[Senate Hearing 108-409]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-409


 
      SMALL BUSINESSES CONTINUE TO LOSE FEDERAL JOBS BY THE BUNDLE

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

                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                          AND ENTREPRENEURSHIP
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 18, 2003

                               __________

    Printed for the Committee on Small Business and Entrepreneurship




91-188              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                   OLYMPIA J. SNOWE, of Maine, Chair
CHRISTOPHER BOND, Missouri           JOHN F. KERRY, Massachusetts
CONRAD BURNS, Montana                CARL LEVIN, Michigan
ROBERT F. BENNETT, Utah              TOM HARKIN, Iowa
MICHAEL ENZI, Wyoming                JOSEPH I. LIEBERMAN, Connecticut
PETER G. FITZGERALD, Illinois        MARY LANDRIEU, Louisiana
MIKE CRAPO, Idaho                    JOHN EDWARDS, North Carolina
GEORGE ALLEN, Virginia               MARIA CANTWELL, Washington
JOHN ENSIGN, Nevada                  EVAN BAYH, Indiana
NORMAN COLEMAN, Minnesota            MARK PRYOR, Arkansas

            Mark E. Warren, Staff Director and Chief Counsel
     Patricia R. Forbes Democratic Staff Director and Chief Counsel


                            C O N T E N T S

                              ----------                              

                                                                   Page
Snowe, The Honorable Olympia J., Chair, Committee on Small 
  Business and Entrepreneurship and a United States Senator from 
  Maine..........................................................     1

                           Witness Testimony

Barreto, The Honorable Hector V., Administrator, U.S. Small 
  Business 
  Administration, Washington, D.C................................     3
Styles, The Honorable Angela B., Administrator for Federal 
  Procurement Policy, Office of Management and Budget, 
  Washington, D.C................................................    10
Lee, Diedre, Director, Office of Acquisition, Department of 
  Defense, 
  Washington, D.C................................................    37
Cooper, David E., Director, Acquisition and Sourcing Management, 
  U.S. 
  General Accounting Office, Washington, D.C.....................    48
Adolphe, Eric, Chief Executive Officer, OPTIMUS Corporation, 
  Silver Spring, Maryland........................................    63
Murphy, Paul, President, Eagle Eye Publishers, Fairfax, Virginia.    67
Robinson, Michael, Defense Logistics Manager, Massachusetts 
  Manufacturing Extension Partnership, Amherst, Massachusetts....    76
Kuc, Carol, representing Women Impacting Public Policy, Oklahoma 
  City, Oklahoma.................................................    80

          Alphabetical Listing and Appendix Material Submitted

Adolphe, Eric
    Prepared opening statement...................................    65
Barreto, Hector
    Prepared opening statement...................................     6
    Answers to Committee Questions...............................    99
Cooper, David E.
    Prepared opening statement...................................    49
    Answers to Committee Questions...............................   106
Kuc, Carol
    Prepared opening statement...................................    82
Lee, Deidre
    Prepared opening statement...................................    39
    Answers to Committee Questions...............................   109
Murphy, Paul
    Prepared opening statement...................................    69
Robinson, Michael
    Prepared opening statement...................................    78
    Answers to Committee Questions...............................   117
Styles, Angela
    Prepared opening statement...................................    13
    Answers to Committee Questions...............................   119
                        Comments for the Record

                                                                   Page
Black, Ed, President and CEO, Computer & Communications Industry 
  Association, Washington, D.C., letter..........................   131
Bond, The Honorable Christopher S., a United States Senator from 
  Missouri, prepared statement...................................   124
Connolly, Nancy, President, Lasertone Corporation, Littleton, MA, 
  letter.........................................................   133
Danner, Dan, Senior Vice President of Public Policy, National 
  Federation of Independent Business, Washington, D.C., letter...   134
Denlinger, Stephen, CEO, Latin American Management Association, 
  Washington D.C., letter........................................   136
Kerry, The Honorable John F., Ranking Member, Committee on Small 
  Business and Entrepreneurship, and a United States Senator from 
  Massachusetts, prepared statement..............................   127
Neese, Terry, President, Women Impacting Public Policy, Oklahoma 
  City, OK, letter...............................................   137
Robinson, Anthony W., President, Minority Business Enterprise 
  Legal 
  Defense and Education Fund, Inc., Washington, D.C., letter.....   139


      SMALL BUSINESSES CONTINUE TO LOSE FEDERAL JOBS BY THE BUNDLE

                              ----------                              


                        TUESDAY, MARCH 18, 2003

                              United States Senate,
          Committee on Small Business and Entrepreneurship,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 9:30 a.m., in 
Room 428A, Russell Senate Office Building, Hon. Olympia Snowe, 
Chair of the Committee, presiding.
    Present: Senator Snowe.

        OPENING STATEMENT OF HON. OLYMPIA SNOWE, CHAIR, 
  SENATE COMMITTEE ON SMALL BUSINESS, A UNITED STATES SENATOR 
                           FROM MAINE

    Chair Snowe. The hearing will come to order. Good morning 
and welcome to today's hearing, which I have entitled ``Small 
Businesses Continue to Lose Federal Jobs by the Bundle.'' I 
especially want to thank all of our witnesses who are here with 
us today--the SBA Administrator Hector Barreto, the OFPP 
Administrator Angela Styles, and DOD Defense Procurement 
Director Deidre Lee. I also want to thank Mr. Cooper from GAO 
for being here today and all the small business owners who have 
taken valuable time away from their companies to make 
invaluable contributions to this hearing, as well as the expert 
witnesses who I am sure will add extremely helpful information 
and perspectives to assist us in more clearly understanding the 
scope and nature of this problem.
    We are here because despite the fact that Congress and the 
Administration have focused over the past several years on 
concrete measures and legislation to increase small business 
access to federal procurement contracts, we have instead seen a 
disturbing trend in the opposite direction. The bottom line is 
that America's small businesses are being eroded by the 
practice of so-called bundling by federal agencies when they 
put contracts out for bid. What I hope to accomplish here today 
is to focus greater attention on the contract bundling issue, 
to examine the Administration's actions to address contract 
bundling, and to identify positive, constructive change that 
will ensure that the Federal Government continues to provide 
contracting opportunities for our small businesses and address 
the obstacles that remain.
    Again let us remember these goals are entirely consistent 
with the recent objectives of Congress and the Administration. 
What appears not to be consistent, however, is how these goals 
fit with what may appear to be a competing goal--the legitimate 
efforts to make government cost less and operate more 
efficiently. Our challenge then is to reconcile these two 
policy objectives. I believe it can be done and must be done if 
we are to keep the engines that drive the economy, America's 
small businesses, vibrant, vital and viable.
    We have a Federal Government that awarded close to $235 
billion in contracts in fiscal year 2001 to procure the 
products it requires to run its agencies--to support the 
defense of our nation, to carry out the myriad functions with 
which it has been charged. With America's small businesses 
already producing up to 75 percent of our nation's net new 
jobs, can there be any serious question that we should create 
an environment in which small businesses can compete fairly for 
government contracts and be at the forefront of meeting the 
Federal Government's day-to-day needs for goods and services. 
Yet small businesses have received less than their fair share. 
While the statutory government-wide goal is 23 percent in 
fiscal year 2001, small businesses received a little more than 
21 percent.
    Why has this occurred? While in the years following 
procurement reform, federal agencies that have come under 
increased pressure to spend these dollars efficiently have 
consolidated or bundled contracts to save time and money 
because the truth is it's much simpler to call a single vendor 
to meet multiple agency needs, rather than contract with 
multiple vendors, which takes time and may cost more money.
    The result, unfortunately, has been that small businesses 
continue to lose federal contract jobs by the bundle as a 
result of contract bundling, and the impact on small business 
is anything but small. For every hundred bundled contract there 
is a decrease of 106 contracts to small businesses. For every 
additional $100 awarded in bundled contracts there is a 
decrease of $33 in contracts to small businesses.
    So with $109 billion in bundled contracts in fiscal year 
2001, small businesses lost out on $13 billion. Indeed, looking 
at the last 10 years, contract bundling has forced more than 50 
percent of small businesses out of the federal marketplace 
based on cumulative data obtained from the Federal Procurement 
Data Center.
    I am tremendously concerned about this detrimental impact 
and as I am sure my colleagues would also say, this is an issue 
that truly hits home. These are not nameless, faceless 
entities. In fact, I recently learned that one of my 
constituents has unfortunately become an expert in this 
situation. Treadstone 71, a small technology company located in 
Scarborough, Maine, would like to provide the Federal 
Government with risk assessment and information security 
solutions. This is a rapidly growing area of need and as usual, 
small businesses are well poised to take advantage in terms of 
their tradition of innovation and ability to rapidly respond to 
shifting market needs.
    But while Treadstone 71 has the credentials and the 
expertise to satisfy certain small contracts, the Federal 
Government has regrettably bundled these smaller contracts into 
larger awards that only Treadstone's largest competitors have 
the resources to satisfy. And to make matters worse, the 
company has been repeatedly shut out of related subcontracting 
opportunities.
    If small businesses create the majority of new jobs in 
America, and they do, and they account for half the output of 
the economy, which they also do, they clearly deserve every 
possible fair chance to compete for the business of the 
nation's largest consumer, the Federal Government. That is why 
I was so pleased when the President brought national attention 
to this issue last March when he said, ``Wherever possible, we 
are going to insist we break down large federal contracts so 
that small business owners have a fair chance at federal 
contracting.'' Since then, I know the Administration has worked 
very hard to put together a plan that will help small business 
access federal contracting opportunities.
    But from my extensive review of this critical issue for 
small business, we can and must do more to ensure they have 
access to the federal marketplace while at the same time 
ensuring fiscal responsibility in government. And one of the 
programs I will be interested to explore further today is the 
Administration's e-government initiative. This is part of the 
President's management agenda to make the government operate 
more efficiently and effectively by using best practices among 
government procuring offices to purchase goods and services 
faster and cheaper.
    In the final analysis this really is an issue of striking 
the right balance. Together I believe we can find the solution 
and find the balance between a small business commitment and 
fiscal responsibility. And again I look forward to learning 
more about how we can achieve that goal from our witnesses here 
today.
    I am delighted that we have with us today the Small 
Business Administrator Hector Barreto, who has been on the 
front lines for small businesses, has been part of the small 
business community before assuming his position as SBA 
Administrator and I know he has had a long history in the 
corporate and small business sectors of our economy and he is 
obviously a passionate advocate for the small business 
community. So I am delighted that you are here today, 
Administrator Barreto.
    And Ms. Styles, we look forward to hearing from you, the 
Administrator of the Office of Federal Procurement Policy in 
the Office of Management and Budget. She will be followed by 
Deidre Lee, director of the Office of Acquisition, the 
Department of Defense. And we also will conclude this panel 
with Mr. David Cooper, the Director of Acquisition and Sourcing 
Management at the General Accounting Office. We hope these 
witnesses give additional insights in terms of how we can 
proceed and develop final solutions that can address some of 
the issues that have arisen as a result of contract bundling.
    So I will proceed with the Administrator. You can all 
summarize your statements and we will include the full text in 
the record of the Committee.
    Mr. Barreto.

STATEMENT OF HON. HECTOR V. BARRETO, ADMINISTRATOR, U.S. SMALL 
                    BUSINESS ADMINISTRATION

    Mr. Barreto. Good morning, Chairwoman Snowe. Thank you very 
much for inviting me to discuss how contract bundling is 
affecting the ability of small businesses to compete for 
federal contracts.
    As you know, this has been an area of concern and action 
for our President, George W. Bush, since he took office and 
there is a good reason why. When small businesses are able to 
compete for government contracts it can change lives, both 
those of the business owner and the people that that business 
employs. A good example is Dr. Adam Macias, a service-disabled 
veteran who is president of a company called Asamath, 
incorporated in Morgantown, West Virginia. SBA's procurement 
center representatives worked with him to acquire government 
contracts and his company went from one that could barely cover 
its electric and phone bills to one that now does $7 million in 
business with federal agencies and prime contractors each year. 
His business went from employing 12 people to employing over 
100 people.
    Unfortunately, contract bundling hinders opportunities like 
the one that Dr. Macias maximized. Contract reforms implemented 
in the mid-1990s, such as multiple award contracts have 
exacerbated an already difficult situation for small 
businesses. Orders under these contracts are not subject to 
review for contract bundling and small business participation.
    The consequences of bundling are serious. Bundling federal 
contracts puts small businesses at a disadvantage because they 
are generally unable to supply all of the requirements in the 
bundled contract. As you said, according to the SBA's Office of 
Advocacy, for every 100 bundled contracts 106 individual 
contracts are no longer available to small firms. And for every 
$100 awarded on a bundled contract, there is a $33 decrease to 
small businesses.
    These acquisition reforms that encourage more bundling have 
led to the reduction in the number of existing and potential 
firms available to the government and therefore to a reduction 
in the amount of contracts awarded to small firms. Data 
included in my submitted testimony shows that over the course 
of the past decade significantly fewer small businesses are 
receiving Federal Government contracts. We believe that 
contract reforms are a significant part of the reason, because 
agencies are using these various types of multiple award 
contracts which reduce new contract opportunities for small 
businesses.
    When small businesses are excluded from federal 
opportunities, our country suffers. Small business 
participation is necessary for innovation and cost-savings, not 
to mention the benefits to our economy when small businesses 
are able to grow and create more jobs. All of this is why 
President Bush's small business agenda, which he rolled out 
last March, included several proposals to ensure full and open 
competition for Federal Government contracts.
    Through leadership, training and accountability, we believe 
this Administration is making significant headway in reducing 
bundling and therefore increasing opportunities for small 
firms. Avoiding bundling whenever possible, ensuring that 
government contracts are open to all small businesses that can 
supply the government needs, and streamlining the appeals 
process for small businesses that contract with the Federal 
Government are all essential components as we make sure that 
small businesses get their fair share of federal contracts.
    The SBA was honored to participate with OMB in developing 
the October 2002 report to the President entitled ``Contract 
Bundling: a Strategy for Increasing Federal Contracting 
Opportunities for Small Business.'' The strategy outlined nine 
specific steps to eliminate unnecessary contract bundling and 
mitigate the effects of necessary contract bundling. As a 
result, SBA and the Federal Acquisition Regulatory Council 
published proposed changes to their respective regulations in 
January of this year.
    The details of SBA's proposed regulations are included in 
my submitted testimony. They focus on holding agencies 
accountable and closing the regulatory loopholes that have 
often resulted in lost opportunities for small businesses. 
Again leadership and accountability will make the difference 
for this nation's small businesses.
    By implementing these new regulations and holding agencies 
accountable, a contracting environment will be created where 
small business owners will have the maximum opportunity to 
successfully compete for federal contracting and 
subcontracting. The SBA's current activity that seeks to ensure 
contract opportunities for small firms includes the work of our 
procurement center representatives or PCRs and a new and 
already quite successful matchmaking program that brings 
contracting opportunities to localities all over the country. 
The SBA also plans to establish the Small Business Procurement 
Advisory Council and reinstitute its Surveillance Review 
Program. Both existing and planned programs are described in 
more detail in my submitted testimony but I would be happy to 
discuss either one of these in more detail today if you have 
any questions about them.
    The SBA also recognizes that contract bundling is but one 
piece of a larger puzzle to provide small businesses with what 
they want--more business. In addition to facilitating the 
highly successful matchmaking events just described, increasing 
access to federal contracting, and marketing the opportunity of 
federal contracting to small businesses beyond the Washington 
Beltway, the SBA will also make it easier for small businesses 
to learn how to do business with the Federal Government with 
on-line procurement academies.
    In undertaking all of these actions, the SBA is 
demonstrating its commitment to the President's small business 
agenda and its focus on bringing federal procurement 
opportunities to America's small business. Since small 
businesses are the engines that drive the economy, increased 
opportunities for these firms will result in savings to the 
taxpayers, a stronger economy, and a stronger America.
    This concludes my remarks, Chair Snowe, and I would be 
happy to answer any of your questions. Thank you.
    [The prepared statement of Mr. Barreto follows:]

    [GRAPHIC] [TIFF OMITTED] T1188.001
    
    [GRAPHIC] [TIFF OMITTED] T1188.002
    
    [GRAPHIC] [TIFF OMITTED] T1188.003
    
    [GRAPHIC] [TIFF OMITTED] T1188.004
    
    Chair Snowe. Thank you very much, Mr. Barreto.
    Ms. Styles.

   STATEMENT OF ANGELA B. STYLES, ADMINISTRATOR FOR FEDERAL 
      PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET

    Ms. Styles. Chair Snowe, I am pleased to be here today to 
discuss contract bundling.
    This Administration is working hard to create an 
environment where small businesses can flourish. For small 
businesses the primary issue is access to the federal 
marketplace and the opportunity to compete. And for us as 
policy-makers, the issue is a dramatically reduced contractor 
base and mounting lost opportunity costs of choosing among 
fewer firms with fewer ideas and innovations to deliver 
products and services at lower prices.
    On March 19th of last year the President unveiled a small 
business agenda that made several proposals to increase the 
access of small businesses to federal contracting 
opportunities. The agenda called upon the Office of Management 
and Budget to develop a strategy for unbundling federal 
contracts. My office formed and chaired an interagency working 
group to develop the strategy requested by the President.
    In June, we held a public meeting to give interested 
parties, especially small businesses, an opportunity to express 
their views on this important subject. Taking those views into 
consideration, I submitted a strategy to the President in 
October 2002. A copy of this strategy entitled ``Contract 
Bundling: A Strategy for Increasing Federal Opportunities for 
Small Businesses,'' is attached to my testimony.
    We found that although contract bundling can serve a useful 
purpose, the negative effects of contract bundling over the 
past 10 years cannot be underestimated. Not only are 
substantially fewer small businesses receiving federal 
contracts, but the Federal Government is suffering from a 
smaller supplier base. As we have broadened the scope of 
contract requirements into fewer and fewer contract vehicles 
over the past decade, the pool of small business contractors 
receiving new contract awards has declined from 26,000 in 1991 
to about 11,600 in 2000. When small businesses are excluded 
from federal opportunities through contract bundling, our 
agencies, small businesses, and the taxpayers lose.
    The strategy outlines nine specific actions the 
Administration is taking to eliminate unnecessary contract 
bundling and mitigate the effects of bundling that agencies 
find to be necessary and justified. These nine recommendations 
can be divided into three categories: promoting leadership and 
accountability, closing regulatory loopholes, and mitigating 
the effects of necessary and justified contract bundling.
    In speaking to small businesses throughout the country, it 
has become clear to me that accountability and leadership are 
the keys to making progress. With successful implementation of 
this strategy, we believe that we can reduce a significant 
barrier to entry and in doing so, allow small businesses to 
bring their innovation, creativity, and lower cost to the 
federal marketplace.
    We are holding agencies accountable. We have asked agencies 
to begin reporting on their efforts to reduce contract bundling 
and to mitigate the effects by increasing the overall access of 
small businesses to federal contract opportunities. Through the 
President's Management Council representatives to the 26 major 
departments and agencies, agencies are now reporting on a 
quarterly basis to OMB on actions they are taking to implement 
each of the nine recommendations identified in the strategy.
    The second issue: closing regulatory loopholes. Several 
actions identified in our strategy call for cleaning up 
regulatory loopholes that have allowed certain types of 
contracts and contract actions to escape bundling reviews. My 
office formed and is heading an interagency task force to 
develop regulations to amend both the Federal Acquisition 
Regulation and the Small Business Administration bundling 
regulations to help implement this strategy. The proposed 
regulations were published on time on January 31, 2003.
    In general, these regulations would make clear that 
multiple award contracts and orders under such contracts are 
not exempt from regulatory requirements and procedures designed 
to eliminate contract bundling and mitigate the effects. They 
would also provide more effective agency and small business 
contracting review procedures. Finally, they would require 
agencies to identify alternative strategies that reduce 
bundling and justify decisions not to use those alternatives.
    The third piece of our strategy is mitigating the effects 
of necessary and justified contract bundling. Our report to the 
President identifies actions we are taking to mitigate the 
effects of contract bundling when agencies find it to be 
necessary and justified.
    Specifically, we are counting on agencies to do their part 
to strengthen prime contractor compliance with subcontracting 
plans and facilitate the development of small business teams 
and joint ventures. The proposed regulations would require 
agencies to assess prime contractor compliance with the goals 
identified in their small business contracting plans as part of 
the agency's overall evaluation of a prime contractor's 
performance. Since this past performance information is often 
used as a significant factor in agency decisions to award 
contracts, this regulatory requirement should provide a strong 
incentive for prime contractors to increase subcontracting 
opportunities.
    Our report to the President recognizes that successful 
implementation of these mitigating actions relies more on the 
initiative of the agency than on the issuance of regulations. 
We are counting on agencies to strengthen their oversight of 
contractor efforts to comply with subcontracting plans by 
establishing procedures that designate agency personnel 
responsible for monitoring contractor compliance. We are also 
counting on agencies to train and facilitate early development 
of teams of small business contractors to compete for upcoming 
agency procurements.
    Our office will continue to look for ways to improve the 
subcontracting practice, including ways in which we can 
increase small business access to subcontracting opportunities; 
for example, by providing greater incentive for prime 
contractors to follow through with their subcontracting plans.
    Through my office I look forward to a continued leadership 
role in implementing the President's strategy. I think we can 
make a real difference for small businesses and a real 
difference for the taxpayers.
    Thank you again for having me here today.
    [The prepared statement of Ms. Styles follows:]

    [GRAPHIC] [TIFF OMITTED] T1188.005
    
    [GRAPHIC] [TIFF OMITTED] T1188.006
    
    [GRAPHIC] [TIFF OMITTED] T1188.007
    
    [GRAPHIC] [TIFF OMITTED] T1188.008
    
    [GRAPHIC] [TIFF OMITTED] T1188.009
    
    [GRAPHIC] [TIFF OMITTED] T1188.010
    
    [GRAPHIC] [TIFF OMITTED] T1188.011
    
    [GRAPHIC] [TIFF OMITTED] T1188.012
    
    [GRAPHIC] [TIFF OMITTED] T1188.013
    
    [GRAPHIC] [TIFF OMITTED] T1188.014
    
    [GRAPHIC] [TIFF OMITTED] T1188.015
    
    [GRAPHIC] [TIFF OMITTED] T1188.016
    
    [GRAPHIC] [TIFF OMITTED] T1188.017
    
    [GRAPHIC] [TIFF OMITTED] T1188.018
    
    [GRAPHIC] [TIFF OMITTED] T1188.019
    
    [GRAPHIC] [TIFF OMITTED] T1188.020
    
    [GRAPHIC] [TIFF OMITTED] T1188.021
    
    [GRAPHIC] [TIFF OMITTED] T1188.022
    
    [GRAPHIC] [TIFF OMITTED] T1188.023
    
    [GRAPHIC] [TIFF OMITTED] T1188.024
    
    [GRAPHIC] [TIFF OMITTED] T1188.025
    
    [GRAPHIC] [TIFF OMITTED] T1188.026
    
    [GRAPHIC] [TIFF OMITTED] T1188.027
    
    [GRAPHIC] [TIFF OMITTED] T1188.028
    
    Chair Snowe. Thank you, Ms. Styles.
    Ms. Lee.

   STATEMENT OF DEIDRE LEE, DIRECTOR, OFFICE OF ACQUISITION, 
                     DEPARTMENT OF DEFENSE

    Ms. Lee. Chair Snowe, as you mentioned, small businesses 
are important to our government-wide economy, but small 
businesses are a critical component to the defense industrial 
base. Eighty-two percent of all DOD prime contractors are small 
businesses. Small business prime contractors performing on DOD 
contracts increased to 33,000 in fiscal year 2002 compared to 
24,000 in 2001. The DOD accounted for an unprecedented $59 
billion to small business firms in 2002, with $33 billion going 
to small business prime contractors and $26 billion to small 
business subcontractors, yet that is not enough. There is still 
more to be done.
    The Department is fully committed to fostering small 
business prime contractors, subcontractors and vendors. The 
department fully supports the President's small business agenda 
and his initiative to avoid unnecessary contract bundling.
    The acquisition environment has changed considerably within 
DOD over recent years as a result of increased mission 
requirements, acquisition reform, organizational realignment, 
base closures, downsizing, and competitive sourcing.
    In some instances, DOD combines or restructures mission 
requirements as a means to gain efficiencies or realign 
organizations to meet mission demands. In cases where the 
mission needs are consolidated and small businesses can no 
longer compete, the consolidation is referred to as a bundled 
contract. The Department is committed to avoiding contract 
consolidations that result in bundling unless market research 
and a benefit analysis support that there are measurably 
substantial benefits. In cases where bundling is warranted, the 
Department is committed to ensuring vigorous small business 
participation at the subcontract level.
    There have been numerous reports on the impact of contract 
bundling on small businesses with differing conclusions, and I 
know the GAO is going to talk about some of those today. The 
Office of Federal Procurement Policy issued a report in October 
2002 entitled ``Contract Bundling.'' We have discussed it 
previously here today. And the Department of Defense 
participated in the development of the report and had members 
on the implementation working group that developed the Federal 
Acquisition Regulations and the SBA regulations, which are 
currently out for public comment, with closure on April 1st. 
Once the comments are considered, final rules will be issued 
and the coverage will be effective.
    I would like to briefly discuss five areas that the 
Department sees as key emphasis from these reports. The first 
is, as Ms. Styles mentioned, the emphasis that orders placed 
previously under GSA schedules or other contracts which were 
not in the definition are now an area we must focus on.
    We also must focus on early involvement of the small 
business specialist. We are going to have more small business 
specialists thinking about the acquisitions in the early 
planning stages. We think that will be a considerable boost to 
thinking how small business can be part of the acquisition 
strategy.
    Third, is the case where we have lowered the dollar 
threshold that signifies a bundled contract and what is 
considered a substantial bundle. Also, at the Department when 
people do consider bundling, they are required to come up with 
alternate strategies so we can say how this could be avoided, 
or what could be done differently.
    Fourth, there are several changes for the agency Office of 
Small and Disadvantaged Businesses. First, the SADBU or the 
specialists are going to have a better connection with the 
OSDBUs, as we call them, so that when, in fact, they feel in 
their workplace there are some issues to be discussed, they can 
do that. Also, the agency OSDBU will receive copies of any 
reports on bundling so they are advised in advance and can work 
the issue.
    In addition, as required by the report, Mr. Frank Ramos, 
our Office of Small and Disadvantaged Business representative, 
is going to establish a procedure to conduct periodic reviews 
and assess how small businesses supporting the Department of 
Defense are faring in our activities.
    And fifth, we are going to go ahead and strengthen the 
compliance with the Small Business Subcontracting Plans. Again 
as Ms. Styles mentioned, we do have a rich area for small 
businesses to do subcontracting and we want to make sure that 
is emphasized in the Department of Defense.
    Finally, there is an additional key recommendation of the 
OFPP report that is not implemented in regulation but is vital 
to implementation of the President's initiative. That is the 
accountability of senior agency management for improving 
contracting opportunities for small businesses. The department 
leadership fully supports this recommendation.
    With this in mind, the Department of Defense has prepared a 
supplemental policy letter to our January 17th memo that was 
issued and we will include emphasis on these new areas. In that 
memorandum Mr. Aldridge reminded the program managers and other 
officials responsible for acquisition planning that we must 
ensure small business participation is considered from 
acquisition planning through program execution. A benefit 
analysis guidebook has been prepared and we are educating our 
community on how to use these tools.
    I would like to reaffirm the Department of Defense's 
commitment to small business and its support of the President's 
small business agenda and would be happy to answer any of your 
questions.
    [The prepared statement of Ms. Lee follows:]

    [GRAPHIC] [TIFF OMITTED] T1188.029
    
    [GRAPHIC] [TIFF OMITTED] T1188.030
    
    [GRAPHIC] [TIFF OMITTED] T1188.031
    
    [GRAPHIC] [TIFF OMITTED] T1188.032
    
    [GRAPHIC] [TIFF OMITTED] T1188.033
    
    [GRAPHIC] [TIFF OMITTED] T1188.034
    
    [GRAPHIC] [TIFF OMITTED] T1188.035
    
    [GRAPHIC] [TIFF OMITTED] T1188.036
    
    [GRAPHIC] [TIFF OMITTED] T1188.037
    
    Chair Snowe. Thank you very much, Ms. Lee.
    Mr. Cooper.

    STATEMENT OF DAVID E. COOPER, DIRECTOR, ACQUISITION AND 
      SOURCING MANAGEMENT, U.S. GENERAL ACCOUNTING OFFICE

    Mr. Cooper. Good morning, Madam Chair. Thank you for 
inviting me to participate in today's hearing on the 
Administration's plan to address federal contract bundling 
issues. We believe the plan, if successfully implemented, and 
that is a big if, could be a positive step toward addressing 
long-standing concerns about the effects of contract bundling 
on small businesses.
    Specifically, we are concerned about the measures and 
information that will be used to monitor agencies' efforts to 
achieve the objectives of the plan and to hold senior managers 
accountable for those results. Our concerns stem from long 
experience in trying to look at a number of acquisition reforms 
over the last several years and to make such assessments.
    Unfortunately, all too often when we went to look at 
whether those reforms and initiatives were producing the 
desired outcomes, we were not able to find the measures or the 
information to make that judgment. We believe that without 
reliable measures and information, the Congress and the 
President will not be able to ensure agency accountability for 
improving small business participation in federal procurement.
    Accordingly, we believe it would be wise to establish and 
clearly communicate what measures and information will be 
collected and used to monitor agencies' progress in 
implementing the plan.
    We are also concerned about whether the Small Business 
Administration and agency offices of Small and Disadvantaged 
Business Utilization will be able to meet the added 
responsibilities envisioned by the plan.
    In January of this year, proposed rules to implement the 
plan were published for public comment. The rules establish new 
expectations and expand the responsibilities assigned to those 
offices. We agree that both are key players and that their 
involvement is critical to ensuring successful implementation 
of the Administration's bundling plan. However, based on 
several reports we have issued to this Committee in recent 
times, we are concerned that the added responsibilities will 
further burden staff that is already struggling to accomplish 
their missions. The reports I am referring to are reports we 
have issued on the procurement center representatives and the 
commercial marketing representatives.
    Given our findings in those areas, we recommended that SBA 
strategically assess, evaluate and plan their staff needs, 
including assessing the impact of assigning multiple roles to 
its staff, identifying training needs, and assessing the 
effectiveness of its compliance monitoring efforts. We believe 
that applying a similar strategic planning approach would 
benefit SBA and the agency offices of Small and Disadvantaged 
Business Utilization as they approach the challenge of 
implementing the Administration's plan.
    Madam Chair, that concludes my remarks. I will be glad to 
answer any questions.
    [The prepared statement of Mr. Cooper follows:]

    [GRAPHIC] [TIFF OMITTED] T1188.038
    
    [GRAPHIC] [TIFF OMITTED] T1188.039
    
    [GRAPHIC] [TIFF OMITTED] T1188.040
    
    [GRAPHIC] [TIFF OMITTED] T1188.041
    
    [GRAPHIC] [TIFF OMITTED] T1188.042
    
    Chair Snowe. Thank you very much, Mr. Cooper. We will start 
with some of the issues that you have raised here to the panel, 
because I do think it is important to explore some of the 
recommendations that you are suggesting that ultimately would 
demand accountability and reliability Government-wide.
    I think one of the things that I have learned from all of 
this is that there is a lack of uniformity and a lack of 
consistency, even with the Administration's new approach in the 
nine-point plan, which I certainly want to commend the 
Administration and the President for advancing. I do believe 
that we are going to have systematic problems ultimately from 
agency to agency if we do not have some kind of systematic and 
uniform standard by which we can measure results at the onset 
of the process, not years later.
    So let me start with what Mr. Cooper raised, and I would 
like to ask the panel to address this question. In terms of 
reliability of measurements and standards and accountability, 
how exactly will that come about in this process? Because, Ms. 
Styles, you mentioned the fact that the proposal by your office 
would demand quarterly reporting. As I understand, a majority 
of the agencies have not submitted their quarterly reports that 
are required to be submitted in January. Is that true?
    Ms. Styles. No, we have reports from more than half at this 
point in time.
    Chair Snowe. More than half. But what happened to the 
others?
    Ms. Styles. We are still working with them to get their 
reports.
    Chair Snowe. Well, that is bothersome because that seems to 
be an indication that an agency is not taking this requirement 
seriously.
    Ms. Styles. Right.
    Chair Snowe. So again it gets back to how we are going to 
demand accountability and compliance. If that is the first step 
in the process and that is not achievable, then obviously we 
have some problems. I would like to know how we could demand 
that they submit those reports in a timely fashion and 
certainly according to the regulations.
    Ms. Styles. I share your concerns. We have had discussions 
with the agencies that have not submitted their plans. I am 
meeting with the Executive Committee of the President's 
Management Council to address that issue.
    It is an early stage for the agencies. I think it is an 
early stage in reporting. I had a conversation with Mr. Cooper 
several days before this hearing, and I agree with his concerns 
about metrics and measures and we are very willing to work with 
GAO and others to make sure that we have the appropriate 
metrics and measures in place.
    From a perspective of the Administration, we decided to 
require quarterly reports, much like we do for other items on 
the President's management agenda. We have a scorecard process 
right now for most of the President's management agenda. These 
reports will be submitted in the same time frame as our 
scorecard process to our budget shops. It is a good way to hold 
people accountable at the lower level within the agency, but 
also requiring the report to be signed off on by the 
representative of the President's Management Council. So you 
are getting it from the top and from the bottom.
    I do think the key is the metrics here. We began with a 
report with some of the basic information that we need. We 
anticipate in the future to have more extensive reporting 
requirements for the agencies on a quarterly basis. It is very 
important for us to determine on the front end here, and this 
is the front end, what the appropriate metrics are so we are 
not two years into this and we are not quite sure if we have 
achieved success.
    Chair Snowe. First of all, on the reports, I would be 
interested in having a list submitted to this Committee of the 
agencies that responded and those that did not.
    Ms. Styles. I can tell you right now if you would like.
    Chair Snowe. Yes, I would be glad to hear it.
    Ms. Styles. In fact, the ones that have not submitted are 
probably the easiest for me to give, although I can give you 
the ones that have. We do not have reports yet from Commerce, 
Education, Interior, Justice, State, AID, EPA, GSA, HHS or OPM.
    Chair Snowe. And they have obviously been contacted?
    Ms. Styles. Yes, they have.
    Chair Snowe. And their response has been?
    Ms. Styles. They will be getting us reports.
    Chair Snowe. Does that require a statutory change? I mean 
would it to require submitted reports?
    Ms. Styles. No.
    Chair Snowe. I hesitate to do that, but if we are going to 
make a system and the process work, we have to be assured that 
there will be compliance by the agencies. I mean that is not 
just for one year, it will be systematically every year.
    Ms. Styles. OMB is usually good on a year-to-year basis at 
getting information from the agencies. This being a new report, 
I think it is taking a little bit longer at some of the 
agencies.
    Certainly if you wanted it in place for the long term that 
would require a statutory change. This is a requirement of this 
Administration and will only remain in place as long as the 
Administration in office is committed to it.
    Chair Snowe. Mr. Barreto, I would like to hear your 
response to Mr. Cooper with respect to having insufficient 
resources to do the kind of monitoring that will be required 
and especially because as I understand it, you have just 47 
procurement center representatives.
    Mr. Barreto. Yes.
    Chair Snowe. And there are 255 department agency 
contracting offices, so that would mean that about 80 percent 
of the federal contracting offices have no oversight. So could 
you explain to the Committee how exactly the SBA is going to go 
about providing effective oversight and monitoring?
    Mr. Barreto. Absolutely. You are absolutely right. We have 
47 procurement center representatives and they are located all 
across the country. Many of them are on major military bases or 
where major civilian buying activities are occurring. Those 47 
PCRs, as we call them, are responsible for 255 of the largest 
federal procurement activities in the country and that 
represents about 60 percent of all federal procurement. They do 
a pretty good job.
    Now that does not mean that there is not more to do and 
that we cannot find ways to reach some of those others where 
there is actually less activity. It is still very important to 
do that. We are exploring ways right now, using technology as a 
way of having a broader coverage area.
    But some of the recommendations that were articulated by 
Angela Styles and that were in that nine-point plan give us an 
opportunity to really engage the OSDBUs at the agencies, and we 
think that that is a very important component, as well, because 
this focus and this diligence really needs to be occurring at 
the agency level and also, as Angela said, from the top to the 
bottom.
    So our PCRs are going to play a critical role, but they are 
part of an overall solution that is being articulated right now 
and one of the roles that we believe that we have is to work 
even closer with the OSDBUs and also provide the proper 
training of folks that are going to be really engaged in these 
kinds of activities.
    Chair Snowe. So do you believe that you would need 
additional resources and personnel to do an effective job?
    Mr. Barreto. I think with the PCRs that we have, what our 
intention to do is to support them more. We are not looking for 
additional PCRs at this time. Again, one of the things that we 
believe very strongly is that the PCRs could do a great job, 
and they have done a great job, but we really need to drill 
down even more at the agency level, and that is why we think 
the OSDBUs have such a very important role to play in 
identifying procurement opportunities and mitigating some of 
the issues when there is contract bundling.
    Chair Snowe. I know Mr. Cooper, in his recommendations, 
would suggest that SBA evaluate the number of people and 
resources that would be required in order to oversee these 
contract responsibilities and to effectively assess the 
implementation of this plan. Have you done any kind of 
assessment in that regard?
    Mr. Barreto. We are continuously doing it. Especially every 
year as we are preparing budgets for the next year we are 
identifying how our people are doing and what kind of tools 
that they need, so this is kind of an ongoing issue. We are 
looking at it even more closely now that we have this plan that 
we are going to be executing.
    One of the things that we are very clear about and I think 
it comes up over and over again is that part of the teeth, if 
you will, the accountability, really is at the agency level and 
there is absolutely no substitute for this commitment being at 
the agency head level, going through the organization to the 
OSDBU. We want to support that and we feel that that is a very 
effective way of approaching this challenging issue and really 
making the changes that need to be made.
    Chair Snowe. Ms. Lee, the Department of Defense is critical 
to the procurement process. You represent about two-thirds of 
the procurement budget at the federal level.
    You said in your testimony the Department of Defense awards 
21 percent of its prime contracts to small businesses and how 
did you calculate this? Does SBA agree with that calculation?
    Ms. Lee. Yes, I believe they do. We take it out of the 
federal procurement database and it is a matter of dollars 
spent and the percent of those or the dollars that went to 
small business from that base. There are a few adjustments to 
the base. The particular one is the foreign military sales, 
which is not U.S. dollars; it is foreign military that is 
buying something and we actually do the buying for them, so it 
is not in the DOD base.
    Chair Snowe. You mentioned that you were planning to or 
have lowered the threshold for small business, so what would 
that threshold be?
    Ms. Lee. One of the things in this report was the 
Department of Defense previous threshold for reviewing bundling 
was $10 million. It has been lowered to $7 million in this 
report.
    Chair Snowe. And to that question, it is $7 million and I 
understand that the average size of a prime contract is about 
$1.2 million. The average small business contract size 
government-wide is $410,000. The average small business 
contract size for the Department of Defense is $424,000.
    So, is this threshold not high? I mean in other words, for 
a justification of what is considered to be substantial 
bundling above $7 million, that seems to be a very high 
threshold.
    Ms. Styles. We have actually lowered it from the statutory 
threshold.
    Chair Snowe. I understand that, but the question is whether 
or not $7 million is too high--
    Ms. Styles. We had extensive discussions with the 
Department of Defense before we set those thresholds.
    Chair Snowe. Well, even with the Department of Defense and 
other agency consultation, the $5 million--
    Ms. Styles. And the $2 million for other agencies.
    Chair Snowe. Right.
    Ms. Styles. Considering the Department of Defense mission, 
we think the $7 million threshold is appropriate. Now that 
would be bundled requirements, so it would not be one contract. 
I mean the reason that we are looking at that is because it 
would be too large for any small business to bid on that 
particular requirement and we do believe $7 million is the 
appropriate level.
    Chair Snowe. Well again, I think that I would be interested 
in knowing how you reached that determination because 
ultimately the threshold is high for the kind of justification 
that would allow for substantial bundling.
    Ms. Styles. We looked at statistics and the number of 
contracts that would be reviewed based on that level and I 
would be glad to get that for you because we did go through 
agency by agency and compare what the effect would be, how 
difficult it would be to actually implement. We wanted to set 
thresholds that we could actually fulfill.
    I am glad to get you the data on the number of contracts 
that would be reviewed as a result of moving it from $10 to $7 
million and that is different at the Department of Defense than 
it is at other agencies, which is the reason you find different 
thresholds.
    Chair Snowe. Mr. Cooper, could you respond to what you 
think they are not doing that they should be doing? You 
mentioned having reliable measurements and demanding 
accountability. What are they not recommending at this point 
that should be incorporated in their approach?
    Mr. Cooper. When we looked at the reports that are being 
submitted they contained more process-related kinds of 
information, like who is accountable, have they issued 
regulations, has training been conducted, have policy memos 
been written, things like that.
    The point that I am trying to make is that if we are really 
going to hold agencies accountable for achieving the two key 
aims of this plan--that is to eliminate unnecessary bundling 
and to mitigate the consequences of justified bundling--we 
really need to have output measures, things like how many 
contracts were subjected to bundling reviews? If it was 
justified, determined to be justified, what actions were taken 
and how did those actions translate into business opportunities 
for small businesses, either subcontractors, or as members of 
small business teams, whatever the mitigating actions were?
    So we would like to see more quantitative analysis to 
really get at how are small businesses affected by the actions 
and decisions that are made?
    Ms. Styles. If I can address that, we actually in our first 
draft of the contract bundling reports, we sent it out to the 
agencies for comments. It included extensive data requests for 
information. Based on the comments from the agencies in the 
very short time frame that we were giving them to report, which 
was about a four-week time frame at that point, they asked that 
the first report be process-oriented and then subsequent 
reports include extensive data. And before we go out with that, 
I am very happy to share that with GAO and others so we can 
ensure that we are asking for the right data, that we can 
actually at the end of the day measure our success.
    Chair Snowe. What time frame would be required to measure 
success for agencies? What would you think would be an adequate 
time frame, Mr. Cooper? I see what you are saying, they have 
identified the process, but the question is now what are the 
results?
    Mr. Cooper. I agree with Ms. Styles that not a lot of time 
has passed and what we are seeing right now are some 
preliminary indicators of actions being taken by the agencies. 
I will take a guess. I would like to see in six months from the 
time the plan was announced what actions have really been taken 
and try to measure whether those actions are producing the 
desired outcomes.
    Chair Snowe. Is it your impression that these contracts are 
getting larger and larger?
    Mr. Cooper. There is no question that the federal 
procurement environment has changed dramatically in the last 10 
years. I think the Office of Federal Procurement policy's 
report did a really good job of describing those changes. We 
have much, much larger contracts, they are lasting much, much 
longer, and small businesses are not able to compete for many 
of those new contract vehicles.
    The plan is designed to address that. As Ms. Lee said, the 
task orders and GWACs and GSA schedule contracts will be 
included now but we need some time to see how they are going to 
be addressed.
    Chair Snowe. Will they be required to provide a 
justification or are they going to be restricted by the need 
for unnecessary bundling?
    Ms. Styles. They will have the same requirements.
    Chair Snowe. All accountable to the same regulations?
    Ms. Styles. Yes.
    Chair Snowe. Are they going to be subjected to these nine 
points?
    Ms. Styles. Yes.
    Chair Snowe. So no one is escaping that requirement?
    Ms. Styles. No.
    Mr. Cooper. And the effect of that is a much larger number 
of contracts and dollar value of contracts will be subject to 
the requirements.
    Chair Snowe. Would you say that there is anything omitted 
in this nine-point plan?
    Mr. Cooper. No, I think the plan is very positive. It is 
the first federal-wide plan to address the issue of contract 
bundling, so I think the Office of Federal Procurement Policy 
and all the agencies that supported that should be complimented 
for trying to come up with a constructive way to address the 
issue.
    Chair Snowe. Are there best practices that could be 
identified that could be adopted government-wide? I think that 
is the other issue. I know you are talking about alternative 
strategies and having joint ventures, and so on, but if it is 
done on an ad hoc basis it is very difficult to 
institutionalize.
    When you see the trends in procurement in government, it is 
almost a disincentive to work in small business. I mean the way 
the system is designed now, to be faster and less expensive; I 
disagree with that because I think you are never going to 
maximize the savings by consolidating so many contracts into 
very large contracts. You never know whether you could get a 
cheaper contract right here, for example, in the District of 
Columbia than you can nationwide because you are eliminating 
small businesses in the local communities. The reduction in 
acquisition personnel, has made this a very difficult process.
    So I would think that a good approach would be to identify 
those best practices and adopt them uniformly. It makes it 
easier and you synchronize the entire Federal Government, 
rather than just saying well, on an ad hoc basis this might 
work, that might work, depending on what you do. If you could 
sort of make it far more systematic, knowing what does work for 
alternatives so that they could be adopted within the agencies.
    Mr. Cooper. There is a provision in the plan for 
identifying best practices and disseminating those to the 
federal agencies. Again we are so early in the process.
    Ms. Styles. And a key area of that for me is in the 
subcontracting arena. We really have ad hoc procedures from 
agency to agency dealing with prime contractors, subcontracting 
plans, and compliance with those plans, as well as 
incentivizing prime contractors to follow their plans. I think 
it is one area that we can really make a difference, share best 
practices among agencies, and make sure that there is not a 
difference from agency to agency, it is not different at the 
Department of Defense than it is at Veterans, that if you are a 
prime contractor you go in, you know what the requirements are 
for your subcontracting plan without regard to what industry 
you are in and that you are incentivized to follow that plan.
    Chair Snowe. Mr. Barreto, do you know of any practices that 
you think would be beneficial to adopt government-wide that 
would help small businesses?
    Mr. Barreto. As a matter of fact, we have also requested 
from the agencies their best practices. We are asking them to 
submit that to us this month. So that is something that we are 
evaluating.
    I agree. I think there needs to be some consistency. At the 
same time we need to also understand that different agencies 
have different issues that they are dealing with, the DOD, for 
example, at this point in time, as opposed to other agencies. 
We have seen some great leadership in certain agencies that we 
work with. The Department of Housing and Urban Development has 
a 50 percent goal for small business procurement. In other 
words, they want 50 percent of all their procurement to go to 
small business, and they have been very aggressive about 
championing that.
    I know that we have worked very closely with NASA, the head 
of NASA in the months prior on identifying best practices and 
there is a real commitment there.
    I can also tell you that one of the big complaints that we 
get from small businesses all the time is the fact that not 
only is it complicated and cumbersome and there are 
disincentives but also it is very difficult to access these 
decision-makers. Oftentimes they feel that the only opportunity 
that they have to really compete for federal contracts is if 
they are based here in Washington, D.C. Well, that is 
impossible. Most small businesses cannot afford to have offices 
in Washington, D.C.
    That is one of the reasons that we at the SBA have 
instituted the very exciting initiative that I mentioned, the 
matchmaker, where we are actually taking federal agencies all 
across the country to meet one on one with small businesses. 
Contract Bundling is really a big issue for them. Not only are 
they concerned about the percentages that we are talking about 
but also the decline in the actual number of contracts that 
have been let over the last 10 years. I can see the drastic 
drops from the charts that are behind you.
    So that is one of the reasons that we have been proactive 
in engaging some of these agencies and also giving them 
opportunities to be able to do this kind of outreach. It takes 
one more challenge away from both the federal agencies which 
sometimes have difficulty identifying what firms are qualified 
to do the kinds of contracting they need, and also from the 
small businesses who find it very difficult and very expensive 
to do business with the government.
    We have already had three sessions. They have been very 
successful. We plan on doing about another seven more this 
year. This is one way that I think that we can contribute to 
the solution. We also would be glad to share the best practices 
we receive from the agencies at the end of this month.
    Chair Snowe. Well, what did you learn from small businesses 
at these procurement forums? What did you hear most frequently 
in terms of doing business with the Federal Government?
    Mr. Barreto. We have heard a lot of horror stories about 
what it is like doing business with the government. One lady 
said to me, ``I tried to get a government contract for years 
and years and years.'' And she said, ``I finally got a 
government contract.'' She said, ``It cost me $50,000 to get 
this contract and it was a contract for $25,000. So that is not 
a good return on investment.''
    What they have told us is that they are very excited about 
some of the things that they are seeing. They are excited about 
the leadership that they see coming from Washington. They tell 
us it is the first time in a long time that this kind of focus, 
this kind of attention has been placed on small business 
contracting and they do not take that for granted. Oftentimes 
they have felt that when we talk about federal procurement, 
that it is kind of a stepchild of the things that we do. In 
other words, it is not a high priority.
    The things that we are doing right now are the beginning of 
our renewed focus. Small business oweners also tell us when we 
meet with them in the field that whenever you can put them in a 
room with 10 or 15 decision-makers and their products and 
services have been qualified as being acceptable to those 
agencies that the chances for them doing business are 
incredible. They tell us when we see them in these procurement 
matchmaking sessions, it would take them a year if they were 
lucky enough to get those same kinds of quality appointments.
    I think we are taking some very significant steps in the 
right direction. Again, it is early in the process and a very 
determined and vigilant focus on this issue, a continuous 
focus, is going to be required for us to really make the change 
that is required.
    Chair Snowe. Mr. Cooper and Ms. Styles, is there anything 
wrong with the definition of contract bundling in statute? I 
know it has been changed on six different occasions but do you 
think that the definition as it stands is currently acceptable?
    Ms. Styles. Well, the definition certainly did not cover 
multiple award contracts like the schedules. It did not 
preclude us covering them in the regulation, but it was not 
specific enough in the first place to cover those types of 
contract vehicles, which is why you see us out with a 
recommended change to the definition in the regulations.
    Mr. Cooper. I would just add to that that I know there are 
concerns about the definition, but I think what this plan is 
really aimed at is good management and accountability and 
leadership. And I think if you can get that in place it will go 
a long way to addressing some of the concerns that we have been 
talking about.
    Chair Snowe. Do you think that this plan is inclusive of 
the direction that would be successful for opening the doors to 
small business?
    Mr. Cooper. Yes, I believe it can be.
    Chair Snowe. It can be.
    Mr. Cooper. The real test here, though, is getting this 
message down to the contracting officers and the program people 
who establish the requirements and that is where it all starts. 
Those are the people you have to influence. If you can reach 
that level and get information about whether it is making a 
difference, then I think it has a chance of success.
    Chair Snowe. To that point, Ms. Lee, since you represent 
the Department of Defense which has approximately two-thirds of 
the federal procurement budget, how does the Department of 
Defense go about doing that and getting that message down to 
the acquisition offices and procurement officials?
    Ms. Lee. I agree that is absolutely fundamental. We so 
frequently talk about the contracting officer doing this and 
certainly they are key, but you are absolutely right; it is the 
program official; it is the people who define the requirements 
that need to be aware and conscious of small business and that 
is where some of the matchmaking helps because they get to meet 
those people and see their capabilities and their ideas and 
their innovations.
    So getting that together at the requirement stage and then 
making sure we carry it through contracting is absolutely 
essential. We are doing things like the authority, the 
commitment, some training, and then, of course, metrics and 
measuring how we do that. So it has to be a broad scope across 
the department.
    Chair Snowe. Is the definition too open-ended in terms of 
judgment, that is, in terms of scope and geography and size and 
so on? Does it create any problems with assessing what 
constitutes bundling and what does not?
    Ms. Styles. I think it all depends on the regulatory 
implementation of the definition. We consider it to be workable 
and something that we can apply in the regulatory environment 
and then take that from there in terms of management 
accountability.
    Chair Snowe. I definitely think the plan that has been 
presented by the Administration is very important and I 
certainly want to applaud the Administration's leadership 
under, Mr. Barreto and Ms. Styles, of the for offering this 
proposal. I think the key is trying to find the easiest, most 
consistent, most workable, most effective path to incorporating 
small business into the procurement process and how best that 
can be accomplished. Obviously we want to support what is 
working. We need to identify what will work and we want to be 
vigilant in addressing those things that cannot work the sooner 
the better. When we can get that snapshot of the effect of this 
nine-point plan we can move forward in ensuring that small 
business is part of the procurement process.
    When do you think we can get an accurate snapshot?
    Ms. Styles. We are measuring most things that we are doing 
right now in the President's management agenda as of July 1, 
2004. So my guess is that we will have metrics in place before 
July of this year and we will be able to measure it over that 
period of a year before July of next year. But we will have it 
on a quarterly basis, so we will have a good idea of the trends 
before then.
    Chair Snowe. Obviously I can use the Small Business 
reauthorization as a vehicle, as well, to address the issues 
that I can within my legislative jurisdiction with respect to 
that reauthorization. I am certainly going to use that as a 
vehicle for doing so, so those things that we think could 
strengthen the process that has been offered by the President 
on this issue, will move in a uniform direction to try to 
address this government-wide.
    Again, I just want to thank all of you and I will be 
looking forward to working with you in the future on this 
issue.
    Mr. Barreto. Thank you very much.
    Chair Snowe. Our second panel this morning will provide 
testimony for and about the small business community trials and 
travails with contract bundling. Leading this panel will be Mr. 
Eric Adolphe, the Chief Executive Officer for OPTIMUS 
Corporation in Silver Spring, Maryland. Mr. Paul Murphy of 
Eagle Eye Publishers will testify about the impact of contract 
bundling from a statistical standpoint in the small business 
community.
    Also, we have Mr. Robinson, who is a Defense Logistics 
Manager for the Massachusetts Manufacturing Extension 
Partnership and he is appearing today at the invitation of 
Senator Kerry. His background includes 25 years working in the 
defense industry and also with Maine's Procurement Technical 
Assistance Center. I welcome you, Mr. Robinson.
    In addition, we have Ms. Kuc here to represent Women 
Impacting Public Policy, an organization with more than 300,000 
women-owned small businesses.
    I welcome all of you here this morning to provide testimony 
on contract bundling. I appreciate your insights on this 
critical issue to the small business community.
    Mr. Adolphe, why don't I begin with you. You can summarize 
your statements and I will include your entire statement for 
the record.

STATEMENT OF ERIC A. ADOLPHE, CHIEF EXECUTIVE OFFICER, OPTIMUS 
                          CORPORATION

    Mr. Adolphe. Madam Chair, I would like to thank you for 
your leadership in helping to strengthen America's small 
business community and for focussing today's hearing on 
contract bundling, which is a key contractual challenge we in 
small business face.
    As founder and CEO of a rapidly growing 8(a) business, I am 
honored for the opportunity to testify before you today. My 
company, OPTIMUS Corporation, is a strong example of the 
entrepreneurial spirit that built this nation. As a leading 
public safety technology company founded in 1992, we employ 
approximately 150 people today. I founded OPTIMUS after several 
years of technology development for the FAA when I received a 
Small Business Innovative Research Grant that led to the 
creation of an award-winning safety inspection software system 
for NASA. We now have a half a dozen products focussed on 
public safety and we provide a significant amount of 
information technology services for a number of federal 
agencies.
    Of course, our success did not come overnight. Along the 
way I faced homelessness and near bankruptcy. And although this 
is not a hard knocks story, it is important to point out that 
small disadvantaged businesses simply confront a lot of 
obstacles. Unfortunately, current contract bundling practices 
can add even more burdens because they do not enable a level 
playing field for small businesses. To make matters worse, even 
though many large omnibus contracts are awarded partly on the 
pledge to subcontract a certain amount of work to small 
business, for all practical purposes there is no legal recourse 
for small contractors when these pledges are not upheld.
    Due in large part to these factors, small businesses like 
OPTIMUS are essentially shut out of numerous federal contracts 
and each time this happens we lose between $50-$75,000 in bid 
and proposal funds. We have faced the situation many times and 
we now find ourselves competing against large contractors for 
tasks that are valued at less than $2 million, traditionally 
the bread and butter of most small businesses.
    Because of our ongoing efforts to partner with many of 
these large firms, there are certain recent examples that would 
not be appropriate for me to cite today so I am going to detail 
a situation that occurred several years back which clearly 
illustrates the negative repercussions of contract bundling.
    A number of years ago the EPA bundled all of its software 
development requirements into one omnibus contract. Thus one 
large government contractor handles millions of dollars worth 
of work whether or not they are the right firm to do the job. 
The EPA informed this omnibus contractor they were not meeting 
their goals for small business allocations by a very large 
margin and needed to do so to ensure exercise of the next 
option year on their contract. This firm complained that they 
could not find small contractors qualified for the job.
    However, the EPA was familiar with OPTIMUS and recommended 
us to this company. We subsequently expended our limited 
resources pursuing business with this firm. They agreed we were 
a perfect fit and we were offered a $200,000 subcontract. As a 
result of our progress report back to the EPA small business 
advocate there was a recommendation to exercise the option year 
of that contract. They did this because they believed the 
contractor had upheld its end of the small business promise but 
after the option was exercised we never heard back from them.
    Moreover, because the option year was exercised, the EPA 
told us that there was not much they could do at that point. 
Now we are pretty much locked out of doing software development 
work for the EPA despite our expertise. We can manage call 
centers for them but we cannot deliver innovative cost-
effective systems like we did for NASA.
    And, as this example illustrates, this practice does not 
just affect small business growth. It can keep government from 
getting the best technology for the job and cause agencies to 
settle for less at higher prices.
    I want to conclude by saying that there have been great 
strides of improvement and solid examples of contracting best 
practices; for example, the Broad Information Technology 
Services II, BITS II, SPIRIT and Hub Zone GWAC contracts being 
contemplated by the FAA, Coast Guard and GSA respectively. The 
SPIRIT procurement provides the same scope of services for 
small and large businesses. Thus everyone has an opportunity to 
participate. And the FAA and GSA have taken it even further by 
reserving their competition for small businesses only, helping 
to ensure that small businesses are not in reality competing 
against large business subcontractors.
    I have several other comments with regard to best practices 
and accountability I would like to share if time permits. At 
this time I would like to conclude by saying that I look 
forward to many more similar changes to help small businesses 
continue to grow and expand and I thank you for the opportunity 
to share this important information with you today.
    [The prepared statement of Mr. Adolphe follows:]

    [GRAPHIC] [TIFF OMITTED] T1188.043
    
    [GRAPHIC] [TIFF OMITTED] T1188.044
    
    Chair Snowe. Thank you, Mr. Adolphe. I am sorry I 
mispronounced your name earlier.
    Mr. Murphy.

             STATEMENT OF PAUL MURPHY, PRESIDENT, 
                      EAGLE EYE PUBLISHERS

    Mr. Murphy. Good morning, Madam Chair, and thank you for 
this opportunity to address this critical issue to small 
businesses in the federal marketplace.
    The number and size of bundled contracts issued by federal 
agencies has now reached record levels. The small businesses 
are receiving disproportionately small shares of the work on 
bundled contracts. Most bundling is occurring as a result of 
the accretion of dissimilar tasks on existing task and delivery 
order-type contracts, and this trend is favoring large 
businesses.
    Between 1992 and 2001 federal agencies reporting to the 
U.S. General Services Administration's Federal Procurement Data 
Center issued a combined 1.25 million prime contracts worth 
nearly $2 trillion. Eagle Eye's measure of bundling has 
determined that $106,000 or 8.6 percent of these contracts were 
bundled and that they accounted for $840 billion or 44.5 
percent of reported prime contract dollars during this period.
    Over this same 10-year period, 8(a) minority- and women-
owned businesses, small and disadvantaged firms, and other 
small businesses won a combined 60.7 percent of the 1.25 
million prime contracts. However, their share of bundled awards 
was 48 percent, nearly 13 percentage points lower. Similarly, 
the small firm dollar share of all prime contracts was 18.1 
percent again over this 10-year period, but it dropped to 13 
percent for all bundled contract dollars. And by contrast, 
large firms won 27 percent of all prime contracts and 37 
percent of the bundled contracts. This translated into large 
firms winning 67 percent, two-thirds of all prime contract 
dollars and 75 percent of all bundled dollars.
    In fiscal year 2001 both the number of bundled contracts 
and the amount of bundled contract dollars were the highest in 
10 years. During fiscal year 2001 agencies awarded 105,000 out 
of 177,000 prime contracts to small businesses or 59.3 percent. 
However, the small business share of bundled contracts was 52.7 
percent and the small business share of all bundled dollars 
just 16.7 percent. Overall, the government reported awarding 20 
percent of all prime contract dollars to small firms in 2001.
    The larger number of tasks required to fulfill bundled 
contracts and the consequent increase in the dollar size of 
these contracts favors large firms and larger small businesses 
while inhibiting the ability of small or new firms to bid for 
and win new federal contracts.
    Our regression analysis shows that for every increase of 
100 bundled contracts there was a decrease of 60 contracts to 
small business and for every additional $100 awarded on bundled 
contracts there was a decrease of $12 to small business. At a 
level of $109 billion in fiscal year 2001, bundled contracts 
cost small businesses $13 billion. This is making it 
increasingly difficult for small firms to compete and survive 
in the federal marketplace.
    We found that bundling is being driven by growth in bundled 
contracts in the other services sector. Just over one-half of 
manufacturing awards came on bundled contracts during the 10-
year study period even though only 6.4 percent of the sector's 
contracts officially were classified as bundled. Bundled 
contracts accounted for 46 percent of the R&D spending and 43 
percent of obligations for other services.
    It was the construction sector, though, that showed the 
biggest growth in bundling, 157 percent between 1992 and 2001. 
It also showed a significant 10 percent decline in small 
business participation. Both sectors showing overall declines 
in bundled dollar shares, R&D and manufacturing, showed 
moderate sustained growth in small business participation. 
Other services grew significantly in bundled dollar share and 
in the share of small business market participation.
    The most frequently used contract vehicles for bundling are 
GSA schedules, multiple award contracts, BOAs and indefinite 
delivery/indefinite quantity contracts, IDIQs. Over the 1992-
2001 period, 59 percent of all GSA scheduled contracts were 
bundled, accounting for 97 percent of the dollars awarded on 
schedules. Sixty-four percent of the dollars on BOAs and 60 
percent of the dollars on IDIQs, 57 percent of the dollars on 
multiple award contracts, and 47 percent of the dollars on mods 
to those IDIQs were obligated on bundled contracts.
    The new official bundled contract indicator collects a 
small fraction of the information about bundling. We strongly 
encourage you to consider broadening the definition of bundling 
to include a process that we call accretive bundling, the 
addition of dissimilar tasks to multiple-award IDIQ-type 
contracts. This new bundled contract indicator is based on a 
narrow definition of bundled contracts adopted as part of the 
1999 Small Business Reauthorization Act and we think that it 
needs to be broadened. Instead of exclusively focussing on the 
bundled historical contract requirements, it needs to look 
forward and deal with the issue of accretive bundling. Thank 
you.
    [The prepared statement of Mr. Murphy follows:]

    [GRAPHIC] [TIFF OMITTED] T1188.045
    
    [GRAPHIC] [TIFF OMITTED] T1188.046
    
    [GRAPHIC] [TIFF OMITTED] T1188.047
    
    [GRAPHIC] [TIFF OMITTED] T1188.048
    
    [GRAPHIC] [TIFF OMITTED] T1188.049
    
    [GRAPHIC] [TIFF OMITTED] T1188.050
    
    [GRAPHIC] [TIFF OMITTED] T1188.051
    
    Chair Snowe. Thank you, Mr. Murphy.
    Mr. Robinson.

 STATEMENT OF MICHAEL E. ROBINSON, DEFENSE LOGISTICS MANAGER, 
       MASSACHUSETTS MANUFACTURING EXTENSION PARTNERSHIP

    Mr. Robinson. Thank you, Madam Chair.
    A great obstacle to small businesses is contract bundling 
and there are two approaches that I would like to talk about. 
One is the current Administration approach and the other is a 
bill, S. 2466, that Senator Kerry offered up on May 7, 2002.
    In contrasting the two approaches, one area that deserves 
comment involves the amount of the thresholds at which 
unbundling actions are initiated. The Administration proposal 
would begin these actions at $7 million for DOD, $5 million for 
NASA and $2 million for the civilian agencies. While this is 
far better than the current $10 million level, it is a 
substantial increase from those listed in S. 2466, introduced 
by Senator Kerry on May 7, which would require actions 
commencing at any consolidated or bundled contract in excess of 
$2 million, regardless of agency.
    The difference in thresholds may seem inconsequential. 
However, if you look at a small machine shop with 10 employees, 
average sales perhaps $300-$800,000 a year, if they look at a 
contract of $2 million over two years they effectively have to 
double their sales. They can do this by adding a shift and a 
little bit of overtime and they can make this work. A $7 
million threshold is almost a tenfold increase in sales. This 
prohibits the small manufactures from bidding on a contract of 
that magnitude. Two-thirds of all the machine shops in 
Massachusetts have less than 20 employees.
    The Administration proposal does provide for small 
businesses to work together in an activity known as teaming. S. 
2466 had some desirable specific protections to small business 
teaming arrangements.
    The six New England MEPs have formed a nonprofit 
Manufacturing Supply Chain Consortium to assist DOD in tapping 
into New England's underutilized manufacturing community 
through teaming arrangements. The six-state integrated virtual 
manufacturing model will continue the program's success by 
increasing both the quantity and quality of teaming arrangement 
opportunities, providing a larger, more diverse cross-section 
of small and medium enterprises from which to draw for the 
purpose of forming the teaming arrangement scenarios. A large 
and diverse cross-section of SMEs is necessary to satisfy the 
broad range of DOD procurement requirements in the critical 
areas of cost savings, high quality, quantity and on-time 
delivery across a broad range of the DOD demand spectrum.
    Now defense work is very important for the manufacturing 
sector. In Massachusetts alone we have experienced a 44 percent 
decline in DOD orders and lost thousands of manufacturing jobs. 
The Metropolitan Boston Statistical Area boasts the third 
largest manufacturing employment in the country, higher than 
Cleveland, Pittsburgh and Detroit.
    In the past two years Massachusetts has lost 20 percent of 
its manufacturing jobs, the highest attrition rate in the 
nation. Continuation of this trend may lead to a point where 
the small manufacturing sector is unable to support surge 
demand and rapid ramp-ups such as are being experienced at this 
moment when we are at the brink of war in the Middle East.
    Not only is defense work vital to SMEs but in turn, the 
capacity to support our war-fighters with our domestic 
industrial base should be of equal importance to the DOD. If 
the United States had off-loaded manufacturing capacity to 
China in the 1930s it is very likely we would have lost the 
Second World War. We find ourselves in a world of shifting 
alliances and uncertain partners. With that backdrop, do we not 
want to control the means to our own national defense?
    The shrinking small manufacturing base will support our 
national policies, will answer the call to arms. As advocates 
for small business, now it is our turn to respond to support 
small manufacturers and answer the call to keep this sector, 
which is vital to the economic health of the nation, from being 
buried in an avalanche of contracts that are so large that they 
are unable to participate.
    Regardless of the language chosen to modify contract 
bundling activities, it is going to take time and effort to 
ensure small business participation. We applaud that Senator 
Kerry and the Administration have offered inputs to begin to 
address the problem. We, the Mass MEP, stand ready to deliver 
the solutions to small manufacturers in the field.
    Thank you for the opportunity to testify before the 
Committee.
    [The prepared statement of Mr. Robinson follows:]

    [GRAPHIC] [TIFF OMITTED] T1188.052
    
    [GRAPHIC] [TIFF OMITTED] T1188.053
    
    Chair Snowe. Thank you, Mr. Robinson.
    Ms. Kuc.

  STATEMENT OF CAROL KUC, REPRESENTING WOMEN IMPACTING PUBLIC 
                             POLICY

    Ms. Kuc. Good morning, Madam Chair. I am testifying today 
on behalf of Women Impacting Public Policy, which represents 
430,000 women and minorities in business nationwide. I serve as 
WIPP's procurement chair and am pleased to appear before the 
Committee on this very important issue.
    We commend the Committee for holding this hearing because 
our WIPP members have told us that federal contracting is a top 
priority. A recent survey we conducted found 94 percent of 
respondents are ready and capable to bid on federal contracts. 
The survey also revealed nearly a 95 percent gap between actual 
Federal Government contracts awarded to women-owned businesses 
and those businesses willing to bid in the procurement arena. 
Our survey respondents stated that if the federal contract 
process were simplified with more realistic and attainable 
opportunities, they would submit bids. In addition, a growing 
percentage, from 80 percent a year ago to 90 percent, believes 
the current system does not offer equal opportunities for 
women-owned and minority-owned businesses.
    WIPP's survey also found that 98 percent of our members 
believe federal contracting unbundling would encourage women-
owned businesses to compete for contracts. After all, women-
owned businesses are the fastest growing segment of all small 
business. Contracts awarded to women-owned enterprises have 
only minimally increased from a 1992 benchmark of 1.3 percent 
while women-owned companies have grown 14 percent.
    In the year 2000, Public Law 106-554 authorized federal 
agencies to designate contracts for women-owned businesses. 
This law was designed to assist agencies in reaching the 5 
percent goal of awarding federal contracts to women-owned 
businesses. To date that law has not been implemented. Our 
430,000 members are still waiting.
    WIPP's membership has run head into a new way of bundling 
by the Air Force by its e-procurement site, AFWay. This is a 
good example of the problems small businesses incur while 
trying to compete for federal business. In short, it is a 
Catch-22. If you want to do business with the Air Force you 
have to be in the AFWay system as a vendor, but the Air Force 
has to choose you as a vendor. In order to be chosen as a 
vendor you have to have had a previous contract with the Air 
Force and there is no mechanism by which you can apply to get 
into the AFWay system.
    Can AFWay be fixed? Of course it can. The Air Force could 
decide to designate a portion of its business as women-owned, 
SDB, 8(a) certified, et cetera. The Air Force could decide to 
require substantial subcontracting to those same groups from 
its primes.
    Another story we would like to share with you from one of 
our members addresses a culture among contracting offices 
within agencies that even unbundling cannot fix. As the 
Committee knows, a company, if not awarded the winning 
contract, is entitled to an inquiry. Through this process the 
company who bid but was not awarded the contract can find out 
from the agency the winning price and design of the winning 
bid. When our woman-owned company asked for the information, 
the contracting officer said, ``If you challenge this you will 
never see another RFP come your way.''
    We would be remiss if we also did not share with you a 
story from an information technology company with regard to 
working with a prime contractor. This unfortunately is not an 
isolated case and must be addressed with increased oversight.
    A very large prime contractor solicited a woman-owned 
company to be a subcontractor on a sizable contract with the 
Federal Government. However, to be an eligible subcontractor, 
the company needed to secure a security clearance for an 
employee. This subcontractor was told that a contract was 
waiting for the subcontractor when the security clearance was 
obtained. As the Committee knows, securing a security clearance 
is not a short and easy process. This small company of 15 
employees spent considerable time planning for implementation 
of the contract, such as budget and employee time, and 
resources were spent obtaining the security clearance. When the 
security clearance came through the subcontractor called the 
prime--ready for work--but there was silence on the other end. 
The prime will not even return the subcontractor's calls.
    We offer the above examples, and there are many more, to 
highlight the fact that reform is long overdue. WIPP has made a 
number of recommendations to our policy-makers with regard to 
federal contracting and offer them to the committee for its 
consideration.
    We urge the Office of Federal Procurement Policy to publish 
a monthly scorecard on awards to small businesses. Reward prime 
contractors who use small businesses by using incentives. WIPP 
would be pleased to host a forum with contractors from across 
the country to encourage incentives. Let us give the SBA and 
the OSDBUs the authority and the resources they need to review 
subcontracting plans. We suggest creation of an influence 
credit for prime contractors who actively influence their 
lower-tier subcontractors to pursue small business 
subcontracting.
    Clean up the CCR, Pro-Net and GSA small business databases. 
The Federal Government should require verification of those 
claiming to be small businesses. We suggest that all contracts 
over $100,000 be reviewed for small business participation.
    We advocate that a federal certification should also be 
created and accepted by states and localities, as well. This 
will save small businesses significant time and money.
    In closing, we want to commend Chair Snowe for holding this 
hearing and the Administration's leadership on this critical 
issue. WIPP also commends the leadership of Senator Kerry on 
these issues.
    It is clear, Madam Chair, that contract bundling must be 
eliminated and changes made to the current way federal agencies 
treat multiple award contracts. This government must be held 
accountable to the people it serves.
    I would be pleased to answer questions.
    [The prepared statement of Ms. Kuc follows:]

    [GRAPHIC] [TIFF OMITTED] T1188.054
    
    [GRAPHIC] [TIFF OMITTED] T1188.055
    
    [GRAPHIC] [TIFF OMITTED] T1188.056
    
    [GRAPHIC] [TIFF OMITTED] T1188.057
    
    [GRAPHIC] [TIFF OMITTED] T1188.058
    
    [GRAPHIC] [TIFF OMITTED] T1188.059
    
    [GRAPHIC] [TIFF OMITTED] T1188.060
    
    [GRAPHIC] [TIFF OMITTED] T1188.061
    
    Chair Snowe. Thank you, Ms. Kuc, and I thank you for all 
those recommendations. We will certainly evaluate them. We want 
to do everything we can to make this process more efficient and 
more accessible to small businesses.
    Obviously, Mr. Murphy, you have indicated based on your 
analysis, the trends have obviously moved in the opposite 
direction and they have never been higher in terms of the 
number of contract bundling that has occurred at the federal 
level. Is that correct?
    Mr. Murphy. Absolutely. It has especially accelerated since 
the mid-1990s. With the advent of the procurement reforms it 
has become a lot easier for this process of accretive bundling 
to occur on schedules and IDIQs and multiple-award-type 
schedules and this has worked to the disadvantage of small 
firms.
    Chair Snowe. Is it your understanding that these contracts 
are for an even greater period of time? Do you have any 
analysis that has been done on that? If these contracts are for 
longer and longer of periods of time for 10 or 20 years, 
obviously it then would omit smaller businesses these 
contracts.
    Mr. Murphy. Oh, absolutely. If you look at, for instance, 
GSA's schedule contracts which get automatically renewed if 
they are being utilized properly, they can last for 10 or 15 
years. The bigger companies have larger sales staffs and can 
market these contract vehicles aggressively to numerous 
agencies and just outnumber small businesses in their presence 
at buying activities around the country.
    Chair Snowe. You were suggesting adjusting the definition 
of contract bundling because it is more narrowly defined in 
statute and does not include the whole idea of assembling 
accretive tasks. I gather that this is becoming much more of a 
pattern on the part of procurement offices. Is that what is 
happening? They are just assembling more and more dissimilar 
tasks?
    Mr. Murphy. Yes. We define a bundled contract as any 
contract exhibiting different product service codes, different 
types of contract codes and different places of performance on 
it and this process of accretion on these contracts is 
accelerating.
    Chair Snowe. So what would you define as accretion? What 
makes it different from what is in the current definition?
    Mr. Murphy. The current definition is strictly historical 
in nature in that it points to this contract and that contract 
that occurred in the past. They were combined and competed in 
such a way as to prevent small business from bidding on it. And 
there are just so many contracts, in our opinion, that can be 
identified in this manner and once they are identified as 
bundled, they would never be bundled again, so it seems like 
over a period of time, the number of bundled contracts could 
conceivably be reduced, become smaller by that measure.
    And in fact, we see, based on this process of accretive 
bundling that, in fact, bundling is becoming more and more 
prevalent.
    Chair Snowe. I am certainly going to look at that. I wish I 
had asked that of the first panel because I think that is 
certainly something we have to examine if that is becoming much 
more of a pattern and a practice that is another avenue for 
excluding small businesses.
    Mr. Adolphe, what has your relationship been with the Small 
Business Administration in terms of your experience?
    Mr. Adolphe. Actually, my experience with the Small 
Business Administration has been very good. We found the office 
in Baltimore to be very helpful. They are very efficient and 
they often become our advocates when agencies are doing things 
that we think are detrimental to our business. So we have had a 
very good relationship with the SBA.
    Chair Snowe. You cited two programs that you thought were 
excellent in terms of best practices. Do you think that there 
is more that we ought to be incorporating in terms of best 
practices in law?
    Mr. Adolphe. Absolutely.
    Chair Snowe. Ms. Styles indicated that one of the points in 
the nine-point plan on the part of the Administration is to 
identify best practices. I think that it would be important to 
also solicit the views of small businesses and their experience 
with specific programs that are beneficial and should be 
adopted as best practices.
    Mr. Adolphe. Absolutely. Thank you. If we look at what the 
FAA is doing and we look at, for example GSA and the hub zone 
GWAC, what they have done is they have limited those bundled 
contracts to small businesses only and, in fact, large 
businesses cannot even participate as a subcontractor.
    What that means for us is when we compete for a task order, 
we are not competing with a large subcontractor on somebody 
else's team. We know when we are competing with a small 
business, we are competing with a small business, not the 
resources of a mega-company. We feel that is a best practice.
    There are also other things that we have found that we 
think would be very beneficial. When I looked at the definition 
of bundling and I looked at what some of the agencies were 
doing, I found that agencies were doing a lot of things that 
were being described as bundling and using justifications, like 
``We need to bundle,'' or, interoperability or national 
security. I believe that with today's technology and today's 
developers, there are enough businesses out there that 
specialize in developing technologies to make other disparate 
systems talk.
    So, I think it sometimes could be disingenuous when 
agencies are talking about interoperability as a reason for 
bundling. Looking at what some of these other agencies are 
doing to help to unbundle and spur innovation I think would be 
very helpful.
    Chair Snowe. Mr. Adolphe, you obviously had a bad 
experience and cannot cite others for fear of retaliation.
    Mr. Adolphe. Absolutely.
    Chair Snowe. Which is regrettable. And Ms. Kuc, you made 
reference to the same issue and another example of a woman-
owned business, which is really a sad commentary on where we 
stand today, fear of retaliation. But can you tell me, do you 
think there is a good way for us to address the issue of where 
a prime contractor does involve small businesses in the process 
of submitting a bid to an agency and then, of course, as you 
found out--and I think you mentioned, as well, Ms. Kuc--the 
contractor then does not contact the small business after it 
has received the award.
    Mr. Adolphe. Thank you for that question. What is 
interesting is that under FAR 15 USC 637(d)(4)(f), it actually 
directs the agency to seek liquidated damages when these firms 
fail to meet these objectives and are, in fact, willful in 
that. I understand that the government or these agencies lack 
the resources but I think the first time an agency actually 
exercises that option, I think it is going to raise a lot of 
eyebrows and people are going to be more careful about their 
teaming agreements and adhering to these goals.
    I think secondly, I would advocate--the GSA maintains a 
website that provides a list of all contractors that are 
suspended or debarred. I would advocate that a list be 
generated, as well, for companies that do not meet these small 
business requirements and have that list be posted so that when 
other agencies are looking to do business with these companies, 
they now have a list, similar to the list of debarred firms, 
and they will know that these folks either are or are not doing 
what they claim in their proposals.
    It will also be an opportunity for small businesses, like 
OPTIMUS, to go to that site and when the small business is 
approached by a firm on the site they will know these guys do 
not do what they claim.
    Chair Snowe. Ms. Kuc.
    Ms. Kuc. Madam Chair, yes, I know of evidence of women-
owned businesses who have found after a contract has been let, 
found years later that they were listed in the subcontracting 
plan as subcontractors. These women were never contacted by the 
primes, never knew that they were listed as a subcontractor. We 
must find a way that we can verify that those people who are 
listed as subcontractors are actually subcontractors.
    This is quite simple. All these primes have to do is list 
the e-mail of the subcontractors and perhaps the contracting 
officers or the small business program managers, whoever is 
overseeing the subcontracting plans, could then just verify by 
e-mail that they are indeed a subcontractor of that prime.
    Chair Snowe. Well, I find it rather amazing that they would 
include the name of subcontractors--
    Ms. Kuc. Goes on all the time.
    Chair Snowe. [Continuing.]--Which have not been approached 
by the prime contractor?
    Ms. Kuc. That is correct.
    Chair Snowe. Mr. Murphy.
    Mr. Murphy. It is a well known fact that small businesses 
are used a window dressing to win contracts where the agencies 
are requiring small business participation. And, there may be a 
simple solution to this and, that is, why not require a 
contract clause in every contract involving subcontracting that 
specifies that the prime contractor will not be paid unless and 
until they can prove they have met their subcontracting goals 
and make that part of the contract and require an audit of that 
contract's subcontracting goals if there is any question. Or 
maybe even have a form that the prime and the sub are both 
required to sign indicating that they have met their 
obligations to one another.
    Chair Snowe. Good point. I will certainly look at that. I 
think that it is a critical issue, not to mention the expense. 
Even if you get involved in the process at the onset you still 
may tapped as a subcontractor after the prime contractor 
receives the award. I am concerned about all the time and money 
that is spent just to be part of that process initially and 
then to be omitted ultimately; or, to have the prime contractor 
use your name, the name of your company, and then not even to 
be approached or to be asked by the prime contractor. It's 
pretty audacious.
    Mr. Robinson, I know you strongly back Senator Kerry's 
legislation and I am interested in the provision about 
establishing a uniform threshold of $2 million.
    Now you heard the response by the earlier panel, Ms. Styles 
and others--
    Mr. Robinson. Yes, I did.
    Chair Snowe. [Continuing.]--About lowering that threshold, 
because I think the current threshold--I do have concerns with 
the current thresholds and the multiple levels because I do 
think it does omit--I think the thresholds are far too high, 
given what the average size of the small business contract is, 
let alone the average size of the prime contract.
    Why do you think $2 million would be a better threshold as 
a uniform standard government-wide?
    Mr. Robinson. $2 million would still allow for some 
efficiencies in buying. I mean we are asking all the buying 
agencies to do more with less. But it still gives the average 
small, 10- to 20-person manufacturer a chance to actually be 
able to meet a two- or three-year contract at $2 million. A 
two-year contract at $7 million is probably out of his range or 
her range at that point in time. It just is too big.
    The current level, I think, is $10 million and that is far 
too large. I think you had some statistics about the average 
size of a contract being $140,000 or something along those 
lines, so it has to be in relationship to that.
    Chair Snowe. Would others agree? Did anybody have any 
comments on that in terms of redefining the threshold at a 
different level? Would it make a difference?
    Ms. Kuc. Hopefully it will make a difference.
    Mr. Robinson. It could be an evaluated threshold that each 
year becomes evaluated based on the size of the contracts and 
the participation. In other words, if $2 million does not yield 
a reasonable amount of small business participation, then it 
goes down and it floats down a year until small businesses are 
participating in the contracts. That is another approach to 
this. It is a little bit harder for the Administration or 
Executive Branch.
    Chair Snowe. You also, in that legislation, have specific 
protections for teaming arrangements. Could you expand on that 
about protections for teaming arrangements? I think teaming 
arrangements are very important and critical to including small 
businesses. Has it been your experience that those teaming 
arrangements need that kind of protection in law?
    Mr. Robinson. Sometimes if you get teaming arrangements 
between two fairly large small businesses then they start to 
become treated as a large business. As Senator Kerry indicated 
in his legislation, regardless of the aggregate mass of the 
companies, they would remain small businesses and be entitled 
to the protections that small businesses get and I think that 
that was significant. I did not notice those comments in the 
Administration's proposal when I read it.
    Small businesses are kind of at a disadvantage when they 
are out there competing with companies with a lot more 
resources and marketing abilities and they need help. Teaming 
is a great way for them to participate in contracts that might 
be too large for them to do by themselves and that is what we 
are working on and trying to develop that.
    Chair Snowe. Is it your experience, Mr. Murphy--would you 
know, Ms. Kuc--is teaming used consistently government-wide or 
is it sporadic?
    Ms. Kuc. First of all, the contracting officers need to 
understand teaming arrangements. I personally know of some 
potential contractors who were denied contracts because they 
did present a teaming arrangement. Contracting officers do not 
favor teaming arrangements.
    Chair Snowe. Why would that be the case?
    Ms. Kuc. They seem to see it as a weakness of either one or 
both of the partners or multiple partners. They do not seem to 
see it as a strength. And the contracting officers need to be 
cognizant of the fact that teaming arrangements are encouraged 
by the agencies. I do not believe that is the case now.
    I also would like to state that WIPP supported Senator 
Kerry's legislation and we will continue to support it.
    Chair Snowe. Mr. Murphy.
    Mr. Murphy. Yes, I think there is an issue of timeliness 
here, too, that small businesses need more time on a lot of 
these procurements to put teams together. The problem 
increasingly is that they do not know about the opportunities 
and in my conversations with OSDBU representatives, the 
contract officers in these far-flung purchase offices and 
buying activities are actively trying to bypass the involvement 
of the OSDBUs, that there is a view that the OSDBU office 
provides an odious burden on their ability to get a contract 
out quickly.
    And I have spoken to OSDBUs who are complaining that they 
do not have timely access to the opportunities their own 
contract officers out in the field are issuing and they 
therefore are behind the 8-ball on being able to assist small 
businesses in developing teaming relationships in the first 
place.
    Chair Snowe. So there are not sufficient numbers of 
personnel out in the field to help them with that.
    Mr. Murphy. Well, I think it is part of the dynamic of the 
current procurement environment, where we are trying to do more 
with less, we have cut the procurement workforce, they have a 
lot of requirements on their desks and they are just trying to 
move them off as fast as possible and they view the small 
business process as time-consuming and burdensome, so they 
actively try and bypass it.
    So there is this tension between the regions and the 
central offices in trying to assist small businesses.
    Chair Snowe. There are conflicting dynamics, there is no 
question, as a result of the trends in the procurement process 
and you are right about doing more with less. So as a result, 
people are going to pursue the path of least resistance. I mean 
bureaucracies are risk-averse so they are going to do what is 
going to come easy sooner and faster and ultimately I think 
they are not going to use their creativity and innovation in 
making sure that small businesses are going to be part of it.
    That is why I think it is so important that the 
Administration's nine-point plan be a workable one and one that 
is not only monitored but implemented in a systematic way. I 
think what Mr. Cooper was saying is going to be critical to 
making sure we have reliable measurements and the information 
with which to determine whether or not it is being implemented 
and ultimately demanding accountability from those who 
implement the process.
    Do any of you have any objections to what the 
Administration is doing, or, to the nine-point plan? I mean do 
you see any problems with it? Do you care to comment on it at 
all?
    Mr. Adolphe.
    Mr. Adolphe. I pretty much agree with everything in the 
plan. The only thing that does concern me is discussion about 
recertifying small businesses each year, I think 10 or 20 years 
is unworkable but I think one year is an undue burden on small 
businesses and things change too quickly. One year we can have 
a banner year and the next year could be not so good, and I 
think to be decertified after a year is going to be burdensome.
    I look to how NAICS codes, for example, your participation 
under NAICS codes are done where it is a three-year rolling 
average. I think that would be something that would be helpful, 
either that or a five-year certification I think would be 
something that would be very helpful to small businesses.
    Chair Snowe. I appreciate that.
    Does anybody else care to comment on the Administration's 
plan?
    Ms. Kuc. I agree.
    Chair Snowe. Do you think they are moving in the right 
direction?
    Ms. Kuc. I do.
    Chair Snowe. It is all-inclusive?
    Mr. Murphy and Mr. Robinson.
    Mr. Robinson. Yes, I do think that thresholds need to be 
examined because I think that the $7 million threshold is much 
too large for a small business or even a team to deal with.
    Chair Snowe. Mr. Murphy.
    Mr. Murphy. I think Ms. Styles brings a tremendous breath 
of fresh air to small businesses and what a relief to have such 
a vocal advocate on our behalf. I think there are a number of 
things that could be done to strengthen her effort, if I may.
    Chair Snowe. Yes, go right ahead.
    Mr. Murphy. I think that there is a lot of work that needs 
to be done in terms of delivering procurement information in a 
timely manner. As a company that has processed the federal 
procurement data now for 18 years, I can tell you this is the 
latest we have ever gotten fourth quarter 2002 data in our 
history, in our company's history. We are still providing our 
clients, among whom are several agencies, third quarter 2002 
historical contract data and this is simply not timely for a 
lot of the needs of people who are on the cutting edge of 
trying to assist small businesses.
    Along the same lines of information provision, the 295 form 
reporting requirements are a disaster. The 295 form is woefully 
incomplete. It is inconsistently reported. It is poorly 
monitored and in no way provides any valuable information for 
assessing whether the small business subcontracting provisions 
are being met by the large firms. I think we cannot enforce the 
subcontracting provisions without this kind of information.
    I take kind of a Jerry Maguire ``show me the money'' 
approach to the small business procurement goals in that 
initiatives and incentives and reviews are all well and good in 
enforcement but I think that at some level we need to assess or 
address the issue of perhaps making the 23 percent goal a part 
of the budget process so that people have to opt out of the 
small business goals, rather than passively wait till the end 
of the year and tally up what we have awarded to small 
businesses and say oh, gee, we did not meet it this year. Why 
not make the 23 percent goal part of the budget allocation 
process and require agencies up front to say these are the 
programs we are putting in to meet our 23 percent goal and have 
the OSDBU office as part of that process early on and have them 
sign off on it?
    And if any programs, for one reason or another, are 
determined not to be allocable to small businesses during the 
course of the year, force like a zero sum deal where if you 
take a program out of your small business allotment you are 
going to have to put another one back in.
    I think that there needs to be a lot more focus on the 
money aspect of this and I think small businesses will be much 
more reassured that this is not just going to be an exercise in 
shuffling paper but an actual determination that dollars are 
reaching small businesses the way they should.
    I think that we should not raise the small purchase 
threshold, the open market $2,500 threshold. I think that would 
work to the disadvantage of small businesses. It should be kept 
at $2,500.
    I think that we need to strictly enforce the monitoring of 
purchases between $2,500 and $100,000. We are finding in our 
data that a tremendous number, billions of dollars of purchases 
are going to large businesses when, in fact, this is money that 
is supposed to be reserved for small businesses.
    And I am really pleased to see OFPP's and SBA's initiatives 
with regard to the recertification of small businesses annually 
and I think this is to be commended, but we have to monitor 
that carefully. Because of all the acquisition and merger 
activity that is going on, we are finding in our database that 
we are identifying large businesses that have acquired--small 
businesses that have become part of larger businesses months 
and years in advance of any indication in the CCR and ProNet 
databases that they are no longer small.
    And, as I mentioned, I think that we need to broaden the 
definition of bundled contracting.
    Chair Snowe. I appreciate it. This has been very helpful to 
the Committee and I certainly welcome any additional thoughts 
you have. This has been very constructive and productive here 
today and I really appreciate all the recommendations that you 
have all made individually and collectively. I think it will 
also be very helpful to the strengthening of this process to 
see what we, as I said earlier, are doing that works and to 
reinforce that.
    Certainly I will be looking at the SBA reauthorization 
process and anything that I can do within that legislative 
jurisdiction, I certainly will. I will otherwise certainly 
advance a lot of the suggestions that you have made in terms of 
being able to bolster the process that ultimately we hope will 
work in terms of what the Administration has advanced and 
initiated on behalf of small businesses.
    So, again, I just want to thank you for all of your 
information here today and I think that it does confirm that 
there is no easy solution to this whole process but I think 
this is the right step in the right direction. And much has 
been done and clearly more needs to be done and we hope to work 
together to make sure that that can happen and become a 
reality.
    So again I want to thank you for your time spent here 
today.
    The record will remain open for two weeks until April 1 for 
any further submissions that anybody would like to make. Also, 
if any members of the Committee wish to submit written 
questions to any of the witnesses, they can file them with the 
Committee clerk.
    The hearing stands adjourned.
    [Whereupon, at 11:20 a.m., the hearing was adjourned.]

    [GRAPHIC] [TIFF OMITTED] T1188.062
    
    [GRAPHIC] [TIFF OMITTED] T1188.063
    
    [GRAPHIC] [TIFF OMITTED] T1188.064
    
    [GRAPHIC] [TIFF OMITTED] T1188.065
    
    [GRAPHIC] [TIFF OMITTED] T1188.066
    
    [GRAPHIC] [TIFF OMITTED] T1188.067
    
    [GRAPHIC] [TIFF OMITTED] T1188.068
    
    [GRAPHIC] [TIFF OMITTED] T1188.069
    
    [GRAPHIC] [TIFF OMITTED] T1188.070
    
    [GRAPHIC] [TIFF OMITTED] T1188.071
    
    [GRAPHIC] [TIFF OMITTED] T1188.072
    
    [GRAPHIC] [TIFF OMITTED] T1188.073
    
    [GRAPHIC] [TIFF OMITTED] T1188.074
    
    [GRAPHIC] [TIFF OMITTED] T1188.075
    
    [GRAPHIC] [TIFF OMITTED] T1188.076
    
    [GRAPHIC] [TIFF OMITTED] T1188.077
    
    [GRAPHIC] [TIFF OMITTED] T1188.078
    
    [GRAPHIC] [TIFF OMITTED] T1188.079
    
    [GRAPHIC] [TIFF OMITTED] T1188.080
    
    [GRAPHIC] [TIFF OMITTED] T1188.081
    
    [GRAPHIC] [TIFF OMITTED] T1188.082
    
    [GRAPHIC] [TIFF OMITTED] T1188.083
    
    [GRAPHIC] [TIFF OMITTED] T1188.084
    
    [GRAPHIC] [TIFF OMITTED] T1188.085
    
    [GRAPHIC] [TIFF OMITTED] T1188.086
    
    [GRAPHIC] [TIFF OMITTED] T1188.087
    
    [GRAPHIC] [TIFF OMITTED] T1188.088
    
    [GRAPHIC] [TIFF OMITTED] T1188.089
    
    [GRAPHIC] [TIFF OMITTED] T1188.090
    
    [GRAPHIC] [TIFF OMITTED] T1188.091
    
    [GRAPHIC] [TIFF OMITTED] T1188.092
    
    [GRAPHIC] [TIFF OMITTED] T1188.093
    
    [GRAPHIC] [TIFF OMITTED] T1188.094
    
    [GRAPHIC] [TIFF OMITTED] T1188.095
    
    [GRAPHIC] [TIFF OMITTED] T1188.096
    
    [GRAPHIC] [TIFF OMITTED] T1188.097
    
    [GRAPHIC] [TIFF OMITTED] T1188.098
    
    [GRAPHIC] [TIFF OMITTED] T1188.099
    
    [GRAPHIC] [TIFF OMITTED] T1188.100
    
    [GRAPHIC] [TIFF OMITTED] T1188.101
    
    [GRAPHIC] [TIFF OMITTED] T1188.102
    
    [GRAPHIC] [TIFF OMITTED] T1188.103
    
