[House Hearing, 107 Congress]
[From the U.S. Government Printing Office]




 
 PROCUREMENT POLICIES OF THE PENTAGON WITH RESPECT TO SMALL BUSINESSES 
                       AND THE NEW ADMINISTRATION

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

                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                     WASHINGTON, DC, JUNE 20, 2001

                               __________

                           Serial No. 107-13

                               __________

         Printed for the use of the Committee on Small Business



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                      COMMITTEE ON SMALL BUSINESS

                  DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas                 NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado                JUANITA MILLENDER-McDONALD, 
ROSCOE G. BARTLETT, Maryland             California
FRANK A. LoBIONDO, New Jersey        DANNY K. DAVIS, Illinois
SUE W. KELLY, New York               WILLIAM PASCRELL, New Jersey
STEVEN J. CHABOT, Ohio               DONNA M. CHRISTIAN-CHRISTENSEN, 
PATRICK J. TOOMEY, Pennsylvania          Virgin Islands
JIM DeMINT, South Carolina           ROBERT A. BRADY, Pennsylvania
JOHN THUNE, South Dakota             TOM UDALL, New Mexico
MIKE PENCE, Indiana                  STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey            CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California          DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri                 GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia          BRIAN BAIRD, Washington
GELIX J. GRUCCI, Jr., New York       MARK UDALL, Colorado
TODD W. AKIN, Missouri               JAMES P. LANGEVIN, Road Island
SHELLEY MOORE CAPITO, West Virginia  MIKE ROSS, Arkansas
BILL SHUSTER, Pennsylvania           BRAD CARSON, Oklahoma
                                     ANIBAL ACEVEDO-VILA, Puerto Rico
                      Doug Thomas, Staff Director
                 Phil Eskleland, Deputy Staff Director
                  Michael Day, Minority Staff Director




                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 20, 2001....................................     1

                               WITNESSES

Lee, Ms. Deidre, Director, Defense Procurement, Office of the 
  Secretary of Defense...........................................     3
Walthall, Ms. Susan, Acting Chief Counsel, Office of Advocacy....     5
McLaughlin, Mr. Ken, Small Firms Council, American Council of 
  Engineering Companies..........................................     7
Allain, Mr. Maurice, President, Phoenix Scientific Corp..........     9
Diamond, Ms. Kathleen, Member, GrassRoots Impact, Inc............    11
Weidman, Mr. Rick, Director, Government Relations, Vietnam 
  Veterans of America............................................    13

                                APPENDIX

Opening statements:
    Manzullo, Hon. Donald........................................    28
    Velazquez, Hon. Nydia........................................    30
Prepared statements:
    Lee, Ms. Deidre..............................................    32
    Walthall, Ms. Susan..........................................    42
    McLaughlin, Mr. Ken..........................................    56
    Allain, Mr. Maurice..........................................    88
    Diamond, Ms. Kathleen........................................    90
    Weidman, Mr. Rick............................................    94
Additional Information:
    Letter to Mr. Udall from Vanessa Morganti....................    99
    Letter to Ms. Lee from Mr. Donald DeRossi....................   104


                  PROCUREMENT POLICIES OF THE PENTAGON

                              ----------                              


                        WEDNESDAY, JUNE 20, 2001

                          House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:12 a.m., in room 
2360, Rayburn House Office Building, Hon. Donald A. Manzullo 
(chair of the Committee) presiding.
    Chairman Manzullo. The small business committee will come 
to order. Welcome to this hearing of the Committee on Small 
Business. A special welcome to those who have come some 
distance to participate and attend. Annually, the Federal 
Government spends approximately $200 billion on goods and 
services purchased from the private sector. Of the Federal 
agencies, the Defense Department is by far the largest Federal 
market place accounting for over $122 billion in prime contract 
awards, or more than 60 percent of the Federal procurement 
dollars. The Pentagon purchasing is important to small 
businesses. The procurement policies that the new 
administration adopts are important to small business and to 
main street America.
    In the past, small businesses have had major problems with 
the way the Pentagon does business. Problems include the 
failure of the Pentagon to meet procurement goals, the bundling 
of contracts and the diminished number of prime contracts going 
to small businesses. These are key issues for the small 
business community.
    We welcome Deidre Lee from the Pentagon, who is filling in 
for the Under Secretary of Defense for Acquisition and 
Technology, Mr. Aldridge. He is at the Paris air show this 
week. We hope he will bring back some contracts for small 
businesses in the aerospace industry. We will have him at a 
hearing in the near future. He is the one that ultimately sets 
the procurement policy of the Pentagon with respect to small 
business, and ultimately responsible for success or failure of 
those policies.
    [Chairman Manzullo's statement may be found in appendix.]
    Chairman Manzullo. My ranking minority member has a lot of 
energy today, she always does. Again, we thank you for 
participating in the hearing and thank you for your attendance 
and I will now yield for the opening statement for the ranking 
member, Mrs. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman and welcome. Well, 
here we go again. After six hearings over the past eight years 
and the markup of several pieces of legislation aimed at 
retaining equity in the contract process, we are still at 
square one. Today, once again, we will hear from the Department 
of Defense who will talk about the importance of small 
businesses to the Pentagon. For all their promises and quote, 
unquote, rhetoric on their commitment to small businesses, very 
little has changed. My father always said that actions speak 
louder than words. And what is being done to small businesses 
by their departments speak loud and clear. The Department of 
Defense may talk about more ways to give small businesses 
opportunities, but their actions are only achieving a 21 
percent small business goal, which is costing small businesses 
2 billion in contract opportunities, speaks much louder. They 
say they are striving to provide opportunities to women, but 
their action of achieving 2 percent, that is less than one half 
of the statutory goal for women-owned businesses, depriving 
them of $4 billion in contracts. That speaks volumes.
    This cavalier attitude was simply unscored by a recent 
policy initiative from the new administration that not only did 
not address several critical small business goals, but in many 
areas like women small businesses, they do not comply with the 
statutory requirements. That is sheer arrogance. This lack of 
commitment by agencies to small businesses led this Committee 
last Congress to introduce and pass common-sense legislation. 
The Small Business Contract Equity Act would change in 
fundamental ways how agencies will do business.
    It is based on a simple premise. To agencies, if you want 
to continue using contract bundling, then you must meet your 
small business goals. If not, then you must get your bundles 
approved by the Small Business Administration. It also does 
away with the current system where agencies are the judge, jury 
and executioner of their own contracts. Whether it is bundling 
third party, logistics, prime vendor, virtual vendor, long-term 
contract or outsourcing, if it looks like a bundle and sounds 
like a bundle, it is a bundle, regardless of what the agency 
calls it. This legislation will finally put some teeth into 
contracting oversight by establishing SBA as the final arbiter 
over whether these contracts meet the necessary cost savings 
and requirements for contract efficiency.
    Unfortunately the last Congress ended with no further 
action. Earlier this year, we introduced the Small Business 
Contract Equity Act. It is my hope that with its support and 
the strong backing in the small business community, we can pass 
H.R. 1324. This legislation will go a long way of providing 
small business in the committeeing process. Make no mistake, 
the stakes are very high as we will hear from the small 
business owners today. While the Department of Defense would 
like to simply brush this off as nothing more than a rule or 
definition change, this is about keeping small businesses in 
business.
    What is most troubling that while then-entrepreneurs hang 
in the balance, DOD has still failed to produce even one 
instance of saving taxpayers dollars. As a result, we have no 
concrete benefits, but we do know these practices are forcing 
small businesses out of business. I thank the panelists who 
took the time to be here today, especially those members of 
small business community who will share their horror stories 
about contracting. I look forward to hearing what you have to 
say, and I thank the Chairman for having this hearing today. 
Thank you, Mr. Chairman.
    Chairman Manzullo. I appreciate your comments. I am a co-
sponsor of Ms. Velazquez's bill, H.R. 1324. I realize that the 
Small Business Committee does not have a tremendous amount of 
jurisdiction, but I want you to know that as a result of 
hearings that we held dealing with the issue of berets, that it 
is the direct result of this bipartisan team up here, both of 
us working together, that it is going to be a very rare 
incident where the American military will ever again be wearing 
uniforms or any part of the uniforms made out of foreign 
material or made by companies that are offshore. And I am 
convinced that as a result of that hearing that we have saved 
literally, if not thousands of jobs in this country.
    So I exercise the power of subpoena liberally, that is the 
only liberal strain in my body. And we are going to be asking 
for exact answers. If we don't get the documents we want, I do 
not request them. I subpoena them in and give the agencies 5 
days to bring them into my office and to Ms. Velazquez. We mean 
business on this. The government is too big. Bundling is a 
horrible thing that has happened and does not save the 
taxpayers dollars.
    So on that basis, our first witness is Deidre Lee. She is 
the director of Defense Procurement, Office of the Secretary of 
Defense. We have these lights up here that give you 5 minutes 
to give your testimony. When the green light goes on, when it 
is yellow you have a minute to wind up, and when it is red, we 
get anxious up here. I look forward to your testimony.
    Ms. Lee. Thank you, sir.

  STATEMENT OF DEIDRE A. LEE, DIRECTOR, DEFENSE PROCUREMENT, 
               OFFICE OF THE SECRETARY OF DEFENSE

    Ms. Lee. Good morning, Chairman Manzullo, Ms. Velazquez 
members of the Committee. I appear before you today as the 
Department of Defense representative to their--the Department's 
procurement practices and their impact on small businesses. I 
am pleased to discuss this subject and to respond to any 
questions. The Department recognize the critical role that 
small businesses play in supporting DOD's accomplishment of its 
mission and the overall strength of the U.S. Industrial base.
    DOD is fully committed to fostering the inclusion of the 
small businesses as prime contractors, subcontractors, and 
vendors. As the Department of Defense accounts for 
approximately 65 percent of total Federal procurement dollars, 
we now see how important it is to ensure our procurement 
practices include small business opportunities. In fiscal year 
2000, $48 billion of DOD procurement spending was with small 
business firms, with 26.9 billion of this to small business 
prime contractors. For small disadvantaged businesses, the 
Department awarded 10 billion. The Department is also 
emphasizing improved performance for the small business 
subcategories such as women owned small business, historically 
under utilized business, hub zones and veteran owned small 
business. In fiscal year 2000, 4.9 billion of DOD procurement 
spending went to small business concerns. Yet we must do much 
better. We at the Department recognize that we need to be more 
attuned with small business, and we are committed to improving 
the small business performance.
    Several recent initiatives put emphasis on small business. 
On May 16, 2001, just 5 days after he was sworn in, the new 
Under Secretary of Defense for Acquisition, Technology and 
Logistics, Mr. Pete Aldridge issued, as one of his first 
initiatives, a policy that emphasizes the importance and 
assigns accountability at the highest levels within DOD for 
achieving small business program performance improvement. Under 
his new policy, each DOD activity and the Department as a whole 
will be responsible for annual small business improvement 
plans, including the identification of at least three 
initiatives to improve small business participation. Targets 
will be established for each year, and each DOD activity will 
be rated on its performance to the plan and the established 
targets.
    Under the new policy the secretaries of the military 
departments and the directors of defense agencies will report 
to Mr. Aldridge, and he will report semi-annually to the Deputy 
Secretary of Defense. With this new program, Mr. Aldridge 
challenges the services and agencies and requires steady 
improvement in those armies in which the Department is not 
meeting its goals.
    DOD is also increasing its focus on small business 
subcontracting with the prime contractors. We will increase 
oversight of large contractors' performance against negotiated 
subcontract goals, and we hold annual performance reviews with 
these primes during those reviews. We will now start discussing 
with them how are they are performing against their 
subcontracting commitments.
    Let me turn now to another related subject, which I know 
you are very concerned, bundling. The Department is committed 
to avoiding contract consolidations that result in bundling. 
Unlessmarket research and benefit analysis support that, there 
are measurably substantial benefits. The Department is also committed 
to ensuring vigorous small business participation at the subcontract 
level. We have additional initiatives planned to ensure appropriate 
emphasis and analysis is placed on avoiding bundling.
    We are instituting the Office of the Secretary of Defense 
reviews of high-dollar service acquisitions similar to those we 
have conducted for a long time on weapons systems. We now spend 
more dollars or equal dollars on services than weapons and 
found that we were not reviewing those with the same rigor that 
we thought was important, and we think it will serve as a 
significant aid in ensuring that small business interests are 
included in this service acquisition arena.
    Additionally the Department has drafted, and we plan to 
issue a benefit analysis guide through our SADBU office that 
explains to people and the folks who are here in the office 
today on what we expect them to do in considering a new 
acquisition and its impact on small business. We continue to 
have small business specialists, procurement technical 
assistance centers, regional small business conferences to 
provide outreach and training. We continue to do procurement 
fairs with Members of Congress to ensure we have outreach to 
our small businesses, and in addition, we have tried to 
emphasize new electronic commerce initiatives where the 
opportunities to put out electronically, small businesses can 
register through ProNet and can receive E mails of business 
opportunities government-wide that they may participate in.
    In short, we know we need to do better. I am here to tell 
you that the Department of Defense and the procurement folks, 
we will make that commitment. We know there is a lot of work to 
do and we will reaffirm the DOD commitment to small business.
    Thank you for the opportunity to appear here today and I 
look forward to your questions.
    Chairman Manzullo. Thank you very much.
    [Ms. Lee's statement may be found in appendix.]
    Chairman Manzullo. Our next witness is Susan Walthall. 
Susan is the acting chief counsel for advocacy of the Office of 
Advocacy in the U.S. Small Business Administration. Even as an 
acting chief, Susan, I would want to commend you publicly when 
Ms. Velazquez's staff and ours went to you and you worked with 
another committee and you stopped a contract for 114,000 Air 
Force hats when the Air Force had decided that the GPO was 
going to do the procurement, violated all procurement laws, and 
the company to whom that contract was awarded would make those 
hats in China.
    We are active in this Committee. We are using all the 
resources we have and we are very serious about protecting 
American jobs and following the procurement laws. Susan.

STATEMENT OF SUSAN M. WALTHALL, ACTING CHIEF COUNSEL, OFFICE OF 
  ADVOCACY ACCOMPANIED BY MAJOR CLARK, ASSISTANT ADVOCATE FOR 
PROCUREMENT, AND PAUL MURPHY, PRESIDENT, EAGLE EYE PUBLISHERS, 
                              INC

    Ms. Walthall. Thank you, Mr. Chairman. Good morning, Mr. 
Chairman, and members of the Committee. I would ask that my 
entire testimony be made a matter of the record, and I wish to 
state that the views expressed here are not meant to reflect 
the views of administration or the U.S. Small Business 
Administrator.
    Chairman Manzullo. All the statements of the witnesses and 
Members of Congress will be made part of record without 
objection. Thank you. Proceed.
    Ms. Walthall. I am Susan Walthall, honored to be acting 
chief counsel for the Office of Advocacy. Congress created the 
Office in 1976 to be an independent voice of small business in 
forming public policy. From the beginning, advocacy has 
actively analyzed Federal procurement policy and its impact on 
small business. It is good that you are focusing on the largest 
buying activity, the Department of Defense. There is enormous 
opportunity for DOD to do more for small business. At the same 
time, however, the Federal procurement policy issues that 
create problems are universal and impact the entire Federal 
marketplace.
    As an example, let me start with the government credit 
card. Advocacy is currently studying the use of government 
credit cards and their impact on small business. We will have a 
report available later this year. I feel it is safe to say that 
small business does not appear to be getting a proportional 
share of these Federal dollars. In the last 3 years use of 
credit cards has increased nearly 150 percent, from under $5 
billion in 1997 to slightly more than $12 billion in 2000. But 
the small business share is less. In fiscal year 1995, small 
businesses received 72 percent of small purchase dollars. In 
fiscal year 2000, that number is down to 65 percent.
    We are also concerned about the use of multiple contracts 
and government-wide contracts. Agencies use these tools to fill 
requirements quickly by simply issuing orders against these 
contracts instead of starting new procurement actions. This is 
convenient for the agency, but it reduces opportunities for 
small business. These contracts are usually too large in scope 
for small business to participate.
    Likewise, the GSA schedule which has increased from 2.8 
billion in fiscal year 1996 to 10.2 billion in fiscal year 2000 
has also hurt small business. Although the Small Business Act 
specifically requires purchases of goods or services between 
$2,500 and $100,000 be reserved for small business orders from 
the GSA schedule do not follow this requirement.
    Mr. Chairman, the Office of Advocacy has also studied the 
buying habits of Federal procurement centers across the 
country. Our study ranked the small business friendliness of 
the centers based on the percentage of awards to small 
businesses. We have found that almost two-thirds of Federal 
prime contract dollars were controlled by centers that awarded 
the least to small business. 260 of the centers awarded no 
prime contract to small business, while 213 centers awarded 100 
percent. So it is doable.
    One of the most powerful forces reducing Federal 
procurement opportunity for small business is contract 
bundling. The convenience to the government is obvious, but the 
negative impact on small business is equally obvious. In 1997, 
we contracted with Eagle Eye Publishers to look at the impact 
of bundle contracts. Our recent update of the study is even 
more alarming.
    Consider the following: The average bundle contract was 
valued at $8 million in fiscal year 1999, representing a 21 
percent increase over the past 8 years. For every increase of 
100 bundle contracts, there was a decrease of 106 individual 
contracts awarded to small business. And in fiscal year 1999, 
large businesses received 67 percent of all prime contract 
dollars and 74 percent of all bundled dollars, while small 
firms received 18.7 percent of all prime contract dollars and 
15.7 percent of all bundle contract dollars.
    It is clear that the well-intended acquisition reform 
movement of the 1990s has been detrimental to small business. 
We simply must do more to increase opportunities for small 
business. Mr. Chairman, the commitment of the Small Business 
Act to assure fairness for small business must be strongly and 
forcefully reinstated so that government does not save pennies 
in acquisition costs while losing the soul of what this country 
is all about.
    That concludes my remarks. I have a number of 
recommendations that are in my written statement. Mr. Major 
Clark of my staff, who is assistant advocate of procurement, 
and Paul Murphy, president of Eagle Eye Publishers, join me 
today. We will be happy to answer any questions you have. Thank 
you very much.
    Chairman Manzullo. Thank you very much.
    [Ms. Walthall's statement may be found in appendix.]
    Chairman Manzullo. Our next witness is Ken McLaughlin who 
is a professional engineer. He is representing the American 
Council of Engineering Companies and the Small Firm Council. I 
look forward to your testimony.

  STATEMENT OF KEN McLAUGHLIN, SMALL FIRMS COUNCIL, AMERICAN 
                COUNSEL OF ENGINEERING COMPANIES

    Mr. McLaughlin. Mr. Chairman, Ranking Member Velazquez and 
members of the Committee, I would like to request that the 
written full text of my testimony be made a matter of record 
and I be allowed to summarize at this time. I would also like 
to thank you for affording me the opportunity to express before 
the Committee the interests of many small business enterprises 
in the engineering community. As a matter of background, the 
American Council of Engineering Companies is the premier 
business association of consulting engineering industry 
representing more than 5,000 engineering companies throughout 
the United States. ACEC was founded in 1956 and is 
headquartered here in Washington, D.C., and since 1990, the 
Small Firm Council has represented and advanced the business 
interests of ACEC's small business enterprises.
    The Small Firm Council is composed of 75 percent of ACEC's 
total membership and this represents companies of 35 members or 
less. The distinction of firms where 35 members or less is 
important not only because it is 75 percent of our membership, 
but because it represents the general size of a firm which does 
approximately $4 million annually in business, therefore 
qualifying those firms under the Federal guidelines as a small 
business.
    On a more personal level, I am founder and president of IMC 
Consultant Engineers located in Metairie, Louisiana. IMC also 
designs services in the mechanical, electrical engineering 
field. We design heating, ventilating, air conditioning, 
lighting systems for commercial buildings very much like the 
building we are sitting in today. My firm works within two 
basic frameworks as do most small engineering firms. That is as 
prime consultant to the owner, and there is a subconsultant to 
another engineer and architect.
    As you might expect, we prefer to work as a prime 
consultant, and therefore look forward to those opportunities 
in the marketplace. As a prime consultant, we are in control of 
our destiny and totally responsible to our clients, and we 
directly benefit in recognition of a job well done. We are 
assured prompt payment as the prime contractor.
    The Department of Defense offered procurement opportunities 
on the order of $120 billion in 1999. It appears from 
Congresswoman Velazquez's report, ``Failing to meet the Grade'' 
that the Department of Defense, the largest government 
contractor, has failed to meet the goals set for procurement 
from the small business sector. In fact, the report provided a 
grade of D to the agency and termed the performance dismal. My 
colleagues and I have particular interest in bringing before 
you today the problems of contract bundling.
    ``Bundling'' is defined as the consolidation of two or more 
contracts for goods or services into one contract that is often 
too large for a small business to participate as a prime 
contractor. Within the solicitation of engineering contracts, 
bundling is commonly recognized within two formats. The first 
format being geographic dispersion of the contract performance 
site to thepoint of exclusion for small firms due to 
territorial coverage that simply becomes impractical. The second format 
being the broadening of the project scope to the point of exclusion of 
the small firm specializing in a field.
    Bundling is having profound effect on small engineering 
firms with its use, often precluding small firms the 
opportunity to work as a prime consultant. This is especially 
apparent within many indefinite delivery contracts. The 
problems within the procurement solicitation can be better 
examined by example. Provided within the written text are three 
examples of that.
    What I would like to do is point out one in particular at 
this time. It is a solicitation by the Department of Navy. Let 
me quote from that solicitation the geographical constraints of 
the project. And I am quoting, ``the majority of the work will 
be located within the Commonwealth of Virginia, the State of 
West Virginia, the Commonwealth of Puerto Rico, and western 
Europe, but may include the State of North Carolina, the States 
of Delaware, Pennsylvania, New Jersey, New York, Rhode Island, 
Massachusetts, Maine, Vermont, New Hampshire, Maryland, and the 
District of Columbia; or at locations under the cognizance of 
engineering field activity, Mediterranean (Europe and 
Bahrain).''
    I think maybe the Navy could have pinpointed this a little 
more. This is a classic example of bundling. There are two more 
examples within the written text. If I might, another one 
issued by the Corps of Engineers for projects primarily in 
``northern and central California, but may also be within the 
Sacramento district, civil works area of responsibility, 
California, Nevada, Utah, Colorado, Wyoming, parts of Oregon 
and Idaho, and areas in the south Pacific division boundaries.
    It is our belief that these types of requirements listed in 
these actual Department of Defense requests for qualifications 
would preclude the vast majority of small engineering firms as 
prime contractors.
    Our hope is that all the Department of Defense contracting 
agencies would properly evaluate the proposed work associated 
with indefinite delivery orders and solicit professional 
services matching that work. This would provide small 
businesses the opportunities to work as a prime contract 
consultant, or at least be assured as a subconsultant that they 
will have meaningful work once the prime is selected. Bundling 
is forcing small business to shift from being a prime 
contractor to being a subconsultant to a large firm. This 
accounts for a decrease in small firm contracts between 1997 
and 1999. As a result small business----
    Chairman Manzullo. I have to interrupt here.
    Mr. McLaughlin. I have run over?
    Chairman Manzullo. You have run over, but let me say this 
to the panel and the people here in this room. If you are a 
small business person and you get a piece of garbage that is a 
proposal as the one that Mr. McLaughlin just talked about, the 
Office of Advocacy and the Small Business Administration, 
Susan, there are 40 employees.
    Ms. Walthall. Yes, sir.
    Chairman Manzullo. Plus we have half a dozen--how many 
attorneys?
    Ms. Walthall. Right now we are down to 10 to 12.
    Chairman Manzullo. We have six attorneys on staff in the 
Small Business Committee. If you get something like that, 
please contact our office immediately and we will make some 
inquiries. I may even have to use the famous subpoena duces 
tecum to bring the people who draft those into my office and 
personally explain why they do that. That is a shot across the 
bow to any Federal procurement officers that would come up with 
garbage like that, and the reason for the geographical 
limitations is to knock out small engineering firms because 
they are obviously not licensed in all those jurisdictions.
    [Mr. McLaughlin's statement may be found in appendix.]
    Chairman Manzullo. The next witness is Maurice Allain. You 
are the president and CEO of Phoenix Scientific Corporation, 
and we look forward to your testimony.

  STATEMENT OF MAURICE ALLAIN, PRESIDENT, PHOENIX SCIENTIFIC 
                          CORPORATION

    Mr. Allain. Thank you. Can everyone hear?
    Chairman Manzullo. That is fine. Thank you.
    Mr. Allain. Good morning, Mr. Chairman, and members of 
Committee, for inviting me again before you on a subject of 
major concern to us and other members of the small business 
community. My invitation to attend this morning's hearing came 
this time from the minority members of the Committee. My last 
appearance was at the behest of its majority members. I note 
with satisfaction that concern with procurement policies at the 
Department of Defense with regard to small business is shared 
by both sides of the aisle.
    Since the decline of the Soviet state, the Department of 
Defense has undertaken some 40 major acquisition initiatives. 
Some of them have been successful; for others it is too early 
to completely evaluate. However, the record is clear that 
contract consolidation, or bundling, has adversely affected 
small businesses. It is also clear that from work by the 
General Accounting Office and the DOD Inspector General, that 
bundling has failed, except in rare instances, to show the 
substantial efficiencies claimed for it. In actuality, the DOD 
IG has shown that multi year, multiple awards bundled contracts 
have cost the government more than otherwise would be the case.
    In the 19 months since my last appearance before you, my 
company has been devastated by DOD's bundling policy, in 
particular, the Flexible Acquisition Sustainment Tool, or FAST 
has or will absorb most of the opportunities, my company may 
have had to compete for work at the Air Force material command 
for the next 7 years. Over this period, we have strenuously 
objected to the FAST procurement, we have challenged the 
assignment of NAICS codes, violations of the Competition in 
Contracting Act, and violations of the Small Business 
Reauthorization Act, all to no avail.
    Before the GAO, we have demonstrated that the FAST 
procurement failed to show substantial savings to the 
Department of Air Force, a point on which they agreed. However, 
our challenge failed as a result of peculiar interpretation of 
SABRA. In order to determine that FAST was suitable for small 
business, which was the basis for denying our protest, and 
therefore not in violation of SABRA, the GAO accepted that some 
firms who claimed to be small by the Air Force were competing 
for FAST, and therefore FAST was not unsuitable for small 
business participation. A thin reed indeed.
    We certainly were not alone in our contentions. The Small 
Business Administration formally appealed the decision to 
procure FAST to the Secretary of the Air Force and to the White 
House. An unanswered letter was sent from the Black Presidents 
Roundtable Association to the Secretary of Defense condemning 
FAST. A letter urging this SBA administrator to more vigorously 
challenge FAST was sent by almost 40 members of this House.
    And finally, a letter urging the GAO to strongly consider 
ruling against the FAST procurement was sent by the ranking 
minority member of this Committee. Again, to no avail. And 
finally, the FAST procurement was vetted by the Office of the 
Under Secretary of Defense for Acquisition, Technology, and 
Logistics. The report, the report on FAST by Mr. Ivory Fisher, 
which I believe this Committee has a copy, unambiguously showed 
that the FAST procurement was wrong, again, to no avail.
    All that can be shown from these efforts is a questionable 
agreement by the Air Force and the SBA to play nice. It is 
ironic that two of the parties to this agreement, the 
procurement officer, Mr. Burton, will be retiring this 
November, and the Under Secretary of the Air Force, Mr. Deluca, 
will most likely beat him out the door, leaving the FAST mess 
to others. And here, 19 months later, with my company standing 
in ruins, this Committee has failed to report out H.R. 1324. 
There would never have been a FAST or the injury to my company 
if this legislation had been in being as recently as May of 
this year. This legislation will clarify the semantical 
loopholes which allowed the FAST to wriggle through.
    Mr. Chairman and members of this Committee, I urge you to 
act swiftly on this legislation. I have every reason to believe 
that the current administration joined by bipartisan majority 
in the House is committed to resolving these issues once and 
for all. Careful review of the statements made by then-
candidate George Bush at the second presidential debate in 
remarks made to the editors of the MBE Magazine, and later 
reiterated by the Right Reverend Kirby John Caldwell earlier 
this year as guests on the O'Reilly Factor talk show make it 
clear that access to competitive contract opportunities by 
small business is essential for the continued good working of 
our economy. Thank you for the time permitted me and I am 
available for any questions you might have.
    Chairman Manzullo. I appreciate your testimony.
    [Mr. Allain's statement may be found in appendix.]
    Chairman Manzullo. We will look at this FAST mess and what 
I would like to do, Mr. Allain, is if you are going to be on 
the Hill sometime today, what time is your plane leaving?
    Mr. Allain. I am driving, I don't have enough money for a 
plane fare.
    Chairman Manzullo. Back to Phoenix?
    Mr. Allain. Yes.
    Chairman Manzullo. If you could work with our staff, I 
think Ms. Velazquez and I would like to spend some time with 
you today.
    Mr. Allain. Certainly. I am at your disposal.
    Chairman Manzullo. We appreciate that. Thank you very much.
    Our next witness is Kathleen Diamond. Kathleen is president 
and CEO of Language Learning Enterprises incorporated of 
Washington, D.C.. Speaking on behalf of GrassRoots Impact, Inc. 
And I look forward to your testimony.

  STATEMENT OF KATHLEEN DIAMOND, PRESIDENT AND CEO, LANGUAGE 
LEARNING ENTERPRISES, INCORPORATED, MEMBER, GRASSROOTS IMPACT, 
                              INC

    Ms. Diamond. Thank you. Good morning, Mr. Chairman and the 
Committee. Thank you very much for giving me this time this 
morning. My name is Kathleen Diamond. I am the president and 
CEO of Language Learning Enterprises. We are a full service 
language company headquartered in D.C., and we provide foreign 
language support to public and private organizations across the 
United States. I would like to share that I was recognized by 
my peers in 1999 as being named the International Woman 
Entrepreneur of the Year. Today I am testifying on behalf of 
GrassRoots Impact, Incorporated. This company 
representsapproximately 200,000 business owners on Capitol Hill with 
special focus on minority- and women-owned businesses.
    In 1979, when I founded LLE, I quickly learned that the 
United States government was a major purchaser of language 
services. Accordingly, I began the process of educating myself 
on the arcane process of Federal contract procurement. My 
efforts were rewarded in 1981 when LLE was granted its first 
contract with the United States Information Agency since it 
folded into the Department of State much to my company's 
detriment. It was a multi-vendor, indefinite quantity, 
indefinite delivery, fixed-price contract for language 
training. The bidding was a small business set aside with no 
consideration of gender or race of owner.
    As a result of the 1988 Women's Business Ownership Act, 
``women-owned'' was added to the boxes to check under section K 
certification and representation in all Federal requests for 
proposal. LLE began responding to requests for proposals from 
the Department of Defense for language training as well as 
translation in the mid 1980s. Competition in the language 
training area was limited in the early days to a handful of 
capable vendors, most of them were small businesses given 
access to Federal contract by virtue of the set-aside clause.
    Today there are twice as many companies in the language 
business; the majority male-owned and no longer classified as 
small businesses. Procurement policies changed to accommodate 
the growing size of the business by no longer making the 
procurement a small business set-aside, thereby making it 
harder for smaller and newer companies to compete. Although the 
gender of the owner continues to be solicited, it bears no 
weight on the final outcome and the allocation of dollars to 
the winning bidders. There is simply no incentive to award a 
contract to a woman-owned business, all things being equal.
    Notwithstanding the above, LLE has been successful for 
nearly two decades in winning contracts with the Pentagon and 
other agencies of the DOD for language training. We have been 
considerably less fortunate in our attempts at winning 
translation contracts. I believe this is because government 
contracts are written in such a way to preclude access to 
unknown and small enterprises. From my company's perspective, I 
cite as a case in point a very large multi-year contract for 
language services, translation/interpretation put out to bid by 
NASA in 1996. LLE was compelled to team with a ``wired'' 
engineering company that would be the prime contractor, even 
though the scope of work was primarily for language services. 
The DOD practice of low bidding is especially damaging to small 
business. In a small company, every contract must sustain 
itself. There is no room for a ``loss leader'' as there might 
be in a large company with numerous possible contract to carry 
the low ball. My experience is that small business in general, 
and women-owned businesses in particular, can ill-afford debt 
to finance the Federal government. And yet, this is frequently 
what happens. I am talking here about SLOW pay.
    I believe that small women-owned businesses are capable of 
providing the highest of standards to DOD needs, products and 
services. I understand that the types of products and services 
purchases are predominantly made/offered by large main stream 
businesses in the military infrastructure with decades of 
experience and track records. Nonetheless, if the government 
intends to respect its own mandate to increase the Federal 
contracting to women-owned businesses to the 5 percent as set 
forth in the 1994 Federal Acquisition Streamlining Act, then 
different consideration must be given to bids for these 
companies.
    I recommend that DOD update its list of products and 
services purchased to reflect today's market. Women-owned 
businesses are excellent sources for computer support, graphic 
design, consulting, management, personnel development, and a 
myriad of other businesses and services not classified in the 
search engines of the current procurement directories.
    Secondly, although DOD is doing a better job in reaching 
out to small business through marketplace showcases, et cetera, 
where buyers set up booths and invite vendors to visit, there 
should be more follow up afterwards. And further, more a 
concerted effort should be made to invite an appropriate mix of 
vendors. No sense inviting my company, for example, to a 
showcase for hardware buyers.
    Thirdly, it is my observation that more contracts will be 
awarded to women-owned businesses if these businesses could bid 
on smaller contracts and bid as prime. In other words, I do not 
think the practice of bundling, i.e., combine several projects 
into one for contracting purposes is helpful to small 
businesses. In fact, I am not even sure it is beneficial to 
government either. In my earlier example of the NASA request 
for proposal, LLE could have bid as prime and offered a high 
quality, fairly priced language service had the scope of work 
not included oversight and other administrative 
responsibilities, such as visa arrangements and other 
geographic concerns.
    In closing, I would like to thank the chairman and his 
Committee for their initiative in this important aspect of 
government fact finding. Thank you very much. I am here for 
questions.
    Chairman Manzullo. Thank you very much.
    [Ms. Diamond's statement may be found in appendix.]
    Chairman Manzullo. Our next witness is Rick Weidman. He is 
the director of government relations of the Vietnam Veterans of 
America. Mr. Weidman, we look forward to your testimony.

  STATEMENT OF RICK WEIDMAN, DIRECTOR, GOVERNMENT RELATIONS, 
                  VIETNAM VETERANS OF AMERICA

    Mr. Weidman. Mr. Chairman, Ms. Velazquez, distinguished 
members of the panel, thank you very much for allowing Vietnam 
veterans of America to participate in the panel of procurement 
this morning. I am here representing not just Vietnam veterans 
of America, but I have the honor of serving as chair of Task 
Force on Veterans Entrepreneurship, which includes all of the 
veterans' organizations and many military retired organizations 
and private businesses. Although not formerly a member, the 
American Legion works pretty closely with us in all of our 
endeavors. Our interest is the implementation of 106-50, the 
Veterans Entrepreneurship and Small Business Act of 1999, for 
which we were deeply grateful to this Committee and all of the 
members, both presently and those who were present at that time 
on the Committee for that landmark piece of legislation for the 
first time, marking into law veterans and disabled veterans as 
an important part of the business community and small business 
community.
    There are approximately 4 million veteran business owners 
in the United States. No one really knows how many service-
disabled businesses there are because we have never counted 
them, and because efforts to do so in response to a 
congressional mandate in 1997 were blocked by the Office of 
Management and Budget. However, our best scientific guess in 
working closely with the folks at SBA, both in the Office of 
Advocacy and in veterans business development offices is that 
there is somewhere between 100- and 200,000 small businesses 
owned by service-disabled vets, and probably another hundred to 
150,000 to single entrepreneurs in microbusiness if you will.
    One of the biggest problems we are having with DOD is 
something that I have no doubt other small businesses encounter 
only more so, it is difficulty in obtaining information. 106-50 
was enacted into law on August 15, 1999. As of this week, we 
went on to the defense Web site, DefenseLINK, and from there 
there is no linkage from there to the Office of Small and 
Disadvantaged Businesses for information on any of the set-
asides and goals.
    And when you get to the SADBU website, you click on service 
connected disabled vet, and it takes you to the service 
connected disabled vet, which has a title and in prominent 
letters, ``under development.'' It is currently being 
developed. It has been currently being developed for a year and 
a half now. We think it is time that they step out smartly. 
Some of the problems that were outlined by the distinguished 
individuals to my right, these five individuals, are the 
problems all small businesses confront when trying to do 
business with any part of the Federal Government, but 
particularly with the Department of Defense.
    Why are we so concerned with the DOD? It is like Willy 
Loman said when asked why do you rob banks? That is where the 
money is. We have more than half the Federal procurement that 
comes from the five military services and other entities 
associated with DOD. So, of course we are interested. Service-
disabled veterans are particularly interested because they are 
our former employer, and it is because of our former employers 
that we happen to be service-connected disabled, and therefore 
there is a natural interest there.
    In point of fact, not much has happened at DOD for 
implementing 106-50, nor has it happened at other Federal 
agencies. We would ask your assistance of the Committee, both 
minority and majority joining together to try and help us get 
the final regulations out of the council by bringing it to the 
attention of the President that it has been stuck there in that 
log jam for some time. Three years is enough time to get a 
Federal regulation out on service-disabled vets.
    Secondly, that the Committee call for a GAO report to 
examine the priorities, the practices and the policies of DOD 
in regard to acquisition from disabled veterans, business 
owners, but also for all business owners. It is the practices 
that were so eloquently elucidated by the folks to my right 
that affect all of the players in this small business area. We 
also ask to introduce legislation that would make sure that all 
of the small business requirements apply to GSA and any other 
electronic way, whether it is a credit card or otherwise 
including the 3 percent for service-disabled veterans.
    And last but not least, that you institute by law a 
holdback of 1 percent of all prime or bundled contracts to see 
if the agreement on subcontracting was actually met. We all are 
familiar with the game where they say they are going to do it 
and they declare the small business unresponsive because of 
some of the reasons outlined by the folks to my right. This 
would help all of the small business community and all votes 
would rise, including service-disabled veterans.
    Mr. Chairman, I thank you very much for this meeting and 
would like to note one last thing. Veterans often don't get 
mentioned, they do not get thought of. With all due respect to 
all of the eloquent statements to my right, not a single person 
mentioned the service-disabled veterans. It is really a problem 
with the procurement officers here in the audience as well as 
key players from the various entities of the Department of 
Defense. You wouldn't think we had to strive to make these 
folks understand the problems that their former employees who 
are struggling to make it in business, but that is the case. 
And any help you can give this Committee can give in 
encouraging them to do so, we would be deeply grateful for.
    Mr. Chairman, thank you very much for the opportunity to be 
here today.
    Chairman Manzullo. Thank you for the excellent testimony of 
everybody.
    [Mr. Weidman's statement may be found in appendix.]
    Chairman Manzullo. Ms. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman. Ms. Lee, throughout 
your testimony, you talk about the Department of Defense's 
commitment to small business. So let's talk for a little bit 
about the numbers of contracts to small businesses over the 
past few years. In 1997, DOD awarded over 3.8 million contracts 
to small businesses. In 2000, that figure dropped to 2.2 
million, a decrease of over 41 percent. In 1997, DOD awarded 
over 185,000 contracts to small disadvantaged businesses. In 
the year 2000, that figure dropped to 83,000, a decrease of 
over 55 percent.
    In 1997, DOD awarded nearly 53,000 contracts to SBA 8a 
program firm. In 2000, that figure dropped to 39,000. A 
decrease of over 25 percent. In 1997, DOD awarded 235,000 
contracts to women-owned businesses. In 2000, that figure 
dropped to 132,000, a decrease over 43 percent. So all of these 
decreases occurred over a time period of fiscal year 1997 
through fiscal year 2000 when total DOD procurement increased 
by over $13 billion.
    So Ms. Lee, tell me what specifically are you doing to 
reverse this downward trend in the number of contracts 
opportunities for small businesses with the Department of 
defense?
    Ms. Lee. Ms. Velazquez, as you know, we track numerous 
measures, including the number of contract actions, the dollars 
spent, as well as the percentage, and depending upon the base, 
of course they vary. From that time frame, as mentioned, we 
have changed procurement practices significantly, including the 
cards and GSA schedule in IDIQ contracts, so the number of 
transactions has decreased, and so we track both dollars, 
percentages and numbers of transaction.
    Ms. Velazquez. Ms. Lee, do you know that the numbers of 
last year are worse?
    Ms. Lee. I know there are fewer contract actions, but there 
are more----
    Ms. Velazquez. Fewer when we talk about dollars . $13 
billion less. Do you consider that fewer dollars?
    Ms. Lee. There are more dollars----
    Ms. Velazquez. Ms. Lee, I issued this in the year 1999. I 
am prepared to issue another report card in the year 2001. This 
coming summer now. The title of this report ``Failing to Meet 
the Grade.'' would you please suggest to me what the title 
should be in this coming report?
    Ms. Lee. I am familiar with your report and what we want to 
do is meet the grade, and we have got a program in place to do 
that and to focus on those and to emphasize the goals that what 
we have to do.
    Ms. Velazquez. So you have this report. You know very well 
we have conducted here over the last 7 years so many hearings 
on contract bundling, and however the Department of Defense, 
who control 65 percent of Federal procurement dollars, 65 
percent, the largest, and a year later you come here and I tell 
you that the number of contracts, while the amount of Federal 
dollars is increasing, the number of contracts that are going 
to small business firms is decreasing. And then the arrogance 
of the Department of Defense to set statutory goals that are 
lower than the 5 percent for women-owned businesses, for 
example. Let me tell you, I hope that you get this message 
clear. And you were the messenger here, I want, Mr. Chairman, 
the Under Secretary of Acquisition here.
    Chairman Manzullo. We will ask him to come here, and if he 
doesn't want to come, we will issue the subpoena.
    Ms. Velazquez. Thank you. Ms. Susan Walthall, do you think 
Federal agencies that cannot meet their small business goal 
should be able to bundle contract at will when it is clear that 
bundling is preventing agencies from meeting their business 
goal?
    Ms. Walthall. No, Congresswoman.
    Ms. Velazquez. Do you think that having the SBA being the 
final arbiter over bundled contracts makes sense?
    Ms. Walthall. I personally think it makes a lot of sense.
    Ms. Velazquez. Thank you.
    Mr. Allain.
    Mr. Allain. Yes, ma'am.
    Ms. Velazquez. You refer in your testimony to a peculiar 
interpretation of the Small Business Reauthorization Act of 
1997, which caused your GAO protest of the Air Force Fast Track 
to fail. Would you please expand on what you mean by peculiar 
interpretation?
    Mr. Allain. While I have great respect for Ralph O. White 
and other members of the staff of GAO, after determining that 
the Air Force justification for substantial savings which gives 
them the authority to bundle under SABRA, the problem came up 
that the Air Force said to the GAO we have reserved now not 
set-aside, we have reserved two awards for small business, and 
they are not set-aside, so since we are going to award for two 
small businesses, therefore the whole thing cannot be 
unsuitable for small businesses. It makes sense on the surface, 
until you look below and see that only the small business has 
statutory authority for making any size standards 
determination.
    What the Air Force provided the GAO with was two firms that 
alleged they were small, no way to challenge since it is not 
set aside, no way for them to demonstrate that they were small 
under current law.
    Ms. Velazquez. Mr. Allain, do you believe that if the Small 
Business Contract Equity Act had been law at the time of your 
FAST, that the result of your GAO protest would have been 
different?
    Mr. Allain. I certainly do. A good bit of the material that 
does not get digested for general public, a lot of 
consideration was given to our multiple award schedules, 
bundles. I mean, we just went around and around and around on 
definitional language. The weasel word--you give a bureaucrat a 
weasel word, he will find it and use it.
    And you know, I personally, when I have to take my time and 
spend money for legal counsel out of my pocket, and I am 
against the Department of Defense, the Air Force or their 
minions, and they are all getting paid a Federal salary. I 
resent the weasel wording. We knew what you guys intended. This 
has been going on in this Committee for, as you mentioned, Ms. 
Velazquez, for 7 years. The Department of Defense can't tell 
you today what their small businesses do for them. They lost 
visibility into the lower tiers of industrial bases, and Mr. 
Aldridge's predecessor, Dr. Gansler, put that in writing in 
understanding the defense business almost years ago . They have 
no clue what we have to do out here.
    Ms. Velazquez. Thank you. Thank you, Mr. Chairman. I will 
come back.
    Chairman Manzullo. I appreciate that very much. Mr. 
Shuster.
    Mr. Shuster. Thank you, Mr. Chairman. My question is, first 
of all, a request to the Department of Defense. Could you 
provide the Committee a listing of the small firms that do 
businesses with the various installations around the country?
    Ms. Lee. Yes, sir, we can draw that out of the Federal 
procurement data system and get you that information.
    Mr. Shuster. My question is what were the policies in place 
you say you want to make the correction and make the grade what 
policies or procedures are in place and are you advocating to 
do business in communities with local businesses what types of 
things are you doing concrete.
    Ms. Lee. We certainly have a broad spectrum. I think Mr. 
Aldridge's memo has a tremendous impact, and I agree with 
Congresswoman Velazquez that the numbers in our memorandum are 
our internal grading department, and at the same time, we have 
issued a memorandum to the SBA asking for the 2002 and 2003 
goals to be established, and they all meet or exceed the 
statutory requirement. Those are the goals we are asking back 
from SBA. And we have long worked and SBA is a wonderful 
partner, in the years before, we used to establish the goals 
half way through the year.
    So that was not much of an incentive. So SBA and the DOD 
and the other agencies have now stepped up, and we are 
establishing these goals early. At the Department, we are 
actually asking for them on a two-year cycle because some of 
our programs do run long, and we want to make sure that 
emphasis is placed. The additional reporting by Mr. Aldrich 
requiring the services to meet these target reports to him get 
mid year data, and then further go up to the Deputy Secretary 
of Defense is a significant change in your program, and I think 
it would increase the emphasis.
    In addition, too, that we have training for folks that are 
here like, today, the contracting officers to talk about how we 
do include small businesses. We have recently been allowed per 
the last legislation to now have, for the first time ever, an 
option to have a woman set-aside. It used to be we would try to 
get women involved, but we cannot set aside the procurement 
statutorily. The Defense Department right now we are not 
allowed to use the small business disadvantaged price 
preference because we have authorization that says if we have 
to meet the 5 percent goal, we cannot use that price 
preference.
    So the civilian agencies use that. We do not. But we do use 
small business set-asides and 8a contracting, which are the 
price preferences that we are allowed to use. So what we have 
done is increase the goals, increase the emphasis, increase the 
training and just try to focus and drive.
    Mr. Shuster. On women business is the 5 percent, you 
haven't reached that. What are the reasons for that?
    Ms. Lee. We have not reached it as to the best of my 
knowledge, there may be one agency who has. Prior to 1 year, we 
had a woman-owned goal, but we had no preference, which meant 
we could do a small business set-aside; women would compete, 
veterans could compete. SDB's could compete, but based on the 
election and selection criteria we had to make the selection 
on, that basis we could not give weighted consideration to 
gender or service preference because we did not have that 
statutory authority.
    Mr. Shuster. Final question you talked about all the goals 
and the paperwork and the training, is that occurring in the 
field or is it occurring here in Washington? Are you going out 
to communities educating small businesses and assisting them on 
how they get on board?
    Ms. Lee. Every one of us, including our SADBU program, is 
out there talking to each other. I was actually doing a 
procurement fair last Friday in the Fairfax area talking about 
small business and our goals and our program. We are 
inculcating it in our training program. We are also trying to 
with a program manager. As all these contracting officers will 
tell you, we are a community and we need the program managers 
or the person with the requirement to understand that they too 
have to help us seek out small businesses to participate in 
this and all our programs.
    Mr. Shuster. Are you willing to send somebody to come up to 
my district if we request somebody to come up?
    Ms. Lee. Yes, sir, I would be happy to do personally, or we 
can match you with a person that you would be most comfortable 
with.
    Mr. Shuster. Thank you very much.
    Chairman Manzullo. Mr. Udall.
    Mr. Udall. Thank you, Mr. Chairman and the ranking member. 
I want to acknowledge the good work you have done in bringing 
this hearing to occur today. It is interesting to me, I have 
been hearing some of the same concerns in my far flung district 
in Colorado, and this is a very serious situation, and I know 
Ms. Lee, as the ranking member, suggest you are the messenger, 
but I think, nonetheless, also a lot of passion that surrounds 
this issue, but I will note that not only are we dealing with 
an issue of fairness, but as Congressman Velazquez pointed out, 
that there is money being spent that could be saved and put to 
better uses on behalf of use of taxpayers.
    In that spirit, I have just wanted to talk a little bit 
about my district, and then extend a couple of questions your 
way. I have met with some small business people in the 
district, and it appears to them that Federal contracting 
guidelines, approved under Vice President Gore's reinventing 
government initiative, instituted a past performance criteria 
in awarding contracts. And in short, those who have received 
government contracts in the past have a huge leg up in getting 
these future government contracts and the requirement, while it 
is probably well attended, has created a form, I think, of an 
old boy network. In my district we have a lot of new economy 
efforts under way. It probably has an even larger impact 
because there are often situations when a mere handful of 
employees that produce goods or services move down the street 
and form their own venture, you have the same folks doing 
business with the government one day and the next day they 
don't have that potential.
    Mr. Chairman, I had a letter and a number of people who 
have signed on to the letter that run small businesses that I 
would like to include in the record, if I might.
    Mr. Manzullo. Without objection it will be included.
    [The information may be found in appendix.]
    Mr. Udall. It speaks to this particular issue. If I could, 
let me then direct my question to you. Do you know the specific 
statute and regulation that allows the Department of Defense to 
preclude contractors from working with the DOD that haven't 
worked with the DOD before.
    Ms. Lee. No, sir, we don't preclude people. In using past 
performance, what we do is keep performance information not 
unlike the business Chamber of Commerce would keep information 
about a business. But what we do say is anybody who has not 
previously done business with the government cannot have a 
negative past performance. In other words, we say they have an 
opportunity and they get what we call a no past performance 
available, or they can submit performance data about what they 
have done in the commercial sector that is all acceptable and 
usable. We are just asking, tell us about your previous 
customers and how your work has gone for them and that can be a 
consideration in the selection. Actually some people that have 
done business with the government may be at a disadvantage 
because when we have those that who have not performed as well 
as they could, they would have some negatives in their record 
versus those who would not. We have tried to look at it as a 
businessperson would as well with your percentage money and say 
who is a good performer, and we should consider that in 
spending the taxpayers dollar.
    Mr. Udall. It strikes me, the policy in its implementation 
is being misunderstood by some of the procurement officers. And 
again, when I visit with these constituents, they talk about 
sitting down with some of these officers, and they have 
extensive experience in the area in which they're bidding 10 
years or more. And they simply are lacking the experience 
working with the Department of Defense, and they have been told 
literally you don't have a snowball's chance in working for 
Department of Defense.
    And I know that is not what I hear you saying, but it 
concerns me, and again, I look to the chairman and the ranking 
member, do we need to do something statutorily to change this, 
or is there a way that you could issue a policy directive that 
makes it clear to rank and file contracting officers that past 
performance is to be interpreted in this way and not in the way 
that it certainly appears to be in Colorado.
    Ms. Lee. I can certainly do that and should increase--you 
know, we have a lot of training to do; we have some 19,000 
people in the Department of Defense that are involved in the 
contracting arena, and there is never enough training, and I 
think that information and education process continues. I would 
be happy to address that.
    Mr. Udall. Could you please provide the Committee with a 
clarification of this policy directive if and when you issue 
it. I think it would at least begin to move us down the road to 
clarify this.
    Chairman Manzullo. If you could suspend for a second, if 
you could reduce your request to writing, we will put it on our 
small business letterhead and then we will have you sign it, 
along with Ms. Velazquez, and if that is okay with you.
    Mr. Udall. Mr. Chairman, I would be happy to do that and I 
appreciate the offer.
    Chairman Manzullo. Could you get it to us in 5 days or so?
    Mr. Udall. We can probably get it to you in the next 4.
    Chairman Manzullo. Thank you.
    Mr. Udall. Thank you, Mr. Chairman. I yield back.
    Chairman Manzullo. Thank you, Mr. Grucci.
    Mr. Grucci. Thank you, Mr. Chairman.
    Ms. Lee, as the director of defense procurement, you are, I 
assume, very familiar with the bid aspects that go out on a 
variety of different contracts, and one of the things that I 
have noticed, and I come from a small business background, in 
fact, I have done, in my prior life, some work for the military 
in pyrotechnical simulator defense items, and while the making 
of the item, which is generally where the small points are or 
the small businesses, whether it is a pyrotechnical guise or 
whether it is in a service or whether it is in the making of 
whatever, a widget, the company has a base knowledge of but we 
can't seem to get past of the myriad of paperwork and the 
mountain of information that has to be provided. Do you see 
that as an impediment to the small business community? And is 
there a way to get by that?
    I mean, I will give you a classic example. When we put a 
proposal in for the government to do some military work, the 
cost of preparing the proposal before you even had a chance to 
be reviewed and considered was considerable. Tens of thousands 
of dollars in the cost of engineers and the cost of accountants 
and the costs of attorneys and the cost of all the 
professionals necessary just to get your bid in so that you can 
be considered. Now, small guys and small business people and 
small women-owned businesses and the backbone of our economy 
doesn't have those kind of resources.
    Do you see an opportunity to streamline that process, to 
help with some sort of an offset to the small businesses, to at 
least get their opportunity to be heard before they get 
discouraged and not go forward?
    Ms. Lee. Sir, streamlining is certainly at the top of our 
list, our process is complex. I wish I could tell you it is 
very simple. What we have tried to do--we have a new part of 
the Federal acquisition regulations, part 12 for commercial 
items, and what it is is a streamline list of the statutes and 
the requisite clauses that accompany that are required when we 
spend taxpayer dollars.
    Right now I have on my personal agenda to see if we can 
export some of that simplification to other noncommercial 
agreements, or streamline the process so that we can make it 
easier for people to enter. We do collect a lot of 
certifications, we do collect clauses, et cetera, many of them 
based on our statutory framework here, most of them based on 
our statutory framework, so we would be happy to work with the 
Committee or individual members to say how could we streamline 
that for all involved.
    Mr. Grucci. Are you suggesting the streamlining could 
require some statutory action be done by Congress.
    Ms. Lee. Yes, sir.
    Mr. Grucci. You do not have any administrative ability to 
make some decisions administratively?
    Ms. Lee. We do, and we are continually trying to review 
those. We have reduced the number of certifications required of 
small businesses because those that were regulatory, and we are 
continually looking. Right now we are trying to streamline 
government property, and how we can make it easier for 
contractors to have that property. We are looking at 
intellectual property to see if we can streamline the 
regulations so that small businesses can maintain what I 
consider the heart in many of their high tech is their 
intellectual property so they can continue to be competitive 
rather than the government having unlimited rights. We are 
looking at all of those things in trying to streamline the 
process as a whole.
    Mr. Grucci. I will just finish up on that subject by 
saying, having firsthand experience with it if we have gotten 
through that process and we were successful in getting the 
awards, had we been able to have gotten through that process 
quicker, easier without detracting from the quality of the item 
that was to be made, the product could have been delivered to 
the government for substantially less money than it was 
delivered to the government. And I just think there was a lot 
of money being wasted in the attempt to ensure that taxpayer 
dollars were being spent wisely. The quest to do that, in my 
opinion, is actually costing taxpayers more dollars in the 
final outcome of the construction of that project. Another 
question I have, and I am not sure if this is for you, and if 
it is not, anyone else on the panel may feel free to answer it.
    In the instance that a small business does get a contract, 
and for whatever reason their bid was not right for the 
product, meaning that once into the manufacturing of the item, 
a small business maybe not having the opportunity to have 
experience with building that item, finds themselves losing 
money or getting hurt on the item, is there some mechanism 
that's involved with a relook at the bid specifications? Is 
there a way, short of filing bankruptcy and/or walking away 
from the contract, that the government works with small 
businesses?
    Ms. Diamond. I will take the question. We provide language 
training to the Department of Defense, and we have to bid on a 
per hour of instruction, and these bids, these contracts are 
sometimes 5 years long. So it is very difficult for one to 
figure out in year 2000 what an hour of teaching Spanish is 
going to be worth, and what an hour of teaching Spanish is 
going to be worth in the year 2006 as to what the labor and 
cost of goods is going to be. In my experience, I have been 
doing this for 20 years, I have never had recourse to change my 
bid once it was in place.
    Mr. Grucci. Is that the policy of the Department of 
Defense? Or maybe the advocate might be in a better position to 
answer that question. I see I have run past my time. Mr. 
Chairman, I apologize for going over.
    Ms. Lee. Sir, there are remedies, but in many cases 85804, 
which is a specific extra contractual remedy, it is very 
difficult to obtain. It requires a high level of approval. But 
generally, what we try to do is doing just good day-to-day 
contract and relationship management, and understanding what is 
happening and taking the appropriate action to not only not get 
the contract, but amend the contract as necessary. But just 
generally saying the bid was incorrect and then going back and 
making a change, we do not do that. We hold people to their 
commitments.
    Chairman Manzullo. Thank you very much. I have one question 
that I want to ask, and then I will recognize Ms. Velazquez 
again.
    Ms. Lee, you said the Department of Defense has 19,000 
employees that work on procurement.
    Ms. Lee. The approximate number I use for considering 
education training and planning is about 19,000 people, yes, 
sir.
    Chairman Manzullo. With that number of employees, then why 
do you do contract bundling?
    Ms. Lee. We are certainly focusing on not doing 
inappropriate consolidation.
    Chairman Manzullo. I think it is a valid question. What we 
hear all the time is we do not have enough employees to do the 
job of procurement. What is happening is the prime contractors 
are getting all the money, the small retailers that used to 
provide services and goods to the military and others are 
getting bypassed, and then you tell us that you do not have 
enough employees to do the procurement. Is that the case?
    Ms. Lee. We have about 19,000 now from a little over, from 
almost 30,000. So we have the same workforce spending about the 
same amount of dollars in a very different manner.
    Chairman Manzullo. You know, maybe we should have an 
oversight hearing on what all these people are doing. I am very 
serious, go right to the core because so often we are told the 
Federal agency doesn't have enough people involved in 
procurement. And I would much rather pay Federal salaries to 
make sure that procurement is evenhanded than to do all this 
contract bundling and have this man be so upset with this issue 
that he gets in his car when it is 100 degrees and drives from 
Phoenix to Washington, D.C. I guess that is more of a comment 
than a question.
    Ms. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Mr. McLaughlin, I'm sorry if I didn't pronounce your name 
correctly. First, I am glad that you found the report that we 
issued last year helpful, and we did it to help small 
businesses for them to see how our Federal agencies, their lack 
of commitment in terms of Federal procurement for small 
businesses, and to deal with the issue of contract bundling. In 
your testimony, you talk about the need for agency 
accountability for goal achievement, so legislation that I 
introduced in May includes a provision that says if an agency 
does not meet its small businesses and small disadvantaged and 
women-owned businesses goal, it may not bundle contracts for 
the next full fiscal year. Do you think this will improve 
agencies' attentiveness to small businesses?
    Mr. McLaughlin. I certainly think it would it be a start in 
the right direction. It would even address Mr. Grucci's comment 
on trying to streamline the process. One of the problems with 
streamlining the process is related directly to bundling. As we 
try to prepare these proposals that cost us the thousands of 
dollars that he is talking about, it is because in many cases, 
this bundle covers such a large area of the country or so many 
specialties. If this could be broken down into smaller 
projects, then smaller businesses could spend a few thousand 
dollars to make application for the solicitation.
    Ms. Velazquez. Another provision in any bundling 
legislation requires that agencies must provide proof of cost 
saving before they are allowed to bundle and equally 
importantly agencies must address the issue of quality. And 
quality will not be allowed to be less than what the quality 
was prior to bundling. Do you think this will help level the 
playing field for small businesses?
    Mr. McLaughlin. Yes, I think it will very much so. I think 
the small business can usually provide a higher quality product 
because we were familiar with the local problems, whether it is 
soil problems or humidity problems that we have to resolve in 
the engineering process. The small company local to that area 
will usually provide a higher quality product.
    Ms. Velazquez. Ms. Diamond, you want to comment on that?
    Ms. Diamond. I would agree 100 percent. Thank you.
    Ms. Velazquez. Ms. Lee, in your testimony, you talk about 
an initiative to have the Office of the Secretary of Defense 
reviewing high dollar service acquisition. In fact, OSD 
performed a review of the FAST contract and recommended against 
approval of the Air Force strategy for a number of reasons, 
including that savings for the FAST contract were based on 
expectation that a program manager would want to use FAST. Two, 
there was not baseline of work to be accomplished under the 
FAST contract available for a cost analysis. And third, FAST 
savings are based on avoidance of surcharges on an Army 
contract. Your testimony does not address whether OSD's reviews 
will actually be followed.
    Ms. Lee. Yes, this is a new process. I think one of things 
that really hit me in joining the Department about a year ago 
was that we have quite a detailed process for a weapons system. 
Yet we are spending a large number of dollars on systems, and 
we don't have an attendant concentration of what we are doing 
on these service systems. So what we are going to do now is 
look at all the services dollars, how we are spending them and 
where we are spending them, and then focus on that commitment. 
And yes, we will follow up and do follow-up, and document those 
reviews as to what action was taken.
    Ms. Velazquez. Ms. Lee, are you familiar with the audit 
conducted by the Department of Defense Inspector General in 
1999 of multiple award contracts?
    Ms. Lee. Yes, ma'am.
    Ms. Velazquez. This report points out that 62 percent of 
the task orders on DOD's multiple awards contracts were sole 
source, defeating the purpose of having a multiple award 
contracts and driving cost up. The report contains the 
recommendation that, and I quote, to improve oversight and 
competition for multiple award contracts for services. The 
Department needs to accomplish goals, performance measures and 
strategies. Until the Department collects data and tracks the 
impact of policy changes, the Department will not know if the 
problem is corrected. Are you aware of any changes that were 
implemented by the DOD in accordance with its own Inspector 
General recommendations?
    Ms. Lee. We do have a program to look at the use of GWAX, 
MAX, IDIQ--alphabet soup here--but the multiple award 
contracts. And what we are going to do is look across the 
Department of Defense, match it to our Federal procurement data 
system, and find out where these programs are going to be used. 
And then, of course, those numbers are used in measurement of 
our goals towards our overall procurement goals. So we do count 
those transactions in the overall goal achievement.
    Chairman Manzullo. Thank you very much.
    Mr. LoBiondo.
    Mr. LoBiondo. Thank you, Mr. Chairman. I apologize that I 
had to leave. I appreciate the opportunity to come back.
    Ms. Lee, it is my understanding that as a result of recent 
concentration on the beret issue, that the DOD is reviewing its 
procedures on granting any waivers on the Berry amendment; that 
is correct?
    Ms. Lee. Yes, sir. We have changed the Berry amendment 
waiver process where it actually has to come up to the Under 
Secretary for Acquisition and Technology and Logistics. 
Previously, there were some delegations to the field, which 
means people are going to really have to sharpen their pencils 
and focus, and it probably will require a little more advance 
planning.
    Mr. LoBiondo. It is true that some of the waivers needed to 
be granted are because of legitimate reasons. Often it is 
because small components of a finished item are not available 
in the U.S. That is my understanding. Would you comment on 
that? Is that correct?
    Ms. Lee. Yes, in fact we recently, as recently as 
yesterday, completed a Berry amendment waiver at that level 
because we had a small business who was manufacturing a 
particular clothing item and is found that they, in fact, had 
some material that was not a U.S. Component. So that small 
business came forward and told us what the problems were and we 
had to process a Berry Act waiver.
    Mr. LoBiondo. It is my understanding that in the apparel 
sector, and I have confirmed with the Apparel Trade 
Association, there are few companies who have contracts 
dependent on being granted these legitimate waivers. I fully 
support the intent of the Berry amendment, but my concern is 
that we don't throw the baby out with the bath water. The Berry 
amendment is designed to protect small domestic businesses, and 
I want to make sure in the spirit of law as well as the letter 
of the law is honored, and Mr. Manzullo, with your permission, 
I would like to ask Ms. Lee to maybe provide us with some 
guidelines to ensure that these small businesses, who are 
awaiting independent waivers, don't get shut out of the 
process. I understand for some of these companies, the clock is 
ticking and time is running out, and it is of a serious 
concern. So with the chairman's permission.
    Chairman Manzullo. I can assure you, Mr. LoBiondo, we are 
preparing legislation that will require that before a Berry 
amendment can be waived, that 30 days notice will be served 
upon Members of Congress. I think DLA, every time they consider 
waiving a Berry amendment, they probably will contact our 
office so they don't get dragged before this Committee.
    Mr. LoBiondo. The guidelines are of some concern because 
the clock is ticking, and some of these folks could find 
themselves in a bad situation.
    Chairman Manzullo. What is it that you are seeking, Mr. 
LoBiondo?
    Mr. LoBiondo. The guidelines that they are going to work 
with for the waivers for small businesses, what these 
guidelines will be so these small businesses will know.
    Chairman Manzullo. Do you have something like that to 
furnish?
    Ms. Lee. Right now what we have is that anybody that needs 
a Berry Act amendment goes to their service or buying, in this 
case, DLA, Defense Logistics Agency. DLA then has to analyze 
the request, and they have to forward it up to the Office of 
Secretary of Defense, AT&L, for such approval for a waiver and 
we would follow that process.
    Chairman Manzullo. So if there is a procedural statement or 
something or guidelines that you can give to Mr.--does that 
presently exist.
    Ms. Lee. That is the current process. I don't know if it is 
written in a letter, but we would be happy to give it to you.
    Mr. LoBiondo. If you could commit the guidelines to paper 
so we would be able to share them.
    Chairman Manzullo. How much time would you need to complete 
that?
    Ms. Lee. We should be able to do that in a week.
    Chairman Manzullo. Is that sufficient time?
    Mr. LoBiondo. That would be very good.
    Chairman Manzullo. If you could give a copy of that to Mrs. 
Velazquez and me also, I would appreciate it.
    Mr. LoBiondo. Just to wind up, Mr. Chairman, I understand 
that the Defense Personnel Support Center in Philadelphia is 
about to submit a number of waivers to you, including a waiver 
for chest pieces on jackets. Apparently, there is a very small 
component on the chest piece which is made from a very specific 
type of goat hair which cannot be obtained in the United 
States. I have a letter from a constituent that is very 
concerned about this, Mr. DeRossi, who manufacturers these 
chest pieces, and I would look, with the chairman's permission, 
to give Ms. Lee a copy of the letter, and possibly you can 
review the letter and promise us that you will take a look at 
it and get back to me.
    Ms. Lee. Yes.
    Chairman Manzullo. Could you be more specific on what that 
contract is about? Did you want to get specific?
    Mr. LoBiondo. Yes, I will try to be very specific. The 
manufacturing small business, manufacturing defense clothing, 
chest jackets, there is a small component that has to be in 
there according to the specification, it is a goat hair that is 
not available in the United States. So in order to produce the 
jacket and comply with the Berry amendment there would need to 
be a waiver.
    Chairman Manzullo. You would have to have a waiver.
    Mr. LoBiondo. There would have to be a waiver because this 
very small component is not available in the U.S.
    Chairman Manzullo. Would you yield for a question?
    Mr. LoBiondo. Yes.
    Chairman Manzullo. Ms. Lee, if you are confronted with an 
American manufacturing that has 99 percent or 90 percent 
American, say, 10 percent or even 1 percent foreign, and there 
is nobody else in the United States that could come up to 100 
percent, do you even consider manufacturing this item in a 
foreign country in competition to an American manufacturing.
    Ms. Lee. In this case, if we have to have an item or 
products, we have a lot of foods that fall into this category, 
and even processing of food. The Berry amendment that requires 
if we have foreign content depending on what item it is, that 
we have a waiver to the Berry amendment, so what we would do is 
look for, first, we should ask ourselves about the requirement, 
and then we should say okay if that, in fact, is the 
requirement, how can we--does it make sense to waive the Berry 
amendment? And you may even have to waive it for a U.S. Firm.
    Chairman Manzullo. That's the law.
    Ms. Lee. Yes, sir, yes, sir.
    Chairman Manzullo. But do you even look outside the country 
to have this requirement made overseas?
    Ms. Lee. First, we would see if we could get it done with 
all U.S. Mailed in the U.S. With U.S. Content.
    Chairman Manzullo. What if 100 percent is not possible? 
Then you go down the line?
    Ms. Lee. Then we go down the line.
    Chairman Manzullo. Is that what you are looking for?
    Mr. LoBiondo. Yes, because of specifications that this very 
particular, very small percentage of goat hair, which is not 
available in the U.S.----
    Chairman Manzullo. What kind of a goat is this?
    Mr. LoBiondo. I would be interested in that as well. This 
is the Department of Defense requiring that this be part of 
specification, and it is not available in the U.S. We don't 
have these type of goats here, I guess.
    Chairman Manzullo. I guess we have our own homegrown goats.
    Mr. LoBiondo. Ms. Lee, I will provide you with a letter.
    Chairman Manzullo. Would you like the letter to be made a 
part of the record?
    Mr. LoBiondo. Yes.
    [The information may be found in appendix.]
    Chairman Manzullo. Mrs. Capito, do you have a question?
    Mrs. Capito. Yes, I have a question for Ms. Lee, please. I 
represent the second district of West Virginia, and I am not as 
familiar with those small businesses that are involved in 
procurement, so I would like to ask you, if you could, provide 
that list to me for my office of West Virginia firms, and if 
you have some firms that maybe had expressed an interest and 
were maybe unable to be meet the requirement, I don't know if 
you are allowed to release something like that to my office. 
That would be helpful as well.
    Ms. Lee. We have a record of people we are currently doing 
business with. We also have a contractor registration process 
by which they can indicate an interest with doing business with 
Department of Defense, but we do not track individually those 
that bid and were not successful.
    Mrs. Capito. Thank you.
    Chairman Manzullo. Do you have goats in West Virginia?
    Mrs. Capito. We have lots of goats.
    Chairman Manzullo. We can check the hair on them. The 
things you learn in this Committee. I want to thank the 
witnesses for your response to the excellent testimony. Ms. 
Lee, I look forward to working with you on changing some of 
these laws. As these abuses come up it is obvious to me that 
you have an open spirit and that your heart is in doing what's 
in the law and doing the correct thing on it. That is your only 
agenda and we really commend you for that. And to the rest of 
the witnesses, the testimony is powerful. We are just 
scratching the surface with respect to contract bundling. We 
look forward to more hearings and to substantial legislation 
coming forth on this. And I want to thank the members of panel 
for being here, and this Committee is adjourned.
    [Whereupon, at 11:38 a.m., the Committee was adjourned.]
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