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





PROCUREMENT POLICIES OF THE DEPARTMENT OF DEFENSE WITH REGARD TO SMALL 
          BUSINESSES--FINDING SOLUTIONS TO PROBLEMS THAT EXIST

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

                                HEARING

                               bEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                   WASHINGTON, DC, SEPTEMBER 6, 2001

                               __________

                           Serial No. 107-28

                               __________

         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               BILL PASCRELL, Jr., New Jersey
STEVE CHABOT, Ohio                   DONNA M. CHRISTENSEN, Virgin 
PATRICK J. TOOMEY, Pennsylvania          Islands
JIM DeMINT, South Carolina           ROBERT A. BRADY, Pennsylvania
JOHN R. THUNE, South Dakota          TOM UDALL, New Mexico
MICHAEL 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
FELIX J. GRUCCI, Jr., New York       MARK UDALL, Colorado
TODD W. AKIN, Missouri               JAMES R. LANGEVIN, Rhode 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 Eskeland, Deputy Staff Director
                  Michael Day, Minority Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on September 6, 2001................................     1

                               Witnesses

Gentile, Bobbie, President/Owner, Q-Mark, Inc....................     4
Wright, Curtis, Acting Director of Small & Disadvantaged 
  Businesses, Department of Defense..............................     6
Spencer, Robert, President, Spenro Industrial Supply.............    11
Hoffmann, Janice, President/Owner, Hoffmann Fabricating..........    14
Crandell, William, Director of Government Relations, Association 
  of Service Disabled Veterans...................................    17
Kelleher, Thomas, Member, Smith, Currie & Hancock LLP............    18

                                Appendix

Opening statements:
    Manzullo, Hon. Donald........................................    27
    Velazquez, Hon. Nydia........................................    29
Prepared statements:
    Gentile, Bobbie..............................................    31
    Aldridge, Pete...............................................    36
    Spencer, Robert..............................................    45
    Hoffmann, Janice.............................................    48
    Crandell, William............................................    53
    Kelleher, Thomas.............................................    58
Additional Information:
    Letter to Congressman Manzullo from Secretary Aldridge.......    65

 
PROCUREMENT POLICIES OF THE DEPARTMENT OF DEFENSE WITH REGARD TO SMALL 
          BUSINESSES--FINDING SOLUTIONS TO PROBLEMS THAT EXIST

                              ----------                              


                      THURSDAY, SEPTEMBER 6, 2001

                          House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 1:10 p.m., in room 
2360, Rayburn House Office Building, Hon. Donald A. Manzullo 
(chair of the Committee) presiding.
    Chairman Manzullo. Good afternoon, and welcome to this 
hearing of the Committee on Small Business. We should note 
because of the joint session with the President of Mexico, we 
had to move this from 10:00 to 1:00. And originally Secretary 
Aldridge was all set to come, in fact I talked to him yesterday 
afternoon, and I just wanted to read this letter:
    I very much regret not being able to appear before the 
House Committee on Small Business this morning. I am most 
grateful to you and the Committee for accommodating the demands 
of my schedule in the face of your need to reschedule today's 
hearing.
    I have every confidence that our Director of Small and 
Disadvantaged Business Utilization, Colonel Curtis Wright, will 
prove an able representative in any stead. I have grown to 
depend on his experience and judgment in these matters.
    As you know, one of my five goals is to improve the health 
of the industrial defense base. I consider small businesses to 
be an important part of that base. I look forward to working 
with you, your Committee and Congress as we grapple with these 
important questions.
    I asked Secretary Aldridge if there is any way possible 
that he could be at the hearing this afternoon. He went through 
his calendar in great detail with me, and demonstrated to my 
satisfaction indeed the fact that he had people coming in from 
all across the country on three major reviews. It was just 
physically impossible for him to be here.
    He again expressed his desire to come and testify, and we 
will schedule another date, I think at this point it is going 
to be around the first part of October, dealing again with 
procurement and contract bundling.
    So I would like to have this letter made part of the 
record, and the Secretary expresses his regrets for not being 
here.
    [The information may be found in appendix.]
    Chairman Manzullo. Annually the Federal Government spends 
approximately $200 billion for goods and services purchased 
from the private sector. Of the Federal agencies, the Defense 
Department is by far the largest Federal marketplace, 
accounting for over $122 billion in prime contractor awards, or 
more than 50 percent of the Federal procurement dollars.
    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--you 
know, this should be in the present, presently.
    Continuing. Small business still has major problems with 
the way the Pentagon does business. It is the new 
administration's opportunity to correct those errors. These 
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.
    To resolve these problems there is a need for receptivity 
to new thinking and new ideas, not just doing things as they 
were done in the past. This hearing focuses on past problems 
for the purpose of finding solutions to these problems. I trust 
the Pentagon will pledge to work with Members of Congress and 
staff to resolve those issues.
    Thank you for participating in the hearing. I thank the 
audience for coming here.
    [Mr. Manzullo's statement may be found in appendix.]
    Chairman Manzullo. I now yield for the opening statement of 
our Ranking Member Ms. Velazquez, and I trust that you had a 
good August.
    Ms. Velazquez. Well, I guess so, yeah.
    Chairman Manzullo. We had a tremendous hearing down in New 
Mexico at Los Alamos, uncovered absolutely incredible gross 
incompetence by the Department of Energy, and to the exclusion 
of the people living down there, and we are in the process of 
working with you, I just thought that I would let you all know 
what happened down there.
    But it got very, very interesting and really pointed out, I 
think, the disgrace that is taking place with that agency with 
regard to the way it is treating small businesses, but that is 
another agency.
    Ms. Velazquez.
    Ms. Velazquez. Yeah. Today it is the Department of Defense. 
Thank you, Mr. Chairman.
    Today is the seventh in our series of hearings examining 
Federal agencies' contracting practices. The reason we have 
paid such close attention to this subject is simple. We all 
want to ensure fairness and opportunity for small businesses 
doing business with the Federal Government. So we are here 
again to ask the Pentagon why it is contracting practices are 
so unbalanced and so unfair, costing small businesses $2 
billion in lost business and the taxpayers untold lost savings. 
I hope to hear, members of this Committee, this will not happen 
again, but I don't think we will hear it, because it has 
happened again over and over for years.
    What we will hear is the same old tired talk about how the 
Department of Defense is making an effort to reach out to and 
court small businesses, but as our colleagues know, the 
Pentagon has less than nothing to show for this effort.
    On that point this morning, I was joined by Members of 
Congress and the small business community to release score 
two--scorecard two, our annual assessment of Federal 
procurement practices. Our conclusions are simple and 
straightforward. Unfortunately, they are also bad. Last year 
the government had its worst record ever of contracting with 
small businesses.
    In particular, the Department of Defense, the government's 
largest buyer, earned a D minus. This grade placed it among our 
distinguished failures for its inability to meet any of its 
small business contracting goals. This year the Department of 
Defense did not meet its small business goal of 23 percent. 
Contracts to small business have declined by more than 41 
percent since 1997.
    Small disadvantaged business and AA program participants 
fared much worse. Between 1998 and 2000, contracts to 
disadvantaged firms fell 52 percent. The AA program fell 30 
percent. Women-owned business did almost as poorly with a 20 
percent drop in contracts during the same time period.
    Of course the Pentagon is not alone. For the first time in 
7 years, all of the Federal Government failed to meet any of 
their small business contracting goals. The two main causes of 
these unfair practices are contract bundling and the lack of 
personal commitment by officials at the Pentagon.
    Bundling, as we all know, is the trend toward supersized 
megacontracts that only big companies or established prime 
vendors can bid for. These contracts systematically exclude 
small business in favor of unproven theories of efficiency or 
economies of scale. Not once has a government official offered 
proof of a single cent saved through bundling, not once. In 
fact, one very limited study commissioned by the Pentagon 
indicated cost savings in bundling are merely--this is the 
exact word--intuitive. In other words, contract officers think 
that they are saving money by bundling, but not one can 
actually show us the money. Moreover, the Pentagon's own study 
argued that consolidation of contracts means more subcontracts, 
which in turn are not monitored for small business goals.
    So in the end our study may be overestimating how much 
business the Pentagon does with small firms, and yet the 
Defense Department officials still refuse to see the problem. 
This long-running problem and lack of agency commitment has 
forced our hand here in Congress. This year we reintroduced 
H.R. 1324, the Small Business Contract Equity Act. This bill 
would allow bundling only if agencies met their small business 
goals. This will change the current system where agencies are 
both the jury and the court of appeals for their own disputed 
contracts. This bill has broad bipartisan support and was 
passed out of the Small Business Committee last Congress.
    I hope Congress will take up this legislation soon. Mr. 
Chairman, the stakes in this debate are very high for small 
businesses. I hope that the Defense Department representatives 
here will not simply brush off our well-documented complaints, 
because this is about keeping small business in business. It is 
only fair to let those people who want to compete and can 
compete.
    To close I will thank the witnesses who took the time to be 
here today, and I look forward to hearing what you have to say.
    Thank you, Mr. Chairman.
    Chairman Manzullo. Thank you very much.
    [Ms. Velazquez's statement may be found in appendix.]
    Chairman Manzullo. We are going to go in the order of Ms. 
Bobbie Gentile going first, then to Colonel Wright. Ms. Gentile 
has to catch a plane. If she gets up in the middle of the 
hearing and leaves, it is because she is going home.
    Ms. Gentile, the rules are if you see the--it is a 5-minute 
testimony, and if you see the green light, you are okay; yellow 
light, you got 1 minute; red light is to stop. We look forward 
to your testimony. Could you move the mike closer to your 
mouth?

         STATEMENT OF BOBBIE GENTILE, PRESIDENT/OWNER,
                          Q-MARK, INC.

    Ms. Gentile. Good morning, Mr. Chairman and members of the 
Committee--afternoon. Thank you for granting me the opportunity 
to testify before you today.
    My name is Bobbie Gentile, president and owner of Q-Mark, 
Incorporated, a small woman-owned business in Dayton, Ohio. Q-
Mark is a manufacturers representative firm that handles 
government procurements to companies that we represent. I have 
five employees, three of whom are the sole providers of their 
household.
    I am the president of the National Association of 
Manufacturers and Representatives, and I am a member of the 
National Federation of Independent Business.
    Over the past 11 years I have expanded my business 
successfully. The bulk of my business' income is based on sales 
to Defense Supply Center in Columbus, Ohio. As DSCC automated 
their systems, I invested the money to make sure that Q-Mark 
had the most current equipment necessary to handle government 
procurement, which was extremely costly.
    As president of the National Association of Manufacturers 
and Representatives, I have been hearing from small businesses 
nationwide concerning contract bundling. I have with me today 
copies of letters that these companies have written to their 
Congressmen. For years these companies have been a valuable 
partner to the Federal procurement system. Now we find 
ourselves in the position of being displaced due to the new 
initiative of contract bundling.
    I have attended several meetings and have spoken at length 
with numerous personnel from DSCC regarding contract bundling. 
If you were to ask them today if they bundle contracts, their 
response to you would be no. In order to get around this 
controversial subject, new names are being assigned to these 
solicitations, such as third-party logistics, prime vendor, 
virtual prime vendor, et cetera. All of these avoid the 
negative name of contract bundling.
    While most small businesses agree we need to streamline 
government spending, I am not sure why it has to be at the 
expense of the small business. The large prime contractors seem 
to be receiving a larger piece of the pie and then being 
rewarded to place a small percentage of their business with 
selected small business contractors. Over and over we hear from 
large primes that they are decreasing their vendor base and 
will not accept any additional vendors. Once again, the small 
business is hurt.
    I brought with me today a copy of the Trident/TASCI 
initiative, a solicitation that was issued by DSCC. Although it 
has been canceled, it is to be reissued. It contained a total 
of 88,000 part numbers, yet DSCC did not consider this to be a 
bundle. It was labeled a third-party logistics solicitation. 
Had this solicitation gone forward, the majority of small 
businesses would have been unable to participate. The 
government was requiring that industry have sufficient staff to 
forecast the needs of the government's customers and have staff 
available to their customers 24 hours a day, 7 days a week. The 
solicitation demanded that industry originally submit pricing 
on 60 percent of the part numbers listed; however, before they 
canceled the solicitation, they reduced this to 40 percent.
    The request for proposal was based on 2 years with option 
years that would take this business off the street for 10 
years. The annual dollar figure on the proposal was estimated 
to be $2 billion per period or $10 billion for the life of the 
contract.
    I have with me today videotapes of a meeting that I 
attended at DSCC on this initiative. On these tapes you will 
hear DSCC state that this is not a bundled contract, that 50 
percent of these items had zero demand level, and that they did 
not know the cost savings that would result from this 
initiative. At this conference I approached one of the primes 
about teaming and had my business card handed back to me.
    Most recently a business-to-business conference was held by 
Procurement Technical Assistance Center, which is funded by 
DLA. At this meeting several primes were available to discuss 
the teaming concept. Some of the companies asked if small 
business was willing to inventory the product and hold their 
price for 10 years. Another vendor stated that they would be 
marking the product up 80 percent and requested that my small 
business give them special pricing.
    Based on the information obtained at the conference, I did 
not see any way small business can team with the prime 
contractors. The companies seemed to want to pass the risk to 
the smallbusiness by requesting us to reduce our profits and 
stock the inventory while they mark those part numbers up and charge 
the government outrageous prices.
    Recently I have been advised that DSCC is in the process of 
reviewing for possible solicitation a new initiative called 
Ticonderoga, which encompasses 100,000 part numbers. Is DOD 
mandating that all procurement agencies pursue this type of 
business of contracting?
    On behalf of the National Association of Manufacturers and 
Representatives, we urge you to support Congresswoman 
Velazquez's bill, H.R. 1324, which will stop contract bundling. 
I believe that bundled contracts will not only destroy 
countless small businesses, it will reduce the industrial base, 
put government in sole-source positions, eliminate competition 
resulting in higher prices, and put government spending behind 
closed doors.
    Thank you for the opportunity to present before you the 
views of this small business on this important issue.
    Chairman Manzullo. Thank you. I am also a cosponsor of 
Congresswoman Velazquez's bill, H.R. 1324, and thank you for 
your leadership on that.
    [Ms. Gentile's statement may be found in appendix.]
    Chairman Manzullo. Our next witness is Colonel Curtis A. 
Wright, United States Air Force, who is the Acting Director of 
Small and Disadvantaged Businesses, Department of Defense, who 
came to this hearing on 1 day's notice.
    And we appreciate your coming and look forward to your 
testimony, Colonel.

 STATEMENT OF CURTIS A. WRIGHT, COLONEL, USAF, ACTING DIRECTOR 
  OF SMALL AND DISADVANTAGED BUSINESSES, DEPARTMENT OF DEFENSE

    Colonel Wright. Good afternoon, sir. Secretary Aldridge 
asked me to relay his regrets for not being able to attend 
today. He asked that his testimony be read into the record and 
that I be allowed to present his oral statement to you.
    Chairman Manzullo. Without objection.
    Colonel Wright. Yes, sir.
    The oral statement of the Honorable Pete Aldridge, Under 
Secretary of Defense for Acquisition, Technology, and 
Logistics, before the U.S. House of Representatives Committee 
on Small Business, September the 6th, 2001.
    Mr. Chairman, Madam Ranking Member and members of the 
Committee, I am very pleased to be with you here today. Thank 
you for this opportunity to discuss the issue of small business 
and its relationship to our national security.
    As the Under Secretary of Defense for Acquisition, 
Technology and Logistics, my portfolio oversees the largest 
portion of the small business contracts anywhere in the United 
States Government.
    I take this responsibility very seriously. I know the 
members of this important Committee have spent a great deal of 
time becoming experts on this critical matter. Therefore, I 
have been looking forward to this hearing and the opportunity 
to discuss this subject.
    One of my jobs is to enhance our national security by 
bringing forth the very best systems for our military forces. 
Our airmen, soldiers and sailors risk their lives daily and 
deserve the best products and services to support the mission. 
But beyond our moral obligation to them is one of cold 
practicality. Manpower is no longer an advantage that we can 
count on in the current geopolitical environment. To mitigate 
their small numbers, our warfighters are more dependent than 
ever before on the leverage and force multiplication of the 
technology and capability of their systems and equipment.
    For these reasons we cannot compromise on quality when 
awarding contracts. Small businesses, like large businesses, 
will be held accountable for providing quality products in time 
to support our warfighters. This is only fitting since small 
businesses are key to the overall industrial base.
    Monetary goals for small businesses are important to 
emphasize their value, but goals without quality are 
meaningless. I will be monitoring the performance of our small 
business contractors, and past performance will be a factor in 
the awarding of future contracts.
    One of the five goals I have established for myself in the 
acquisition community includes addressing the development and 
quality of our small business contractors within the larger 
context of promoting the health of our industrial base. In 
keeping with that goal, let me highlight a few related points. 
In fiscal year 2000, $48 billion of DOD procurement spending 
went to small business firms, with $26.9 billion going to small 
business prime contractors. The latter figure represents the 
highest dollar amount ever awarded in the history of the small 
business program, which extends back to 1953. In 8 out of the 
last 10 years, DOD has met the small business and small 
disadvantaged business goals for prime contract awards.
    Since my confirmation in May, and in keeping with my 
commitment to improve the Department's small business 
performance, I have launched several initiatives. My small 
business reinventing initiative emphasizes the importance of 
small business programs and assigns responsibility and 
accountability at the highest levels within DOD. Each military 
department and defense agency is responsible for annual small 
business improvement plans and will be rated on its performance 
to the plan and established targets. Under the new policy, the 
secretaries of the military departments and the directors of 
the defense agencies will report semiannually to me, and I will 
report semiannually to the Deputy Secretary of Defense on the 
performance against the improvement plans and targets. This 
initiative has established a very high bar indeed and requires 
continuous improvement in key areas, especially those where 
Department goals are not being met.
    I have increased the emphasis on small business 
subcontracting in DOD, with annual reviews with leaders of our 
major defense firms. Beginning this fall I will include 
discussion of the status of small business subcontracting 
performance with each firm. I have asked my DOD Office of Small 
and Disadvantaged Business Utilization to establish a small 
business forum that will identify and discuss small business 
issues and recommend improvement actions that I can discuss 
with the CEOs of major defense firms.
    I have also launched initiatives to improve training, 
outreach and to recognize outstanding efforts in support of 
small business programs.
    Here are a couple of small business success stories that 
warrant mention. The first is the largest 8(a) competitive 
award in the history of the 8(a) program. The award was made 
this year by the Naval Air Systems Command to TeamQualtec, a 
joint venture between an 8(a) firm, Qualtec, Incorporated, of 
Beltsville, Maryland, and CCI, Incorporated, of Alexandria, 
Virginia. The cumulative dollar value of this contract over its 
projected life could be as high as $698.5 million.
    The Defense Systems Agency awarded the largest small 
business set-aside in history. On 16 February of 2001, DSA 
awarded three indefinite delivery, indefinite quantity 
contracts for the Defense Information Systems Network Satellite 
Transmission Services. The three winning contractors are Artel, 
Incorporated, a small disadvantaged business; Spacelink, 
International, a small business; Arrowhead Space & 
Telecommunications, a woman-owned small disadvantagedbusiness. 
The maximum cumulative face value for all three contracts is 
anticipated to be $2.1 billion. Each contract was awarded for a base 
year for 3 years with seven 1-year options. This might possibly change 
the small business status of these three winning companies.
    My objective as the Under Secretary of Defense for 
Acquisition, Technology and Logistics is first to support the 
warfighters, and second to make the best use of the taxpayers' 
hard-earned dollars in the process. Small business is important 
to both of those goals, and I believe that our record aptly 
demonstrates that belief. We have done a lot, with more work 
yet to be done. We have been proactive, and more initiatives 
are yet at hand.
    Our record has been, on balance, a successful one. It is 
characterized by faith in the face of dizzying numbers of 
programs that we wish to comply with. We have done a lot, and 
we will be doing more. I look forward to working with this 
Committee and the rest of Congress to make this happen.
    Chairman Manzullo. Colonel, thank you very much.
    [Mr. Aldridge's statement may be found in appendix.]
    Chairman Manzullo. We are advised that we have a vote that 
is going to come up very soon. I am going to go a little bit 
out of order here, and I want to accommodate Ms. Gentile, who 
has to catch a flight real soon, and I wanted to ask her a 
couple of questions. And perhaps the bell will ring, then we 
can get back on and resume our normal testimony.
    Ms. Gentile, you had mentioned in my office about a half 
hour ago about a bundled contract wherein you were outbid by a 
company that formed an organization or an agreement with FPI.
    Would you tell us about this, please?
    Ms. Gentile. Yes. This was the same contract that I 
testified against FPI at a separate hearing. MIL-C-5015G, which 
is a specifications for electronic connectors, has been 
supplied by small businesses for the last 20 years. There are 
five companies on this QPL, three of whom are small businesses.
    We have requested that Federal Prison Industries produce an 
impact study to state--to show that this will not hurt small 
businesses. However, I have been trying to get this impact 
study since a year ago April. They still have not produced it.
    It is my understanding that there has been letters written 
asking DOD or DOA not to award a bundled contract that they 
issued to Federal Prison Industries for 235 part numbers 
against this specification.
    Federal Prison Industries had teamed with Amphenol/Bendix, 
one of the largest connector manufacturers in the country. They 
were unable--Amphenol was unable to compete with us, the small 
businesses, so consequently they teamed with the Federal Prison 
Industries. In numerous cases our prices have been low, but 
unfortunately DLA neglected to even give us an opportunity to 
bid on this contract. Further, FPI stated to this Committee 
that they give 90 percent waivers of all--or give 90 permanent 
of all of the waivers that DLA requests. My question is, why 
would DLA--if this is the case, why did DLA proceed forward 
with this contract?
    After our hearing here, I went and I requested from DLA and 
had a sit-down meeting with six people with DSCC in Columbus. I 
requested that they wait to get a copy of the impact study, to 
please give us an opportunity to bid. If indeed FPI issues 90 
percent of the waivers, why would they want to bundle this 
contract and not give small business a chance to bid? But I was 
told 4 days later that the contract was gone, they issued it to 
FPI, and they felt that this would be the best thing to do.
    This contract was worth $1 million. There is another--this 
spec makes up between 2,000 and 3,000 part numbers. This 
contract was only for 235 part numbers. They have intentions of 
continuing to do additional contracts on this.
    Chairman Manzullo. The price that you bid on one of these 
stock numbers for 233 was $11.98?
    Ms. Gentile. That is correct.
    Chairman Manzullo. How much did the government purchase 
from FPI those part numbers?
    Ms. Gentile. $19.63.
    Chairman Manzullo. Another one. They ordered 50 of these 
connectors. Your bid price was $16.10, and DLA--the taxpayers 
paid how much?
    Ms. Gentile. $19.03.
    Mr. Pascrell. How did that happen?
    Chairman Manzullo. How did that happen?
    Ms. Gentile. Well, the--because FPI is supposed to--I guess 
there is a law written that they can go to FPI. They went ahead 
and went to them and did not request a waiver. And FPI has 
stated if a waiver is requested, they grant 90 percent of them.
    Chairman Manzullo. Here is what we are going to do. First 
part of October--I have talked to my staff today, and I will 
talk to the Minority staff after this hearing. We are going to 
issue subpoenas for the general--what is her name?
    Ms. Gentile. Mary L. Saunders. And it is my understanding 
that there is a change of command going on there.
    Chairman Manzullo. I am going to issue subpoenas for the 
person who made the decision and the new people in charge. The 
people who actually made the decision, I want them before this 
Committee. We are going to put them under oath.
    At the same hearing, that is the one where I want Mr. 
Aldridge to appear, because I want him to see personally the 
outrage to the taxpayers, that--we are being lobbied about not 
wanting to cut back on the spending of the Defense Department 
because of the necessary expenses that had to be made, and yet 
what we see here, with the hearing on berets, and the hearing--
this one right here, government paid more money than required--
what is going on?
    Colonial, are you aware at all of this situation?
    Colonel Wright. No, sir, I am not. I will certainly look 
into it when I get back to the office.
    Chairman Manzullo. I appreciate that. But what I have 
decided is this: We can have these hearings on contract 
bundling, they are good, but the only way to stop the abuse 
going on is contract by contract, just as we did with the 
berets where we canceled three contracts, stopped the foreign 
procurement, saved literally hundreds if not thousands of 
American jobs by both sides up here teaming up to go after the 
government that has acted outrageously again.
    Again, it is the DLA. It is going to come to an end. I am 
not going to request these people appear, I am going to send 
subpoenas. That way the Defense Department won't come to me and 
advise me on who the best witnesses are. I will tell them who 
we want to testify.
    Does anybody else have any questions of Ms. Gentile?
    Mr. Pascrell. Yes.
    Mr. Chairman, I commend your actions, and I am--couldn't 
help but listen to Ms. Gentile.
    Ms. Gentile. Gentile.
    Mr. Pascrell. What concerns me in not only your official 
capacity is that--and I would like your response. Your last 
testimony is very different than this testimony in the sense 
that the times are different. We have lost in the last 7 months 
a million jobs in this country.
    Ms. Gentile. Yes.
    Mr. Pascrell. Things are hurting. Manufacturing is hurting. 
It would seem--I think that it wouldn't take too much of 
logical pursuit to try to get as many small businesses 
involved, Mr. Chairman, in terms of military procurement. There 
is a lot of work there, and industries that have been ravaged 
by things that I am personally involved in, like trade.
    Chairman Manzullo. Mr. Pascrell, can I have a request? 
Because we are going to get a vote soon, and she has to leave, 
if any Members here would just very quickly like to ask some 
questions, and then we can complete her testimony, get her out 
and then start with the new witnesses. Would that be okay with 
you?
    Mr. Pascrell. Yes.
    Chairman Manzullo. Let me recognize Ms. Velazquez and 
then----
    Ms. Velazquez. Thank you, Mr. Chairman.
    Ms. Gentile, you spoke in your testimony--you stated that 
your company has all of the most current equipment necessary to 
handle government procurement.
    Ms. Gentile. Yes.
    Ms. Velazquez. What types of equipment are we talking about 
here, and can you give me a ballpark figure on what kind of 
investment you as a small business owner have to make?
    Ms. Gentile. We have probably had to invest in excess of 
probably close to $15,000, $20,000. I have to pay--like EDI 
VANs--$600 a month to be able to participate as they have 
mandated we go to VANs. And as they continue to update their 
systems, we continue to update ours so that we can participate 
in this procedure.
    Ms. Velazquez. In your testimony you talk about some of the 
terms that the Department uses in place of--in place of 
contract bundling; third-party logistics, prime vendor. Do you 
believe the Department is using these terms to get around 
bundling regulations?
    Ms. Gentile. Absolutely.
    Ms. Velazquez. Could you please explain?
    Ms. Gentile. I am not sure how you can call Trident a 
third-party logistics contract where there is 88,000 part 
numbers, and small business has participated in these part 
numbers. If I went through the contract, I could show you 
probably a hundred parts that my companies have manufactured 
and sold to the government. You have Trident coming along. I am 
not sure what they are going to label Trident as--or I am 
sorry, Ticonderoga. That is going to be an additional hundred 
thousand part numbers. You can't call this anything but a 
bundle. You are just putting different acronyms on.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Chairman Manzullo. Anyone else on the Committee have any 
questions that they wanted to ask of Ms. Gentile?
    Yes, Mrs. Napolitano.
    Mrs. Napolitano. Ms. Gentile, what would you see as a 
solution, basic, simple?
    Ms. Gentile. I think for years the small businesses willing 
to team with DLA, we offered to take DLA to some of our small 
businesses and show them that--how industry goes to market to 
team with small business, let them sit down and talk about how 
they have long-term contracts with small business. We talk to 
the commander, NAMR, National Association of Manufacturers 
Representatives have, on several occasions.
    To date nobody from DLA has recognized that they want to 
go. We offered to take them to a small business and a large 
business to see how they team and how they meet their small 
business goals. Still to date no one from DLA wants to go.
    If DLA wants to team with small businesses, why can they 
not take a percentage, instead of 88,000 part numbers, and put 
200 or a hundred part numbers on a solicitation that they know 
the qualified small businesses manufacture and allow them to do 
it? We deal just in time right now with our large prime 
vendors, and we are willing to do that with the Federal 
Government if they would give us the opportunity.
    Mrs. Napolitano. Thank you.
    Chairman Manzullo. Okay. Let's go back to the testimony. 
Then, again, the next one would be Mr. Robert Spencer, 
president of Spenro Industrial Supply. Mr. Spencer, I look 
forward to your testimony. If the bell goes off during your 
testimony, we will deal with that at the time.
    We look forward to your testimony, and I need you to put 
the microphone in front.
    Can somebody check on the P.A.?

 STATEMENT OF ROBERT B. SPENCER, PRESIDENT, SPENRO INDUSTRIAL 
                             SUPPLY

    Mr. Spencer. Good afternoon. I would like to begin by 
thanking Mr. Manzullo as well as other members of the panel for 
giving us the opportunity to voice our concerns. My name is 
Robert Spencer. I am president of Spenro Industrial Supply. I 
am proud and humbled to represent hundreds of small and 
minority-owned businesses that are currently being excluded for 
competitive bids at opportunities at tax-supported defense 
contractors.
    Since 1979, our 11 employees have worked very hard to 
provide American-made products at competitive prices. We have 
dealt with recessions, corporate buyouts, military cutbacks, 
and even on occasion corrupt purchasing agents. Today we face 
our biggest threat to competition, the bundling and sometimes 
we call integrated contract and purchasing agreements at tax-
supported defense contractors.
    For example, in 1992, Lockheed-Martin Corporation began 
integrating its contracts. In 1997, Lockheed awarded a multiple 
sole-source contract to one small business, eliminating any 
chance for other small or minority suppliers to participate by 
demanding such restrictive and expensive requirements. 
Lockheed-Martin limited participation to only one supplier. Our 
sales at the time were about $120,000 per month. It dropped to 
zero only because of the integrated contract system.
    I wanted to mention something right here. The mission 
statement on the Lockheed Website for small business states: 
The small business program is chartered to promote utilization 
of small, minority, disabled, hub-zone, veteran, women-owned 
business, historically black colleges, minority institutions on 
the Lockheed team.
    And now I want to show you the principal requirements on 
their integrated contracts that to me are kind of 
counterproductive to that.
    Chairman Manzullo. Mr. Spencer, that might be a good 
opportunity to stop, and we will start again with your 
testimony as soon as we get back. We have one vote, so we 
should be back in 15 minutes. We stand adjourned until that 
time.
    [Recess.]
    Chairman Manzullo. Call the Committee back in order here, 
back in session.
    Thanks for your patience. Mr. Spencer, you got truncated by 
the bells. Would you like to begin your testimony anew, or do 
you want to do that again?
    Mr. Spencer. Absolutely.
    Chairman Manzullo. I understand we have 2 hours before our 
next vote, and I am sure you won't be there for 2 hours. Please 
go ahead.
    Mr. Spencer. Good afternoon. I would like to begin by 
thanking the Chairman, as well as other members of this panel 
for giving us the opportunity to voice our concerns.
    My name is Robert Spencer. I am president of Spenro 
Industrial Supply. I am proud and humbled to represent hundreds 
of small and minority-owned businesses that are currently being 
excluded for competitive bids at opportunities at tax-supported 
defense contractors.
    Since 1979, our 11 employees have worked very hard to 
provide American-made products at competitive prices. We have 
dealt with recessions, corporate buyouts, military cutbacks, 
and even on occasion corrupt purchasing agents. Today we face 
our biggest threat to competition, the bundling and integration 
of purchasing agreements at tax-supported defense contractors.
    For example, in 1992, Lockheed-Martin Corporation began 
integrating its contracts. In 1997, Lockheed awarded a 
multiple-location, sole-source contract to one small business, 
eliminating any chance for other small or minority supplier to 
participate. By demanding such restrictive and expensive 
requirements, Lockheed-Martin limited participation to only one 
supplier. Our sales at Lockheed-Martin went from about $120,000 
per month to zero, only because of the integrated contract 
system.
    The following is a list of some of the principal 
requirements placed on small businesses by Lockheed-Martin: 
Buybacks of millions of dollars worth of Lockheed-Martin 
inventory as well as warehousing of that inventory; established 
sales offices, warehouses and service centers at multiple 
locations throughout the United States; institute expensive 
tool inspection equipment and hire inspection employees at each 
of these service centers; provide total computer interface 
between Lockheed-Martin facilities and each service center; 
invoice goods and services once a month only. In these 
integrated contacts, business must provide a quote of 
approximately 15,000 to 33,000 line items, many of which are 
specials. We estimate the cost to quote these integrated 
contracts of at least $35,000 to $50,000.
    Numerous expensive requirements in addition to this list 
have made it financially impossible for small and minority-
owned businesses to compete. Each year competition steadily 
decreases while the incumbent supplier becomes more and more 
monopolistic.
    Lockheed-Martin valued their 1997 5- to 10-year supply 
contract at $9 million per year. Now, with the F-22 award of 
$90 billion and a potential JSF program of $200 billion, a 
great deal of American tax dollars is at stake.
    Historically competition has brought out the best in 
Americans, while monopolies have proved damaging to business 
and society as a whole. Boeing bidding against Lockheed-Martin, 
Bell Helicopter bidding against Sikorski encompassed the value 
of competition and economics much like the bidding between 
distributors at our level. These practices are the basics for 
American business. They enable the buyer to receive the best 
product at the best price. Due to these restrictive 
requirements, we at Spenro ask for an immediate and equal 
opportunity to conduct business at tax-supported aerospace 
companies.
    The following is a list of suggestions concerning some of 
the immediate actions we feel should be taken to correct these 
injustices.
    Immediately end all integrated contracts at tax-supported 
defense contractors to protect the stability of affected small 
and minority businesses, especially the F-22 and JSF programs; 
give preferential treatment to excluded companies for one year 
in order to stabilize their finances; allow excluded supply 
companies the right to protest unjust exclusion to an unbiased 
panel that will provide appropriate measures to resolve the 
situation; establish policies, enforcement and education of all 
procurement employees concerning criminal punishments for 
receiving any type of kickback; instruct defense contractors to 
rotate buyers every 2 years so procurement will be based on 
product quality, price, and delivery rather than on personal 
relationships; in addition, eliminate sole source products 
wherever possible; set a 33 percent ceiling on the amount one 
distributor can receive on any one product category; establish 
a new and logical system for classifying businesses' size by 
designating a business with 25 or fewer employees as a true 
small business rather than the current unrealistic mark of 500 
or fewer employees.
    In conclusion, I strongly believe excluding small and 
minority owned businesses from competing as tax-supported 
defense contractors violates the very spirit of Federal 
statutes concerning the participation of small businesses. 
Further, it is imperative that changes be made to contract 
requirements, not only to protect small businesses from 
exclusion and discrimination but also to keep the larger firms 
from creating monopolistic environment in the aerospace 
industry.
    Thank you once again for listening to our concerns. I hope 
you will consider the recommendations which we so strongly 
believe. Without your immediate help, many more small family-
owned companies will cease to exist.
    [Mr. Spencer's statement may be found in appendix.]
    Chairman Manzullo. Thank you very much. Let me again make 
the offer to the members of our small business community that 
if you feel during the course of bidding on a contract that you 
are being treated unfairly by a government agency, do not 
hesitate to contact our Small Business Committee office and/or 
the Office of Advocacy of the Small Business Administration. 
That is a group of about 13 attorneys set up in the SBA to deal 
specifically with violations they believe have been occurring 
against small businesses. So don't hesitate to contact us on 
it.
    Mr. Spencer. Sir, one thing. A lot of times now with the 
integrative contracts, we never know when they are up for bid. 
It is totally going straight to the integrator or the company 
that is carrying the bundling contract. So we have no notice of 
when those things happen at all.
    Chairman Manzullo. Okay. The next witness is Janice 
Hoffmann, President and owner of Hoffmann Fabricating, on 
behalf of herself and WIPP, Women Impacting Public Policy. We 
look forward to your testimony, Ms. Hoffmann.

  STATEMENT OF JANICE HOFFMANN, PRESIDENT AND OWNER, HOFFMANN 
             FABRICATING, ON BEHALF OF WIPP, WOMEN
                    IMPACTING PUBLIC POLICY

    Ms. Hoffmann. Thank you very much. Good afternoon, Mr. 
Chairman and members of the Committee. Thank you for the 
opportunity to appear before you today to discuss my 
experiences with Procurement with the Department of Defense.
    My name is Janice Hoffmann. I am president and owner of 
Hoffmann Fabricating, a contract cut and sew business in 
Wichita, Kansas which employs 16 people. I am also a founding 
partner of Women Impacting Public Policy and a member of the 
National Association of Women Business Owners. I have joined 
those organizations to make sure that my voice is heard.
    I am a job shop, meaning that I bid on new opportunities 
that are in my North American Industry Classification System 
code, or SIC, which most people are familiar with. I don't have 
a product to sell. I sell the service of building products to 
the specifications and drawings of my customers, which is the 
Department of Defense.
    I have several years of experience in this type of business 
and started this company inSeptember of 2000. I would like to 
say first that there have been improvements in the last few years for 
me in dealing with the Department of Defense, and that would be the 
Procurement Gateway. If anyone is familiar with that, you know it is 
kind of high tech Internet and it does speed the process up to some 
degree. However, there are some areas that deal with people that I 
would like to see more change in.
    I have had many opportunities and I spend many of my days 
on the phone with small business officers and contracting 
officers at the procurement centers for the Army Tank-
Automotive and Armaments Command, Defense Supply Center 
Richmond, Defense Supply Center Columbus, and Defense Supply 
Center Philadelphia. I have in the past asked the question of 
these buyers how does being a woman-owned business weigh in the 
awarding of a contract? In every instance the answer was that 
while it is supposed to, it doesn't make any difference at all. 
One small business--this is the office, not the contracting 
officer--told me that if a woman-owned business gets a contract 
it is strictly happenstance. Without the tool of restrictive 
bidding, the goals that do exist make no difference and the 
fact that there is no way to award contracts to a woman-owned 
business other than luck is not an isolated attitude.
    I recently attended Senator Ike Skelton's Procurement 
Conference in Missouri. It is a nice conference. I was anxious 
to make contact with large companies for subcontracting 
opportunities. I met a lot of large contractor representatives 
like Boeing, Lockheed, various companies like that. I gave out 
lots of business cards, letters of abilities, and shook many 
hands. All of these representatives seemingly were very excited 
to meet a woman-owned business, and I am also HUBzone. That is 
good for them as well. Since the conference I have contacted 
their offices to remind them of me. The only one I ever heard 
from again was Motorola, who sent me a letter saying thank you 
for your interest and we will keep you in our file for a year. 
That was an expensive conference for me to go to.
    In another instance, I recently prepared a large quote for 
a very large aerospace company which required a great deal of 
engineering time, and as you heard this gentleman say, it is 
expensive. They were most anxious to get my quote. I declined 
on the first request because it was going to cost me a lot of 
time and money to do the engineering. I declined the second 
time. Then they called me again and said are you a woman-owned 
business? And I said yes. I thought, hey, they really want to 
work with a woman-owned business. So I did it. We did the quote 
and got it to them on time, making the deadline. Since then I 
followed up with the buyer on the phone several times. His 
response was that I wasn't the lowest bidder. Well, you don't 
always have to be the lowest bidder to get the job. His 
response was that I couldn't manufacture all of the items. He 
knew that when he contacted me that I was not able to 
manufacture all of them. Then he said, ``And I just don't know 
what I am going to do with this.'' If he went with me, he would 
have to go through a quality check of my facilities, et cetera. 
He had many excuses, but my gut feeling is that he satisfied 
his need to get a woman-owned business quotation, that he was 
just X-ing the box. He told me he just didn't have time to go 
out looking for new vendors. I don't have the time or the money 
to quote for companies that are X-ing a box.
    The pool of products that I have the ability to quote on 
continues to shrink. Federal Prison Industries takes a good 
share of the work that I could do. Under the Javits, Wagner, 
O'Day Act, the National Industries for the Severely Handicapped 
and the National Industries for the Blind also take a chunk. 
Once these items enter those domains, they are usually gone 
forever to small business. We as a Nation have already lost 
millions of jobs in the sewing industry to Latin American 
countries and Asia. Small businesses have suffered greatly 
because of this. It is tough enough to compete with a foreign 
industry. It is even more frustrating to compete with your own 
government, using your own tax dollars to contribute to your 
own demise.
    I also firmly believe that the Department of Defense 
Procurement should be done with American owned companies, and I 
am not just referring to the beret.
    Predatory pricing is also an issue in some cases. Well-
established large companies with deep pockets are able to keep 
prices so low that it can be impossible for a small business to 
successfully bid and make a profit.
    These are just a few of the issues that I face as a woman-
owned business. There aren't many women in manufacturing 
because it is a very difficult business at best and extremely 
hard to make a profit when doing business with the government. 
Five-year contracts are very difficult.
    Do you want me to stop?
    Chairman Manzullo. Well, if you could take a minute and sum 
up.
    Ms. Hoffmann. Another thing is I heard from one Supplier 
Diversity Officer in a large company that I think is very 
interesting and I hope you will too. Word is finally getting to 
people that Congress is serious about women-owned business. 
Some small companies are transferring stock and ownership to a 
woman, hoping it will be sufficient to get woman-owned business 
contracts. I believe there should be restricted competition for 
women-owned business. Congress obviously agrees, hence the 
setting of goals.
    I believe women-owned business must be certified. Paper 
ownership is not the same as running the company. I believe 
public and private sector must include women-owned business in 
contracting plants and it must be enforced. I think you need to 
look closely at agencies such as the Federal Prison Industries. 
American companies should be doing the work of the Department 
of Defense.
    These are big issues to me, and I have others, such as sole 
source, drawing availability, source approval, budget holdups, 
holding prices for long periods of time and more. Small 
business is just that. We are not banks. If we are going to 
keep the doors open, the jobs have to come at a reasonable cost 
at a reasonable time.
    The U.S. Business Administration statistics show that women 
are starting businesses at twice the rate of all business and 
actually staying in businesses----
    Chairman Manzullo. Janice, we are going to have to----
    Ms. Hoffmann. Fine.
    Chairman Manzullo [continuing]. So we will have time for 
questions. I appreciate your testimony. Every time we have a 
hearing, it is totally amazing.
    [Ms. Hoffmann's statement may be found in appendix.]
    Chairman Manzullo. Our next witness is Dr. William F. 
Crandell. Dr. Crandell, you testified before us in the past. I 
look forward again to your testimony. He is with the 
Association for Service Disabled Veterans. I look forward to 
your testimony, Doctor.

   STATEMENT OF DR. WILLIAM F. CRANDELL, PH.D., DIRECTOR OF 
 GOVERNMENT RELATIONS, ASSOCIATION OF SERVICE DISABLED VETERANS

    Mr. Crandell. Thank you, Mr. Chairman, Ranking Member 
Velazquez. The Association for Service Disable Veterans is glad 
to be back. We commend you for holding this important hearing 
today on the procurement goals of the Defense Department for 
small and disabled business. ASDV's goal is to----
    Chairman Manzullo. Could you pull the microphone up, 
Doctor? Thank you.
    Dr. Crandell. Working? Okay.
    ASDV's goal is to create opportunities for service disabled 
veterans to achieve and maintain their rehabilitation through 
economic participation. Several Federal agencies have set 
procurement goals for contracting and subcontracting with 
service disabled veteran-owned businesses below the 3 percent 
minimum set in Public Law 106-50 2 years ago. The Department of 
Defense has given itself that minimum 3 percent goal but no 
more than that.
    Ms. Napolitano asked the question about what to do. We 
would like to see accountability with regard to the 
implementation of the 3 percent procurement goal for service 
disabled veterans and others in Public Law 106-50. Put specific 
goals in the performance standards of the bureaucrats--Federal 
procurement officers and their supervisors. America's veterans 
want to see a game plan for meeting DOD's 3 percent goal in 
2002. We want it to be part of a straightforward strategic 
plan.
    Most Defense procurement is done by separate services. 
Still the DOD as an umbrella agency must aggressively set and 
meet its procurement goals in accord with the law. The 
Secretary of Defense must make certain the separate Departments 
of the Army, Navy, and Air Force do the same. How has Defense 
communicated its 3 percent goal to its installations and 
agencies? Has DOD collected any data yet in compliance with 
Public Law 106-50?
    We looked at the Defense Small and Disabled Business 
Utilization Web site under its heading for veteran-owned small 
business programs. This is the screen that we got. It has the 
phrase ``veteran-owned small business program'' three times. 
They even have a logo, and then it says this page is currently 
being developed. We don't believe that. We would like to see a 
time line for developing this program. It needs to be an active 
part of the Web site.
    DOD's obligations to the men and women it exposed to danger 
and disability set a very high bar. We suggest Defense 
challenge itself and the rest of the Federal Government by 
setting a DOD-wide goal of 4 percent for contracting and 
subcontracting with service disabled veteran-owned businesses 
rather than the bare minimum 3 percent.
    Mr. Chairman and Madam Ranking Member, we want the Defense 
Department to serve its veterans in the same good faith it got 
from us. Let us work together and fully implement the law this 
year. Thank you.
    [Dr. Crandell's statement may be found in appendix.]
    Chairman Manzullo. Thank you, Doctor. Our final witness is 
Mr. Tom--is it Kelleher?
    Mr. Kelleher. Kelleher.
    Chairman Manzullo. Kelleher, with the firm Smith Currie & 
Hancock. And Mr. Kelleher is speaking on behalf of the 
Associated General Contractors of America. I look forward to 
your testimony.

 STATEMENT OF THOMAS J. KELLEHER, JR., MEMBER, SMITH CURRIE & 
 HANCOCK, LLP, ON BEHALF OF ASSOCIATED GENERAL CONTRACTORS OF 
                            AMERICA

    Mr. Kelleher. Thank you. I am the senior partner and 
managing partner of that law firm, but today I am presenting 
testimony on behalf of the AGC, 80 percent of whose members are 
small businesses.
    I am going to deviate a little from my written testimony 
and try to summarize it. The written testimony addresses five 
issues. Three of them deal with procurement policy. Two are 
money issues. The procurement policy issues are interesting 
because I started out in government contracting by attending 
Government Contracting Officers School at Fort Lee, and then I 
taught that subject for the Army for 3 years during the Vietnam 
War.
    At that point in time construction was invitation for bids, 
hard dollar bids. In the early seventies, a client of this firm 
was terminated for default on a project in North Carolina by 
the Bureau of Prisons, the same day it was the low bidder on a 
large Corps of Engineers project in Georgia. There was a 
question about how could you award that contract? The response 
was they were low, they had a bid bond, and they were 
responsive. That is the end of the evaluation.
    In that 20-year period, Mr. Chairman, there has been a 
revolution in how DOD conducts construction procurement. Today 
65 percent of construction procurement is done by design build, 
a collaborative effort between the agency and the contractor. 
Previously the government obtained a design, put it out for 
lump sum bid, and then maybe it worked and maybe it didn't. 
Only 10 percent of the procurement dollar today is spent on 
IFB's, sealed bids; 90 percent is negotiated. Past performance 
evaluation has changed how contractors are evaluated. It has 
changed how they are selected.
    All change is not bad. My point is this. There has been a 
revolution in how DOD and other agencies in the Federal 
Government conduct construction procurement. We don't need new 
initiatives today. What we need particularly for the small 
businesses is a period of assimilation where both the 
contractors and the agencies get used to this revolution, and 
there needs to be a series of education programs conducted 
particularly for small businesses on how to do business with 
the Federal Government in a new environment.
    Many of our clients are small businesses. They are wary of 
dealing with the Department of Defense. They are concerned 
about the quality standards, they are concerned about the 
safety standards. Both of those are important. Neither should 
be ignored. What they need to understand is that the government 
is a more--one, it is financially solvent in an area that we 
are going into that may not see financially solvent firms in 
the private sector. The contract vehicle is basically balanced. 
There needs to be a program to educate contractors on this new 
process and way of doing business so they will enter into the 
marketplace and compete. That is important.
    Secondly, the two funding issues. There has been discussion 
of a no contingency funding to DOD construction projects. I 
think that is a mistake. In my experience when we represent 
contractors in disputes with this gentleman's agency, Colonel 
Wright's agency, when there is a problem, the way to make it a 
worse problem is to delay the resolution. If there is a 
differing site construction where the ground conditions are 
different than the way everybody anticipated, the way to have 
that solved quickly is to have the funds there as a contingency 
so that the problem can be addressed. If it sits unattended for 
months, then they hire me. That is not good for the government. 
It is not good for the contractors.
    So those are the areas that I think need to be addressed.
    Lastly, outsourcing. Contractors have the ability to 
mobilize resources, engineers, equipment, talent, to address 
construction needs from site to site. It would be a poor use of 
the government's limited resources to keep that inside the 
government and have that capability at each and every 
installation. Contractors know how to move people. They know 
how to move resources.
    I thank you for your attention.
    [Mr. Kelleher's statement may be found in appendix.]
    Chairman Manzullo. Thank you. All of the statements that 
are prepared will be made part of today's record.
    I have a couple of questions. First I want to ask Mr. 
Spencer, I was very troubled by a statement that you made on 
page 1 of your statement about Lockheed Martin places a 
requirement on small businesses to buy back Lockheed Martin 
equipment. Could you elucidateon that?
    Mr. Spencer. From what I understand, Lockheed Martin had a 
huge inventory of supplies and when the integrated contract was 
up for bid as part of the contract, they were requiring the 
businesses who quoted that contract to agree to take back all 
of this inventory, and it was millions of dollars worth of 
inventory, and they would have the opportunity, I believe, over 
18 months to buy it back, but they got it out of their own 
stores. I don't know if there was an accounting reason they did 
that or whatever. But that fact was pretty--for small business 
would be very difficult to handle.
    Chairman Manzullo. Where did this occur?
    Mr. Spencer. Where did it occur? Well, in Fort Worth that 
we are familiar with, it occurred in packing it up and shipping 
it----
    Chairman Manzullo. What exactly was the inventory?
    Mr. Spencer. As far as I know, it was like cutting tools 
and air tools and maintenance tools, the kind of things we 
normally deal with on a day-to-day basis.
    Chairman Manzullo. Is this illegal to have a tie-in 
agreement like this?
    Mr. Spencer. I do not know whether it is or not.
    Chairman Manzullo. Colonel Wright, are you familiar at all 
with the situation or anything like it?
    Colonel Wright. No, sir, I am not. But we would certainly 
be willing to take a look at it, particularly if it involves a 
government contract.
    Chairman Manzullo. Mr. Spencer, if you could write a letter 
to this Committee, give it as much detail as possible, we will 
get that over to Colonel Wright to get an opportunity to look 
at it. Is that fair enough?
    Mr. Spencer. Absolutely. I will get more details on it and 
get a letter to you.
    Chairman Manzullo. Thank you. Colonel, I have got one 
question to ask you, and again thank you for coming in on one 
day's notice. You made a statement that there had been a 
competitive award to an 8(a) business. This appears on the 
bottom of page 7 of Secretary Aldridge's statement. Do you want 
to dig that out? It is a statement that you read.
    Colonel Wright. Yes, sir.
    Chairman Manzullo. It talks about there was the largest 
Section 8(a) competitive award made to TeamQualtec, a joint 
venture between the 8(a) firms Qualtec, Inc., of Beltsville and 
CCI of Alexandria, indefinite delivery, indefinite quantity, 
and it could total as much as $698.5 million.
    Now that is a lot of money, and I guess my question is, is 
this really a small business, and if it is a small business, 
why so much was awarded just to one bidder?
    Colonel Wright. Sir, it has the potential of going up to 
that amount. The contract was actually awarded on the first of 
March and to date they placed orders against it up to 
$15,600,000, and there are some additional awards before the 
end of this fiscal year, would probably end up around $19 
million.
    Chairman Manzullo. What exactly is it? Is it services? Are 
you aware of it? Or is it a product? Oh, there it is. Technical 
and Management Logistics Service. Do you see that on the 
bottom?
    Colonel Wright. Yes, sir. That is correct.
    Chairman Manzullo. Were there other bidders involved for 
this that you know of?
    Colonel Wright. Sir, I will have to get back with you on 
the specifics on that.
    Chairman Manzullo. We have some people in the audience who 
are saying yes. Are you with the Colonel?
    Ms. Brooks. It was a competitive award.
    Chairman Manzullo. Could you identify your name for the 
record, please?
    Ms. Brooks. Teresa Brooks from Defense Procurement.
    Chairman Manzullo. Teresa Brooks?
    Colonel Wright. Teresa Brooks from Defense Procurement.
    Chairman Manzullo. I guess my question was why was this 
awarded to one and not to several? Is there a reason for that?
    Colonel Wright. Sorry, sir. What we will do is do the 
research and get back to you.
    Ms. Velazquez. Mr. Chairman?
    Chairman Manzullo. Sure.
    Ms. Velazquez. You come here and read the testimony and you 
are bragging about this contract. You know we are going to be 
asking questions; so don't come here and say you don't know the 
details or if that is the reason why you are here because you 
don't know anything about any question that we are asking.
    Chairman Manzullo. Colonel, who would know this 
information?
    Colonel Wright. Sir, I will get with the Director of the 
Navy Small Business Office and I will have the details for you, 
sir.
    Chairman Manzullo. Did someone else raise their hand? Could 
you please state your name for the record?
    Mr. Foreman. My name is Tim Foreman. I work for Colonel 
Wright. I am the Deputy Director in OSDBU and the Office of 
Secretary of Defense. It was a joint venture. It was an 
initiative with two firms. One was Qualtec, Inc., out of 
Beltsville, Maryland, and the other one was CCI, Inc., out of 
Alexandria, Virginia. They joined together and bid on this 
requirement. They won it competitively against other 8(a) 
bidders. I don't know who the other bidders were, but it was an 
8(a) reserved requirement.
    Chairman Manzullo. I would like to know why such a large 
contract was awarded to one company.
    Mr. Foreman. It was two companies, sir, a joint venture.
    Chairman Manzullo. Or two companies. Does anybody else on 
the panel want to comment on that? Does this seem strange?
    Mr. Foreman. I think it is more than a small business.
    Chairman Manzullo. How many employees do these companies 
have? Does anybody know? Colonel, do you have any idea?
    Colonel Wright. No, sir. But I will----
    Chairman Manzullo. You have no personal knowledge of this; 
correct?
    Colonel Wright. Correct, sir.
    Chairman Manzullo. Do you know the names of the people at 
DOD that would have personal knowledge of this?
    Colonel Wright. Yes, sir.
    Chairman Manzullo. Could you have them make an appointment 
to see me and Ms. Velazquez in her office as soon as possible?
    Colonel Wright. Yes, sir.
    Chairman Manzullo. Bring with them a copy of the contract 
that was awarded and any other proposals, any complaints that 
were filed by the companies, the fact that only one contract 
was given.
    Colonel Wright. Yes, sir.
    Chairman Manzullo. Then I know nothing about this. There 
may be an explanation that you could only make one award. In 
other words, you could only have one company getting the total 
award. We just need to know more about it because I want to see 
if this is--it just seems very unusual to have one contract 
with that amount of money on it.
    How many contractors were involved in this? You don't know? 
Okay.
    Have you asked your questions yet? You haven't?
    Ms. Velazquez. No.
    Chairman Manzullo. Why don't you go ahead and then we will 
recognize Mr. Chabot.
    Ms. Velazquez. Colonel Wright, I have a lot of questions 
but I am not going to ask them to you because I guess I know 
the answers. I will wait until October when we are going to 
have another hearing, but I could ask one or two questions to 
you. First, on June 20, we held a hearing and as a result of 
that hearing Chairman Manzullo, Congressman Mark Udall, and 
myself sent a letter to Ms. Deirdre Lee regarding contractor 
past performance, and the letter was dated July 11. As of this 
day, we haven't received a response, and I ask, Mr. Chairman, 
that a response be provided to us by close of business next 
Friday.
    Chairman Manzullo. We will make a copy of this letter and, 
Doug, do you know if we received an answer to this dated July 
11?
    Colonel Wright. Sir?
    Chairman Manzullo. Yes.
    Colonel Wright. I have just been handed a note here the 
Defense Procurement entered an interim response and the final 
response was delivered this morning.
    Ms. Velazquez. Because we were holding this hearing today?
    Chairman Manzullo. There was an interim response? What is 
that?
    Ms. Brooks. There was an interim response that said----
    Ms. Velazquez. All it says is that you are going to be 
sending us an answer. Well, that is not the answer that we are 
seeking.
    Ms. Brooks. I understand. We have sent out that response.
    Chairman Manzullo. You have a request. How much time do you 
want to have this answered?
    Ms. Velazquez. Next Friday.
    Chairman Manzullo. How about this. Let us have it at my 
office and in your office by Monday at 5:00 o'clock.
    Ms. Brooks. I believe it was delivered this morning.
    Chairman Manzullo. The letter was delivered or the interim 
response?
    Ms. Brooks. The final letter.
    Chairman Manzullo. The final letter was delivered when?
    Ms. Brooks. This morning.
    Chairman Manzullo. Does anybody have a copy of the letter? 
Folks, you are preparing for a hearing. This is embarrassing. 
Could you have somebody get a copy of the letter? Do you want 
to call your office?
    Colonel Wright. Yes. We will get you a copy of the letter.
    Chairman Manzullo. I want to see the letter before you 
leave. So if you would work with Mr. Thomas, our Staff 
Director, we will get it faxed here. I am not going to close 
the hearing until the letter comes.
    Ms. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman. Colonel Wright, in 
your testimony you state that under DOD's new policy to improve 
small business performance the Secretaries of the military 
departments and Director of the Defense Agency will report 
semiannually to the Under Secretary and the Under Secretary 
will report to the Deputy Secretary of Defense.
    Colonel Wright. Yes, ma'am.
    Ms. Velazquez. You stated that. My question is what does 
all of this reporting mean if the goals still aren't met?
    Colonel Wright. Ma'am, what it does, it raises the level of 
responsibility and accountability from the lower levels in the 
Department of Defense up to the service Secretaries. The 
service Secretaries will, in turn, brief Mr. Aldridge, and if 
the goals are not being met and satisfied, he in turn will ask 
the military departments and--the other Defense Agencies to 
submit a plan to correct any goal deficiencies the USD (AT&L) 
will in turn brief the Defense Secretary.
    Ms. Velazquez. Let us take, for example, the 5 percent goal 
for women-owned businesses. What I am trying to tell you is 
that if there is not a serious commitment from the top down to 
meet the goal, then it is not going to happen. And it doesn't 
mean--and it doesn't matter what is the channel of where they 
have to report and what the person is going to say because I 
have a memo that Under Secretary Aldridge issued on May 16 that 
says that even by fiscal year 2006 the DOD doesn't plan on 
achieving the 5 percent women's business goal. So for you to 
come here today and tell me that you are now implementing this 
new policy to improve small business performance, well, it is 
not going to happen if the Under Secretary Aldridge is stating 
in a memo that by the year 2006 the Department will not achieve 
such a goal.
    Colonel Wright. Ma'am, we have areas that we realize we 
have not been meeting the goals our Small Business Reinvention 
Initiative raises the level of accountability to the service 
Secretaries to get them involved and making sure they are held 
personally accountable for not meeting those goals.
    Ms. Velazquez. So how could you explain then that Under 
Secretary Aldridge issued a memo that says on May 16 that by 
the year 2006 the Department will not meet the 5 percent 
women's business goal?
    Colonel Wright. What we recognize in the Department, there 
are obviously areas we need to improve in and the women-owned 
business is one area.
    Ms. Velazquez. No kidding.
    Colonel Wright. We have initiated a number of outreach 
programs in terms of making contact with major prime 
contractors. We go around the country having a number of forums 
to educate various women groups about the opportunities within 
DOD as well as we have our Web site that addresses some of 
these issues.
    Ms. Velazquez. I guess that if we ask the question we 
cannot get an answer, and we might have to wait until the next 
hearing where we will be able to ask Under Secretary Aldridge.
    Ms. Hoffmann, in last year's reauthorization, the small 
business reauthorization bill, we were successful in getting a 
program in that allowed restricted competition from women-owned 
businesses in those industries in which women-owned businesses 
are underrepresented.
    Do you believe this program will be helpful to your 
business?
    Ms. Hoffmann. Absolutely. Absolutely.
    Ms. Velazquez. What kind of enforcement would you recommend 
for prime contractors to ensure that the women-owned business 
goal is achieved?
    Ms. Hoffmann. Well, I think there are definitely women-
owned businesses out there, there is no shortage. But to ensure 
it is truly a woman-owned business, they are going to have 
tocertify them. I go to my factory, I load a truck, I look for business 
opportunities. I don't come in every other day and do accounting work 
or something. I am truly a woman-owned and woman-run business, and they 
are going to have to certify.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Chairman Manzullo. Mr. Chabot.
    Mr. Chabot. Thank you, Mr. Chairman. Colonel Wright, could 
you elaborate on Secretary Aldridge's plan to reinvent the 
small businesses program?
    Colonel Wright. Yes, sir. Sir, what the plan does, it 
raises the importance of small business performance to the 
highest levels and it holds the senior leadership in DOD 
accountable for its performance. This initiative requires each 
of the military departments and the other defense agencies to 
submit a small business improvement plan. The plan will be 
reviewed by Mr. Aldridge and if the military departments or 
Defense agencies is not meeting those goals, then they will 
discuss their improvement plan with Mr. Aldridge. He in turn 
will brief the Deputy Secretary of Defense.
    So it raises the level of accountability I believe to the 
very highest levels in the Department and for his review and 
for his oversight.
    Mr. Chabot. Thank you. Could you also comment on how the 
mix of products and services that the Department of Defense 
buys impacts on small business opportunities?
    Colonel Wright. Yes, sir. The mix of products and services 
that DOD procures is based on the needs of the Department, and 
they change from year to year. Some years the product mix is 
more favorable to the small business community and in some 
years it is not. Notwithstanding that, DOD awarded $26.9 
billion in fiscal year 2000 to small business prime 
contractors. So there is a commitment on the part of the 
Department to award contracts to small businesses to the 
maximum extent practical.
    Mr. Chabot. Thank you. And, finally, could you give the 
Committee some more detail on how the Department plans to do 
more outreach with small businesses owned by women as we have 
discussed and also businesses owned by veterans?
    Colonel Wright. Yes, sir. One of the things we have done in 
the Department is to work very closely with the Small Business 
Administration. We are also working with the Department of 
Commerce and with major prime contractors to get the word out. 
In addition, members of my staff just recently held a meeting 
with a number of service disabled veterans. We invited them 
into our office. We listened to their concerns and their needs. 
One of the things that we are also focusing on is developing a 
database so we will be able to identify the number of service 
disabled veterans as well as the products and services they 
provide. So we have got a number of proactive initiatives 
ongoing.
    Mr. Chabot. Thank you very much. Any other members of the 
panel, are there any other points that were either vague or 
questions that you thought we should have asked that we didn't? 
Is there anything there that is burning that you would like to 
say?
    If not, I will yield back my time to the chairman. Thank 
you.
    Chairman Manzullo. I appreciate it. It gets really 
frustrating when we send a letter out and it gets answered 
supposedly the day of a hearing. I am not going to tolerate 
this any more. Who is in charge of Legislative Affairs at the 
Department of Defense? Do you know the person?
    Colonel Wright. Sir, I don't know the name, but we have an 
individual here from Legislative Affairs. He just stepped out. 
He would be his direct supervisor.
    Chairman Manzullo. Do you know his name?
    Mr. Foreman. No, sir.
    Chairman Manzullo. I would like whoever is in charge of 
Legislative Affairs to make an appointment to see me in my 
office. I am not going to put up with this any more. I send out 
a request for a letter. It gets supposedly answered by courier 
the day of the hearing. Our office doesn't have a copy of it. 
You come to the meeting today not prepared with a copy of the 
letter, and this is supposed to be the liaison between the 
United States Congress and the Department of Defense. But 
whoever that is in charge of Legislative Affairs I want them to 
make an appointment to see me in my office as soon as possible.
    Colonel Wright. Yes, sir.
    Chairman Manzullo. I also have a suggestion. Colonel, on 
the testimony on page 4, do you have that in front of you? Let 
me know when you are there, on the bottom. This is in Secretary 
Aldridge's statement.
    Colonel Wright. Yes, sir, I have it.
    Chairman Manzullo. It says ``My initiative also increases 
emphasis on small business subcontracting. DOD holds annual 
contractor reviews with the leaders of the major defense firms. 
Beginning this fall, I will include discussion of the status of 
small business subcontracting performance for each firm. I have 
tasked the DOD Office of Small and Disadvantaged Business 
Utilization to establish a small business forum that will 
identify and discuss small business issues and recommend 
improvement actions that I can discuss with CEOs of major 
Defense firms.''
    Let me just throw this out for your consideration. 
Unfortunately what happens, Congress passes a law, an agency 
attempts in good faith to carry it out, there is a problem, and 
then Congress is in the role of oversight. There is just 
something missing. Let me make a suggestion. With regard to 
this small business forum, that is within your purview; is that 
correct, Colonel?
    Colonel Wright. Yes, sir.
    Chairman Manzullo. That perhaps you might consider having 
the chairman and ranking member of the House and Senate Small 
Business Committees be members of that committee so that we can 
go into these meetings and try to iron out problems before they 
end up with small business people having to fly all the way to 
Washington at their own expense to testify as to how they are 
getting thumped by a Federal agency.
    Colonel Wright. Yes, sir.
    Chairman Manzullo. The Assistant Secretary for Legislative 
Affairs is Powell Moore? Is that individual here?
    Colonel Wright. No, sir. There was a gentleman by the name 
of Bob Wimple who works for Mr. Moore was here. He was here a 
few minutes ago. I think he stepped out.
    Chairman Manzullo. He probably went to try to get that 
letter. I have got another meeting. But in any case whoever is 
in charge, I would like to see that individual in my office, 
and I want to set down some parameters of how to deal with 
these documents that are sent out.
    Okay. Well, again, thank you all for coming this afternoon. 
Colonel, thank you for coming at late notice. I appreciate all 
of your testimony.
    As I said at the beginning of this hearing, I am disposed 
at this point to do an in-depth hearing regarding the egregious 
situation to which Bobbie Gentile testified concerning what 
happened with Federal Prison Industries that joined up with 
another company that bumped some small businesses to the tune 
of a million dollars. I am convinced that the only way that we 
can follow the law here is to hone in on those areas where 
there has been a problem, to expose it, to do whatever is 
necessary to clean it up, and to let that serve as a seismic 
shock to the other agencies that are doing the same thing.
    I am not going to let up on this issue of contract 
bundling. I have heard horror stories going around this 
country. I am very interested in an article here that was in 
the Washington Post dated Thursday, April 5 on this Qualtec, 
this $698 million contract to which, Colonel Wright, you had 
testified, touting 8(a) small businesses, but if you read the 
article, it says Qualtec provides engineering and logistics 
information technology and management consulting services, will 
lead a team of 12 military contractors, including two other 
minority firms. I want to know what is the size of these 12 
military contractors. I want to know who they are, and I want 
to know most of all if DOD is counting this contract in saying 
that this makes them in compliance with trying to have a 23 
percent set-aside for small business, if that is the case and 
if big companies are being counted in simply because they got 
looped in by a small company that did some creative 
subcontracting here with the government.
    And I am are not criticizing Maria Whitmore. She is a very 
proud lady for what she has done here. But if this is being 
counted towards small business and towards minority 
requirements, there is a big problem.
    Okay. Thanks again, and this Committee is adjourned.
    [Whereupon, at 2:57 p.m., the Committee was adjourned.]

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