[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



                                                   S. Hrg. 102-000 deg.

           CONTRACT BUNDLING AND SMALL BUSINESS PROCUREMENT

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

                                HEARING

                               before the

            SUBCOMMITTEE ON REGULATORY REFORM AND OVERSIGHT

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                     WASHINGTON, DC, JULY 15, 2003

                               __________

                           Serial No. 108-25

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
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                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman

ROSCOE BARTLETT, Maryland, Vice      NYDIA VELAZQUEZ, New York
Chairman                             JUANITA MILLENDER-McDONALD,
SUE KELLY, New York                    California
STEVE CHABOT, Ohio                   TOM UDALL, New Mexico
PATRICK J. TOOMEY, Pennsylvania      FRANK BALLANCE, North Carolina
JIM DeMINT, South Carolina           DONNA CHRISTENSEN, Virgin Islands
SAM GRAVES, Missouri                 DANNY DAVIS, Illinois
EDWARD SCHROCK, Virginia             CHARLES GONZALEZ, Texas
TODD AKIN, Missouri                  GRACE NAPOLITANO, California
SHELLEY MOORE CAPITO, West Virginia  ANIBAL ACEVEDO-VILA, Puerto Rico
BILL SHUSTER, Pennsylvania           ED CASE, Hawaii
MARILYN MUSGRAVE, Colorado           MADELEINE BORDALLO, Guam
TRENT FRANKS, Arizona                DENISE MAJETTE, Georgia
JIM GERLACH, Pennsylvania            JIM MARSHALL, Georgia
JEB BRADLEY, New Hampshire           MICHAEL MICHAUD, Maine
BOB BEAUPREZ, Colorado               LINDA SANCHEZ, California
CHRIS CHOCOLA, Indiana               ENI FALEOMAVAEGA, American Samoa
STEVE KING, Iowa                     BRAD MILLER, North Carolina
THADDEUS McCOTTER, Michigan

         J. Matthew Szymanski, Chief of Staff and Chief Counsel

                     Phil Eskeland, Policy Director

                  Michael Day, Minority Staff Director

                                  (ii)
?

                            C O N T E N T S

                              ----------                              

                               Witnesses

                                                                   Page
Baylor, Jo, U.S. Department of Housing and Urban Development.....     3
Moss, Sean, U.S. Department of Transportation....................     5
Linda, Oliver, U.S. Department of Defense........................     7
Thomas, Ralph C. III, NASA.......................................     8
Speake, Theresa A., U.S. Department of Energy....................    10
Sterling, Dave, VIRTEXCO.........................................    22
Lozano, Jorge, Condortech, Inc...................................    23

                                Appendix

Opening statements:
    Schrock, Hon. Ed.............................................    32
Prepared statements:
    Baylor, Jo...................................................    35
    Moss, Sean...................................................    41
    Linda, Oliver................................................    44
    Thomas, Ralph C. III.........................................    58
    Speake, Theresa A............................................    62
    Sterling, Dave...............................................    69
    Lozano, Jorge................................................    77

                                 (iii)

 
            CONTRACT BUNDLING AND SMALL BUSINESS PROCUREMENT

                              ----------                              


                         TUESDAY, JULY 15, 2003

                  House of Representatives,
    Subcommittee on Regulatory Reform and Oversight
                                Committee on Small Business
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 2:00 p.m. in 
Room 2360, Rayburn House Office Building, Hon. Edward Schrock 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Schrock, Bartlett, Gonzalez, 
Capito.
    Chairman Schrock. I think we will begin. I am sure Mr. 
Gonzalez will be here shortly, but I think he would appreciate 
it if we would start.
    Good afternoon, ladies and gentlemen, and thank you for 
coming to what I believe will be a very informative hearing. 
According to a report by the Office of Management and Budget 
issued last October, the number and size of bundled contracts 
have reached record levels. This most likely means that efforts 
to prevent unnecessary bundling are not as effective as we 
would like.
    Contract bundling is not, in all cases, inappropriate. When 
a well-defined project is literally too massive for small 
businesses, or if a project's requirements too rapid of 
complex, in the interest of national security, a bundled 
contract may, in fact, be necessary. In many cases, however, 
contract bundling is unjustified and is a lethargic response to 
a reduced federal acquisition work force. Unnecessary contract 
bundling is often counterproductive to federal procurement 
goals. It can end up shrinking the supplier pool and causing 
higher prices in the long term.
    President George W. Bush laid out a strong marker on this 
issue in his Small Business Agenda, released last year. 
Believing that our small businesses are the heart of the 
American economy, he directed that the contracting process 
should be fair, open, and straightforward. He has also 
instructed the director of OMB to review practices at agencies 
with significant procurement activities to determine whether 
their practices reflect a strong commitment to full and open 
competition. Congress has certainly weighed in on this issue 
regularly, most recently, in the Small Business Reauthorization 
Act of 2000.
    The SBA is required to produce a contract-bundling data 
base, conduct an analysis of bundled requirements, and submit 
it all in a report to Congress. Included in this report are 
details about the number of small businesses displaced as a 
result of the bundled procurement, a description of the 
activities of each agency with respect to previously bundled 
contracts, and the justification for the bundled contracts.
    This hearing's first purpose is to glean from government 
agencies how effective they have been in following the 
principles of the President's Small Business Agenda. I am 
anxious to hear from the agencies that are here with us today 
about their successes and failures in meeting the President's 
requirements.
    We are also interested in your degree of cooperation with 
the SBA to help them gather the needed data for their yearly 
report. They have cited numerous data gaps which prevent them 
for delivering a full report on the impact of contract 
bundling.
    I fear that the problem of decreasing contract 
opportunities for small businesses may get worse before it gets 
better. With increasing demands being put on our federal 
acquisition work force in the form of the A-76 process and 
performance-based contracting, the temptation to aggregate 
smaller contracts into ever larger ones will grow.
    Again, thanks to each of you for being here. We have two 
great panels of witnesses before us today, and I look forward 
to their testimony. Let me now recognize my friend, the Ranking 
Member, Mr. Gonzalez, for any opening remarks he might have.
    Mr. Gonzalez. Thank you very much, Mr. Chairman. I 
apologize for being a couple of minutes late, but it is good 
that you are so punctual. Around here, usually we are 20 
minutes behind. Again, this is a great privilege, of course, to 
be here today to listen to the testimony. The truth is I had a 
prepared statement. I am not going to go through it because I 
am really interested in the testimony from both panels.
    It doesn't matter what district you go into. You can go 
into any district, and you are going to have the same small 
business person out there at the town hall meetings or 
whatever, and they are going to tell you their frustration when 
it comes to bundling.
    From the other end of the whole, negotiated contract, I 
understand that we have procurement officers and such, because 
in San Antonio we have so many military bases and such, that 
have received mixed signals from their government, and that is 
streamline, make things simple. So there has been almost kind 
of a conflicting message out there. How do you both, or can you 
pull off both? That is why I am so interested in the testimony.
    But it is universal through any district, as I have said, 
and the common denominator is simply the frustration of small 
businesses that cannot compete the way the present system is 
operating. And you know that we have a score card that Ranking 
Member Nydia Velazquez issues every year. No one does that 
well, and they are doing worse this particular year, and, 
again, what is the reason? But we are faced with a situation, 
our responsibility: What do we do to assist small businesses? 
How do we get people's attention?
    So maybe you will understand a little bit more maybe from 
your viewpoint, but the truth is it looks like it is a pretty 
dismal performance overall, and the question then becomes, how 
do we get your attention? How can we assist you? And if we 
don't have that kind of cooperation, our responsibility really 
does lie with the small business men and women in the United 
States. And with that, Mr. Chairman, I will turn it back over 
to you.
    Chairman Schrock. Great. Thank you very much. I am glad to 
have Mr. Bartlett here today, and I understand, he has no 
opening comments.
    Before we begin receiving testimony from our witnesses, I 
want to remind everyone that we would like each witness to keep 
their oral testimony to five minutes. In front of you on the 
table, you will see a box that will let you know when your time 
is up. When it lights yellow, you will have one minute 
remaining, and when five minutes have expired, the red light 
will come on, and the trap doors open. Once the red light is 
on, the Committee would like you to wrap up your testimony as 
soon as you feel it would be comfortable.
    We have the first panel today. The Subcommittee will hear, 
first, from Jo Baylor, who is the director of the Office of 
Small and Disadvantaged Business Utilization at the Department 
of Housing and Urban Development. Welcome, Ms. Baylor.

     STATEMENT OF JO BAYLOR, DIRECTOR, OFFICE OF SMALL AND 
DISADVANTAGED BUSINESS UTILIZATION (OSDBU), U.S. DEPARTMENT OF 
                 HOUSING AND URBAN DEVELOPMENT

    Ms. Baylor. Thank you. Good afternoon Chairman Schrock, 
Ranking Member Gonzalez, and distinguished members of the 
Subcommittee on Regulatory Reform and Oversight of the 
Committee on Small Business. On behalf of Secretary Mel 
Martinez and Deputy Secretary Alphonzo Jackson, thank you for 
inviting the Department of Housing and Urban Development to 
testify about HUD's plans to meet the President's goal of 
increasing small business opportunities in federal 
procurements.
    My name is Jo Baylor, and I am the director of the Office 
of Small and Disadvantaged Business Utilization, also known as 
``OSDBU,'' or my mother's personal favorite, ``ozdebu.'' Prior 
to coming to Washington, I was a small business owner for over 
20 years in Texas.
    This position is not just a job for me but a committed 
undertaking. After being sworn in as a Schedule C, by President 
Bush, I know that this job is about results.
    On May 16, 2001, Secretary Martinez signed HUD's Small 
Business Policy, which sets high goals for contracting with 
small businesses in all preference categories. Our policy 
states: ``It is the ultimate goal of the Department that at 
least 50 percent of all contract dollars be awarded to small 
businesses.'' I am so proud to announce to you today that at 
the end of the third quarter for Fiscal Year 2003, HUD has 
awarded 50 percent of its prime contracts to small businesses.
    The implementation of this policy has required the close 
cooperation of all of the staff at HUD, including the Office of 
the Chief Procurement Officer, who have demonstrated their 
commitment to achieving the President's small business 
initiatives. At HUD, we work very hard to support small 
businesses by helping to eliminate the obstacles often faced by 
small businesses. I like to call them the ``Three As of 
Access.'' They are often seen as the largest obstacles for 
small businesses to success in government contracting. They 
are: access to capital, access to information, and access to 
the decision-makers. At HUD, we concentrate on the last two, 
since, at HUD, we don't directly lend money to small 
businesses.
    At HUD, we have done the following: ``The Forecast of 
Contracting Opportunities'' was completely revamped to be more 
small business friendly by including e-mail addresses and phone 
numbers with extensions of contact persons for each 
procurement. Additionally, we update the forecast weekly rather 
than yearly so that small businesses are aware of significant 
changes.
    Aggressive outreach activities have been increased across 
the country so that all small businesses, not just those within 
the Beltway, can take advantage of HUD's procurement 
opportunities. We are also taking part in the SBA's matchmaking 
events and one-on-one counseling sessions.
    To assist HUD with unbundling contracts, HUD has done the 
following: The Department, along with other federal agencies, 
prepares and submits to OMB quarterly a report on the status of 
HUD's efforts to ensure that contracts are not bundled. OSDBU 
and the Office of the Chief Procurement Officer are also 
preparing the benefit-analysis procedures for consolidated, 
bundled contracts to provide guidance to HUD program areas.
    Equally important, the September 9, 2002 revised policy 
also extends subcontracting requirements to include government-
wide, agency agreements (GWACs) and also GSA schedule awards, 
and it also includes all modifications, extensions, and 
options.
    We have implemented several changes to ensure that we can 
identify bundled contracts. First, we trained our agency 
personnel on contract bundling. Secondly, along with the Office 
of the Chief Procurement Officer, we developed and implemented 
the small business review procedures for requests for contract 
services. We review every contract out of HUD over $25,000 in 
our office. We also require a bundling review for all tasks and 
delivery orders under multiple-award, contract vehicles.
    HUD also included OSDBU as a member of the contract 
management review board, and we have reviewed more than 20,000 
procurement plans and actions.
    We are committed to working with you and the other federal 
agencies and with the small business community to make sure 
that these necessary procurement reforms are implemented. At 
HUD, we are very fortunate because we have the sincere 
commitment and leadership of Secretary Mel Martinez, Deputy 
Secretary Alphonzo Jackson, along with Dexter Sydney, our chief 
procurement officer, who is here with me today, in this 
movement towards procurement fairness.
    The Department is committed to increasing opportunities for 
small business at HUD and strengthening compliance efforts to 
monitor subcontracting plans already negotiated with prime 
contractors. We think that we can do better and provide greater 
access to small businesses across this country to HUD's direct 
and indirect dollars.
    This concludes my statement, Mr. Chairman. Thank you again 
for the opportunity to appear before the Subcommittee.
    Chairman Schrock. Thank you.
    [Ms. Baylor's statement may be found in the appendix.]
    Chairman Schrock. Just exactly five minutes. Man, that is 
impressive.
    Ms. Baylor. Thank you, staff.
    Chairman Schrock. That is right. Thank you, staff. I hope 
all of our staff is listening to that. And that 50 percent 
figure you gave is a very high marker. You are to be 
congratulated on that.
    Our next witness is Sean Moss, the director of the Office 
of Small and Disadvantaged Business Utilization at the 
Department of Transportation. We are delighted to have you 
here, Sean. Thank you.

STATEMENT OF SEAN M. MOSS, DIRECTOR, OSDBU, U.S. DEPARTMENT OF 
                         TRANSPORTATION

    Mr. Moss. Thank you, Mr. Chairman. Mr. Chairman and other 
members of the Subcommittee, I am pleased to appear before you 
today to discuss the Department's policies regarding contract 
bundling, procurement, and the agency's plan to implement the 
President's goal to increase small business opportunities 
within the federal government.
    The U.S. Department of Transportation's Office of Small and 
Disadvantaged Business Utilization was established in 1978, as 
required by Public Law 95-507. Since this time, DOT/OSDBU, as 
it is called, the staff has consistently demonstrated a high 
standard of commitment to providing the highest level of 
customer service available to small, women-owned, and 
disadvantaged businesses anywhere in federal government. The 
DOT/OSDBU's effectiveness is a direct and immediate reflection 
of their work with partners within and outside of DOT. So 
utilizing the four lines of business, which are advocacy, 
outreach, financial services, and organizational excellence, 
enables the OSDBU to support the agency's management strategy.
    As I said, DOT is a leader in federal government 
procurement. It has developed a culture that has demonstrated 
its commitment to small and disadvantaged businesses. Over the 
past three years, DOT has awarded over $3.662 billion in 
contracts to small and disadvantaged businesses, and that 
represents over 44 percent of DOT's total contracting dollars 
during that time period.
    In addition, DOT/OSDBU works closely with the Department's 
procurement officials and program managers, as well as the SBA, 
and also the SBA/PCR rep. That is important to coordinate 
policy and direction and to develop new initiatives to address 
subcontracting issues. Over the past three years, DOT prime 
contractors have awarded over 50 percent of subcontracting 
dollars to small and disadvantaged businesses. To implement 
DOT's subcontracting program, the OSDBU, in conjunction with 
the SBA/PCR, evaluate and review and make recommendations on 
subcontracting plans.
    Recently, we have achieved success in improving 
subcontracting opportunities for small businesses through DOT's 
matchmaking events. These events are held across the country, 
and what we do is we arrange meetings in advance with small 
businesses and prime contractors, along with DOT decision-
makers, with the expectation to enter meaningful contracting 
relationships. This initiative has generated an increased 
awareness of DOT contracting opportunities for disadvantaged 
businesses and improved the pipeline and supply chain 
opportunities for prime contractors.
    Now, the Department supports the President's plan to 
mitigate the effects of contract bundling for small business. 
In Fiscal Year 02, DOT reported seven bundled contracts, 
totaling $30.6 million. Now, this represents less than one 
percent of total contracting dollars for DOT. Although this 
amount may be viewed as insignificant, DOT is committed to 
eliminating all unnecessary bundling and creating every 
opportunity for small businesses.
    Through Secretary Mineta's leadership, the OSDBU is 
responsible for developing and implementing the agency's plan. 
The secretary's support is key to raising the institutional 
awareness of this issue with senior management. However, a 
contract-bundling policy that is successful must establish a 
partnership with both the procurement and the program office.
    So as a working member of the agency's procurement 
management council--now, that is the body that is comprised of 
each operating administration's procurement chiefs--the OSDBU 
is well qualified to lead the change. Now, the existing 
partnership has allowed us to partner with the Office of the 
Senior Procurement Executive to engage the acquisition offices 
to ensure that contract bundling will be a priority within the 
respective organizations.
    So the OSDBU and the Office of the Senior Procurement 
Executive have proposed new policies and measures that will 
strengthen the agency's review procedures for identifying 
proposed contract-bundling contracts. Now, these guidelines 
will be added to the Transportation Acquisition Regulation.
    So, beginning with program officials, bundled contracts 
must have the necessary justifications to advance. Without 
that, the new requirements will not be able to go to the 
procurement or the small business rep. In addition, the OSDBU 
will have the final authority for approving bundled contracts, 
regardless of their dollar value. So having this kind of 
accountability is indispensable for an effective, contract-
bundling policy.
    So, for the first two quarters of this year, we are 
encouraged by the early results of implementing the contract-
bundling guidelines to date, and these results have been 
demonstrated in three areas: one, subcontracting compliance; 
two, acquisition planning; and, three, contract reviews.
    So, just very quickly, in subcontract compliance, so far, 
the small business reps have seen an additional 25 percent more 
contracts for review. In acquisition planning, the Department 
has identified 16 proposed multiple-award contracts over the 
next 12 months, and the majority of these contracts are 
recommended either for 8[a] set-aside, partial set-aside, or 
even small business set-aside. And then, more importantly, I 
think, for contract review, we have seen 522 contracts for 
review by the small business specialists.
    So, at DOT, our mission is real simple. Our mission 
statement reads: ``To promote customer satisfaction through 
successful partnerships among our customers that result in an 
inclusive and effective small business procurement process.'' 
So we are very confident that we can roll in the President's 
agenda to address contract bundling.
    Mr. Chairman and the Subcommittee, I thank you for this 
time to respond.
    Chairman Schrock. Thank you, Mr. Moss. Thanks for being 
here.
    [Mr. Moss's statement may be found in the appendix.]
    Chairman Schrock. Next, we have Linda Oliver, who is the 
deputy director of the Office of Small and Disadvantaged 
Business Utilization from the Department of Defense. When I 
first saw OSDBU, I thought, ``OSD,'' I understand that. Well, I 
was a little wrong, I think, but that, I thought, I understood. 
We are glad to have you here today, too. Your department 
probably has some of the biggest contracts of any department in 
the government, no question about that. So it is a different 
animal altogether. We are anxious to hear your testimony. Thank 
you.

    STATEMENT OF LINDA OLIVER, DEPUTY DIRECTOR, OSDBU, U.S. 
                     DEPARTMENT OF DEFENSE

    Ms. Oliver. Thank you, Mr. Chairman. Before we begin, I 
haven't testified before a committee before. Is my written 
testimony part of the record?
    Chairman Schrock. It absolutely is.
    Ms. Oliver. All right, then. Thank you. Then I will 
summarize----
    Chairman Schrock. Great. Thank you.
    Ms. Oliver [continuing]. What it is I have said, what it is 
I have written.
    Thank you for this opportunity to appear. My boss, Frank 
Ramos, sends his regrets. He is out of state with activities 
this week which were much earlier commitments, and so he sent 
me. I will just proceed with a little summary of bundling and 
then a summary of subcontracting.
    For many procurements, of course, small businesses, in 
fact, provide the best benefit to the government. Where 
bundling occurs, what we are really seeing reflected is a 
tension between acquiring goods and services in a cost-
effective way and maintaining a future strong industrial base. 
Mr. Gonzalez alluded to that in his opening statement.
    My written statement summarizes our quite long history at 
the Department of Defense in managing the problem of bundled 
contracts. I won't go into the details of it, partly because I 
am not particularly good at remembering numbers, but you can 
see from our written statement that the Department of Defense 
is justifiably proud of our policy and justifiably proud of the 
results of our policy where bundling is concerned. It is not a 
major problem in the Department of Defense.
    Subcontracting has been of particular interest to my office 
over the last two years because my boss, Mr. Ramos, is 
especially interested in it, and his boss, Mr. Wynne, who is 
the principal deputy under secretary of defense for 
acquisition, technology, and logistics, is very interested in 
it. Mr. Wynne, incidentally, is currently the acting under 
secretary of defense for acquisition technology and logistics.
    This Committee understands, I am sure, even better than I 
do that there have been business changes in the way the 
Department of Defense acquires major weapons systems, and, as 
you know, a major weapons system is ships, airplanes, tanks--
big, big procurements. Our prime contractors have become 
contract integrators, integrating the works of other big 
contractors. So, for example, the primary, the most important, 
responsibility of one of our prime contractors might be to 
integrate a weapons system with a fire-control system with the 
platform that those things will go on.
    The result to small business is that small businesses and 
the Department of Defense are doing the same work that they 
have done before, but they are one tier down in terms of 
contracting. Their agreement is with, now, usually, a 
subcontractor rather than with a prime contractor. Now, that 
has been a good thing for the Department of Defense because, as 
a result, we are now able to hold somebody responsible for 
timely, quality production at a reasonable price, but it does 
mean we have to work harder in the Department of Defense to 
make sure that small business is included and not left out in 
this subcontracting context.
    My statement discusses some of the things that we have 
done, but they include, as with the other people who have 
testified so far, increased emphasis on source selection. Is 
the prime contractor going to see to it what does the small 
business subcontracting plan look like? We are undertaking more 
efforts to make sure the prime contractor sees to it that he 
does what he says he is going to do, and we are judging 
contractors' past performance more and more on whether they did 
what they said they were going to do.
    My written testimony also discusses our experiments with 
multi-tier reporting and our training efforts to involve the 
contracting officers, the program managers with the DoD small 
business specialists for early involvement.
    We think our plans are working. We think the future of 
small businesses in the Department of Defense is bright, and I 
welcome your questions.
    Chairman Schrock. Thank you very much.
    [Ms. Oliver's statement may be found in the appendix.]
    Chairman Schrock. We are pleased to have the assistant 
administrator for the Office of Small and Disadvantaged 
Business Utilization for NASA, The Honorable Ralph Thomas, and 
Mr. Secretary, we are glad to have you here. Thanks for coming.

  STATEMENT OF RALPH C. THOMAS, III, ASSISTANT ADMINISTRATOR, 
                          OSDBU, NASA

    Mr. Thomas. Thank you very much, Mr. Chair, and good 
morning to you and the other members of the Subcommittee, 
particularly Mr. Roscoe Bartlett, who is my perennial 
congressman. He represents the best city in the nation, 
Frederick, Maryland, where I grew up.
    Chairman Schrock. Now, wait a minute. We will talk about 
that after the hearing.
    [Laughter.]
    Mr. Thomas. But my name is still Ralph Thomas----.
    [Laughter.]
    Chairman Schrock. We didn't take that away from you.
    Mr. Thomas [continuing]. And I am the assistant 
administrator for small and disadvantaged business utilization 
at NASA, as you stated.
    In accordance with the relevant law that created the Office 
of Small and Disadvantaged Business Utilization, both in my 
agency as well as others, I report directly to the 
administrator, Sean O'Keefe, and I reported to the 
administrator, Dan Goldin, before that, and I have held this 
position since 1992 and have been in this field a long time. In 
fact, I have testified before the chairs of every picture on 
these walls. I don't mean to make myself sound old, but----.
    Chairman Schrock. But the ones in the back, I don't think 
so.
    Mr. Thomas. No, no. I am also the chairman of the Federal 
OSDBU Directors Interagency Council, which consists of my 
counterparts at the other federal agencies.
    I am pleased to be here representing NASA today, and we are 
honored to report on how we are supporting the President's 
small business agenda with regard to contract bundling. I am 
happy to say, though, that we have been sensitive to the impact 
of contract bundling on small businesses since early 1992, and 
we have been very effective in developing and implementing 
policies since that time that have dramatically increased prime 
and subcontract dollars to small businesses, including 
particularly those owned by minorities and women.
    For example, we have increased prime and subcontract 
dollars going to small businesses from $2.5 billion in Fiscal 
Year 92 to $3.6 billion today, with essentially the same total 
contracting budget. And during that time, we have almost 
tripled the total prime and subcontract dollars going to 
minority-owned businesses and more than tripled the total prime 
and subcontract dollars going to women-owned businesses.
    In 1990, Congress mandated that we award at least 8 percent 
of our total prime and subcontract dollars to small 
disadvantaged businesses. Up until 1993, we had never met that 
goal, and since that time, we have increased the totals 
virtually every year and now award more than 19 percent of our 
total prime and subcontract dollars against the 8 percent SDB 
goal to such firms. We have achieved that in the midst of 
contract consolidations and procurement reform, some of which 
make the job harder, and we are still doing it today. We are 
awarding more of our total prime and subcontract dollars to 
small businesses than at any other time in our history, and 
that is in every small business category.
    Now, addressing the specifics of this hearing, contract 
bundling, for purposes of review, ``contract bundling'' is 
generally defined as occurring when two or more contracts, in 
which at least one was previously performed by a small 
business, are combined together into one contract, which is too 
large for a small business to perform as a prime contractor.
    Now, as I stated earlier, NASA has been sensitive to the 
potential impact of this practice since early 1992, and at that 
time we put out a policy that required our NASA field centers 
to go through the NASA chief of staff at headquarters, who 
would first seek the advice and counsel of my office, the small 
business office, as to whether or not it was feasible. And 
this, along with a number of special business initiatives at 
our agency, sent a clear message to all our senior managers 
that we were serious about this.
    There are a lot of signs that it worked. The SBA Office of 
Advocacy recently released a study entitled, ``The Impact of 
Contract Bundling on Small Businesses, 1992 to 1999,'' and the 
report lists the top 25 civilian agencies that have the most 
bundled-contract dollar growth during these years, and NASA was 
not even on the list. And for an agency our size, I think that 
is a testament to how effective we were in this area.
    Now, some of the contracts did get large during that time, 
and that is what was happening everywhere. However, we put 
processes in place that ensured that small businesses had major 
roles in those contracts as subcontractors. In fact, we 
developed a uniform methodology and made it a NASA policy 
directive on determining subcontracting goals in major 
contracts.
    In terms of subcontracting, NASA, at last count, we 
subcontracted a higher percentage of our total contract dollars 
to small businesses and small disadvantaged businesses than any 
other agency. However, I don't want to leave you with the 
impression that we are focusing totally on subcontracting as a 
response to bundling. Small businesses are also winning a 
higher share of NASA's prime contract dollars than ever before. 
In the last seven years, we had the highest rate of increase of 
prime contract dollars to small businesses. In fact, it has 
almost doubled since I came aboard in 1992. In our top 100 list 
of prime contractors, 40 are small businesses.
    And we are debundling contracts also right now. Our two 
major contracts, Consolidated Space Operations contract, a 10-
year contract with a life value of over $3.4 billion; we 
recently broke that up after a 5-year base period, and we broke 
it up into five contracts and made two of them small business 
set-asides, and we did the same thing with the International 
Space Station contract, and we broke that up into five 
contracts, two of those set aside for small business.
    So, Mr. Chairman, these are two of our major contracts, 
totaling billions of dollars, and clearly this indicates our 
commitment to this area.
    That completes my testimony. I would like to offer for the 
record the contract-bundling report that we sent to the OMB in 
the first quarter, which is from our NASA deputy administrator. 
It goes into a lot more detail than I could in this statement. 
If you would, sir.
    Chairman Schrock. Thank you. Thank you very much.
    [Mr. Thomas's statement may be found in the appendix.]
    Chairman Schrock. Last, we have Theresa Speake, who is the 
director of the Office of Small and Disadvantaged Business 
Utilization--it sounds like the same title for every 
organization----.
    Ms. Speake. We are all OSDBUs.
    Chairman Schrock.--that is right, OSDBUs--at the Department 
of Energy. That is how you differ. Thanks for being here.

     STATEMENT OF THERESA A. SPEAKE, DIRECTOR, OSDBU, U.S. 
                      DEPARTMENT OF ENERGY

    Ms. Speake. Good afternoon, Chairman Schrock and members of 
the Subcommittee. My name is Theresa Speake, and I bring you 
greetings from Secretary Spencer Abraham and Deputy Secretary 
Kyle McSlarrow.
    Last year, Secretary Abraham issued a Small Business Policy 
that specifically supported the President's policy on 
outreaching to small businesses and making contracts available 
to small businesses and dealing with the bundling of contracts.
    The Department of Energy has over $19 billion that it 
awards every year. The process that we have at the Department 
has been that 80 percent of those dollars have gone to the 
operations of our facilities, site-management offices, and 
laboratories, which traditionally have been very large 
businesses and for very complex operations and for long term. 
The other 20 percent goes to miscellaneous services, of which 
those contracts are also, in many instances, large.
    What are we doing about that? Well, two things. One, we are 
opening up more of our contracts for competition. Between 1984 
and 1994, only three contracts within our M&O labs, operations, 
had been competed. Since 1994, 26 have been competed, 26 of the 
50, and during that competition process, the Grand Junction 
facility was actually awarded to a small business. Earlier, 
last month, Secretary Abraham announced that we would be 
competing the Los Alamos project in New Mexico.
    The contract-bundling steps that we have taken specifically 
are that we have an acquisition letter, or acquisition letters, 
which are included in the testimony, that addresses the process 
for contract debundling. What we are looking at is every single 
contract, prior to review, rebid, or renewal, to make sure if 
there are any opportunities for small business. Then we pull 
out those portions of the contract and set it aside for small 
business.
    We are also developing a data base of small businesses that 
specifically match those needs so that there isn't an excuse, 
if you want to call it, that we can't find them. If we are 
going to break out a portion for environmental remediation, 
then we are going to have a data base of environmental-
remediation contractors.
    Every single bundled contract must go through a review and 
must be approved by the DEPSEC. So if we are going to do a 
bundled contract, it must go through the deputy secretary, and 
it must contain strong subcontracting goals.
    The small business outreach efforts, I think, are what 
Congressman Gonzalez would appreciate, and that is those small 
businesses do need to know how to access the Department: What 
are the opportunities available? When are they available? We 
have on the Web site names, addresses, and e-mails for the 
small business managers within every facility, so those small 
businesses can actually contact a real, live person.
    We are putting together an advisory board that consists of 
trade associations who have entered into memorandums of 
understanding with the Department of Energy to help us in our 
outreach.
    We have some very, very specific efforts to break out our 
small business contracts, and that is, currently, as we speak, 
our environmental management office is holding hearings in 
Nashville, Tennessee, which is in your booklet there that talks 
about four or five major, prime-contracting opportunities for 
set-aside for small business. Those range from anything from a 
$50 million radiation cleanup to a $500 million operation.
    So we are looking at how do the small businesses do those 
sizes of contracts? We are talking to the Small Business 
Administration about teaming. In order for these small 
businesses to do these large contracts, just like the big 
businesses team up to do big contracts, we are bringing in the 
Small Business Administration to help us with bringing small 
business and big business together to team so that the small 
business benefits from the knowledge of that big business, also 
from the financing and the bonding that that big business can 
support.
    Some of the types of contracts are, as I mentioned earlier, 
major maintenance projects at our Strategic Petroleum Reserve, 
an approximately $8 million value this year; construction 
management at the Strategic Petroleum Reserve, for 
approximately $4 million; IT at the headquarters. We just 
awarded this year a $409 million, five-year contract to an 8[a] 
firm, and at the Oak Ridge operations, we are proposing a $45 
million, five-year contract. We have technical and 
administrative support within the environmental health 
management area, at $2.9 million.
    And we have gone, from the year 2001, a combination of 
prime and subcontracting--we are talking about the fact that a 
lot of our large contracts require the subcontracting plan, and 
that is where we are picking up a lot of dollars, which are 
real dollars to the small business community. We were, at 2001, 
at $3.5 billion; 2002, we are at $4.7 billion, and we are 
projecting to break the $5 billion mark this year.
    Chairman Schrock. Thank you. Thank you very much.
    [Ms. Speake's statement may be found in the appendix.]
    Chairman Schrock. Let me start the questioning. The Federal 
Acquisition Regulatory Council proposed revisions to contract-
bundling regulations this past January. I want to ask each of 
you if you believe that it is going to help you do your jobs 
and help create more opportunities for small business. 
Secretary?
    Ms. Baylor. Most definitely. I think it is really 
important. I think anything that highlights the contract-
bundling issue is very critical for small businesses.
    Chairman Schrock. Mr. Moss?
    Mr. Moss. Mr. Chairman, I think it will because I think 
what is key to this effort is that it is changing or enlarging 
the definition of what a bundled contract is. I think that is 
what is the heart of what OMB and the President are trying to 
address, is that, although contract bundling, per se, may not 
have been significant in many agencies, but when you expand it 
and look at ID/IQs, the MACs, it puts a different light on it. 
So I think this effort will increase more opportunities for 
small businesses.
    Chairman Schrock. Ms. Oliver?
    Ms. Oliver. I think this is such an interesting example of 
why small business advocates have to keep watching what is 
going on in the world. You know that the Federal Supply 
Schedule contracts, for example, were not significant, I don't 
know, 15 years ago in terms of potentially bundled contracts, 
and it sort of sneaked up on us.
    I think that having the agencies be responsible for looking 
at purchases from the Federal Supply Schedule, from the GWACs 
and the MACs is a good thing, and I think we will, once these 
rules are implemented, I think we may be able to get focused on 
it and solve some problems that have existed, and we didn't 
even realize it.
    Chairman Schrock. Secretary Thomas?
    Mr. Thomas. Yes. I think it is going in the right 
direction, but I want to stress that small business offices 
need to be involved at every juncture. There were follow-ups to 
those regulations, including just what Ms. Oliver said, the 
Federal Supply Schedule, which is very important because, in 
many cases, not at NASA but in many other cases, many other 
agencies, small business offices are bypassed when something is 
bought off of the GSA schedule. They obviously cannot promote 
something that they don't get a chance to see.
    Chairman Schrock. Why are they bypassed?
    Mr. Thomas. Because I believe that the GSA schedule is 
looked at as a fast way of doing something, and they are afraid 
that if they encountered a small business office, it would 
somehow slow down the process.
    Chairman Schrock. Ms. Speake?
    Ms. Speake. Well, contract unbundling is really important 
to the Department of Energy, considering the fact that we have 
always had large contracts. So it is very important that we 
have that nudge, if you would, to look at how we do business. 
It allows us to then work with our program offices and say, 
this is a policy that we need to be adhering to and justify why 
we should be breaking up those contracts.
    Chairman Schrock. The Small Business Administration has 
reported that they are unable to collect enough information 
from agencies to determine if contract bundling is achieving a 
cost savings for agencies. How cooperative have you all been, 
your agencies been, with the SBA? Secretary Baylor?
    Ms. Baylor. Extremely cooperative. I think that everyone 
experiences a data problem, and I think we are all updating 
those systems, and I think that will help a lot.
    Chairman Schrock. Great. Mr. Moss?
    Mr. Moss. We have a wonderful relationship with the SBA. We 
are fortunate to have one of the SBA PCRs in our office. 
Weekly, whenever there is an issue, we work together, and I 
think the whole issue about data collection, I think we are all 
looking for the right kind of vehicle with which we can 
increase that, but we do support SBA's efforts.
    Chairman Schrock. You shook your head ``yes,'' Ms. 
Secretary. Do you meet with them as well?
    Ms. Baylor. I was teasing him because he has got the PCR 
for HUD in his office, and so we are a little bit jealous. We 
need more space, and we would love to have them come visit us 
more often.
    Chairman Schrock. Oh, okay. That is a plug. Right?
    Ms. Baylor. Yes.
    Chairman Schrock. Okay. Thanks. Ms. Oliver?
    Ms. Oliver. Thank you. My answer is slightly different from 
the prior two answers, I guess. We do have a good working 
relationship with the Small Business Administration. However, 
after the reporting requirement for the year 2000, the Small 
Business Administration Authorization Act, after that was put 
into law, the Small Business Administration proposed a data-
collection system, proposed it to the Department of Defense and 
probably other agencies.
    We went back with a reply to the Small Business 
Administration that said, we are prohibited by statute from 
creating a brand-new collection system, which we are. We did, 
however, go back to them with suggestions about what data 
already exist and how we could collect it. As a matter of fact, 
I believe we were right. I believe we didn't need to make a new 
system; we needed to use the information we have in our systems 
already.
    Chairman Schrock. Security has a lot to do with that, I am 
sure. Secretary Thomas?
    Mr. Thomas. Yes. Right. I am not aware of any situation 
where the SBA has told us that we weren't providing data that 
they were looking for.
    Chairman Schrock. Great. Ms. Speake?
    Ms. Speake. On March 26th of this year, we were responsive 
to the Small Business Administration upon their request; 
however, we have a day-to-day working relationship with them, 
and we do have the PCR also in our office.
    Chairman Schrock. Oh, really? Ms. Baylor, we have to got do 
something about that. Right?
    Ms. Baylor. Yes, we do.
    Chairman Schrock. Mr. Gonzalez?
    Mr. Gonzalez. Thank you very much, Mr. Chairman. The 
question, and I will pose it to all of the witnesses, and it is 
really a simple one: What are the consequences, or what is the 
consequence, of not meeting a goal that you set for yourselves 
or this Committee feels is justified, the SBA, or a President's 
executive order, any kind of directive? What happens if you 
don't meet it?
    Ms. Baylor. Well, at HUD, we would take that very 
seriously. Being a former small business owner, it was about 
results, and that is what we are doing at HUD. We need more 
help. We need to work very strongly on our disabled veteran 
numbers, our HUDZone numbers. I think you are going to see 
increased improvement this year. We are working better with our 
chief procurement officer.
    So, yes, there should be some consequence for failing to 
meet your goals. I don't know what that would be. That would be 
up to----.
    Mr. Gonzalez. That would be my next question.
    Ms. Baylor. That would be up to you all. But there should 
be, and I don't know what that would be.
    Mr. Moss. Firstly, I think the real losers are the small 
and disadvantaged businesses if the goals are not met. But, 
secondly, we, as agencies, have to look at the attainment of 
these goals, top down. I think it has to start with senior 
management and has to roll down throughout the organization. So 
it is just not an issue for procurement, per se, but it is also 
for program management, small business advocates, and also the 
procurement community.
    So I think, if you look at all of those stakeholders and 
tie it into some kind of performance measure, then I think that 
would be beneficial to all.
    Ms. Oliver. In the Department of Defense, what happens when 
a particular piece of the Department of Defense does not meet 
its goals is they come to the attention of Mr. Wynne, who 
speaks to the senior procurement officials of the services or 
other defense agencies, who then speaks to the program manager, 
et cetera. That doesn't sound like very much, but I am telling 
you, it is.
    Mr. Thomas. That question is not as simple as it sounds. 
First of all, it has to be decided who is responsible for 
meeting the goal, first of all. The law contemplated that if a 
goal was not met, the agency would tell the SBA why it didn't 
meet it, and then the SBA would send those results to this 
body, to the Senate and House Small Business Committee, and 
this body could do whatever they wanted to do.
    From a more practical standpoint,--the law sets it forth, 
but it is not always done--goals should be negotiated between 
the SBA and the agency because the agency, then having 
negotiated, knows what it has signed up to and can do. The 
problem occurs when goals are applied across the board to all 
of the agencies. It is like measuring apples and oranges. At 
that point, an agency that hasn't signed up to a goal but has 
just been given a goal, it is a lot more difficult to meet it, 
particularly when there is no chance of meeting because of the 
agency's makeup.
    However, getting back to the specific question, once it has 
been negotiated, and an agency has signed up to it, if a goal 
is not met, there is usually a reason for it. From what I have 
seen in the past, it is usually nothing malicious; something 
happened. Something happened, and that rationale has to be 
spelled out, and then corrective actions have to be taken.
    Ms. Speake. At the Department of Energy, we have just 
recently, under Deputy Secretary Kyle McSlarrow, assigned the 
score card scoring to small business so that every element will 
be evaluated on red, yellow, or green where they are, which 
then goes up to OMB on a quarterly basis. So that is one way of 
holding each of what we call ``elements,'' or the offices, 
accountable for their individual goals. And within that, we 
also have recently, this year, included in the personal 
evaluations of individual managers the ability to meet goals, 
and that then reflects on their evaluation at the end of the 
year as to whether or not they get their bonuses.
    Mr. Gonzalez. Well, let us say we entered real meaningful 
negotiation. What would be a real number that you all could be 
shooting for, a percentage, based on your mission, because it 
is different? DoD is different. I am going to try to hurry 
because my time is up. And we establish that it is something 
that is realistic for you, and you if you don't meet it, at 
that point, what would be appropriate? Could it be simply that 
then you are not allowed to bundle as many contracts that for 
that next year?
    There has to be something, I was thinking, because right 
now we have goals and numbers that are really just 
aspirational. Because we are going to have witnesses that will 
follow you that will tell you and the same people that show up 
at all of our town hall meetings that simply say that these 
procurement officers are not driven by anything because there 
is no consequence. If they don't meet the goal, it does not 
matter, and it doesn't go into anybody's personnel record, 
there is no penalty, and they will continue doing as they 
always have.
    So it is really something that we need to be studying, and 
I think the thing about negotiating it, making it a real 
number, something that is attainable, but then after we reach 
that, maybe there is consequence because you, yourselves, have 
had something to say about your own destinies. And if you don't 
meet it then, not to be arbitrary, but surely there has got to 
be something better than what we have in place at the present 
time. Ms. Baylor?
    Ms. Baylor. Maybe mandatory training. I think acquisition 
strategies are something that would help small businesses, but 
to require mandatory training in those agencies that didn't 
meet their goals.
    Mr. Thomas. If I may, if I could just intervene just for a 
minute, there are a lot of goals that an agency has in terms of 
small business. There are about eight different goals. We met, 
for example, all of the goals that we negotiated. We did not 
meet the goals that were applied across the board, and in one 
situation, we just barely missed a goal.
    A lot of factors play into it. If you have a goal of 20 
percent, and you only do 3 percent three years in a row, there 
is obviously something wrong, something malicious. If the goal 
is 20 percent, and you hit 19.8, different situations call for 
different solutions. We also, though, put it in our senior 
managers' performance plans to make sure that they are meeting 
our goals, and that works. That makes it important quick. If 
something decides a person's future, that all of a sudden 
becomes important real fast. We have been doing that since 
1992, so we have found that that has worked.
    Mr. Gonzalez. Thank you very much. Thank you, Mr. Chairman.
    Chairman Schrock. Thank you. Mr. Bartlett?
    Mr. Bartlett. Thank you very much. My first introduction to 
bundling, which, before I came to the Congress, I thought was 
something Amish did when they put that board down the center of 
the bed, you remember, my first introduction to bundling in 
business was when movers came to us in panic, and this was DoD, 
Ms. Oliver. DoD had previously competed moving, and not anybody 
can move the whole world, but a company would win that bid, and 
then anybody else could move if that company couldn't move, and 
obviously they could move only a very small percentage of DoD 
needs. Any other company could come in and move at those same 
rates, so the taxpayer was getting the lowest dollars for their 
moves, the moves of the military.
    These people were panicking over that, and we met with DoD, 
tried to make sure that there would be opportunities for 
participation under this single contract, first of all, 
business people. What ever happened to that? Do you know?
    Ms. Oliver. Well, rather than be inaccurate with you, 
Congressman Bartlett, I would like to take the question for the 
record and go back and ask the people specifically involved. I 
do know--this has nothing to do with my official position--I do 
know, because I was a Navy dependent for a long time,--I do 
know that the quality of moving in the Department of the Navy 
is much better than it has been. I will get the details.
    Mr. Bartlett. I would appreciate that.
    I want to ask a question of all of you. How do you make 
sure that the quality of these small business contracts are 
adequate? For instance, you can meet your goal by having a 
small business person provide your copy paper for you, and they 
simply go to MeadWesvaco and they buy the copy paper, and then 
they deliver it to you. Sorry, this is not a small business 
participation because you could have bought the paper from 
MeadWesvaco. How do you make sure that your people are, in 
fact, letting meaningful contracts to small business--I think 
what I have described is a pass-through--and not simply meeting 
your goals with pass-throughs that really don't involve real 
work of small business people?
    Mr. Moss. Yes, Congressman. For us at DOT, what we try to 
do is look at our core competency--What do we do well? Where do 
we spend most of our money?--and really kind of work with those 
program managers and to partner with them and to seek 
opportunities for small businesses. As you know, at DOT, we are 
an infrastructure play. A lot of our dollars are spent with 
engineering, architectural. The Coast Guard left a lot of 
ships, airplanes, et cetera. So we try to find where we spend 
money and try to find opportunities for small businesses.
    Mr. Bartlett. How do you monitor? For instance, I had a 
young lady come to me who runs a bridge-painting company. 
Unusual for a pretty young lady to be running a bridge-painting 
company. One of the prime contractors wanted to meet his goal 
of subcontracting by having her provide paint for the job. Now, 
that is not a small business participation. He could have 
bought the paint for the job.
    My question is, how are you monitoring your contracts so 
that you know that these contracts let to small business are, 
in fact, meaningful small business contracts and not just a 
charade, a pass-through, like this buying paint would have 
been?
    Mr. Thomas. Well, I tell you, that is very sensitive to us, 
Mr. Bartlett, because we are a high-tech agency, and it is 
right in our mission, our small business mission, that we want 
to fully integrate small and disadvantaged businesses into our 
competitive base, particularly in high-tech areas. We defined 
``high tech,'' first of all. We put it in the Federal Register. 
We send it throughout the agency. Define ``high tech.'' Then we 
got the SIC codes or the NAICS codes that were consistent with 
that definition.
    And since we had the problem in the small disadvantaged 
business area years ago, we can tell you that two-thirds of the 
prime contracts that small disadvantaged businesses get are in 
the high-tech area, and we can say what contracts they are. And 
also, when we give awards,--we have awards in the fall that we 
give to our agency personnel for utilizing small businesses, 
small and disadvantaged businesses--we stress the high-tech 
area. So when they have success stories, they sent it to us, 
and we publish it.
    So having small businesses do meaningful, high-tech work is 
very important. We list the success stories in our annual 
report as well, and small businesses have been involved in 
every important technical mission that NASA has ever had in the 
last 10 or 12 years. So it is very important. I think that is a 
very important subject because sometimes more important, and 
one of the things that the score card doesn't cover, sometimes 
more important than how much money an agency gives to small 
businesses is what the small businesses are actually doing for 
the agency. So I think that is very important.
    Mr. Bartlett. Thank you very much. Thank you, Mr. Chairman.
    Chairman Schrock. Thank you, Mr. Bartlett.
    We are happy to be joined by the gentlelady from West 
Virginia, Ms. Capito. You are recognized.
    Ms. Capito. Thank you. I don't have any questions at this 
time. Thank you very much.
    Chairman Schrock. Thank you. This question of contract 
bundling has really come to my attention. For those of you who 
don't know, I represent Virginia's 2nd Congressional District, 
and the only way to describe it is massive amounts of military, 
eight major military bases and 385 commands, so I hear it all 
of the time.
    I am going to ask Ms. Oliver a question, and this question 
does not apply to hardware--no ships, no planes, no tanks, no 
hardware. It is infrastructure, and one of the things that 
small businesses there tell me is that they are often denied a 
chance to compete for contracts because bonding requirements 
are too high, and past performance evaluations are used to 
exclude them.
    In fact, I just called the one individual about two hours 
ago, just to make sure I was correct. He builds some of the 
largest buildings, largest infrastructure, in the Hampton Roads 
area yet sometimes has to be a subcontractor, when he could 
build the whole project himself. I don't understand that.
    Ms. Oliver. I don't understand it either,----.
    Chairman Schrock. Good.
    Mr. Thomas.--which means that what I need to do is get more 
information and follow up with it. I have been involved in the 
Department of Defense contracting world for a long time, but 
construction contracting has a lot of rules peculiar to 
construction contracting, and it is not my area of 
specialization. If I can get more information from you, I would 
be happy to answer your question better because I don't know 
off the top of my head.
    Chairman Schrock. I would like that because, clearly, DoD 
is the largest department. There is no question about that, and 
if they take the lead on this and make progress on this, I 
think that would bode well for the other agencies as well 
because, frankly, I think more could be done. I hear it all of 
the time when I am down there, that that would be nice if you 
could do that.
    Ms. Oliver. We are subject to particular construction 
contract requirements that are peculiar to the Department of 
Defense, and that may be part of the explanation, but I need to 
have more information in order to give you a responsive answer.
    Chairman Schrock. All right. I would appreciate that 
because I know that is just parochial to the district I 
represent, but it probably has an impact on a lot of other 
areas as well.
    Mr. Moss, you said in your testimony that your office has 
the final say on bundled contracts, the key word, ``final.'' 
How does that work? I would be interested if the other OSDBUs 
have that authority. That is a tough word for me, so I am going 
to just say O-S-D-B-Us, if they have that same authority.
    Mr. Moss. Sure, sure. From the outset, it was important for 
us to send the right signal, if you will, because, as was said 
here earlier, that the perception to the small business 
community is that the agencies are not sincere. A lot of these 
regulations don't have the right kind of teeth to it.
    So what we did very quickly at the outset was to sit down 
with the Office of the Chief Procurement Officer, as well as my 
office, and to really talk about that and to come to the 
decision that if this is going to have any meaning to it, if we 
are going to achieve any kind of real results to it, the OSDBU, 
which is, as the law says, is the chief advocate for small 
business in the agency, it must have authority. So that is 
something that is important to senior management, and, like I 
said, it is something that was proposed, and we are including 
it in our agency records. So, so far, so good, sir.
    Chairman Schrock. Ms. Baylor?
    Ms. Baylor. Well, we actually have a policy that was--I 
guess it has been about two months now--that actually says that 
anytime that OSDBU and the procurement staff or program staff 
disagree on any procurement, it has to go up to the deputy 
secretary to resolve. So it is not just bundling; it is any 
acquisition strategy that we disagree on, so it is pretty 
strong.
    Chairman Schrock. Who is the decision-maker, Mr. Moss, at 
DOT? Who did you say makes that final decision? Is it Secretary 
Mineta or Mike Jackson?
    Mr. Moss. Yes, sir. It goes to the secretary's office.
    Chairman Schrock. Right to him.
    Mr. Moss. Right, because I report directly to him.
    Chairman Schrock. Okay. Great. Secretary Thomas?
    Mr. Thomas. I am glad he said ``secretary'' because I can 
be very influential on small business at NASA, with the 
bundling, as well as anybody else, but, naturally, I cannot 
have the final say on whether a contract gets bundled. There 
could be very technical, safety reasons involved in terms of 
bundling, you know. It could be associated with the shuttle or 
space station, you know. I mean, can we stop, you know, the 
whole thing because of what the small business office says? But 
we can be influential enough, though, so that, as I say, we do 
carry much influence; but, no, we don't have the final say.
    Chairman Schrock. The administrator does?
    Mr. Thomas. If it gets that far. If it gets that far. 
Normally, the technical program manager who is in charge of it 
will say that they want to bundle, and this happens very 
rarely, but they will say, ``We want to bundle it because,'' 
and it will usually be such a technical, safety-conscious 
argument, that we generally can't challenge the technical 
person and defeat the argument, but what we can do is make sure 
small businesses get taken care of in the midst of it. We can 
make sure they get taken care of in terms of subcontracting 
goals and make sure they are high enough that small businesses 
have meaningful participation.
    Chairman Schrock. Thanks. Ms. Speake?
    Ms. Speake. I did testify that it does go to the deputy 
secretary.
    Chairman Schrock. Mr. Gonzalez?
    Mr. Gonzalez. I don't have any further questions. I know we 
have a vote.
    Chairman Schrock. Oh, we do? Okay. Thank you. Mr. Bartlett?
    Mr. Bartlett. Thank you. The chairman mentioned, in his 
opening statement, legitimate bundling, and there are occasions 
of that. The first one that came to my attention was when the 
Navy and Marine Corps were bundling all of their contracts 
which had been scores for data acquisition and management. And 
the reason they were doing that was that our onerous 
procurement cycles in the government preclude us from buying a 
product that came on the market yesterday. If it takes 14 
months to procure something in the government, and the life 
cycle of this new technology is 18 months, you are always 
coming from behind. And so they decided that they would buy 
performance rather than equipment, and that is a legitimate 
reason for bundling.
    We were concerned that small business was not going to be 
an adequate player in this, and so when they came to visit us, 
we asked if they could assure that 35 percent of the money that 
they got would go to small business, and 10 percent of that 
would be direct pay. To their great credit, they withdrew their 
RFP and issued another RFP, and, as far as I know, they have 
been successfully implementing that contract, with 35 percent 
of the money going to small business and 10 percent of it 
direct pay.
    The next big bundling that came to our attention was NSA 
and their groundbreaker that I think most people are familiar 
with, and for exactly the same reason. They, of all people, 
need to have the latest equipment, and they couldn't have the 
latest equipment because our onerous procurement regulations in 
the government take too darned long to buy anything. And so 
they were going to let a single contract, called ``the big 
groundbreaker contract,'' which would now cover contracts that 
had been let to hundreds of companies before that.
    We met with them several times before they finally agreed 
that they would make an effort, and I think they have done 
pretty well; they didn't think they could. We asked them to 
look at their records. We told them we suspected that small 
business was doing about 35 percent of their work. They had not 
anticipated that. That is what their records showed. So they 
are now proceeding with groundbreaker successfully, I think, 
and coming very close to meeting that goal.
    When you have legitimate needs for bundling,--those are two 
that I think were legitimate needs for bundling--what 
procedures do you have in your agencies to make sure that you 
are passing on the requirements for participation of small and 
disadvantaged businesses to your prime contractors, and what 
sort of incentives to they have for meeting those goals?
    Ms. Speake. If I can begin, sir, we do require a 
subcontracting plan from that prime contractor, and in that 
subcontracting plan, they have to outline the type of work, 
which addresses this type of developmental work as opposed to 
just----
    Mr. Bartlett. Pass-throughs.
    Ms. Speake [continuing]. Pass-throughs. They have to 
develop the percentage of work, they have to develop the 
industry that they are going to be focusing on, and we also 
look at their past history. What is their past history in doing 
subcontracting with small business? So that is an evaluation 
factor in that RFP, which, if they have done five contracts in 
the past and haven't done any small business, they could lose 
some points in the evaluation factor. That is really important 
coming in. So you already have a track record of not doing 
business. Why would we believe that you are going to? So that, 
I think, is an important element, going right out the gate.
    Then we are going to be monitoring, and we do pay them an 
incentive, a bonus incentive, for bringing in the small 
businesses if they perform. So once they have the plan, then we 
have to monitor the plan to make sure that they did perform on 
what they said they were going to do.
    Mr. Bartlett. Thank you.
    [Discussion off the record.]
    Mr. Thomas. We have, as I said in my testimony, a uniform 
methodology for determining subcontract goals, and we determine 
what the subcontracting goals are going to be first, and we put 
it right in the solicitation, and then they respond to that 
goal. We do this by determining what the work is going to be, 
and then we get together our technical procurement and small 
business people, and then we determine what represents the 
maximum practicable extent. We also count it as an evaluation 
factor, but to make sure that they follow it, it counts as 15 
percent of the award feed.
    Most of our contracts are competitive proposals, so that 
every six months they get award fee based on passing their 
technical goals. We tie 15 percent of that to their small 
business subcontracting goals, and that has worked very well.
    Ms. Oliver. We have guidebook, which is published on the 
Internet, as a matter of fact, and every place else we can find 
to publish and bring it to people's attention, which deals with 
what constitutes a bundled contract, what the justification may 
be, and what is the steps that someone should go to to mitigate 
the effects of the bundling. It is quite a long booklet, and I 
have discussed it some in my written testimony. I would be 
happy to provide it to you if you are interested in seeing it.
    Mr. Bartlett. Thank you.
    Mr. Moss. So if we come to the conclusion that we must 
bundle after we have exhausted all options, whether through 
teaming or find other ways to procure, then we really focus on 
the subcontracting plan, sir, to really be sure that it really 
has some value to it, that there is real participation, and 
that our office is really involved in the monitoring of those 
plans.
    Ms. Baylor. First of all, to bundle, you would have to get 
the deputy secretary's approval, and then there would have to 
be a justification in the file. But after that, we do have 
evaluation factors for subcontracting plans. We require 
substantive work, as you were talking about before, of those 
people who do the subcontracting work, and it is based on a 
percentage of the total value. Our goals at HUD are up to 40 
percent. We also require that the program areas do market 
research so that we can determine how many small businesses are 
available in the pool to do this work. So we work really hard 
with our program areas and our contract people to make that 
determination.
    Mr. Bartlett. Thank you very much. Thank you, Mr. Chairman.
    Chairman Schrock. Thank you, Mr. Bartlett.
    This subject is one that every member on this Subcommittee 
and every member of the full Committee has been interested in, 
is interested in, and will continue to be interested in because 
it impacts every single business, big or small, in all of the 
districts we represent, and I think it was important to hear 
your testimony today to try to get further knowledge into this 
and where we are going to go.
    I want to thank you all for coming here. It has been very 
helpful, and I can assure you that if this thing gets pursued, 
we may call you back again, but we appreciate your being here 
today. Thank you very much.
    [Whereupon, at 3:11 p.m., a brief recess was taken.]
    Chairman Schrock. Well, we were lucky. We only had two 
votes. They canceled the last vote. Don't ask me why. We will 
probably be voting on that at midnight tonight. I hope not.
    Welcome to Panel 2. Next, the Subcommittee will hear from 
David Sterling, who is the vice president of the VIRTEXCO 
Corporation, headquartered in Norfolk, Virginia. Dave has 
served on active duty in the U.S. Army and is a member of the 
Virginia Air National Guard, and we thank him for that service, 
and, Dave, we are glad to have you here today. Welcome.

     STATEMENT OF DAVE STERLING, VICE PRESIDENT, VIRTEXCO 
                 CORPORATION, NORFOLK, VIRGINIA

    Mr. Sterling. Thank you, sir. I wish to thank the members 
of this Committee, especially Congressman Ed Schrock, for 
inviting me here to testify on a topic so vital to the welfare 
and survival of a small business. I am vice president of 
VIRTEXCO Corporation, a 27-year-old general accounting firm 
headquartered in Norfolk, Virginia. I also serve as vice 
president of the Associated General Contractors, Tidewater, 
Virginia, District.
    Over the past five years, VIRTEXCO has employed an average 
of 250 workers and currently does $50 million in annual sales. 
VIRTEXCO is concerned with the contracting community's 
increased reliance upon contract bundling and the negative 
impact it is having, and will continue to have, on small 
business. I would like to try and express to this Committee, 
through VIRTEXCO's experience and perspective, why I am so 
strongly against contract bundling.
    As we know, the main control and barrier to bidding on 
contracts is bonding capacity. Until 10 years ago, the great 
majority of solicitations we saw advertised ranged from $5,000 
to $5 million in value. With so many contracts being let at 
relatively low dollars, it allowed construction companies to 
earn greater bonding capacity through performance. This, in 
turn, kept contracting firms from overgrowing their technical 
and managerial capabilities.
    This system of contracting through many individual, lower-
dollar contracts versus bundling contracts into a single, 
enormous contract helped foster the American Dream. With hard 
work, determination, and the application of sound construction 
skill, a company could be formed with relatively little funding 
and grow slowly, but surely, along with their increased bonding 
limit, to become a successful, well-respected corporation, just 
as VIRTEXCO did, a corporation providing jobs for many, 
training of the trades that benefits all, and a reliable 
partner with government in the performance of needed repairs 
and construction.
    From VIRTEXCO's observation, the bundled contracts have 
become increasingly large in both scope and value. This is 
forcing an increase in the bond requirement, limiting fair and 
open competition.
    Another limiting aspect has been added to the bidding 
process connected with bundling, which is past performance 
evaluation. Contractors are now caught in a Catch-22. For 
example, a contractor cannot be qualified for a $5 million 
barracks project unless it can demonstrate having successfully 
completed at least two such projects, but the contracting firm 
can't develop the past performance resume until it has been 
awarded its first barracks project.
    The combination of increased bond requirements and past 
performance evaluation is creating an alarming trend: Contract 
bundling is making the acquisition of government contracts 
possible for only a select few, super-sized contracting firms. 
In my prepared testimony, I gave two recent examples of how 
drastic an effect contract bundling is having in the Hampton 
Roads area.
    A solicitation was advertised by the Navy for an ID/IQ, 
indefinite-quantity, job order contract. The solicitation was 
for a base year plus four option years, with a maximum per-year 
limit of $50 million. This means the only potential bidders 
must be able to bond a single job for $50 million. The four-
year option means this contract will take $250 million off the 
street for five years in the Norfolk area for anyone but the 
few giant bidders large enough to meet the bonding requirement. 
As of now, the only bidder listed is Kellogg, Brown & Root.
    As another example, J.A. Jones has been awarded a $782 
million contract for 1,193 housing units at three bases for a 
50-year deal. J.A. Jones Community Development has $3 billion 
in annual revenue. It is very likely that within 10 years, 
VIRTEXCO will have ceased to perform all but a very limited 
amount of government work because we cannot compete with the 
bonding capacity of such companies as Brown & Root, Centennial, 
and the other construction giants. Contract bundling is 
destroying the small business base.
    I hope I have helped this Committee understand the severity 
of the impact contract bundling is having on small business. 
Thank you.
    [Mr. Sterling's statement may be found in the appendix.]
    Chairman Schrock. Thank you, Dave. I will have some 
questions for you afterwards because I clearly understand the 
problem.
    We will now hear from Mr. Jorge Lozano, who is the 
president of Condortech Services, Inc., who is here today 
representing the NFIB, the National Federation of Independent 
Business. We are very happy to have you here. Thank you.

STATEMENT OF JORGE LOZANO, CEO/PRESIDENT, CONDORTECH SERVICES, 
                   INC., ANNANDALE, VIRGINIA

    Mr. Lozano. Good afternoon, Mr. Chairman and members of the 
Subcommittee on Regulatory Reform and Oversight. Thank you for 
the opportunity to speak with you today regarding the negative 
effects of contract bundling on my small business and countless 
others nationwide. I am testifying before you today on behalf 
of the National Federation of Independent Business, which 
represents 600,000 small businesses across the country.
    As you said, my name is Jorge G. Lozano. I came to this 
country as an immigrant from Bolivia, and I started building my 
dreams to become a successful businessman. I come from a family 
that created jobs and wealth for others in my native country, 
and I have used the gifts and wisdom that they gave me as the 
seed of success in my continuous journey in life. I want to 
thank America for giving me this opportunity. It has been a 
long journey filled with many challenges. I have been 
strengthened by those experiences in life which have made me 
stronger and wiser. I dedicate myself with passion to achieve 
my goals so I am able to contribute back to our society. As a 
leader in my community, I want to plant the seed of success 
among others so they can also become one day in a small 
business like me.
    I am proud to be a small business owner of Condortech, 
which started in 1988 in the basement of my place, just like 
many other entrepreneurs. It was hard work in starting my 
business. I found myself many times struggling to make payroll 
and to pay my bills. As my enterprise started growing and 
gaining more experience, we hired more people and delivered 
more creativity, innovation, technology, and education to our 
customers in security and law enforcement.
    Condortech provides electronic tools, such as access 
control, CCTV, intrusion detection, and Biometrics, to protect 
government and private facilities in America. We are looking to 
expand our business into new markets, and after the 9/11 
attacks, we believe that others can benefit from our expertise 
and services. My staff also gets involved in community-related 
activities and initiatives by providing them logistics and also 
financial support.
    The importance of the small business is that it is a 
component of the success in America. They create opportunities 
and bring balance to democracy. Small business provides more 
than 50 percent of the national wealth and 75 percent of all of 
the jobs in America. Small business brings innovation, new 
overseas markets, and prepares its employees to be multi-
taskers. These are the tools that are important for the new 
millennium, since we are facing new challenges in the global 
economy: terrorism and many other challenges out there.
    The electronic security industry that I come from is just a 
young industry, 25 years old. Ninety-five percent of these 
businesses are a small business like me. The wisdom that is 
generated through our experience is basically there are many 
people like me, and we believe that this industry basically 
must be performed by a small business like myself.
    I don't want to get to bore you anymore with all of the 
stuff, the statistics, that you already read through it. I am 
going to just pass to page number four, which is the problem.
    Condortech Services is now, more than ever, at risk of 
losing some of our existing contracts. Here are some examples 
of recent bundled contracts. The FDIC recently sent out a 
request for proposal suited for a large business to provide 
security services nationwide. TSA, the same way, awarded a 
major contract to another defense contractor, who had no 
experience in security. The U.S. Department of Justice, 
Executive Office of U.S. Attorneys, did the same thing. Once 
again, people that have no expertise in this field are doing 
it. Other government initiatives are also creating more bundled 
contracts, and as a result, not allowing us to compete fairly 
or simply not even allowing us the opportunity to even bid on 
the projects. I even see new players coming from other 
industries, like defense and automobile industries, which never 
offered security services prior to 9/11, now attracted by the 
new security, which I call the new ``security'' economy.
    Condortech's marketing efforts to federal agencies go 
through a challenging road full of obstacles, and we wait for 
weeks, months, or sometimes indefinitely, to meet with the 
contracting officer or the project manager to make a 
presentation of our services. That is one of the biggest 
challenges, just to get to find out that the project was 
contract bundled.
    Mr. Chairman, thank you again for the opportunity to 
express my views on the current problems with contract 
bundling. I think I still have some time. I want to create 
solutions here. When we create----.
    Chairman Schrock. You came here with solutions? You are 
probably in the wrong city.
    [Laughter.]
    Mr. Lozano. I am very optimistic, and I think the seed of 
that I am dropping here can be positive. I don't see here many 
businessmen, although we are deciding the fate of businessmen 
in here. I think if we create an oversight committee composed 
of the small businesses, institutions, that will oversee all of 
this process--I am not saying that contract bundling is bad, 
after all. It needs some re-engineering. It needs to be 
monitored. Thank you.
    [Mr. Lozano's statement may be found in the appendix.]
    Chairman Schrock. Thank you very much. Before I ask 
questions, I want to make sure I understand what you said. You 
said that the new TSA, the Transportation Security 
Administration, just awarded a major contract to a company that 
had no security experience.
    Mr. Lozano. It was a defense contract, yes, to a defense 
contractor.
    Chairman Schrock. That had no security experience.
    Mr. Lozano. Not the experience that we have.
    Chairman Schrock. Okay. I am going to ask both of you, were 
you both here for the earlier panel?
    Mr. Lozano. Yes.
    Chairman Schrock. I am going to ask each of you questions. 
What do you see as the largest, long-term effect if this 
contract-bundling trend continues for small businesses?
    Mr. Lozano. The impact is going to be, as I said, having to 
close the door, especially in security, and for us not to be 
able to provide the excellent services that we provide right 
now to the Joint Chiefs of Staff. If they trust us to do their 
security, why not other agencies?
    Chairman Schrock. David?
    Mr. Sterling. There are various areas where contract 
bundling is impacting. Some of it is obvious; some of it is not 
as obvious. Everyone understands that when you bundle 
contracts, you are going to hurt the number of contractors as a 
whole, and you are going to hurt the development of the trades. 
We have even acknowledged the fact that you are going to have 
multiple layering of overheads and profits on projects because 
when the giant contractors turn around and sub to the next 
tier, you are adding more and more tiers to it.
    What is not recognized sometimes is the fact that even 
quality control is affected. The government, I think, if I 
understand correctly, is going to contract bundling with the 
understanding that their budgets are being slashed left and 
right. They want to cut their administrative dollars. So they 
say it is much easier to manage a single, $50 million contract 
than five $10 million contracts. There is no doubt about that. 
But they also cannot offer the quality-assurance side when they 
cut the number of bodies, so that you are going to have more 
latent defects, and you are not going to have the same quality 
that you used to have.
    You also have, with minority businesses, with small 
businesses, you have the management level much closer to the 
work force, so the oversight on the quality is much greater, 
obviously, than if you have a company that does billions of 
dollars a year.
    Chairman Schrock. You both heard what the representatives 
from the government agencies said, obviously. What do you think 
of what they said?
    Mr. Sterling. Sir, I am not a professional politician.
    Chairman Schrock. You are not under oath, David, but, 
please.
    Mr. Sterling. I had a hard time hearing an answer. 
Questions were asked, and I heard, well, we have this policy 
set up, or we have that policy set up, but when, as an example, 
Mr. Bartlett asked, how do you stop the pass-through contracts 
with minorities, I didn't hear any real answer.
    At one time, it used to be, I believe, that minority 
businesses, 8[a] contracts, were to perform 20 percent of the 
labor themselves, not just 20 percent of the contract and get 
it through vendors or get it through pass-through, and that 
doesn't seem to be the way it is anymore.
    I think there has been a fast rush. The government moves 
slowly to open the door, but once that door is opened, it is 
like a floodgate, and the contracting community is not ready 
for what it envisions as the great answer, and I think that it 
is shortsighted. I don't think there is anybody in the 
government that is doing anything that they shouldn't be doing. 
I don't think that there is anybody malicious. I think it is 
just the system needs some overhauling. It needs to slowed. The 
process needs to be slowed down.
    Chairman Schrock. Mr. Lozano?
    Mr. Lozano. I agree with that. There should be a re-
engineering in the contract bundling and also more 
understanding about what a small business goes through. Someone 
said here, I think, training is important, and somebody else 
said--I think the lady from Energy said--that we should get 
involvement of the nonprofit, you know, businesses that are 
totally in favor of small business being involved in this whole 
process as a solution. I do agree with that.
    I want to sound very positive. I know they are doing their 
job to do this positively for us, but I think also they are 
overwhelmed with the facts. Being constructive about what they 
do is basically understanding more what we go through. That is 
why I stated how I made this business to you.
    Chairman Schrock. Dave, you stated that the main barrier to 
bidding on contracts is the bonding capacity. Explain this and 
how it impacts small business, please.
    Mr. Sterling. Certainly. The federal contracts for the 
construction side require a bid bond, a bid guarantee, if you 
will, and that bonding capacity is set by the bonding industry 
based on cash you have on hand, experience--size of your 
company, overall. So the larger the company is, the larger the 
bonding capacity.
    If you have a small business that does $10 million, $20 
million a year in work, and you have another company that does 
$300 million, once you set the bar and put out a contract for a 
$50 million contract, obviously, the small business can't get 
the bond, so they can't bid on the project.
    Chairman Schrock. What is the bond? I should know. What is 
the cost of a $50 million bond for somebody like you?
    Mr. Sterling. It depends on the rating of the contractor. 
It can be anywhere from .6 percent on up to 4 percent, 
depending on how the company is rated. So the government is 
paying that in the contract ostensibly to protect them from a 
contractor bidding on a project and then pulling out.
    Chairman Schrock. A lot of money, in other words.
    Mr. Sterling. Yes.
    Chairman Schrock. Mr. Gonzalez.
    Mr. Gonzalez. Thank you, Mr. Chairman, and to both 
witnesses, thank you very much for sharing your experiences, 
and the truth is, we do hear them back in our individual 
districts, as you heard me already explain to the previous 
witnesses. But I think the chairman already pointed out, you 
were here during the testimony by the previous panel, and they 
seemed to have their policy down. They know how to implement 
it. They know how to enforce it. None have met their goals, but 
maybe those goals are unrealistic and such, which I am always 
willing to hear, but I think that they have missed it by such a 
percentage that it wouldn't matter. If they weren't realistic, 
and we lowered them, it is still a dismal record.
    Who goes to bat for you back in your districts? In other 
words, you know, in San Antonio we have got a great SBA office, 
and I am sure that you do, too, but when you feel that your 
voice is not being heard, that you are being overlooked, that 
the conditions are being placed into contracts to exclude you, 
in essence, not to allow you to compete, who do you go to? Of 
course, I always say, go to your congressman, but other than 
your congressman, do you go to your SBA people, Mr. Sterling?
    Mr. Sterling. We have not gone to the SBA. We have gone to 
Congressman Schrock. It is difficult, to be honest. If you file 
a protest with the GAO and have a stay of award, it is very 
costly to follow through, or if you go to the Armed Services 
Board of Contract Appeals, it is timely and takes a lot of 
money. And, to be honest, there is certainly not the threat on 
the part of the government. There is nothing overt, but there 
is always a concern on the part of the contractor that if you 
poke them in the eye, then you are going to pay the price in 
inspections, and you will never get off the next project.
    So it took a lot of decision-making, a lot of meetings on 
our part, to be this vocal about contract bundling, and it came 
about mostly with the trust in Congressman Schrock.
    Mr. Gonzalez. Mr. Lozano, who helps you?
    Mr. Lozano. A small business, as I am, it is just a 
challenge for me to even having to find the time to be here. 
You see, the time constraints that you have in trying to move 
from one contract that you think you are going to lose it; you 
sometimes have to think of whether is it worth it for you. 
Maybe I should move on to the next one.
    I did have one time an intervention from Congress into 
something that really hurts a lot, which was a project in 
Washington, D.C. here. I was amazed that this agency was 
bringing in people from North Carolina and South Carolina to 
perform the job that we could have even done it here locally. 
They wouldn't even invite us.
    You know, it was really something emotional, but I wanted 
to stay positive and try to send basically a message, and I 
wrote my congressman, and I think they did an inquiry about it, 
but the follow-up was just, to me, putting more energy in it. 
It wouldn't just be dedicating my time to something where it 
probably was going to be a lot of waste of my time, so I had to 
move on to do my business as usual.
    But let me just tell you about that, too. There was a 
process in one of the 2002 issues that they had to come back. 
The agency came back to us anyway. It was one of those large 
contracts where they gave this through one of those deals that 
they had, but we ended up assisting them. So you can tell how 
sometimes bad decisions are made.
    Overall, I think we have to learn from our lessons. America 
is a great nation. Contract bundling has been a journey that we 
have never been into. Contracting officers have got to learn 
more about it, and we just have to build on the mistakes that 
are made right now. They are sacrificing us right now. For 
every contract bundle that they give, we also lose jobs, you 
know. We should be booming right now in our business, within 
security, but we are not.
    Mr. Gonzalez. Well, I have small businessmen and women in 
San Antonio that claim that they have been told informally by 
procurement officers that they understand the requirements, 
they understand the mandates, but that they are not going to 
comply, and it is really just that simple. You may not have the 
sensitivity or whatever.
    Let us say you have a bid, you have a proposal, and you 
think you have not been treated justly. I am not talking about 
a formal protest or anything like that. Is there anything of an 
informal nature that you go to the SBA just so you can track 
what is going on, because I don't know how they track them, to 
be honest with you? Is there anything like that? How does SBA 
know, after you have jumped through all of the hoops, met all 
of the conditions, and you qualify, that you are not really 
being considered seriously?
    Mr. Lozano. I think you hit on a really important problem, 
and that is tracking it. Businessmen are so in tune to 
performance and to getting the job done, that they tend to have 
the attitude of, ``This one didn't go my way; I will put my 
attention to the next project.'' And so I would have liked to 
have come here with a lot of examples of where we were 
specifically impacted, and there are ones that are in my mind 
that I know.
    I tried to form a joint venture at one time, and I was 
told, Your joint-venture team is new, so it is untested, so you 
don't meet the qualification to bid, and that type of thing 
that goes on, but did not write it down so that, at a later 
date, I would be able to track it. And I think that some of the 
problem that the Congress is having now is you are trying to 
pull up information that just isn't in a data file.
    Mr. Gonzalez. Mr. Lozano?
    Mr. Lozano. I want to tell you something. We are busy 
enough, just moving from job to job, and it is sometimes hard 
to, as I said before, getting a hold of the contracting 
officer. I think I could walk into the White House many more 
times than I can do with them. So trying to focus myself and 
also looking for SBA help, at that time, I think it is just my 
energies are gone. I think I did outreach to some of them. They 
did assist me, and I also want to thank them for, you know, 
trying to probably give me some guidance about it, but not to 
the level that I would like to see it.
    Mr. Gonzalez. Thank you very much.
    Chairman Schrock. Let me make a comment, Mr. Gonzalez. It 
seems to me, based on the comments Mr. Sterling and Mr. Lozano 
just made, if they lose one contract, they have to move on to 
the next bidding war just to survive, and I think the agencies 
who turn them down and pay little attention to them know that, 
and they know they don't have the time to come after them, and 
I think that is why it is important for people like them to 
come here so we can poke at them. This Committee does a pretty 
good job of poking, and I can assure you that the chairman and 
the ranking member of the full Committee are good pokers, I can 
assure you, and we don't want this to stop.
    Mr. Gonzalez. Mr. Chairman, I know, all of the members, if 
they were here, would feel the same as I do. As much as I would 
like to get the heads of these offices and such up here to give 
me all of the statistics and such, I am really more interested 
in a particular procurement officer at my Air Force or Army 
base that is not treating the small business person justly 
because they are identifiable. They are the first person, and 
the only person, that everything depends on. And I may go to 
the commander or whatever eventually, and then from there you 
go to the department and so on, and I know that they say it is 
top down. I really believe you go with that procurement 
officer, and if you don't have that kind of culture or 
environment and someone who is ready to attempt to comply in 
good faith, it is never going to work.
    To take these lessons back home, of course, and, of course, 
I will meet with my SBA people and say, the witnesses there, 
and I am just wondering about San Antonio, but I already know 
that the small business person in San Antonio is similarly 
situated as you are. There is really no one to turn to, and you 
are right. You have to go to that next contract. Who is going 
to pay the bills?
    Again, thank you so much for your presence.
    Chairman Schrock. Let me ask you--Mr. Lozano.
    Mr. Lozano. That is why I want to tell you again, the 
solution will be to get us involved. After all, we are the ones 
who pay the taxes. We are the ones who are making the economy 
grow here. We are the ones who are bringing the innovation. Why 
not form an oversight committee, get us involved in this 
practice to monitor, to audit, and to do the re-engineering of 
all of this? I think that would be positive for everybody.
    Chairman Schrock. And not to put words in your mouth, but 
you two are the ones that are being impacted, you know, of some 
of the people downtown who don't seem to pay attention to you 
all.
    Mr. Lozano. I will be volunteering for this.
    Chairman Schrock. Let me ask you both, what do you see the 
main reason the government increasingly continues to do 
bundling? What do you think is the reason?
    Mr. Lozano. As I understand, many years ago, the government 
lost a big size of its employees; and, therefore, I guess, 
contracting officers just kind of had to deal with the problem, 
all of these millions of calls they get on a daily basis, I 
guess, from different vendors. I guess one of the solutions was 
for them to, okay, let us contract bundle this. By human 
nature, I guess, we kind of get sometimes numb about certain 
situations out there.
    The government sized down, maybe reduced the staffing in 
every part of the agency, but by the same token, you know, 
contracts started also going down. I am not saying that, you 
know, that was wrong, but it was the first time that we were 
going into that road; we had never been in there. So it has 
been what, 10 years almost, 12 years? Let us review it. Let us 
go over it again, and let us learn from those mistakes, build 
from those mistakes----.
    Chairman Schrock. What I hear you saying is there are other 
people in the agency that they could have released rather than 
the people who did the contracting business.
    Mr. Lozano. I am sorry, but I didn't understand.
    Chairman Schrock. You were saying that when there is a down 
sizing in an agency, they get rid of the contracting people 
rather than get rid of some of the others in the same agency 
and keep the contracting people on board.
    Mr. Lozano. Right. So the impact, I guess, was, okay, we 
can't handle that many contracts now.
    Chairman Schrock. Yes.
    Mr. Lozano. Let us just give XYZ Company just to do this 
contract, you know, bundle up three or four or five. But the 
fact is for every $100, we are losing $33, you know, for small 
business.
    Chairman Schrock. David, do you agree?
    Mr. Sterling. Yes, Congressman, I would. I don't have the 
great overview of what is going on in the government, but I do 
know locally that there has been a great reduction in the 
number of contracting personnel and in the field inspections 
personnel, and there continues to be. We are told regularly 
that there are more early outs planned for the contracting 
community. I believe that it is probably in response to that 
they have decided the only way to do the same amount of volume 
with less bodies is to add it through bundling.
    Chairman Schrock. Well, believe me, we thank you for coming 
here. This is an important subject. The reason we wanted to 
have this hearing is because it had been brought to our 
attention and mine, in particular, at home, as something that 
we really needed to study more, and I think Mr. Gonzalez and I 
both agree that something has to be done because small business 
is the backbone of this country.
    You know, it is not the mega-corporations; it really is the 
small person in all of the towns across America that make the 
economy run and run well, and if we start eroding that, we are 
going to have a big problem in this country, and we need to 
look out for folks like you. And, Dave, you said that you don't 
understand all of the intricacies of the government. You 
shouldn't have to. That is what folks like us are elected to 
do, to help you through that mish-mash, and that is something 
we would like to do, and we will continue to do that.
    It is big. It is like grabbing air, you know. I guess I 
thought I was going to come up here, and in a couple of years, 
I was going to solve all of the problems. Brother, you know. It 
just doesn't happen that way. But we are going to keep at this 
and keep at this and keep at this until we make some headway, 
until we have some rational decisions that are made and some 
rational policy that everybody can live with so everybody can 
survive. All I want is a level playing field, and I think that 
is all you are asking for. You just want to be treated fairly, 
and, obviously, that is not the case with you all.
    So, again, we thank you very much for your testimony, 
coming from Annandale and Virginia Beach, and we may be calling 
you all again. Thank you very much.
    Mr. Sterling. Thank you.
    Mr. Lozano. Thank you.
    Chairman Schrock. The Committee is adjourned.
    [Whereupon, at 4:22 p.m., the Subcommittee was adjourned.]

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