of 
things to address the women's issue. This is extremely high 
priority of my boss, Ms. Alvarez, and others in this 
administration.
    Mrs. Kelly. That sounds nice, but I don't see any concrete 
evidence.
    Dr. Hayes. If I may, I will submit to you some examples of 
things that we have done. We signed MOUs with the major 
procurement agencies. Those MOUs between my boss and, for 
example, Secretary Albright and others state they are basically 
committed to addressing the women's issue. We also have 
advocates, women's advocates in the major buying agencies as 
well. Again their sole job is to make sure that the women 
businesses are bought before the procurement executives, but we 
can do more and we will do more.
    Mrs. Kelly. I am going to go back to that issue in one 
minute. Actually, maybe I will just stay there.
    I understand that Ms. Lee wanted some of the procurement 
executives--correct me if I am wrong--to use past performance 
as a part of this, and that they were asked to sign--people 
were asked to sign pledge cards on some of these things; is 
that correct? It seems to me that women deserve at least the 
same support there.
    Ms. Lee. The pledging is probably a different initiative. 
But when we evaluate a contractor's performance, we say what 
did you say your involvement of small business was going to be? 
What did you actually do? And we take that into consideration 
for future--if they are competing for a future award, so we 
measure their record of performance in small business 
inclusion.
    Mrs. Kelly. That sounds pretty logical. So Mr. Hayes, how 
come you cannot figure that standard out and sort of write it 
in?
    Dr. Hayes. I think that is in the policy letter that OFPP 
is putting out and we address past performance. Past 
performance is included in other provisions of the FAR. This is 
a tool that the agencies can use to reward those contractors 
who, in fact, have good records with respect to contracting 
with minorities and women and others.
    Mrs. Kelly. I want to move to another issue and that is the 
use of commercial purchase cards. You indicated in your 
statement that you do not think that--you think it might be 
good for the small businesses of the Nation if there is an 
increase in the use of commercial purchase cards. I am not 
sure. I think I have tagged it. Here it is on page 2: 
``agencies are also using commercial purchase cards to 
streamline their procurement and payment functions. We want to 
ensure small businesses are not adversely impacted since the 
card is used for micro purchases, and so forth.''.
    I think that the commercial purchase cards are a good idea. 
They certainly will streamline purchasing, and that is a good 
idea. However, what is to prevent somebody from walking over to 
Wal-Mart? How can you assume that this is going to be good for 
small business if you are buying something? I don't think this 
is a fair assumption to make, and I want to know if you have 
any proof that it will.
    Dr. Hayes. Again, we actually can't say definitively that 
small businesses are being affected. Last year the government 
spent $8.5 billion using the purchase cards. We do not 
currently have the data that can really address this issue. We 
are currently now working with MasterCard and Visa to get those 
numbers. One of the problems is that small businesses, a lot of 
them don't take the government card purchase. We are working 
very aggressively with the credit card purchasers to have small 
business to, in fact, accept credit cards. Otherwise these are 
opportunities that basically are not available to them.
    Mrs. Kelly. As a small business owner, I can tell you, I 
know very few people who did not take credit cards and 
certainly my family's small business, my children who are in 
small businesses and my husband, we all take credit cards. I 
find that a peculiar remark that you would say they don't take 
credit cards in small businesses.
    Dr. Hayes. If I may, we have our PRO-Net system, which is a 
database of 188,000 small businesses; and we asked the small 
businesses which purchase cards do you, in fact, accept. A 
large number of them do not indicate a positive reaction that 
they, in fact, take the credit cards. Credit card purchases are 
an integral part of this Government, and we want to get them 
registered on the exchanges so they can be beneficiaries of 
these micro-purchases.
    Mrs. Kelly. Will there be an indication in your regulations 
that if they are using these purchase cards that you will be 
monitoring? Are you going to be able to enforce and monitor 
whether or not they are going to small businesses or how these 
cards are going to be used, whether they are going to be used 
for large--going to the large discount houses? I just cannot 
figure out what this small business--how small businesses are 
going to benefit by these purchase cards.
    Chairman Talent. The timer system has screwed up. Can we 
let him answer this and then move on? I appreciate your 
questions. We will try to get that fixed. The witness can 
answer.
    Dr. Hayes. The regulation doesn't specifically address the 
use or nonuse of purchase cards. So we, in fact, are concerned 
about it. We are monitoring it. But that particular aspect of 
it will not be in the specific contract bundling regulation.
    Chairman Talent. Do you have a quick one to end with?
    Mrs. Kelly. I just wanted to ask about the enforcement. I 
wanted to ask Dr. Hayes about how--about what is he going to do 
once the regulations are final? What are you going to do when 
the agencies continue to bundle contracts? Will there be 
enforcement written in?
    Dr. Hayes. Yes, there will be very vigorous enforcement. 
There are a variety of steps that the agencies have to take 
prior to bundling a contract. They have to notify the Small 
Business Administration of their intent. We have appeal rights 
where we, in fact, can insert ourselves into the process to see 
if we can negotiate a satisfactory strategy for small 
businesses and for the agencies.
    We do not hesitate to use those appeals. We don't like to 
do so, but we will do so if it is necessary to get a fair shake 
for small businesses. We have PCRs who are stationed at buying 
sites around the United States. They look for the procurements. 
They look at those that can be structured for small businesses, 
and we also work aggressively with the agencies to make it 
necessary that they are part of the process.
    So we will aggressively, within our resources, do what we 
can to enforce these regulations. We will also work with the 
agencies to, in fact, help carry them out.
    Mrs. Kelly. Thank you.
    Chairman Talent. Well, the gentlewoman from New York, Ms. 
Velazquez, needs a little time so I am going to go ahead, and I 
thank the gentlewoman from New York; and I recognize another 
gentlewoman from New York, Mrs. McCarthy.
    Mrs. McCarthy. Thank you, Mr. Chairman. It is funny, I was 
thinking when I first came down, this is one of the first 
subjects that we talked about when I came in 1997, and we had a 
lot of concerns back then, and we still have a lot of concerns.
    Anyway, I would like to give my time to my colleague, Mr. 
Abercrombie, because he needs the time; and I think he will be 
a little more forceful than I am.
    Mr. Abercrombie. I don't know about that, but thank you 
very much.
    This is very discouraging. I don't understand at all why 
you are going from 1997 and 1999 and not have this all 
finished. And then to change the definitions or to leave 
definitions out, it does not seem to me to accomplish anything 
at all.
    Now, I don't know if you have had an opportunity to go over 
the testimony that has been submitted to the committee, but my 
good friend, Ms. Bernadette Paik-Apau out in Honolulu, is a 
small businesswoman. She is a licensed architect. She is an 
owner of a construction business. We had hoped to have her up 
here to testify today, but she could not swing it in terms of 
her business being able to afford coming up here and taking 
time from her business.
    She is a winner--I think Ms. Lee you brought up the 
question of the Department of Transportation--she has won for 
her work the Coast Guard's Women-owned Small Business 
Enterprise of the Year award, so she is in a good position to 
testify. So I am going to quote a couple of things from her 
testimony to you, and ask you whether these rules, whether 
these proposals that you have put forward, are going to address 
it.
    Now, one of the things that she points out is when you do 
this bundling, that these bundled contracts, the people that 
get it, in effect, become brokers. Have you gone over this that 
they are just becoming brokers? That is all they are. I can 
cite in the movers, for example, in freight forwarding in the 
Department of Defense, have you looked into the fact that these 
people become just brokers and then they subcontract out? Is 
that what is happening or isn't it? Are they doing the work? 
Mr. Neal can do it. Mr. Hayes, you are supposed to be----
    Dr. Hayes. Directing the question to myself?
    Mr. Abercrombie. They are not supposed to do it. They are 
supposed to be doing the majority of the work.
    Dr. Hayes. In a case where there are bundled contracts, we 
work very hard to make sure that there are very strong 
provisions for subcontracting to small businesses. This is 
actually one key component of the regulation. We offer a 
preference for bidders who propose to use small businesses in 
performance of the contract.
    Mr. Abercrombie. How are you enforcing it?
    Dr. Hayes. Again, these are part of the new regulations 
that are going to be coming into effect.
    Mr. Abercrombie. So you are not enforcing it?
    Dr. Hayes. If I may----
    Mr. Abercrombie. Excuse me, I have heard the ``if I may'' 
all the way through this. Are you enforcing it or are you not 
at this time?
    Dr. Hayes. Yes, sir.
    Mr. Abercrombie. How?
    Dr. Hayes. We aggressively enforce contract bundling where 
we can.
    Mr. Abercrombie. How?
    Dr. Hayes. By negotiating with the agencies to set up 
alternative procurement strategies, to negotiate for very 
strong provisions for contracting with small business 
subcontractors if that may, in fact, be the case.
    Mr. Abercrombie. How is it enforced? How? How are you doing 
it?
    Dr. Hayes. I have a series of procurement center 
representatives who are stationed at buying sites where we have 
them.
    Mr. Abercrombie. How many do you have?
    Dr. Hayes. I have 52 procurement center representatives 
(PCRs) who cover some 240 sites out of 2,000 sites in the 
country.
    Mr. Abercrombie. So in other words your enforcement is 
sporadic at best?
    Dr. Hayes. The enforcement is--in terms of the PCRs that we 
have. We have other entities; we have other individuals who 
also are involved besides the PCRs who help us identify these 
kinds of issues. We have a bundling hotline.
    Mr. Abercrombie. There is an office in the State of Hawaii 
for a procurement center representative that is not filled.
    Dr. Hayes. That is correct.
    Mr. Abercrombie. Why?
    Dr. Hayes. We do not have the resources to assign a full-
time PCR there. We have other SBA staff in Hawaii that help us 
in this process.
    Mr. Abercrombie. How many cases have they handled?
    Dr. Hayes. I can get that information for you. I don't have 
it before me.
    Mr. Abercrombie. What is the average workload for a PCR?
    Dr. Hayes. Again, if I can, I will submit that for the 
record.
    Mr. Abercrombie. How do they coordinate these PCRs with the 
work you do in the Department of Defense, Mr. Neal?
    Mr. Neal. Within the Department, we have a network of small 
business specialists that are assigned to most of the base, 
camps, and stations. Those individuals report up through the 
secretaries of the respective services and they are charged 
with looking at the small business activities at their 
installations and facilitating the work that is being done by 
the PCRs and coordinating their activities there.
    So we have a little over 500 folks spread throughout the 
country that assist the SBA and provide us with the 
intelligence that we have in terms of the small business 
activities at each of these base, camps, and stations.
    Mr. Abercrombie. Do you have any instances then in the 
Department of Defense where subcontractors are not paid in a 
time period, say, within 120 days?
    Mr. Neal. We do receive individual complaints where 
subcontractors may not have been paid; and when we have those 
situations, we turn them back over to the prime contractors and 
we ask them to address it.
    Mr. Abercrombie. In other words, you do not protect small 
businesses in the Department of Defense. You protect the prime 
contractor, and if the prime contractor doesn't pay the 
subcontractor, the subcontractor is left to fend for him or 
herself; is that right?
    Mr. Neal. No, sir. What we have is our contractual 
relationship directly with the prime contractor. If we receive 
a complaint that materially affects performance, we go to the 
prime contractor and ask that it be addressed so we are not 
protecting the prime contractor.
    Mr. Abercrombie. How does it get addressed?
    Mr. Neal. It is addressed if the subcontractor is pulled 
off the job or stops work, then we sit down with the prime 
contractor and ask them to take corrective actions.
    Mr. Abercrombie. The corrective action is to pay the 
subcontractor.
    Mr. Neal. If that is one of the actions that is necessary--
--
    Mr. Abercrombie. If the prime contractor doesn't pay the 
subcontractor, do you take that contract away from the prime 
contractor and not allow them to do business with the 
Department of Defense again?
    Mr. Neal. There may have been situations where that has 
occurred. I do not have that information in front of me.
    Mr. Abercrombie. Has it ever happened that a prime 
contractor----
    Mr. Neal. Not to my knowledge, but I can have us take a 
look at information to see whether that has occurred.
    Mr. Abercrombie. It is very difficult because we are at the 
hearing today, and I find it strange that you would not have 
the information with you right now.
    What rules exist in the Department of Defense now to 
protect subcontractors from prime contractors who do not pay 
them on a timely basis?
    Mr. Neal. To my knowledge, there are no specific rules.
    Mr. Abercrombie. Can you put that in the rules that you are 
going to put forward? Can I get a commitment?
    Dr. Hayes. We will be glad to look at it, sir.
    Mr. Abercrombie. No, no, no, no. I don't want, you will be 
looking at everything. I don't want you to look at it, 
because--look, one of the things we do is we write legislation 
and you are supposed to write the rules based on what the 
intention of the legislation is. I am here to tell you that the 
intention of this legislation--you have a 14-day quick pay for 
the prime contractors. Right?
    Dr. Hayes. Yes.
    Mr. Abercrombie. Right. If the prime contractor can be paid 
in 14 days, why can't the subcontractor be paid in 14 days? Why 
can't you institute where you get partial payment for work 
done? How is the small business supposed to exist if they do 
not get paid, 30, 60, 90, 120 days?
    Dr. Hayes. Sir, we will be glad to look at it.
    Mr. Abercrombie. I want a commitment as to whether or not 
in the rules there is going to be a section that is going to 
directly address the question of payment to subcontractors upon 
painful retribution to the prime contractor that does not pay 
on a timely basis that these rules should put forward.
    Dr. Hayes. Sir, with all due respect, going back to the 
original statute, that issue was not specifically addressed in 
the statute. We will be more than glad to look at it.
    Mr. Abercrombie. I will not argue with you about whether it 
is. I think that it is.
    Chairman Talent. Will the gentleman yield, because my 
understanding is that there is another problem with the 
subcontracting and saying that subcontracting makes up for the 
other problems with small business; that the prime can list 
people as subcontractors and then say, well, because we are 
listing these small business as subcontractors, that covers it. 
But they don't actually have to give any of the business to the 
subcontractors.
    Mr. Abercrombie. I was going to get to that too.
    Chairman Talent. Then I will yield back to the gentleman, 
and we are all enjoying it. If you are going to get to that, I 
want you to get to that.
    Mr. Abercrombie. I beg your pardon. But, Mr. Chairman, I do 
believe that these rules--you know, these rules are out there 
now. The proposal is out there, and it hasn't been finalized; 
and one of the things that you have to finalize is your rules 
and regulations. They are dependent on you. You folks are the 
ones that have to do this. I mean, Bernie Paik-Apau can't do 
it. She has got to depend on you folks and depend on a 
nonexistent procurement center representative, somebody on the 
West Coast that is 2 and 3 hours away by time so that if you 
call at the wrong time, you cannot get anybody.
    I am just, parenthetically Mr. Chairman, I will be 
interested to see what the West Coast ``chill and feed'' or 
whatever it is that they have is going to work out in Hawaii 3 
hours' time difference.
    But it seems if you do not have that, depending on what 
kind of business--what rules will you have, then, to make sure 
that the subcontracting actually takes place? I didn't see that 
in the material that I received.
    Dr. Hayes. There is a provision for those contractors, 
prime contractors that, in fact, have strong provisions for 
subcontracting to, in fact, receive a benefit in their 
particular awards. There are other procurements where we 
encourage the agencies to make a strong commitment to their 
subcontractors, but we have no role or right to basically 
dictate who they use or the conditions of those contracts.
    But in other regulations that are put out by the FAR, we 
do, in fact, encourage agencies to reward those contractors to 
make strong contracts with the subcontractors and to notify the 
Federal Government when they, in fact, do make changes.
    Mr. Abercrombie. The State of Hawaii has a very strong--
within the State, they limit how much the prime contractor can 
make over the subcontractors. Are you going to have similar 
rules? What kind of profit they can take away from the 
subcontractor?
    Dr. Hayes. Sir, the regulations in no way address those 
kinds of issues. I believe that was far beyond what was 
intended in the original statute.
    Mr. Abercrombie. If there is a dispute--okay. I don't think 
that it does go beyond what is required by the 1997 Act.
    Now, the Miller act ostensibly protects, does it not, the 
capacity of the small businessperson to be able to engage a 
prime contractor in any dispute over payment? Is that right?
    Ms. Lee. In fact, Congresswoman Maloney is supporting H.R. 
1219, which increases some of those bonding limits as a 
protection for small business. We had a hearing on that last 
fall, and that bill is moving along.
    Chairman Talent. Neal, finish one more line, and then we 
will go on.
    Mr. Abercrombie. Well, I don't see anything in here where 
someone is going to act as an ombudsperson for the small 
businessperson because the prime contractors, the way you are 
bundling the contracts right now, you are going to have these 
megacorporations be able to beat the living daylights out of 
the subcontractors and if you don't like it, you can take them 
on, provided you have got a lawyer that is willing to do it. 
And I don't see many John Travoltas walking around to go out 
and handle it against these big corporations.
    So I think that you have got to put in rules that will have 
the SBA or someone in theDepartment of Defense or whoever it is 
be responsible for carrying the load for the small businessperson 
against the lawyers that will come out for the big corporations. Thank 
you, Mr. Chairman.
    Chairman Talent. I thank the gentleman and the gentlewoman 
from New York, and now I will recognize the ranking member so 
she can continue her questions.
    Ms. Velazquez. Thank you, Mr. Chairman. Dr. Hayes, I am 
glad that you are making it your business to monitor agencies' 
performance and inform them of their deficiencies. I just want 
to know what do you do to agencies who miss their goals, if 
there is a penalty? What do you do other than rely on goodwill?
    Dr. Hayes. There is no penalty in a formal sense. But I do 
believe, in fact I know firsthand, that the various 
administrators of the agencies take these goals very, very 
seriously. As Ms. Lee said, we made a presentation in front of 
the PMC (President's Management Council), the second-level 
managers in the agencies. There was very spirited discussion 
about how we can meet those goals and what can happen. We are 
now engaged in goals for the coming year. And so agencies take 
this very seriously.
    And while we have no sanctions, I am sure there is 
discussion between the various agencies when they do not meet 
the various goals.
    Ms. Velazquez. For those who are deficient, have you 
considered sanctions? Denying bonding on the grounds of their 
poor performance?
    Dr. Hayes. No, ma'am.
    Ms. Velazquez. Why not?
    Dr. Hayes. That has never come to mind. That is something, 
if you want us to look at, we will. But I don't think the 
statute authorizes us with that level of authority.
    Ms. Velazquez. Is that based on the law?
    Dr. Hayes. The SBA's power and authority is to appeal, to 
persuade, to be an advocate on behalf of small businesses. We 
do this very vigorously; but it has to be a partner, I believe, 
with the agencies and to produce a win-win both for the small 
businesses and for the agencies. We take our job very, very 
seriously. We are, I think, successful when we are engaged in 
the exercise of the process, and we will continue to be so.
    Ms. Velazquez. Dr. Hayes, do you see the contract after the 
decision has been made, after the agency has decided they are 
going to bundle? Would it be helpful to have a requirement that 
you must sign off first so that small business and 
disadvantaged is represented before the decision is made?
    Dr. Hayes. I would like to look at this, but I think that 
would be a problem. It would sort of delay the process. Again, 
keep in mind there are many, many thousands of procurement 
actions that go on throughout the year. We have a fairly 
limited staff with respect to engaging in this process. When we 
negotiate a deal with an agency, the agencies stick by the 
deal. We have been very successful in those situations where 
there were bundled procurements and where we objected, we filed 
appeals and negotiated. The agencies have kept their words.
    So I think that is actually a better way than having SBA 
sort of being the traffic cop.
    Ms. Velazquez. But the numbers are showing us otherwise.
    Dr. Hayes. Again, with respect to the overall numbers, we 
are meeting our goals. Things are happening. We are concerned 
about the future. But I think the numbers indicate that the 
agencies are taking this very, very seriously with respect to 
meeting their goals, small businesses, disadvantaged 
businesses, and otherwise. We are concerned about women-owned 
small businesses and we are trying to figure out ways that we 
can address those issues.
    Ms. Velazquez. Mr. Neal, I just want to echo the comment 
made by the Chairman and request that, if we do have another 
hearing, that your staff make sure, make it your business that 
your testimony comes to our offices on a timely basis so that 
we could be able to read your testimony before you come before 
us.
    You head the office of the Small and Disadvantaged Business 
Utilization. Does your office help the PCRs?
    Mr. Neal. Yes.
    Ms. Velazquez. What do they do when the Defense Department 
recommends a bundle? Do your people weigh in or analyze or get 
a chance to comment on it before it goes out?
    Mr. Neal. We work very closely with the SBA. Our small 
business specialists in many instances are in direct contact 
with the PCRs prior to any disputes that are raised about a 
particular procurement proposal. Then after the procurement 
proposal if there is a dispute, the small business specialists 
provide background information for the senior management in any 
of the service or defense agencies where the dispute is raised. 
Because when the SBA folks, for example, appeal a procurement 
proposal, then it goes to the head of the buying activity, and 
that activity relies on the small business specialist who has 
been working with the SBA on advice on how to dispose of that--
appeal.
    Ms. Velazquez. Do you weigh in before a decision is made by 
the agency?
    Mr. Neal. Yes, we work directly with our contracting 
officers and our program heads.
    Ms. Velazquez. I have DOD's report card in front of me. 
Almost 50 percent of the contracts have been let and your 
percentage, particularly for small business and women-owned 
business, is way below the goal. What does the DOD do when they 
are behind?
    Mr. Neal. As a result of the report card, we have been in 
contact with our--senior procurement officials and made them 
aware that we need stepped up activity if the Department is 
going to make the goals.
    We take the goals very seriously .
    Ms. Velazquez. I just want to hear, what is it that your 
office does to turn this around?
    Mr. Neal. Well, since we report directly to the Under 
Secretary for Acquisition and Technology, we bring it to his 
attention that we are below the goals and in working with the 
Under Secretary and the Director of Defense Procurement, we 
send out guidance to our folks to ask them to step up their 
activity to ensure that the Department makes the goal.
    Ms. Velazquez. And when you see that the Department hasn't 
reached the goal, what is the next step? What do you do?
    Mr. Neal. Well, we are in the process now of looking at our 
performance, and we are devising recommendations that we will 
give the Under Secretary to help ensure that we will do a 
better job should we not reach the goals and to maintain the 
level of performance that we currently have. A number of 
initiatives that I have cited in the testimony attest to that.
    But we also have things, for example, in the area of women-
owned business. We know that we are substantially below the 
goal. We just recently had a major procurement conference in 
the southeast directed at women-owned businesses that are in 
the manufacturing area where we brought in a substantial number 
of our prime contractors and women-owned businesses to try and 
facilitate matchmaking so that they could get contractual 
opportunities. We have another one scheduled for, I think, the 
southwest for later this year. But we are very actively 
pursuing women-owned businesses and encouraging them to 
participate in our contracts.
    Ms. Velazquez. I can see that by the numbers.
    Ms. Lee, I listened to your testimony with great interest, 
particularly the part where you say that the Federal Government 
is pretty close to their midyear averages. Your records show 
for the first half year overall small business prime contract 
procurement is at 15.8 percent of all prime contracts. What is 
the goal for overall procurement?
    Ms. Lee. The goal is 23 percent.
    Ms. Velazquez. Do you expect them to come close to that 
goal?
    Ms. Lee. Yes.
    Ms. Velazquez. You state that you are at 17 percent and the 
goal is 23 percent. That means the Federal Government will have 
to do, say, over 30 percent small business for the last half of 
the year. Given that that is almost double for the second half 
of the year, is that realistic?
    Ms. Lee. That follows the trends that we have followed for 
5 years. In fact, last year having met the goal, we were at 
17.6 percent at midyear. So at 17.8, we are on track. We would 
like to do better.
    Ms. Velazquez. Do you think you will do better?
    Ms. Lee. We will do better.
    Ms. Velazquez. Sure. I noted that in your testimony you 
combined the goals of 8(a) and SDB. I would like to focus just 
on 8(a) for a second which I see as a critical business 
development program. Are you seeing a decline in their activity 
or percentage over the past few years?
    Ms. Lee. The midterm, I am using just the midterm numbers, 
but for this year that is 3 percent. That is better than last 
year of 2.8 percent, but it is not as good as we did in 1995. 
So we have seen kind of a peak and then a drop-off and it looks 
like we are picking back up and we are trying to emphasize that 
program.
    Ms. Velazquez. What we are hearing from 8(a) companies is 
that they are experiencing a dramatic drop in opportunity, say 
comparing opportunities now to 3 or 4 years ago. You are not 
noticing that drop?
    Ms. Lee. Not from the midyear numbers. We have noticed a 
drop-off from 1995, but in 1998 we were at 2.8 and in 1999 we 
are at 3.0.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Ms. Lee. We are close.
    Chairman Talent. You have a quick question? I will allow 
it.
    Ms. Millender-McDonald. Ms. Lee, you were saying that this 
midyear you had a percentage of a 2.8 and now you have a 3.0?
    Ms. Lee. Last year, 1998, midyear was 2.8. This year, 1999, 
midyear is 3.0.
    Ms. Millender-McDonald. Just what the gentlewoman has 
spoken of is what we are troubled with and that is the decline 
of 8(a) contracts, specially to minority businesses and even 
more specifically to African-American businesses. And we need 
to look at some data that tells us differently that there is 
not a decline, but we are of the opinion that it is.
    Ms. Lee. These are our midterm numbers. We will again get 
the end-year numbers, and I would be happy to come and meet 
with you and discuss those.
    Ms. Millender-McDonald. I would need to have you come and 
meet with me, because at 3.0, I would like to know where we are 
in that mix.
    Chairman Talent. Ms. Napolitano, she is next.
    Ms. Napolitano. Thank you, Mr. Chairman. One of the things 
that I keep hearing over and over again--and I agree with Mr. 
Abercrombie--is that we will get to it, we will do it. In the 
past, that has not brought the results. I need to know 
specifically, are you dealing with the procurement officers 
being able to train the agency bureaucrats that will talk--you 
will give direction to, but they will go on business as usual 
and still not get the work done that we are proposing that is 
the intent of Congress to be able to put through?
    That bothers me because I keep hearing it over and over 
again, not just from your agency but from many agencies, and I 
think we need to address how are you getting to those career 
bureaucrats that will turn and continue doing whatever it is 
they please, even though they are being given direction from 
this Congress and this Committee?
    Dr. Hayes. Bob can respond. DOD has, for example, many, 
many, thousands of procurement officials. It is a constant 
effort to keep people informed about the programs, the 
requirements, the goals, and so forth. We do the best we can 
with the resources we have. We work very hard with our sister 
agencies and use every possible forum that we can take 
advantage of to get the word out.
    Ms. Napolitano. How do you get the word out, may I ask, 
sir?
    Dr. Hayes. We have joint conferences.
    Ms. Velazquez. Will the gentlelady yield? Sir, you come 
here and I just--every time that we ask a question and you say 
the lack of resources. We held a hearing here about the SBA 
budget. When did you or the administrator talk to us about the 
lack of resources in these particular areas?
    Chairman Talent. I will say to the gentlewoman in my time 
as the Chairman and yours as ranking member that has never come 
out in any of the testimony. There has never been a request for 
more money in this area. Now, Dr. Hayes, we don't know what he 
said internally, but never before this committee.
    Dr. Hayes. Our budget, as you know, is negotiated in the 
context of the overall administration's budget. We try to do 
the best we can with the resources we have. We do not, as you 
know, have PCRs at all the buying sites. We have never and we 
probably never will in the current budget climate. So our goal 
is to figure out how we can make use of--best use of the 
resources that we have to do the job. And I think we do a very 
good job of that.
    Also, we have got to figure out other ways that we can work 
aggressively with the other agencies and with the Department of 
Defense who has, as Bob says, 500 small business specialists 
who are advocates for small businesses and are there when these 
decisions are, in effect, made.
    All I can say is that we are working the best we can with 
our existing resources to carry this important job out.
    Ms. Napolitano. Reclaiming my time, but, again, we keep 
hearing that it is being done, that you are talking to them, 
but the results are not being shown in the percentages. So how 
does that mean to you, what steps can you assure this Committee 
that you will take to be able to start turning around the 
mentality that women-owned business and minority businesses are 
not important to the economy and are not important to the 
agencies that you deal with?
    Dr. Hayes. I travel a great deal around this country. I 
meet with small businesses. I meet with the other agencies. The 
Federal Government is meeting the goals for small businesses 
and for SDBs. The women's goal, which is a fairly recent 
concern, is not being met. We are at 2.1 percent. If you look 
at the rate at which we have reached the 2.1 percent, while 
good, not good enough. Reaching the 5 percent goal is an 
extremely high priority of my boss, Aida Alvarez andthis 
administration, and we will do the best we can. We will do better than 
better to address this issue.
    It is important that we find women-owned businesses. They 
are good people. They are good businesses. They can do the 
work, and we want to get them in front of the procurement 
officials to have them take advantage of these opportunities.
    Ms. Napolitano. I have no question about the ability of 
your employees to do the work. It is the type of work that is 
necessary that is being directed by this Congress to do to 
assist small and minority-owned businesses. And somehow the 
mentality is it doesn't matter. Let's bundle because it is 
simpler; it is cost cutting. It is time saving. And that is 
just not going to be happening anymore.
    We are tired of it. We get consistently complaints in my 
district office about the small business being eased out, aced 
out. And they have been there before. So I don't know how many 
complaints your agency gets and how you deal with them, but I 
certainly am very displeased with what is happening in my area, 
my small businesses and women-owned businesses.
    Dr. Hayes. I share your concern. Every complaint we get we 
vigorously explore it. We try to reach a satisfactory 
resolution with every complaint that we get on our bundling 
hotline or situations that are identified by our PCRs. We try 
to reach a satisfactory solution with the buying site. And if 
we cannot, we will appeal it. We will go to the head of the 
agency to look at the matter .
    Ms. Napolitano. I think some of us would be glad to have 
you in our districts to have you listen to the small businesses 
and have them tell you their horror stories about what is 
really happening, because the bureaucracy sometimes it just 
doesn't filter down. And I would certainly like to invite you 
and any of you who would like to come and listen to them.
    Dr. Hayes. I would more than welcome the opportunity.
    Ms. Napolitano. Thank you.
    Chairman Talent. I thank the gentlelady for her questions. 
I have Mr. Gonzalez next on the list.
    Mr. Gonzalez. Thank you, Mr. Chairman. Mr. Chairman, this 
will be two short questions. The first one is directed to Dr. 
Hayes and that is regarding the Marine's proposal on the 
cafeteria regionization plan. And there has been 
correspondence--and I appreciate your response and think your 
last letter to me was July 13th. You are going to follow up 
with a second meeting with, I think, the Department of the Navy 
or the Marines to see about the concerns that were being 
expressed.
    But what information did you have by way of analysis, any 
kind of costs or efficiency studies by the Navy to justify the 
regionization proposal?
    Dr. Hayes. As you know in our correspondence, we did meet 
with the Marine Corps. We expressed our concern about that 
particular strategy. We are aware of small businesses that can, 
in fact, do the job. And our most recent discussions with them 
reveal they are still considering our appeal to figure out an 
alternative way to carry out the strategy. But as of today, we 
have not heard back from the Marine Corps as to how they are 
going to address this issue. But we remain convinced that there 
are small businesses that can, in fact, do the work and we 
would like them to figure out a way to restructure the 
procurement so that small businesses can be very major players 
in that overall effort.
    Mr. Gonzalez. And up to the present time, have they 
provided you with any kind of study, research, or analysis?
    Dr. Hayes. I am not personally aware of anything that I 
have received, but we have had discussions as to why they 
wanted to go to basically bundle those particular procurements 
and that particular approach. But I am not certainly aware of 
any overall analysis justifying that activity.
    Mr. Gonzalez. But it is a requirement that you would impose 
on them to document.
    Dr. Hayes. The documentation requirements are part of the 
new contract bundling rule. Currently, it is really a 
negotiated effort where, if an agency wants to bundle a 
procurement, we sort of discuss what their plans are and see if 
we can, in fact, provide an alternative under the new contract 
bundling rules. If there is substantial bundling, then they 
would be required to submit to us an analysis which justified 
their activities but also would indicate the steps that they 
are taking to make sure that there is going to be a very strong 
provision for subcontracting with small businesses.
    Mr. Gonzalez. Because we made that request, we asked what 
are they predicating the proposal on. The second question to 
all members of the panel is the Chairman has already alluded to 
what we hear when we go to our town hall meetings and we have 
our breakfast meetings with our small businesspeople, and I 
will tell you right now, and it is consistent. It is consistent 
probably with everybody that is sitting here today, and the 
complaint is simply that the contracting officers have a 
certain attitude or bias against the 8(a) business individuals 
to the extent--and I will paraphrase it--that someone in San 
Antonio actually said this to a woman, a small businesswoman to 
her face and said: You 8(a) people are a pain in the rear.
    And so it is something that Congresswoman Napolitano was 
referring to. When you have something like that happening, it 
is not a matter of sensitivity or anything like that. It is 
really a mind-set. And you will never accomplish your goals as 
long as you have the people that are down there that are 
supposed to be effectuating this policy with an attitude, and I 
really believe that it does exist. In San Antonio we are going 
to be looking into it.
    But I am sharing the concerns expressed by every member 
here, and I am hoping that you do have something in place that 
will go down there and when these complaints are being made, 
that you will interview these individuals. That is the first 
thing.
    The second thing, of course, is to have something already 
in place that will indicate to these individuals that the 
responsibility--that this is what they are supposed to be doing 
that these are their goals, this is their mission. This is not 
an alternative. This is not an option. This is their mission. 
And so to the extent that you address that concern over and 
above what you all have stated to the Congresswoman, I would 
appreciate a response.
    Dr. Hayes. I assure you that that attitude is not shared by 
the head of that agency or anyone else in this administration. 
The 8(a) program is an extremely high priority program, and we 
will do whatever we can do to see that it survives and grows. 
In addition to the PCRs, we do have people in our district 
offices who directly run the 8(a) program; and those 
individuals they negotiate contracts, they help the 8(a) 
companies in their business development activities. And if 
there is a complaint or a problem, I would encourage that 
individual to contact the local district office, and we clearly 
will pursue that kind of problem. We are just not going to 
stand for it.
    Mr. Gonzalez. Anyone else?
    Ms. Lee. Just the same comment, it is unacceptable.
    Mr. Gonzalez. Thank you very much. Thank you, Mr. Chairman.
    Chairman Talent. Mr. Phelps.
    Mr. Phelps. Thank you, Mr. Chairman. I will be brief. I am 
going to try to see if I can lookat the advantage from the 
managerial standpoint. Do you have any numbers or can you verify the 
fact what advantage bundling has in the way of saving the taxpayers 
costs? I am trying to think from the standpoint of the positive side of 
bundling to try to understand the rationale. Because I am one to know 
that we can, you know, engage in the conversations and you can say this 
is priority to us, but all these things reflect whatever is priority. 
But it will reflect in your actions, and obviously we have pointed out 
enough here what the lack of action is.
    So the priority must not be there, even though you say it 
is. So there must be some rationale to base what you are not 
willing to admit to us about the actions that are reflected as 
priority. Is it a big cost savings in bundling? What is the 
taxpayers' gain from how things are being carried out?
    Dr. Hayes. I am not aware of any overall numbers on 
individual procurements. There may be savings to the Federal 
Government. The statute talks about different areas where there 
might be benefits from bundling, improved service, reduction in 
cycle time and so forth. These can be translated into dollar 
savings on a particular procurement. In other cases, the 
savings may not be there; and in those cases we vigorously 
oppose those bundling activities. But I am not aware of any 
overall government-wide number that would give you the total 
savings to the Federal Government.
    Mr. Phelps. So there is nothing from the top that is being 
communicated, look, we need have so much bundling because this 
is a tax savings to the people and to our agency to justify to 
Congress or whatever else? You cannot really say there is 
anything like that that is being communicated through the 
ranks?
    Dr. Hayes. I am not aware of any overall analysis in that 
regard. Agencies make individual decisions about proposals to 
bundle certain procurements because it is in the interests of 
carrying out their mission. We may or may not agree on a 
particular individual procurement.
    Mr. Phelps. Have you seen an increase at all, an effort for 
small businesses to consolidate to compete with the bundling 
and see what the advantages would be in that respect?
    Dr. Hayes. This is one of the provisions that is in the 
statute that we will have in the final regulation which will 
allow small businesses to affiliate, to come together and be 
treated as a small business for the purposes of that 
procurement. And they still retain their small business status. 
We think this is one way that small business can team together 
and, in fact, can handle the larger procurements if there, in 
fact, is going to be a bundled procurement. This is a provision 
that we have put forth in other regulations again so that small 
business can benefit in this regard.
    I think it will be a win-win for those small business teams 
that come together and bid on these procurements.
    Mr. Phelps. Thank you.
    Ms. Velazquez. Mr. Davis from Illinois.
    Mr. Davis. Thank you very much. You know as I have listened 
to the hearing and the proceedings, it reminds me of the 1960s 
when we used to go through a piece called ``Mau-Mauing the flak 
catchers.'' those of us who worked in the civil rights 
movement--most people are too young. But I do not believe that 
you can get blood out of a turnip. I do not believe that you 
can make brick without straw. I do not believe that you can put 
a square peg in a round hole. And I do not believe that you can 
serve two masters at the same time.
    I am just a simple kind of person. It seems to me that, and 
especially from what I just heard, that there is no real reason 
to have bundling. I mean, can you cut costs? Increase 
efficiency and effectiveness at the same time? Expand small 
business participation and create opportunities for new people 
to get into business all at the same time? Can you do that 
through a process of bundling? Or is bundling simply a way of 
giving big businesses the opportunity to get bigger? Giving the 
rich greater opportunities to get richer?
    I am trying to figure out why are we doing this. And so 
maybe if someone could answer, I thought maybe it had to do 
with saving money, until my colleague Mr. Phelps asked that 
question. And I understand that that is not the purpose, you 
know, that we are not really saving any money.
    We are not increasing efficiency and effectiveness. Then my 
question is, what are we doing? Why are we doing it? So maybe 
if someone could answer that for me, then I could understand.
    Dr. Hayes. I am not going to defend bundling. We are 
concerned about bundling. But it does occur in some situations 
because the agency views that it is the best way to carry out 
their mission. My concern being with SBA working for SBA is to 
make sure that small businesses get a fair shake in those 
situations where an agency deems it in their interest to bundle 
a contract. I want to make sure that the small businesses are 
participants; that they are players, players in quality work; 
that they have the opportunity to grow and benefit from the 
activity. That is what we are about. That is what our job is.
    Mr. Davis. Then I guess what you are saying to us is that 
all of the questions that are being raised, they really need to 
be taken someplace else, and we really need to take them to the 
Floor of the House, or we need to take them to Management and 
Budget or to the President or somebody----
    Ms. Millender-McDonald. The President. Thank you, Mr. 
Chairman.
    Mr. Davis [continuing]. Because there is a flawed policy. I 
empathize with you all. I mean, trying to respond to a policy 
that is already flawed, you can't get blood out of no turnip. I 
mean, I already know that and all of the rest of us know that, 
also, that you really can't. I mean, and so the policy is 
flawed in the beginning from the outset if we are talking about 
being of any value to small businesses. And so I appreciate----
    Ms. Millender-McDonald. If the gentleman would yield. Mr. 
Davis, you have certainly put your finger on the core problem. 
It suggested to me as I was listening to the other members of 
this Committee, we really should not be sitting here. We should 
be going to the administration and administrators to tell them 
that this is a flawed piece of legislation. And we are not 
going to move from square, blocks, curves or anything else 
until we can get something that is sufficient and will 
sufficiently address the issue here. We will sit here and raise 
these questions, but answers do not flow from the three persons 
who are here or anyone who succeeds them because this is a 
flawed piece of legislation or flawed in its implementation, 
Mr. Chairman. And, therefore, you are not going to get blood 
from the turnip, as Mr. Davis has said. Thank you so very much.
    Mr. Davis. Reclaiming my time, let me just appreciate your 
testimony in terms of the good-faith effort that I think you 
might certainly be putting forth to try and do the best job 
that you can do to understand a most difficult set of purposes 
and circumstances and rules and regulations. I grew up in rural 
America, and we had a great work ethic. My father used to tell 
us to do things that were virtually impossible, but he would 
tell us to do it anyway. I think that you are in an impossible 
situation. So keep on trying to do it anyway. But it ain't 
going to happen under these kinds of rules and regulations. You 
just can't serve two masters all at the same time. I thank you 
very much, Mr. Chairman.
    Chairman Talent. I thank the gentleman, and also I thank 
the gentlelady from California.We are going to pursue this 
matter. I am telling the committee I am not going to ask the President 
to testify. We will have to go a little lower than that.
    Ms. Millender-McDonald. I was trying to help you, Mr. 
Chairman.
    Chairman Talent. Mr. Moore was next.
    Mr. Dennis Moore. Mr. Chairman, I have to leave. I would 
like to yield my time to my colleague here who has some 
questions. Thank you.
    Chairman Talent. Mr. Wynn is recognized.
    Mr. Wynn. Thank you, Mr. Chairman. I would like to thank 
Mr. Moore for yielding time and thank the Committee for its 
indulgence, as I am somewhat of an interloper. I am very 
concerned about this issue, and it is a sad fact that this 
began with the so-called streamlining of Government. The Office 
of Federal Procurement Policy actually encouraged bundling as 
part of that effort. I think that you are right, Ms. Millender-
McDonald, that we are going to have to go to the administration 
to challenge this policy because we are not really making a lot 
of progress. Specifically, if I am understanding correctly, Mr. 
Hayes, you are negotiating with OMB and the Office of Federal 
Procurement over the implementation of these regs; is that 
correct?
    Dr. Hayes. And other Federal agencies who will comment on 
the regulations in the review process.
    Mr. Wynn. I want to find out the status of certain 
provisions. There is a provision that would require that the 
PCR be notified by the agency that has bundled a contract by 
the procurement officer who is proposing to bundle a contract. 
Is there agreement on that notice requirement?
    Dr. Hayes. There is always--without speaking specifically 
to the final version of the rule, there is a notification of 
requirement.
    Mr. Wynn. I know that there is a notification of 
requirement. My question is within the administration, is there 
agreement that your PCRs will be notified when bundling is 
proposed, or is that part of the fight? I am trying to figure 
out when we are going to get these regs, and I need to know 
what is agreed upon and what is still in the active debate.
    Dr. Hayes. Our PCRs already have that authority independent 
of this regulation. We are there----
    Mr. Wynn. Do they have the right to be notified or the 
right to inquire?
    Dr. Hayes. We inquire, again, because----
    Mr. Wynn. So my question is will the regs provide for an 
automatic notice of any bundling? In other words, when the 
contract terms are changed to consolidate a contract or change 
its original character, will your PCRs be notified? Has that 
been agreed upon within the administration?
    Dr. Hayes. Again, the draft final reg just was submitted to 
OMB.
    Mr. Wynn. Ms. Lee, what is your view of that?
    Ms. Lee. The draft final rule was in this week. We sent it 
out to the agencies and they made comments. We will get all of 
the comments together. I don't know right now what agencies are 
going to comment and how they are going to react, but we will 
certainly work through all of those.
    Mr. Wynn. Next question. The small business combinations, 
the ability of the small businesses to consolidate to bid on a 
bundled contract. Has that been agreed to?
    Dr. Hayes. That is a provision in the statute and is also 
in the regulation.
    Mr. Wynn. Ms. Lee, in other words, does OMB agree with SBA 
that that ought to happen?
    Ms. Lee. We agree that is part of the statute.
    Mr. Wynn. I know it is part of the statute. I don't want to 
hassle you, but please don't insult me. Yes, it is in the 
proposal, but does OMB agree with it? Does OFP agree with it?
    Ms. Lee. Yes.
    Mr. Wynn. Mr. Hayes, you keep saying that you have appealed 
these. How many have you appealed?
    Dr. Hayes. I don't have the overall number. In 1998, I 
think there were--I don't know the exact number of the appeals. 
There were 60 situations of bundled procurements that we 
intervened in and we were successful about 90 percent of the 
time. An appeal is a particular action where we file a form----
    Mr. Wynn. When you say that you were successful, does that 
mean that the contract was unbundled?
    Dr. Hayes. Either the agency unbundled or changed the 
procurement strategy to provide for a larger role for the small 
businesses.
    Mr. Wynn. I am hearing two things here: one, that on the 
subject of measurably substantial benefits, some people want 
specific measurements, 10 percent savings, or what have you. 
Others are saying that we don't need a cookie-cutter approach, 
we need flexibility. We could argue that all day. The statute 
said measurable. Are we going to have quantifiable figures? I 
am not asking what those figures are going to be, but are we 
going to have the quantifiable figures, or is it going to go 
left open-ended?
    Dr. Hayes. It is SBA's position that in order for us to 
effectively measure what is going on there needs to be a 
quantifiable aspect of this.
    Mr. Wynn. Ms. Lee, you are shaking your head. Do you 
disagree?
    Ms. Lee. I was trying to make sure that I heard.
    Mr. Wynn. He said he wants to quantify it. Does OMB agree?
    Ms. Lee. We agree there needs to be a--you need to be able 
to delineate what the benefits are. What I am concerned about, 
as I said, a cookie cutter that says 10 percent is the answer. 
Because 10 percent of a million dollars versus 10 percent of a 
hundred million dollars----
    Mr. Wynn. Are you advocating a sliding scale?
    Ms. Lee. We might look at that, but we need to keep it in 
harmony and balance and make sure we are wisely expending the 
dollars but also broadly including small business.
    Mr. Wynn. I would just make one more comment. I thank the 
Committee for its indulgence. I am in addition to being 
concerned about individual small businessmen as you have heard 
from all of the people here, there is another concern, that the 
taxpayer is ultimately going to be cheated when the big 
businesses run the small businesses out, there is no further 
competition for these large contracts, and then the price goes 
up to the taxpayer and no vehicle with which to contain prices. 
It seems to me that the Office of Federal Procurement ought to 
be weighing this in its policy because not only is small 
business going to lose, the taxpayer is going to lose. We are 
going to pay more for a lower-quality product if we don't get a 
handle on this issue. Thank you, Mr. Chairman.
    Chairman Talent. I thank the gentleman. Ms. Millender-
McDonald.
    Ms. Millender-McDonald. Thank you, Mr. Chairman, and for 
bringing this hearing before us. This is something that has 
been very troubling to us and that is the whole process of 
procurement and bundling. I have several questions. If you do 
not have the answers to this, I would like you to submit them 
to me at a later date in writing so that I can share this with 
my colleagues.
    In looking at the--small businesses receive over $40 
billion in Federal prime contracts. My question is, considering 
the prime contractors and subcontractors of Federal projects, 
how many firms that are minority-owned participate in the 
procurement process as prime or subcontractors in the Federal 
procurement process? Can any of you answer that question at 
this juncture?
    Ms. Lee. Not at this moment.
    Ms. Millender-McDonald. That is why my questions might be 
of such where you have to go back and research. Then I would 
like you to submit that in writing to me so that we could have 
a better handle on it.
    Number two, what percentage of the $200 billion procurement 
budget goes to the larger corporations? Do you have that 
answer?
    Ms. Lee. We will get the exact number, but again our goal 
is 23 percent. The budget itself is substantially less than 
$200 billion now. It is around 10 because of----
    Ms. Millender-McDonald. But I also see there is a decline 
of 13 percent of small business procurements. Within the 
Federal Government it has fallen to 13 percent. I would like to 
know of that shift, how many have gone from small businesses to 
large businesses, of this shift that has taken place in terms 
of a decline of Federal small business procurement? I need to 
know that.
    And how are minority and women-owned firms impacted by the 
bundling process of the Federal Government? I need to know that 
as well.
    Those are some of the major concerns that I have and would 
like to at least get something written so that we can share 
this. We will have perhaps the handle on going to the 
administration or to whom we will go to. I am going to follow 
the Chairman's lead and the ranking member, but I am certainly 
behind them on addressing this issue because we cannot tackle 
the giant if we don't have the type of tools to do so.
    And certainly it seems that it is flawed, that we do not 
have the types of regulations and/or laws that would help us to 
really crack the nut on small businesses. We go back to our 
districts; and we are constantly being asked, where and how can 
we get a hold of these procurement contracts. We cannot afford 
the bundling because of the myriad of things that go into that 
before they even go into this bundling process.
    So we must then come to you and ask how can we best help 
the small businesses in our community. Those are the questions 
that have been raised. I would certainly like to have those 
answers reported back to me, please. Thank you.
    Chairman Talent. We have a vote coming up and, Ms. 
Millender-McDonald, I thank for your questions. She is the last 
person to ask questions for this panel. What I will do is 
recess the hearing and then take the second panel.
    Without objection also we will hold the record open for ten 
days so that any member who wishes to do so can submit written 
questions, and we will include those answers into the record of 
this hearing. I want to thank the panel for being here. I know 
that it has been at times a delicate exercise, but you can tell 
how concerned the Committee is about it. And we do appreciate 
what you are doing and look forward to working with you on 
these issues.
    We will recess the hearing and then come back after the 
vote for the second panel.
    [Recess.]
    Chairman Talent. If we could have the second panel take 
their seats, please. I am sure the other members of the 
Committee will come trickling in. We are behind time and you 
have been very patient, and I think that we will go ahead and 
go forward. What we will do is go ahead with the witnesses that 
we have here, and then I am sure that the others will be coming 
back. I am going to tell the Committee and witnesses I am going 
to have to be leaving in a few minutes so I will miss some of 
this testimony. But I do appreciate you being here and I did 
ask the staff to make certain that we had examples of people 
who really have been affected by this because we could talk 
about deadlines and numbers and all of the rest of it.
    It is important to remember this is having a real impact on 
real people. I am also going to talk to the ranking member that 
I think that the next time it might be good to have the real 
people go first so that the--that is terrible. They are all 
real people, but have the people who have been affected by this 
go first so that those in charge of this can hear that 
testimony and give us their comments on that.
    Our first witness on the second panel is Mr. Terry Head, 
who is the president of the Household Goods Forwarders 
Association of America. We appreciate you very much being here, 
Terry.

    STATEMENT OF MR. TERRY HEAD, PRESIDENT, HOUSEHOLD GOODS 
                     FORWARDERS ASSOCIATION

    Mr. Head. Thank you, Mr. Chairman. Knowing that time is 
short, I did a shortened version of my written testimony that I 
presented, but I would like to cut right to the chase because 
it was obvious to me that in the first panel and particularly 
the question and answers that pursued, you people are aware of 
the problem. I would like to at this point take my time and 
state what we think could be one of the solutions or some of 
the solutions to the problems.
    Again, I am Terry Head----
    Chairman Talent. Terry, if you would, just suspend for a 
minute. Take a minute and tell us the specific nature of the 
problem you are dealing with bundling. You don't have to take a 
long time to do it, but the Committee is interested, and we 
will have this for the record. Take 60 seconds or 2 minutes and 
tell us what you are dealing with.
    Mr. Head. All right, sir. I am president of the Household 
Goods Forwarders Association. That associate is made up of 
people who are involved in, let's call it the moving and 
storage arena. Our members are made up of forwarders, moving 
and storage companies who act as agents at the local level, 
trucking companies, people who supply to the industry. Even the 
airlines and the ocean freight companies are members of our 
association. Where we have been experiencing the problem that 
relates to this hearing is particularly in the DOD arena.
    Our members who are actively involved predominantly provide 
the service for the movement of military families, all 
services. In recent years we have been experiencing the impact 
of contract bundling, but more in the form of reengineering, 
which ties back to the streamlining of government. 
Specifically, the command that is responsible for our military 
traffic management, command as well as DOD specifically, office 
of the Secretary of Defense, have launched a number of 
reengineering pilots.
    These are truly, in my opinion and I believe the opinion of 
my members, the best example of contract bundling where we have 
gone from having 200 or 300 people supporting a base or 
installation, providing moving services, domestic or 
international, these pilots are focussed on putting the 
business in the hands of one or maybe two or three large 
contractors. Then those large contractors are focussed on, 
again as Congressman Abercrombie said, in a sense brokering the 
business down through a subcontract scheme to the service 
providers. So the service providers haven't changed.
    What has changed is the method by which the Government 
acquires the services and then the method that that business is 
distributed down to the people who have always been doing it 
and are continuing to do it. The problem is we are trying to 
maintain our position as prime contractors. The bundling, 
because it puts us at a disadvantage to the large companies, 
doesn't allow us to do that.
    Chairman Talent. Here is the impact on the average service 
member. These people are ordered to move from one base to 
another. Now, you have injected another layer. So you have the 
prime contractor which is a big moving company. And they, by 
the way, have been supportive of your efforts to try and get 
this changed. They are saying bundled contract, they must 
subcontract to another labor. The point of this is to save 
money. Initial contracts, they bid at a discounted cost. So 
now, you have got a squeezed profit margin and another layer of 
business that has to live off of that squeezed profit margin 
and another layer of between the person being served and the 
provider, the servicer, because you have this subbed. So the 
inevitable effect it is to exert a downward pressure on quality 
as everybody is living off of this squeezed profit margin. I am 
testifying for you here.
    Mr. Head. You are doing an excellent job, too.
    Chairman Talent. You have a downward pressure on quality 
and on accountability. Then after the first contract is up and 
a lot of the movers who previously have been able to service 
that base, they have gone out of that business. Because they 
had to, they turn their efforts elsewhere or they just went out 
of business. Then you rebid the thing. Now, there is a lot 
fewer competitors. So then you don't even get the discounted 
value anymore. Nobody from the DOD has ever explained to me why 
that logic isn't going to work no matter what you try and do.
    Mr. Head. To be correct, in the examples that we have seen 
so far, the pilots that have been run, specifically the pilot 
that was run at the Hunter Army airfield, we already saw an 
increase in cost per move. That was recently reported in the 
June this year report from GAO who was tasked, of course, by 
Congress to look at these pilots. We went from what was $2,641 
average cost for a domestic move within the continental U.S. to 
over $7,000. That is almost a 60 percent increase in cost. So 
that we saw right from the beginning. Then you add the added 
element of the reduction or driving away of the small business, 
i.e., the other competitor, and Lord knows where costs would go 
in the future.
    Someone was commenting earlier, there is an obligation to 
the Government and the procuring agency, but there is also an 
obligation to the taxpayer to protect us as well, sir. If I 
could, you have hit right to the essence of our problem. I 
would like to say what we would like to see in your efforts, 
the Congress' efforts in the future. Granted as came out 
earlier, there is legislation that has already been passed 
focussed on this. There is a policy that the Government has 
come forward that allows bundling. As Mr. Davis said, it is a 
flawed policy. Something has to be put in place that provides 
us, the small business entities, some protection from that 
policy until it is changed. This is what we would like to see, 
sir.
    We firmly believe that any legislation or subsequent 
regulations must include mandatory provisions requiring 
contracting officers to quantify any expected cost savings from 
the practice of contract bundling. We believe that an analysis 
beyond the warm and fuzzy assertion that contract bundling is 
in the interests of the government is necessary. There should 
be a minimum threshold to be reached before a contracting 
officer could justify a decision to proceed with a bundled 
contract.
    We believe that a contracting officer who intends to bundle 
a contract should be expected to prove that it exceeds a dollar 
threshold. Once that threshold is determined, it then be 
published in the Federal Register of the Commerce Business 
Daily and the Small Business Administration Web site so the 
business is aware of what the intent and the impact is 
therefore. We believe that notification should be provided to 
all small businesses who currently hold contracts that are 
being considered for bundling. That is a very key point.
    These people don't have the ability to have huge 
contracting offices following a lot of procurement. So they 
need the Government to help them know what is going on. In the 
event that a requirement has been previously bundled and is to 
be recompeted in a bundled format, the contracting officer 
should provide an analysis demonstrating that the bundled 
contracts save the Government money over and above any 
administrative savings.
    Furthermore, we recommend that on an annual basis each 
agency be required to report to Congress to the Small Business 
Administration on all bundled contracts and the effects of 
bundling on small business, particularly with emphasis on the 
ability to maintain small business participation as prime 
contractors.
    Sir, I yield my time to the other--I know that you are 
aware of our issues.
    Chairman Talent. I thank you for being here and making the 
Committee aware.
    [Mr. Head's statement may be found in the appendix.]
    Chairman Talent. What we are going to do--because Mr. 
Filner is here to introduce Mr. Smith. And so we are going to 
go a little bit out of order. Phyllis, we are very eager to 
hear your testimony. We will hear it in just a few minutes, but 
in order to protect Mr. Filner's time because he needs to go, I 
am going to ask him to introduce the person who is third on our 
witness list now.
    Mr. Filner. I thank the Chair. I thank the members of this 
committee for holding this hearing. It is extremely important 
to my constituents. I would just add, by the way, to your last 
speaker, it is hard to quantify the cost of small businesses 
going out of business. That is one--that is the real cost of 
this bundling issue that we have to get at. The story you will 
hear from Mr. James Smith from San Diego, California, will tell 
you that.
    In America we tell our children that if they get a good 
education, work hard, and give back to your country, play by 
the rules, they will be successful. Mr. Chairman, James Smith 
has listened to that advice as a child and after giving back to 
his country by serving in the U.S. Marines, he went into 
business. He started the United Janitorial Services by himself, 
and 15 years later he employs 50 people in our community and is 
still giving back by participating in all kinds of community 
activities. He is a model of hard work and resulting success.
    But now, Mr. Smith has run into a problem that he hasn't 
been able to overcome with hard work and fair play. The 
Department of the Navy's attempt to bundle several small 8(a) 
contracts for janitorial services into one large contract will 
cost him the majority of his business. His life's work will be 
shattered. He is not alone. As he speaks to you today and these 
other people from various parts of the country speak to you, 
they represent not only many other 8(a) business contractors in 
their own districts, but obviously small business appeals 
across the Nation.
    This concept of contract bundling I think is completely 
contrary to the intent of the SBA. It takes the small out of 
small business and takes the fair out of fair play. I am glad 
that you are hearing these folks, Mr. Chairman, and I hope that 
you listen carefully. I think that you will see that, as I say, 
you and the others this morning know the issue very clearly, 
but you will send this idea back somehow to the drawing board. 
Thank you for holding this hearing. I am proud to introduce my 
constituent, Mr. James Smith.
    [Mr. Filner's statement may be found in the appendix.]
    Chairman Talent. Please go ahead, Mr. Smith. Thank you, Mr. 
Filner.

 STATEMENT OF MR. JAMES SMITH, UNITED JANITORIAL SERVICES, INC.

    Mr. Smith. Mr. Chairman, and members of the Committee, my 
name is James Smith. I would like to begin by telling you a 
little bit about myself. After serving in Vietnam as a combat 
Marine, I entered the world of small business. I did this by 
starting my own company, United Janitorial Services. Although 
it remains a small company, it has grown from one employee to 
over 50; and it is the largest employer in my community. My 
family and I are very active in our community. I currently 
serve on the board of directors of the San Diego Boys and Girls 
Club, the CDC board of directors, and serve as chairman of the 
Encanto Community Fund.
    It was not until I entered the 8(a) program that I was 
offered the opportunity to really succeed and expand my 
company. Because of 8(a), I currently contract with the 
Department of the Navy. If the bundling of custodial contracts 
actually goes into effect, the change will have a devastating 
impact on my business and others like me. My business along 
with many others will not be able to compete, ultimately 
forcing many of us into a struggling subcontracting role with 
minimal or no chance of development and growth. This hardly 
seems fair, considering the sacrifices and struggles that all 
of us have had to endure to assure success for our businesses.
    I know for a fact that bundling custodial contracts will 
eliminate current opportunities for my company. It would, in 
effect, be a cancellation of current contracts ultimately 
causing my small business to lose 80 percent of its business. 
The bundling of contracts in other cities and States has proved 
that the local businesses are, in fact, the losers. Recently, 
two large contracts in San Diego were bundled and the entire 
situation was a huge failure. These contracts were then set 
aside for 8(a) contractors who are performing successfully.
    Mr. Chairman, on behalf of myself and my fellow 8(a) 
contractors of San Diego, I would like to close by sharing with 
you the following information about the impact of contract 
bundling. Contract bundling will eliminate various 
opportunities for 8(a) contractors. It will force 8(a) 
contractors into a subcontractor's role with little or no 
chance of development and growth or in many cases out of 
business entirely. Contract bundling will be put into effect 
with no studies on how the change will impact local businesses 
and in the community they helped to support. It would eliminate 
the sole source contract for many businesses.
    Currently, 8(a) contracts are distributed to various 
contractors which encourage and support the development of 
local businesses. These contracts are essential to the 
development and survival of the existing businesses and those 
new to the program. Bundling of these contracts will cripple 
and possibly eliminate the 8(a) program. In theory, contract 
bundling sounds great, maybe even practical. But in reality 
hope of further success of small disadvantaged businesses and 
the vitality of many communities will be shattered.
    The existence of small businesses all over the Nation are 
being threatened as huge companies force the small ones out of 
business, killing the entrepreneurial spirit in America. It is 
time for more support to be given to the small businesses of 
America instead of less which is exactly what the bundling of 
contracts will do. Mr. Chairman, and members of the Committee, 
I graciously ask for your assistance in preventing contract 
bundling which will without a doubt have a devastating effect 
on my business and other small disadvantaged businesses in my 
community. This concludes my statement. Thank you.
    Chairman Talent. And thank you, Mr. Smith, for that very 
informative and moving testimony.
    [Mr. Smith's statement may be found in the appendix.]
    Chairman Talent. I am going to have to go, but before I do, 
I want to introduce our next witness, a lady who has testified 
on several occasions before this Committee. We are always 
grateful to have her. She has a real story to tell about how 
subcontracting is working out. I refer, of course, to Ms. 
Phyllis Hill Slater, who is the president and owner of Hill 
Slater, Inc., and in addition to also being here in that 
capacity is also representing the National Association of Women 
Business Owners, of whom she is the past president. Phyllis, 
thank you. I want to thank all of you for taking time away from 
your small businesses to come here and inform us. We know that 
time is money for you and we are grateful. I want you to know 
on behalf of the whole Committee it makes a difference when you 
come down here and testify. Phyllis, please.

 STATEMENT OF MS. PHYLLIS HILL SLATER, NATIONAL ASSOCIATION OF 
                     WOMEN BUSINESS OWNERS

    Ms. Slater. Thank you. I am also going to stay away from my 
written testimony. You have it. I think you had a very good 
thing going with a lot of dialogue. I am glad that you are on 
our side. I am going to tell--just make clear for the record, 
NAWBO, is against bundling. That is it. Bundling does not help 
us at all. And it hurts women business owners, it hurts them 
very badly. We talked about I heard some people talk about 
women's issues. It is not a women's issue, but economic issue. 
Women business owners are employing 27 million people. When you 
start putting things in the way to keep us from being able to 
employ more people, you are talking about economics, less 
taxpayers out there. So this is not just a small business issue 
or women's business issue or minority business issue. It is an 
economic issue that impacts this whole country.
    The more of us that are working, the more of us that are 
contributing to the society. I have been in business now with 
my dad--well, my dad passed away in 1984. So it is a third-
generation business. I always tell people that I am the 
daughter of an engineer and the mother of an engineer. So we 
have had all different kinds of experiences and most of our 
business has been in the Federal Government, local, state, and 
municipalities as prime subcontractors of any work that we can 
get.
    This one particular project that I was on, the Federal 
courthouse on Long Island, I was on from the very beginning. 
And I was on as part of a team. We went on this project as part 
of a team, had to put in qualifications, had to put in the 
people that were going to man the job, their resumes, et 
cetera. My past experience, which added to the job since I had 
courthouse experience, plus I had a Long Island presence and I 
do have a very large Long Island presence. And I sit on all of 
the boards that are there and had all of the contacts necessary 
with all five of our Congress people to help push this 
courthouse project through. We won the contract. And we won as 
a team. We were awarded the contract.
    That is another thing that I want to say. Awarding 
numbers--I heard the people talk here about what was awarded. 
Awarded and what is collected are two different things. Watch 
those numbers, because they keep telling you what has been 
awarded. What has been collected? What has small business 
people actually received? That is another number altogether.
    We were awarded this contract, and it went on hold because 
of budget approval, et cetera.When it came back, they thought, 
okay, it is up for renegotiation. We were asked to jump through all 
kinds of hoops to keep on this project. We have been carrying on our 
projections all along. We have been keeping the people busy saying, 
well, when the courthouse starts, you will work from there. We were 
running a business as we had been for 32 years. This is real.
    Well, we were even asked to get a $100,000 bond. We are not 
brick and mortar, but we got $100,000. Do you know what it 
costs? We got it. Guess what? Seven years we have not collected 
one penny off of that project. They have done everything to 
keep us off of that project, yet we were listed as the elite 
women business owner, minority business owner on that project. 
So that every time you asked them who do they have, they would 
say us. They have never used us. This is not new to us. This is 
new to us on this level, but it seems like it has been more of 
a practice.
    In New York City, we were asked to put in a workload 
disclosure form. We were told that our workload disclosure form 
was not correct because they had us down as receiving other 
contracts that we had no knowledge of. We were put on without 
our knowledge to win the contract. But we were never told of it 
nor were we ever utilized.
    These are some of the problems, and you touched on them 
today. Bundling is just adding to the problems because we have 
no voice. We talked with another problem, collecting funds. As 
a subcontractor, it is very, very difficult to collect funds. I 
worked on LaGuardia airport for 4\1/2\ years. I was paid on an 
average of 72 days. To make that average for 4\1/2\, there was 
some 160 days and 180 days in there that we went without pay 
while we paid seven employees. Not only did we pay seven 
employees, but we paid seven professional salaries. We are 
talking about $25 to $55 per hour.
    So I have everything else here. If you have any questions 
of me, I would appreciate it. But bundling is not a good thing. 
It is just going to add to the problems that we--they haven't 
addressed already. If we are going to have goals, we need to 
put some teeth in the goals. Thank you.
    Chairman Talent. Well, I couldn't leave. It was so 
compelling.
    [Ms. Slater's statement may be found in the appendix.]
    Chairman Talent. But I am going to go after I introduce Ms. 
Cathy Ritter, who is the president of Constellation Design 
Group, Inc., of the American Consulting Engineers Counsel. She 
has another very interesting story to tell. Again, thank you, 
Ms. Ritter, for being here.

STATEMENT OF MS. CATHY RITTER, PRESIDENT, CONSTELLATION DESIGN 
       GROUP, INC., AMERICAN CONSULTING ENGINEERS COUNCIL

    Ms. Ritter. You are most welcome. My name is Cathy Ritter, 
and I am president of the Constellation Design Group. We are a 
21 percent woman-owned engineering firm in Timonium, Maryland. 
In our business, bundling often results in contracts of a size 
of a geographic nature for which small businesses cannot 
logically compete. I can give you a couple of examples. Several 
years ago a number of the Federal agencies started using 
indefinite quantity contracts for the procurement of architect 
and engineering services. These contracts at that time were 
typically for a base period of 1 year with an option of an 
additional year. Their total annual fees were from 250 to 
$500,000 per year. Then, individual tasks ran from 25 to 
$75,000. This type of arrangement worked very well for smaller 
projects and smaller firms.
    In recent years, however, the trend for some agencies has 
been toward very large IQCs with annual limits of a million to 
$5 million. It is unreasonable to expect that a small firm 
could compete for those projects. They are not prevented from 
competing for these, but it is unreasonable that a small firm 
would go after it. I, too, am going to be in the process of 
cutting mine short. Small firms cannot afford time and the 
money to pursue work that they reasonably would not even be 
short listed for. These jobs that have a million and $5 million 
in a year are unreasonable for small firms, particularly firms 
like mine that are 21 to 25 people.
    An addition concern is the increasing request for the 
multiple and often disassociated services, in essence, the 
capacity for asking for a firm to be able to do everything. We 
have an example. One advertisement from the Bureau of Land 
Management in Oregon requested and I quote, ``multi-
disciplinary architect/engineering services including 
architectural, structural, civil, mechanical, electrical, 
landscape, environmental, asbestos abatement, interior, 
interpretive, geotechnical, estimating, specification writing, 
drafting, materials testing, and construction inspection.'' Not 
likely in a small firm.
    The mind-set of multi-year, multi-discipline, multi-
location, multi-et cetera, et cetera, et cetera, favoring large 
firms located in metropolitan areas is unreasonable. Such 
requirements limit the Federal agency's opportunity to utilize 
the services of qualified firms that may be smaller and may be 
in smaller disciplines. Delivery orders of this type often have 
large geographical areas and broad experience requirements, and 
they eliminate many qualified firms from consideration.
    Skipping down here. Many small firms' only choice is to 
market themselves to the large firms as subconsultants. 
Unfortunately, the very large firms can provide all of these 
services in-house so that cuts us out again. One other aspect 
that has been alluded to originally, Government agencies place 
great emphasis on past performance during AE selection, and 
hence identification as a prime is being more and more 
important. Unfortunately, the agencies' databases on AE 
performance keep records under the name of the prime only.
    So if a small firm is employed as a subconsultant, you do 
not have the opportunity to develop a data base. So even if you 
went as a prime later, there is no information in your file 
because they don't keep information on anyone but the prime. 
Again, same story: some of the IQCs have been awarded, but many 
have had few or no deliver orders executed. Agency offices tend 
to keep one or two around just in case they need it. It is 
expensive for AE firms, no matter the size, to be truthful, to 
market and obtain what we call in our profession ``hollow 
contracts.'' The award of any size IQC without strong 
indications of upcoming work is clearly detrimental to any firm 
that is participating.
    One other quick example: recent modifications of the Alaska 
district's policies with respect to subcontracting will have a 
negative impact on both engineers and on the prime contractors 
who are performing environmental sort of work. The following 
definition provided by the court itself is intended to define 
the approach to obtaining best value and subcontracting: 
``because the type and value of remedial action or construction 
services cannot be quantified at this time, agreements with 
team members subcontractors shall not commit to an actual 
percentage to contract revenues. The team subcontracts are 
nonbinding. No preferences will be given to teaming 
relationships or to team subcontractors. A best value analysis 
would be required with all quotes submitted for each individual 
task.''
    Now, some of the problems with that are obvious. Let me 
just jump to a couple of them. Prime contractors are the 
experts at performing construction, but they rely on their subs 
to help them get the project and to put the proposals together. 
If teaming is not encouraged and these subcontractors do not 
participate in the initial proposal effort, many of these 
primes frankly don'thave the expertise to qualify and compete 
for the contracts themselves. The subs have no incentives to assist a 
prime contractor with his initial proposal because, one, even after 
they have incurred all of this cost, they have no assurance of any 
future work; and, two, they still have to incur the cost on each 
individual task to be considered as a sub.
    Finally, relationships play a key role and help primes and 
subs best provide service to the customer. By requesting that 
prime contractors openly complete subcontract work on each task 
order, the advantage of any relationship is lost. ACEC has 
provided in our written testimony certain things that we would 
suggest that indefinite quantity contracts be implemented, 
among them trying to use a significant amount of each contract; 
ensuring that all of the pertinent information is provided in 
the announcement so that those firms who are actually right for 
the job will know to go after it; track and evaluate the 
subcontracting opportunities; and do not require the teams that 
are qualified to recompete for each and every individual task.
    We certainly appreciate your time, and we appreciate this 
opportunity. We will be happy to answer questions later.
    Mrs. Kelly [presiding]. Thank you, Ms. Ritter.
    [Ms. Ritter's statement may be found in the appendix.]
    Mrs. Kelly. Mr. Moore. I am sorry, Mr. Gonzalez. You would 
like to introduce Mr. Moore?
    Mr. Gonzalez. I sure would. Thank you very much for the 
privilege, and I will keep it very short. It is my privilege 
and pleasure to introduce Dan Moore, who is president of 
Moore's cafeteria services that is headquartered in my 
district. It was founded in 1981 by his mom and dad, Genevieve 
and Mike Moore. This is a small woman-owned business, as I 
said, that provides cafeteria services, food services, to the 
private sector as well as to the military.
    I think that we are going to find Mr. Moore's testimony 
enlightening because it stands for the proposition that no 
matter how well you perform, no matter how efficient or the 
quality of your product and service, you may still be in a very 
precarious position if, as, and when they decide to bundle. He 
will be addressing the Marine's proposal and the 
regionalization of the food service's contracts. I think that 
we have covered much of it. But again this is going to be one 
of those examples that will bring it all home to us today. So 
it is with great pleasure that I welcome my constituent, Mr. 
Moore.

   STATEMENT OF MR. DAN MOORE, PRESIDENT, MOORE'S CAFETERIA 
                         SERVICES INC.

    Mr. Moore. Thank you, Congressman Gonzalez, for your kind 
introduction. My name is Dan Moore, and I am the president of 
Moore's Cafeteria Services. Moore's Cafeteria Service is a 
small women-owned business, that means that my mom is the boss. 
We are headquartered in San Antonio, Texas. We believe that it 
is the entrepreneurial spirit of the small businessman that is 
the very essence of our capitalistic system here in the United 
States. And it is that spirit that you protect and promote here 
in this committee. I want to thank you for your hard work and 
for your attention to these issues.
    Moore's Cafeteria Services will be celebrating its 18th 
year in business in just a few days. For the last 13 years we 
have had the privilege of providing both mess-attendant and 
full-food services to the Marine Corps at Camp Lejeune, North 
Carolina. In reviewing our contract performance this past year, 
which is also a best-value contract as you heard touted earlier 
today, the Marine Corps rated us as exceptional in the areas of 
cost control and the quality of product or service rendered.
    I highlight these ratings by way of indicating to you the 
expertise that small business has and has obtained in the last 
13 years of working with the Marine Corps. Small business has 
expertly and economically supported the Marine Corps food 
service needs in the past. We would like to continue to do so 
in the future. Small business has proven that, when the Marine 
Corps will compete their work among small businesses, they will 
consistently receive great value and excellent quality. This is 
why I am here today, to tell you that this bundling of food 
services is not going to save the Government any money, that 
the Marine Corps' description of their reinvention of food 
service is not smart reform.
    The Marine Corps has proposed consolidating 15 of its 
existing contracts into two regional contracts. That is 
bundling in spite of their current claims. Both the Marine 
Corps and the SBA have told us that the bundling of services is 
now required by law and that small businesses must be content 
with a lesser role of subcontractor. We note, however, that the 
Congress and this Committee has stated that each Federal agency 
to the maximum extent practical shall comply with congressional 
intent to foster participation of small business concerns as 
prime contractors, subcontractors and suppliers.
    Secondly, that they have been instructed to structure their 
contract requirements to facilitate competition by and among 
small business concerns, taking all reasonable steps to 
eliminate obstacles to their participation. And, thirdly, to 
avoid the unnecessary and unjustified bundling of contract 
requirements that preclude small business from participating in 
the procurement as prime contractors.
    Please consider the Marine Corps' action in relationship to 
the intent of the congressional law. In 1997, the Marine Corps 
established five regional contracting centers. With this 
structure already in place, the Marine Corps now plans to 
establish just two regions, but only for the purposes of 
soliciting food service contracts and then will send those 
contracts once awarded back to the previously established 
regions to be administered.
    It becomes apparent that the Marine Corps has established 
these two artificial regions in an effort to exclude small 
businesses from competing. In an effort to justify its need to 
bundle food services, the Marine Corps has cited their need to 
incorporate advanced food protection methods. That is better 
known as ``cook and chill.'' The obvious question about cook 
and chill is what it is. Well, if you listen to the proponents 
of cook and chill you would think that it was the food service 
equivalent of rocket science.
    In fact, my first contact with cook and chill came in the 
1960s when my mom brought home some plastic bags and a heated 
seal element which would allow her to cook a giant batch of her 
Irish stew, seal it while it was still hot, and put it in the 
freezer. Proponents of cook and chill, and those are usually 
the people that sell it, will tell you how much more 
sophisticated the technology has gotten today and not to 
mention how much more extensive it has gotten. But it is still 
the same basic concept.
    Cook and chill proponents will still claim today what they 
did in the 1960s, it tastes just like it did when it was first 
cooked. I have to tell you my sisters and I never agreed that 
was the case. The second question that occurs to me is how did 
the Marine Corps determine that the cook and chill was going to 
save them any money. The Marine Corps in its industry forms 
continually cited studies that they had done. When they were 
questioned about these studies, they declared that the primary 
study they were relying on was done in 1987, which they had 
conducted in-inhouse and recently indexed for inflation. 
However, when the Marine Corps received freedom of information requests 
to produce this study, the Marine Corps admitted there was no 1987 
study.
    So how did the Marine Corps decide that there was any 
savings in cook and chill? We took a look for ourselves and we 
checked into cook-and-chill plants. We found a lot of failures. 
The Alameda County School District had to close their cook-and-
chill plant just to slow down the flow of red ink. The Reno, 
Nevada, school district had to do the same. Cook-and-chill 
plant-supporting state agencies in Tennessee located in 
Nashville is still open, but it is hemorrhaging. And the cook-
and-chill plant in Albany, New York, is still way below its 
projected return.
    West Point has had a cook-and-chill plant for nearly 2 
years and has yet to produce a single meal. The Marine Corps 
has a cook-and-chill plant in Okinawa which you heard about 
earlier which they claimed would save the Government $200,000 a 
month. To date they have only been able to produce some salad 
products out of it, which are not part of the cook-and-chill 
process.
    Besides all of these failures that I mentioned, it is 
important to note that the Marine Corps' concept of cook and 
chill would only impact a small fraction of the work that we do 
in the mess halls, less than 10 percent on those days. Where 
are all of the savings going to come from? This is not smart 
reform. We asked the Small Business Administration how the 
Marine Corps justified their need to bundle food services. They 
indicated to us that the Marine Corps was relying on a study 
that was done by a giant multinational food service company. If 
the SBA is correct and the only study that the Marine Corps has 
is from a large business who would be excluded from bidding 
small business set-asides, it might be in the large businesses' 
self-interest to suggest to the Marine Corps their best option 
would be to use a contracting process that would allow big 
business to compete for that work and would also exclude as 
many small businesses as possible.
    If the SBA is correct, there are a lot of concerns that 
come to mind, the obvious conflicts of interest, the study is 
relying totally on vendor claims. By law, the Marine Corps is 
required to independently arrive at their cost estimates before 
they attempt a procurement. Because the Marine Corps has not 
independently developed their cost estimates, they have no real 
way of knowing what they are going to save.
    They also need to remember that a study is not a binding 
offer developed to meet the Marine Corps' actual food service 
needs. They generally rely on industry standards and don't 
apply to military operations. If cook and chill is the answer 
to the Marine Corps, however, in saving them money, why spend 
any money at all when cook-and-chill technology is already 
available and it is free to them? The DSCP branch of the 
Defense Logistics Agency currently handles all of DOD's 
subsistence needs including the prime vendor program which the 
Marine Corps currently uses. They claim they can provide cook 
and chill right now at no cost to the Marine Corps. In 
discussions with Thomas Langdon, the chief of that branch, he 
has indicated to me that he can't get the Marine Corps 
interested in getting cook and chill for free. Why is that?
    On the surface, it seems like a much more logical way to 
source food through your food suppliers rather than through 
service contractors. In addition to violating the intent of the 
bundling legislation, the Marine Corps is blatantly in 
violation of the Federal acquisition regulations which requires 
contracting officers to set aside exclusively for small 
business participations any procurements exceeding $100,000 
where there is a reasonable expectation of receiving fair 
market value prices from at least two small businesses capable 
of performing the contract requirements. The contracting 
officer additionally is required to make a reasonable effort to 
ascertain whether or not such offers will be received.
    We would like to recommend to Congress that they encourage 
the Marine Corps and the Department of Defense to halt this 
regionalization of bundling of food services to ensure that the 
SBA and the Marine Corps follow the 1997 anti-bundling 
legislation. Thirdly, to obtain a copy of any and all studies 
the Marine Corps and the SBA utilize in regarding this 
initiative. Fourthly, we request that you would request from 
the SBA and the Marine Corps that they provide independent 
studies of this issue incorporating real and actual savings and 
analysis utilizing occupational manpower levels and not tables 
of organization. Five, we request that you require DSCP to be 
consulted in determining if they can meet the Marine Corps's 
need for cook and chill. Six, if DSCP is unable to meet the 
Marine Corps' needs, require the Marine Corps to identify 
successful advanced food production operations that would 
meet--that have met their preinvestment targets and determine 
the cost effectiveness for the Marine Corps application. We 
would also like to recommend that the Marine Corps be required 
to solicit small business for their ideas on how the Marine 
Corps could economize their food service program. I would also 
like to recommend that they ensure that public moneys are not 
used to build private state-of-the-art production facilities.
    Mrs. Kelly. Mr. Moore, you have gone way beyond your time. 
If you want to just wrap it up quickly, that would be good.
    Mr. Moore. I would just like to say thank you for your 
leadership on this issue and your taking it to the forefront. 
Thank you for your advocacy for small business. What you do 
here is going to affect my industry for the next decade. Thank 
you.
    Mrs. Kelly. We thank you, sir.
    [Mr. Moore's statement may be found in the appendix.]
    Mrs. Kelly. I thank all of the panelists. I would like to 
just ask a couple of questions of my own. Mr. Head, how has the 
SBA and the Department of Defense responded to your concerns?
    Mr. Head. Well, I think the SBA has been very helpful but 
only to the point that they are allowed to be--they are only 
taking it to the extent where the procuring agency--in our 
case, DOD--is willing to come on board and help us further. I 
found SBA----
    Mrs. Kelly. What have you found with the DOD?
    Mr. Head. DOD it would appear--there are various aspects 
within DOD so I am lumping all of that together--in the early 
stages they had their mind set this is the way that we were 
going to do it, and they have rolled down that road. With some 
effort on our part, the industry, and some involvement from 
Congress, there is a willingness to listen and they are talking 
to us now. Unfortunately, they still have their mind set, we 
have ours, and there is a lot of space in between the two. So 
there has been some progress, but not to the point where we can 
go forward and feel that we are in a real partnership with 
them.
    Mrs. Kelly. What are the results of previous demonstration 
programs?
    Mr. Head. We have basically four programs that are out 
there now, some of which are coming to an end, some are just 
beginning. The first pilot program which I referred to earlier 
was the Hunter Army airfield program. That was, in a nutshell, 
the contract was awarded to one large entity, a subsidiary of a 
multi-billion dollar corporation. At the highest price, it was 
one of the first FAR-based contracts that our industry has been 
involved in and the winner in this case and the mobility was by 
far priced much higher than anybody else. That is point number 
one.
    Point two is that the small business participation has 
literally just dropped through the floor. Number one, you have 
eliminated small business as prime contractors by giving the 
contract to one entity so we are relegated to doing the 
business as subcontractors. But even at that level, weare well 
below what we were experiencing prior to this pilot. Then I mentioned 
earlier the pricing that has come out of that. Again, you all should be 
concerned as people who spend our American tax dollar, has sky 
rocketed. There is no cost savings in this whatsoever that has been 
identified. That is just not my industry's opinion, that is the opinion 
of GAO who has done a study as best as they could because GAO in its 
June study said they are unable to validate the information that has 
been provided to them by the Army and the Army audit agency.
    There are other pilots in place, the military traffic 
management has a pilot in place, but it has been running less 
than a year. It is hard to say, but again in that one, even 
though my industry does not support set-asides as the means to 
our problem, there are set-asides in that. But again we have 
not been able to really look at it, do any kind of analysis of 
cost or anything else. I will tell you, based on my own 
personal knowledge, costs have been increased in that program 
rather than being reduced. Everything else is either in a 
developmental stage or so small it is not really worth--the 
Navy has a small pilot program which is a total small business 
set-aside, but less than 150 have moved through that, so it is 
not really good to do an analysis on that yet.
    Mrs. Kelly. So we will need to follow up on that a little 
bit?
    Mr. Head. Yes, ma'am. I think what is on record already 
shows us there is not cost saving coming as a result of 
contract bundling in our industry.
    Mrs. Kelly. Thank you very much. Ms. Hill Slater, I really 
have to say that I relate to what you said in terms of some of 
the problems that you had experienced with regard to working 
very hard to try to help get a contract and then suddenly 
discover yourself out of that contract when the contract was 
executed. I find that that has been a problem for small 
businesses across the Nation. One thing you said, though, that 
I wanted to ask about, you said that the Federal Government 
does not enforce use of or even track to any significant degree 
those subcontractors who are key in obtaining a successful bid.
    How would you think that we could ask the Federal 
Government to do this without overloading you with paperwork?
    Ms. Slater. One more piece of paper won't make a difference 
for me. We do so much anyway. That is not the problem. I think 
that they just keep track of--when you put in a proposal, you 
say that you are going to use somebody, I think there should be 
someone when you put in your requisition for money, you could 
put a--is this your subcontractor, the same subcontractor? Have 
you paid them? Are you using them? Where are they? It seems to 
be a simple form of whether or not you are used or not or even 
paid on time.
    Mrs. Kelly. That is actually my next question.
    Ms. Slater. The whole thing of being paid on time is 
ludicrous. What they will tell you is as a subcontractor, they 
will say we will pay you when we get paid. I think usually in 
their contract they can pay you within 15 days after they get 
paid. That is not always the case. One of the things that 
happened is they hold the subcontractor to a different level of 
having to be financially secure in order to even be on the 
team.
    Then there is no one holding the prime to that same 
scrutiny as far as do they have the money to pay the 
subcontractors if they haven't put their bill in for 120 days, 
so that is why they haven't gotten paid because they haven't 
bothered billing, where they still have to pay the 
subcontractor. The other thing is it is a little different with 
brick and mortar. Brick and mortar subcontractors can stop the 
work. When you are in the A&E business, you don't stop work. 
You just keep designing. You keep putting in your bills and 
hope that you are going to get paid one day. It is a very 
difficult situation. I tell people that I am not only in the 
engineering business, but also in the banking business, that I 
finance state and Federal Government projects.
    Mrs. Kelly. That is very interesting. But you know, what 
you have just said it seems fairly obvious to me and others in 
the room that if the Federal Government were to--once these 
prime contractors were given a contract, when the Federal 
Government pays them, then if they got a feedback from the 
prime about documenting when they paid you, that is a fairly 
simple train to follow to make sure that these things are 
happening.
    Ms. Ritter, I will go to you because I saw your hand go up.
    Ms. Ritter. I just wanted to say something. We have been 
conversing on women as in women-owned engineering businesses. 
We do the exact same thing. The State of Maryland had a very 
simple solution to this. It is just human nature, sort of. They 
began requiring the prime consultant to certify on their next 
invoice that they had, yes, invoiced their sub, and, two, paid 
their sub. Whether or not anybody truly goes back and looks at 
every one of those, the act of having to put your signature 
down on a certification that you have done that makes it all 
easier to do. It is a very, very simple thing. It was a very 
simple request. Nobody--it takes another 2 seconds to do, and 
it has very much helped our situation in Maryland.
    Mrs. Kelly. It kind of makes me wonder what Dr. Hayes was 
talking about when he said it was so complicated because it 
doesn't seem to me from listening to you all that it could be 
that complicated. I thank you because I think this is a major 
problem for small businesses, this lack of payment on time.
    Mr. Smith, I wanted to ask you a couple of questions. First 
of all, I was curious about why you all didn't form a team. As 
I understand it, you didn't have enough time to form a team to 
go for that contract that you are talking about?
    Mr. Smith. I am not sure what you are saying about forming 
a team to go for a particular contract.
    Mrs. Kelly. You said if the Navy consolidated its 
janitorial service contracts.
    Mr. Smith. If they were to bundle, yes. We would be in a 
subcontracting role. I presume that to get on partners. I have 
had experience with partners. It simply doesn't work. We 
started off as entrepreneurs, entered the 8(a) program, which 
was designed to develop our business to the point that we could 
become our own prime contractor and move onto larger contracts.
    Mrs. Kelly. I understand that, Mr. Smith, but my question 
really goes to the fact did you do any outreach to other people 
that could provide the services that were in the bundled 
contract forming a team to try to get that contract for a group 
of you?
    Mr. Smith. I haven't actually lost the contract through the 
bundling process. I have been notified that both of my 
contracts will be coming to an early end. One of the contracts, 
my very first contract, was a sole source which is used to help 
develop the 8(a) contractor. I used that experience to go for a 
competitive bid. I came in as a low bidder, $100,000 less than 
the next lowest bidder. I have been performing that contract 
for hundreds of thousands of dollars less than any previous 
contractor. This was verified through the Freedom of 
Information Act.
    I did so by innovative management, purchase of equipment, 
and training. Some of the things I did, were the replacing 
dispensers in the facilities, I did so at my own expense which 
is something that the military contract should have taken care 
of, but the projected savings would have been great enough in 
labor costs that I did it anyway. And the reward that I 
received for this is that they are telling me that the contract 
is going to be cut short several years. Now, I was able to get 
this equipment through lease arrangement, not based on the 
strength of my company, but the strength of a contract with the 
Federal Government. They said if you have a 5-yearcontract, 
yes, we will go along with you if you sign a 5-year lease, which I did; 
but the contract will be short and I will still have this 5-year lease; 
and the military will still have this equipment that I installed in 
their facilities that will go to another contractor. Now, how exactly 
they are going to save money there, I am totally lost.
    Mrs. Kelly. Has the SBA offered you any help along this 
line?
    Mr. Smith. The local SBA has been very supportive.
    Mrs. Kelly. Thank you very much. I have got to find your 
testimony.
    Ms. Slater. I would like to ask a question because I have 
heard this kind of story. What happens here is I don't know 
whether he has an SBA loan also. Because usually sometimes when 
people get a good sized contract, they get an SBA loan as well 
as being able to get leased, and then when the Government pulls 
the contract, such as this one being pulled earlier, they 
default on their loan as well as on their lease payments; and 
it puts them into a very bad situation. I have seen 
businesses--I have been down here for 32 years--go under 
because of this. It seems that it happens to more 8(a) firms 
than anybody else.
    Mrs. Kelly. Ms. Slater, I really appreciate you bringing 
that point forward. That is good information for us to have 
here. And I thank you and Mr. Smith for pointing that out. I 
wanted to go back here to Ms. Ritter here for just one minute 
talking about the teams again. I am just going to try to very 
quickly here hit a couple of things. When you are talking about 
teams on page 5, you were talking about making sure that they 
get--the prime contract is entered into based on negotiation, 
provides adequate competition, and assures that the USACE is 
getting best value without the need of openly competing 
subcontract work on an individual task-order basis. You have 
found that by teaming, I assume, that this is a way of 
functioning and it does work for you; is that correct?
    Ms. Ritter. Absolutely. In the AE industry, we most often 
get our contracts by qualifications-based selection, which 
means that you put the best team together that you can. As I 
said, part of that team is the relationships that you have with 
each other. There may be two firms that are equally technically 
qualified but perhaps for some reason they operate better with 
other prime consultants than not. So establishing a team and 
then working together as a team is all part of securing the 
project and then being able to provide the best quality 
engineering and design services that are possible.
    Often--I can't speak for Ms. Slater--but often in Maryland 
we find the same teams over and over because we work well 
together. I have been in business 18 years, and you kind of 
find the folks that you deal the best with and that provides 
the best quality engineering design to the customer.
    Mrs. Kelly. Can you just discuss quickly the financial, 
geographical, and liability charges that the current use of the 
ID/IQs pose to small firms in the architectural and engineering 
area.
    Ms. Ritter. Sure. Financial is often--she gave great 
testimony. Financial is often you say that you are going after 
a particular project and you submit the resumes of seven, nine, 
10 professional engineers, and then if you don't know forever 
whether or not you have that job or whether or not there are 
actual tasks assigned to it, you have carried those people for 
seven, nine, 10, however long it takes.
    Geographical, there was an example which I don't have here 
of a Bureau of Land Management project out in the western 
States that they wanted you to be able to perform, load these 
many different tasks in seven different States. When the States 
are Alaska, Washington, Oregon, New Mexico, Colorado? How many 
did I name? Anyway, the point is that if you are a small firm, 
being able to provide the engineers for all of the States is a 
little difficult because we have to be registered in all of 
those States.
    Then the last one was liability. If you have a project 
where an IDQ where the upset limit is one to $5 million, often 
the professional liability that they would like to see is more 
than a small firm can afford to carry. My professional 
liability is the second highest cost to my company in the 
year's time other than health insurance. So if I had to 
increase any liability insurance just in order to be able to go 
after the project, that in itself is a financial cost.
    Mrs. Kelly. Thank you. Anybody else want to----
    Mr. Head. Just a point on teaming and I think that you 
touched on it. There are a couple of forms that bundling can 
take, the bundling of associated services or products and then 
there is the geographic aspect of it. I think that is one that 
needs to be emphasized. When you take someone who is operating 
in a market, and that market could be small, medium or large, 
but you expand it by way of expanding the scope of the 
contract, you really put a small company at a disadvantage. In 
some cases you are forcing them to work with someone who is 
their competitor which is very hard to do. But as she just 
mentioned trying to go out beyond your normal scope and 
identify who the potential players are, let alone spend the 
time and money to go interview and talk to them and put a team 
together, it really is a disadvantage to a small business. 
Thank you.
    Mrs. Kelly. Thank you. Mr. Moore, I just want to ask you 
one question. That is have you any idea why the Marine Corps 
would have gone to this--moved to these large regions since it 
is obvious that the cook-and-chill is not going to address the 
full food needs in any one meal. It is only going to be a 
portion of any one meal and some meals are going to have to be 
totally done on site. Are you willing to hazard a guess on that 
one?
    Mr. Moore. Let me attack it this way by saying there is no 
practical reason to do it. I mean, to go any further would be 
to speculate to their motivation and none of that is good. Let 
me elaborate on that for just a second, though. What we would 
actually end up doing is breakfast, for example, for the 
Marines wouldn't change a bit. All of that is done cook to 
order. Lunch, 60 percent of what I serve is fast food. So lunch 
for the most part is not touched and dinner is in the same 
condition.
    What cook-and-chill actually touches are those things which 
are pumpable. The whole idea is to take all of the food that 
they are going to eat that is a pumpable item, such as 
spaghetti sauce. And instead of 12 different mess halls cooking 
spaghetti sauce, you would take a giant steam kettle that has a 
pumping system in it, and you would cook off 200 gallons of 
spaghetti sauce all at one time. Then you would bag it and 
freeze it and tumble chill it, depending on which method they 
choose, and send it to the mess halls to be refirmed and 
served. There is no economic reason to do it as far as 
Government savings is concerned. If there are any economic 
advantages, they are not in the public sector.
    Mrs. Kelly. Thank you. Ms. Hill Slater, I didn't mean to 
ask these questions, but your testimony again keeps bringing up 
things in my mind. You spoke of in your testimony the fact that 
you had been kind of--a subcontract was shifted to a male-owned 
woman-fronted firm. Do you find this happening in your 
constituency with the women-owned businesses? Are the women 
actually owning those businesses or are these women fronting?
    Ms. Slater. On a whole, most women that say they own 
businesses will certify they really do own their businesses. 
This particular woman is a qualified women-business owner. She 
is a PE. She does not, however, put one foot in our office and 
she is a housewife and her husband runs the firm day to day. 
That is the difference there. So she has all of the 
certifications, but shedoes not run the business.
     Mrs. Kelly. Thank you very much. I turn now to my 
colleague from New York, Ms. Velazquez.
     Ms. Velazquez. Thank you. I just want to thank you all for 
your great testimony. It really brought a lot of insight to 
what is going on up there for small businesses. You have got my 
commitment that we will do everything that we can to correct 
the inequities.
    We heard in the previous panel that we had this morning a 
lot on the cost saving or imagined cost savings the agencies 
say they can get. Can you give me an idea of the cost to you 
when it comes to bundling? Any of you?
     Mr. Smith. Dollar cost, I can't give you a dollar cost; 
but it is going to cost me 80 percent of my business if they 
bundle 80 percent. This was not achieved by someone handing me 
something. Like I said earlier, I went out and competitively 
bid and used my innovation and training to achieve a small 
profit. I took on the job with such a small profit to use it as 
a stepping stone to go on to something bigger and use that on 
my resume. Actually, the cost would be my whole business. The 
jobs of at least another 60 percent of my personnel or more 
would be a cost that I would incur, I don't know. A lot of 
people would be unemployed. To put a dollar value on it, I 
would have difficulty.
    Ms. Velazquez. If any of you would care----
    Mr. Moore. It would cost Moore's Cafeteria Services $7 
million a year.
    Ms. Velazquez. In terms of your business?
    Mr. Moore. Yes, ma'am.
    Ms. Slater. It costs to be a subcontractor because you 
don't have control of your money when you don't get paid in 
that sense. It costs time to put in for proposals. It costs 
time and money to hold onto people that you don't know whether 
will be used or not. And you cannot run a business on bogus 
contracts.
    Ms. Velazquez. We have heard testimony that if bundling 
occurs there is always subcontracting. I would like to ask any 
of you the following question: Do you want to be subcontractors 
or prime contractors? And if you care to share with us, if any 
of you have been a subcontractor, what you experienced in terms 
of the difference of being a prime contractor and 
subcontractor. Mr. Head.
    Mr. Head. To answer the previous question, from my 
industry's perspective, if bundling continues at the rate it is 
and escalates as it is, the ultimate price is to be paid. That 
is the total elimination from business altogether. That is one 
point. As far as choice of subcontractor or prime contractor, I 
don't know why anybody would want to be a subcontractor if they 
had the options of being a prime. As a subcontractor, you give 
up all rights that you have whether it is a FAR-based contract 
or not. You are totally subservient to that prime.
    As was testified earlier, the Government really doesn't put 
any enforcement on the prime as far as how he handles the 
subcontractor. I could tell you in my business and probably a 
lot of these others, there are many primes that are excellent, 
well-run companies; but many of the others run through 
subcontractors, never paying them ever. When that job is done, 
they will just go to the next guy and the next guy and eat up 
subcontractors. We as subcontractors have nowhere to go.
    Ms. Slater. Ms. Velazquez, it is almost like saying that I 
have been rich, I have been poor and rich is better. Being a 
prime is much better than being a subcontractor. To be in 
control of one's fate is more than--is what we want to be. When 
we go into business is to be in control and to be able to ask 
for our money when our money is due and to be held accountable 
for the work that we do and not to have to answer to layers of 
people that don't have our best interests at heart.
    Ms. Ritter. I would very definitely agree. I would not 
disagree with that at all. I would like to make one real quick 
comment. Someone asked a question about did you consider 
putting a whole bunch of small firms together and make a bid on 
a particular contract yourself. That is easily said. It is not 
so easily done. In our business we call those joint ventures 
when you get a number of engineering firms together and you 
create a joint venture. That is a legal entity. It requires 
lawyers and attorneys to draw up the papers, accounting-wise 
and so forth. It goes on for a while. You already are at a 
disadvantage to the large firms because you have incurred all 
of that just in order to be able to submit a proposal, whereas 
they have gone down the hall and asked their marketing 
department to put it together. It is not as easy as it sounds.
    The previous panel said that we encourage those folks to 
get together. That is not always the answer because you are 
still not operating as a prime. You are, but you are not. You 
are operating with all of these partners that you have to get 
signatures from every step of the way and all of that. As Mr. 
Head alluded to, if those partners are in Alaska, New Mexico, 
Colorado, and California, the costs incurred are more than a 
small firm is willing to go.
    Just to answer your previous question, I think in the AE 
industry, the cost is really incurred by the Federal Government 
because most of the small firms in the AE industry are just 
plain not going off those projects at all. They are just 
ignoring them. So asking what the cost is, right now the cost 
is none. We are not even considering them.
    Ms. Velazquez. Thank you.
    Mr. Smith. Being an entrepreneur, it is more than just a 
word. I am an entrepreneur as we all are here. The nature of 
the entrepreneur is to be his own person. It would be like 
asking a football player or quarterback to be a water boy just 
to stay on the team or an artist to start handing paint to 
someone else or pouring it into a machine to do mechanical 
paintings. We are entrepreneurs. No, I would not want to be a 
subcontractor. I took all of the risks of leaving a job, what 
they called a good job, civil service, but it was a job. I had 
no desire to work for someone. I wanted to do my own thing.
    Ms. Velazquez. Thank you. Mr. Moore.
    Mr. Moore. I don't think that it is to the government's 
advantage that we kill the greatest part of the competition 
that exists. In my contracts, particularly the one that I 
currently have at Camp Lejeune, there were 30 different small 
businesses that bid on that. If we form some sort of coalition, 
there is that many less people competing it. It is in the 
government's best interests that we compete with each other. We 
bring to the table with us our own individual insight into 
management, our own individual insight into cost savings. In 
our case we returned $2.5 million to the Government up front 
when we won our contracts simply because we were that much 
lower than the next bidder. I have been on the contract 15 
years, and it was not a misbid. It was the fact that it was 
competed that the Government saved that $2.5 million.
    Ms. Velazquez. Thank you. Thank you, Mr. Chairman.
    Mr. Sweeney [presiding]. Mr. Abercrombie, the gentleman 
from Hawaii.
    Mr. Abercrombie. Thank you, very much. I must say my 
friends, that when you talked about trying to put this team 
concept together that they put forward to you so cavalierly, it 
reminded me of General Clark trying to organize the Kosovo 
conflict, having to deal with 19 different nations deciding who 
in the hell is going to be able to bomb somebody. In this 
instance, it seems that you are the ones being bombed. I was 
pretty hard with some of the people that were here before. I 
don't want to give the wrong impression on that. I am upset 
with thembecause I wish they would be swinging the bat on your 
side instead of against you, particularly from the Small Business 
Administration.
    I would like your comments. I think from what I am 
gathering out of this and out of the material here, the SBA 
needs some real clout. They need some enforcement clout. They 
need to be able to go to the Department of Defense or any of 
the other departments and say, look, here is the what the deal 
is and you are going to do it or we are going to sanction you. 
They need to be the cop on this beat it seems to me. Somebody 
has got to be the cop on the beat. I don't think that you could 
do it internally Like the Department of Defense, Mr. Moore. I 
don't think you are going to get that internally. You have got 
to have somebody be able to come in and make that happen. Does 
that make sense?
    Mr. Moore. That is exactly right. The Department of Defense 
isn't going to police this issue. Small business has got to be 
the one that steps up and advocates for us. There is nobody 
else.
    Mr. Abercrombie. Not just be an advocate, but they have got 
to have some enforcement power. They need to be able to say 
this is the way that it will be done and it has to be enforced. 
They shouldn't have to go to court and prove it or some appeals 
judge or anything. They should be able to decree whether or not 
the contract is being lived up to correctly. Does that make 
sense?
    Mr. Moore. It does. On that very point----
    Mr. Abercrombie. We can legislate that, can we not?
    Mr. Moore. You sure can.
    Mr. Abercrombie. Let me ask apropos of that. This has to do 
with payment. You folks were here, I think, when I was 
questioning before. Unless I am losing my hearing in my old 
age, the way that I heard it is I could not get an answer to 
the why and how, especially on the how part. How do they do the 
enforcing? They say they are committed and this and that. 
Everybody is committed. What is the argument about when you 
have got ham and bacon, the pig is committed? There is no 
question about that. I am sure Mr. Moore understands that part, 
but that doesn't solve anything for the pig.
    On this particular instance, unless there is a mechanism to 
enforce prompt payment and a sanction attached to it, I don't 
think that it is going to happen? Am I correct on that? You are 
always going to be on the Oliver Twist side of things. You have 
got your begging bowl out there and if somebody wants to fill 
it full of gruel, fine. But if they don't want to do it, you 
are standing there with your begging bowl. Am I correct? Now, 
what would it be if we could write legislation that said if you 
did not get paid in the same 2 weeks, quick pay--isn't that the 
period that prime gets it in, 2 weeks? Isn't that right? Is 
that correct? Fourteen days. Is it 14 working days?
    Mr. Moore. Ten-day prompt payment.
    Mr. Abercrombie. Why shouldn't you be paid 10-day prompt 
payment or the contract gets suspended for the prime, if you 
happen to be a sub?
    Ms. Ritter. The only problem with that is it also gets 
suspended for the sub.
    Mr. Abercrombie. Why?
    Ms. Ritter. Because if the only legal agreement is between 
the agency and the prime----
    Mr. Abercrombie. I am talking about where the agency pays 
the prime. You could suspend the prime or not allow them to 
have a further contract.
    Ms. Ritter. Not allowing them to have a further contract is 
okay. But cutting that contract off also cuts us off.
    Mr. Abercrombie. No. The way that I am thinking of it then 
is the way here. You would be held harmless. The agency would 
pay you. No reason why they can't do that.
    Ms. Ritter. Right now, I think legally there is----
    Mr. Abercrombie. Legally because they only have the 
contract with the prime. There should be a pass-through in the 
contract that is signed with the prime. I am not trying to keep 
you from being primes; I will get to that. I am saying should 
you be a subcontractor, there should be in the original 
contract with the prime a pass-through or its equivalent 
requirement that is part and parcel of the original contract, 
that is simply required of them.
    Ms. Ritter. It sounds like a terrific idea. I would applaud 
your efforts to do that. Let's not lose sight of another 
problem that Ms. Hill Slater brought up, that we also don't 
have any control of when the prime decides to submit your 
invoice. If I send an invoice to a prime today, I have no idea 
when he is going to submit that to the agency. It could be with 
his--I say his, with its invoice this month. It might be in 
their October invoice. I have no way of knowing that.
    Mr. Abercrombie. I think that goes back to what we set up 
in the first place with the responsible agency. This is 
elementary stuff, the same kind of thing that you require 
yourselves. If you have a salesperson working for you, you 
don't say, well, submit the activity that you got, if you don't 
do it this week, do it next week, or something like that. If 
you have an order out there that we are supposed to have that 
in 30 days, take a couple weeks to turn it in.
    You don't have that in your own business. You have rules 
and procedures that have to be followed or the person isn't 
going to be working for you very long. If you don't follow it 
yourself, you are going to be out of business. I keep thinking 
of my dad. I got my start in life--I am sure all of the 
politicians here can appreciate it. My dad was a retail food 
broker. I was in the retail food trade cold-calling people to 
try to get pickles and baked beans on people's shelves and 
saying that we would service it for them. I had a delicatessen 
saying, what do you mean, you are going to come out here and 
service a half dozen jars of pickles? I said, if I want your 
business, I will. You better believe I am going to do it. I 
don't want you to have to think about it.
    That is the way that my dad did business. When Don 
Abercrombie showed up, you knew it was being done right. You 
didn't have to give it a second thought. That was servicing. 
And servicing, there is no magic to services. You know who is 
doing that. I just don't--I don't see any of this. I think this 
is just the big guys kicking the living hell out of you and 
taking the money and run and they don't have to own up if it 
doesn't work out. It seems to me that we should be able to 
write some fundamental legislation here with respect to 
procedures and the quick pay.
    I think that we need to look into how much the prime is 
able to take away from the sub, too. In my State we have rules 
on that. You can't use the prime as a club to beat the subs 
into the floor so that you can make a profit or unfair profit 
off of them. That is something that I think needs to be looked 
into it. Let me just ask a couple of more. I appreciate your 
indulgence, very much, on this.
    Mr. Smith, I was not here when you were first speaking. I 
had to be elsewhere. You indicated that your contract is being 
pulled early. How is that possible? If you are fulfilling all 
of the terms of your contract, what kind of a contract is it 
that says one side can pull out of it? I don't expect that you 
could pull out of it if you wanted to or try to change the 
terms of the contract with the DOD.
    Mr. Smith. I was simply notified that my contract was going 
to be part of a bundle.
     Mr. Abercrombie. What part of your present contract gives 
them the right to say, well, we are changing the rules on you?
     Mr. Smith. I have no idea.
     Mr. Abercrombie. Mr. Chairman, I think that is something 
that needs to be looked into. My view of a contract is both 
sides have to live up to it. I don't think that the Federal 
Government has the right to say, I am going to live up to the 
contract as long as I find it convenient.
     Mr. Head. Unfortunately, many of them are written that 
way. That is the term that is used, ``for convenience of the 
Government.''.
     Mr. Abercrombie. That is something that we have to look 
at. I don't see how you can be required to make investments of 
yourself and then you leave that for somebody else to pick up 
on. That is fundamentally unfair.
     With respect to, Mr. Moore, the Marine Corps there, is 
this service-wide? Do you have any information on that? That 
each of the services--I am on the Armed Services Committee--to 
my knowledge has a food supply division or sector.
     Mr. Moore. The Marine Corps has represented that it is 
about to be service-wide. Everybody is watching to see what the 
Marine Corps does with theirs and how successful it is to 
implement their own.
     Mr. Abercrombie. Why would they go outside of their own 
supply systems?
     Mr. Moore. It makes no sense. For the public good, it 
makes no sense at all. Whether there is personal gain involved 
or not, I can't address that issue.
     Mr. Abercrombie. I see. Last question that I would like to 
ask: Do any of have you any opinion as to whether or not some 
of the people who are involved in doing these contracts and so 
on, do you have any information, anecdotal or otherwise, about 
people leaving the service and then going to work for the 
companies they have been dealing with as agents for the 
Government?
     Mr. Smith. I simply know of one company. All employees are 
former Government employees.
     Mr. Abercrombie. Do you think it might be a good idea if 
we wrote legislation saying, for example, that somebody who has 
done business as an agent of the Government could not then 
become an employee of a company, say, for 2 years or something 
after they leave?
     Mr. Smith. Yes.
     Mr. Moore. Absolutely. In our industry, the top levels on 
the military side have complained for years that there is no 
revolving door for them because the industry is cluttered with 
mom and pop operations where there is no lateral move for them 
from the Government into our industry. It just happens that if 
the SBA is correct and their evaluation of what is going on or 
the Marine Corps is relying on to make this move, they are, in 
fact, inviting a large corporation that would have those types 
of revolving door jobs available to them.
     Mr. Abercrombie. I see. Thank you, Mr. Chairman. I would 
like to indicate or hope for the record that we need to take up 
that question as well because I don't think that we can assume 
that all of these contractual negotiations would necessarily be 
taking place in an objective context.
     Mr. Sweeney. I thank the gentleman. It will be noted as 
the highest priority. We all want to ensure that there is at 
least an arms-length agreement.
     Let me just say this about the quick-pay issue. The 
Committee has already had conversation and been in with the 
subcontractors association. We have asked them to work with us 
on developing some options that may exist to deal with the 
privity issues so that there may be the development of a more 
direct relationship between subcontractors and the government 
agencies so there may be some at least dispute resolution.
     Mr. Abercrombie. You would certainly have my support on 
that, Mr. Chairman. Thank you.
     Mr. Sweeney. I thank the gentleman. Now, the gentlelady 
from California, Mrs. Napolitano.
     Mrs. Napolitano. Thank you, Mr. Chairman. I take very 
great exception to the way that small business is treated 
sometimes by Federal agencies. So you will hear me side with 
small business at every opportunity I can simply because that 
is the backbone of my economy in California. I would like to 
pose to you a challenge possibly to give us information how you 
feel we can best address the issues that are facing small 
business in the bundling area. What is it that you think is 
going to help?
     We can sit here with all of our very able consultants, but 
a lot of our people are not the hands on. What is it that you 
feel, how can we close loopholes, what do we need to do as 
Members of Congress, what steps do we have to take to be able 
to ensure that, one, we increase the assistance to small 
business so they can become the contractors, the minority and 
women-owned contractors that we so desperately want to increase 
participation from? How do we get the agencies to understand 
that we mean business, business means business. And I mean 
literally mean business, the economy. And how do we put it in 
words so that there will be no mistake in anybody's mind what 
the end result is, and that is to prosper. As you prosper, so 
does the rest of the country. How do we begin?
     This is a challenge for me and also for you, I do believe, 
and other small businesses like you. What do we need to do? We 
can talk all we want, but unless we define a path, begin to put 
it in a proposal and put it into language, then we are all 
spinning our wheels. I would ask you to consider that. If you 
want to send them to me, I am certain the Chairman, both the 
ranking minority person and the chair would be exceedingly 
thankful for some guidance to the business community. I know I 
would. Any suggestions?
     Ms. Slater. I have one suggestion. This is hard ball and 
may be extreme, but I think that I know that in private 
industry this is the way it works. If you don't deliver, you 
are out of business. Well, if the head of an agency can't 
deliver a 5 percent goal for women, maybe they don't need to be 
head of that agency. This is as simple as that. If we--that 
goes as far as 5 percent goal. But also bundling. Bundling is 
not good for business. If business is saying that it is not 
good for business, why are we still talking about it? I don't 
understand it. I thought that we are supposed to be saying--I 
thought--they are making rules that have nothing to do with us. 
I am missing something here. It is going backwards. We are 
being dictated to instead of dictating to the law makers. 
Bundling, where are the people--do you have a similar panel 
like this that says bundling is good?
     Mrs. Napolitano. No. We have a work----
     Mr. Abercrombie. If the gentlelady will yield, 
unfortunately there are some. There are people that say that. 
They are the ones that have taken advantage of it. They are the 
kind of broker outfits that I talked about before. So this is--
there is a competition going here. This is David versus 
Goliath.
     Ms. Slater. You know, it really isn't. Small business is 
the economic engine of thiscountry. They may be bigger 
individually, but they are not bigger collectively. Small business is 
what runs this country. We employ more people than the Fortune 500, so 
we should have the bigger voice.
     Ms. Napolitano. One of my suggestions, Ms. Hill Slater, 
would be the possibility of getting small businesses a contract 
with Federal agencies together to form a coalition and go at 
it. I am talking as a businesswoman and as a person who has 
seen a lot of this happening in my area. And not to say that 
they are not trying. I don't know if you have ever worked for a 
Government agency, but bureaucracies are at its highest in the 
many areas that I have dealt with. How do you reform their 
thinking? That was my direction earlier with some of the 
members in the prior panel, how do we get the career 
bureaucrats to understand that we really do mean business 
because it is important for the economy, it is important for 
small business.
     It just does not penetrate. It is business as usual until 
we take some effective steps and I mean effective, not just 
talk steps. Somehow we need to put that in proper perspective. 
I haven't heard anybody say this is what we need to do and this 
is where we are going. I congratulate the Chair and the ranking 
member because they have really advocated for small business, 
but we need your help if you can identify some areas that we 
can make a difference and how to do that.
     Mr. Moore. Congresswoman, just one of the steps that jumps 
out from being here today is there was a discussion earlier in 
the day about an initial idea of cost savings of 20 percent, 
quality improvement of 10 percent, cycle time improvement of 10 
percent. It really doesn't matter what numbers they put on that 
as long as there is something. Today they can't even show that 
there is any improvement and they are going forward. There 
needs to be something in place that stops them until they can 
at least show there is an improvement of some kind at least in 
some area in order to go forward rather than a simple 
preference for large business.
     Ms. Ritter. One of the other issues--and I am speaking 
before I have thought my words through, but I am trying to make 
a correlation between what you just said about career 
bureaucrats and Mr. Smith's definition of entrepreneur. There 
is no understanding--that is not fair. There is very little 
understanding at the bureaucracy level of the sorts of things 
that these five people have done. If you have never put your 
children's education on the line, if you have never put your 
mortgage on the line, there is no understanding of that. How 
that education comes to pass is difficult. But that is part of 
the problem. You hit it on the head. In the States--in the 
western States that are bundling these big AE services 
together, in their minds they are saying what a thing, I have 
got all of this out of the way in that amount of time. And they 
don't know the Mr. Smiths and the Ms. Hill Slaters and Mr. 
Heads down the line. They have lost their businesses because of 
one fell swoop decision they have made. So there is an enormous 
lack of understanding between the various groups involved. That 
is an education process I don't know how we would solve.
     Ms. Napolitano. That leads back to my issue on training 
and retraining. Thank you, Mr. Chairman.
     Mr. Sweeney. I thank the gentlelady. Let me just say in 
conclusion that I want to commend the panel. You probably are 
folks who least could afford the time that you have expended 
today. We understand that and appreciate that. But your insight 
was of great value. Let me just also address Mr. Moore and Ms. 
Ritter and your statements underlining all of this as well as 
not--the question of are we saving anything here in terms of 
dollars or resources or other things. But what is the quality, 
the result in quality? I think that you have shed some real 
light on it. I want to thank you for that.
     With that I will conclude the hearing by asking for a 
motion for unanimous consent to leave the record open for 10 
days for further comment.
     Ms. Napolitano. I move.
     Mr. Sweeney. Do we have a second, Mr. Abercrombie?
     Mr. Abercrombie. Oh, sure, you bet. Second.
     Mr. Sweeney. All in favor, say aye? Done.
     Mr. Abercrombie. That is a guest eye.
     Mr. Sweeney. We are adjourned.
     [Whereupon, at 2:22 p.m., the committee was adjourned.]
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