[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]




 
                       FULL COMMITTEE HEARING ON
                      EXPANDING SMALL BUSINESSES'
                      ACCESS TO FEDERAL CONTRACTS

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

                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 19, 2007

                               __________

                          Serial Number 110-15

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house


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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


JUANITA MILLENDER-McDONALD,          STEVE CHABOT, Ohio, Ranking Member
California                           ROSCOE BARTLETT, Maryland
WILLIAM JEFFERSON, Louisiana         SAM GRAVES, Missouri
HEATH SHULER, North Carolina         TODD AKIN, Missouri
CHARLIE GONZALEZ, Texas              BILL SHUSTER, Pennsylvania
RICK LARSEN, Washington              MARILYN MUSGRAVE, Colorado
RAUL GRIJALVA, Arizona               STEVE KING, Iowa
MICHAEL MICHAUD, Maine               JEFF FORTENBERRY, Nebraska
MELISSA BEAN, Illinois               LYNN WESTMORELAND, Georgia
HENRY CUELLAR, Texas                 LOUIE GOHMERT, Texas
DAN LIPINSKI, Illinois               DEAN HELLER, Nevada
GWEN MOORE, Wisconsin                DAVID DAVIS, Tennessee
JASON ALTMIRE, Pennsylvania          MARY FALLIN, Oklahoma
BRUCE BRALEY, Iowa                   VERN BUCHANAN, Florida
YVETTE CLARKE, New York              JIM JORDAN, Ohio
BRAD ELLSWORTH, Indiana
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

               Kevin Fitzpatrick, Minority Staff Director

                                 ______

                         STANDING SUBCOMMITTEES

                    Subcommittee on Finance and Tax

                   MELISSA BEAN, Illinois, Chairwoman


RAUL GRIJALVA, Arizona               DEAN HELLER, Nevada, Ranking
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana              STEVE KING, Iowa
HANK JOHNSON, Georgia                VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             JIM JORDAN, Ohio

                                 ______

               Subcommittee on Contracting and Technology

                      BRUCE BRALEY, IOWA, Chairman


WILLIAM JEFFERSON, Louisiana         DAVID DAVIS, Tennessee, Ranking
HENRY CUELLAR, Texas                 ROSCOE BARTLETT, Maryland
GWEN MOORE, Wisconsin                SAM GRAVES, Missouri
YVETTE CLARKE, New York              TODD AKIN, Missouri
JOE SESTAK, Pennsylvania             MARY FALLIN, Oklahoma

        .........................................................

                                  (ii)

  
?

           Subcommittee on Regulations, Health Care and Trade

                   CHARLES GONZALEZ, Texas, Chairman


WILLIAM JEFFERSON, Louisiana         LYNN WESTMORELAND, Georgia, 
RICK LARSEN, Washington              Ranking
DAN LIPINSKI, Illinois               BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois               STEVE KING, Iowa
GWEN MOORE, Wisconsin                MARILYN MUSGRAVE, Colorado
JASON ALTMIRE, Pennsylvania          MARY FALLIN, Oklahoma
JOE SESTAK, Pennsylvania             VERN BUCHANAN, Florida
                                     JIM JORDAN, Ohio

                                 ______

            Subcommittee on Urban and Rural Entrepreneurship

                 HEATH SHULER, North Carolina, Chairman


RICK LARSEN, Washington              JEFF FORTENBERRY, Nebraska, 
MICHAEL MICHAUD, Maine               Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              MARILYN MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana              DEAN HELLER, Nevada
HANK JOHNSON, Georgia                DAVID DAVIS, Tennessee

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, PENNSYLVANIA, Chairman


JUANITA MILLENDER-McDONALD,          LOUIE GOHMERT, Texas, Ranking
California                           LYNN WESTMORELAND, Georgia
CHARLIE GONZALEZ, Texas
RAUL GRIJALVA, Arizona

                                 (iii)

  
?

                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Chabot, Hon. Steve...............................................     2

                               WITNESSES

Hsu, Paul, Associate Administrator for Government Contracting and 
  Business Development, U.S. Small Business Administration.......     3
Parkinson, Nigel, Associated General Contractors of America......     5
McCracken, Todd, National Small Business Association.............     7
Murphy, Emily, Miller & Chevalier Chartered......................     9
Taylor, Grady, Tri-Mega Purchasing Association...................    11

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    33
Chabot, Hon. Steve...............................................    35
Altmire, Hon. Jason..............................................    36
Hsu, Paul, Associate Administrator for Government Contracting and 
  Business Development, U.S. Small Business Administration.......    37
Parkinson, Nigel, Associated General Contractors of America......    41
McCracken, Todd, National Small Business Association.............    44
Murphy, Emily, Miller & Chevalier Chartered......................    49
Taylor, Grady, Tri-Mega Purchasing Association...................    69

                                  (v)

  


                       FULL COMMITTEE HEARING ON
                      EXPANDING SMALL BUSINESSES'
                      ACCESS TO FEDERAL CONTRACTS

                              ----------                              


                        THURSDAY, APRIL 19, 2007

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:00 a.m., in Room 
2360 Rayburn House Office Building, Hon. Nydia Velazquez 
[Chairwoman of the Committee] presiding.
    Present: Representatives Velazquez, Jefferson, Moore, 
Braley, Ellsworth, Johnson, Sestak, Chabot, Bartlett, Davis, 
Fallin, and Buchanan.

           OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

    ChairwomanVelazquez. I call this hearing on Expanding Small 
Business' Access to Federal Contracts to order. The federal 
government is the biggest buyer of goods and services in the 
world.
    Given the volume of its purchases, $330 billion last year, 
and the diversity of its acquisition, it should be easy for the 
small business participation goals to be reached. 
Unfortunately, as we have seen repeatedly, this is not the 
case.
    Over the past several years, this Committee has had at 
least 15 hearings on agency procurement practices and the 
negative effect they have on small companies. Already in the 
110th Congress, we have held 2 hearings on this issue. Today we 
continue our examination of the key values small businesses 
face when accessing federal contracts and legislation offered 
by our colleague from Iowa that addresses many of these 
programs.
    In our work, several failures of the federal government 
have been made clear. The entrepreneurial share of the federal 
marketplace is sleeping, not expanding, as it should be.
    Agencies consistently fail to achieve the minimum small 
business goal. And they are counting their accomplishments with 
contracts awarded to large corporations, inflating the amount 
of contracts that go to small firms.
    In today's economy, entrepreneurs are the drivers 
representing 99 percent of all firms in this country. Yet, the 
federal government continues to fail to meet the 23 percent 
government-wide statutory small business goals. When these 
goals are not met, it means money out of the pockets of other 
small business owners and the loss of job creation in 
communities throughout the country.
    In our most recent scorecard, we found that small 
businesses in general lost $4.5 billion in contracting 
opportunities last year because the 23 percent goal was missed. 
We found that women-owned businesses lost $5.2 billion because 
their 5 percent goal was missed. Minority contractors lost $4.5 
billion because their 5 percent goal was not reached.
    Over the past couple of years, we have also noted another 
disturbing trend. Agencies are counting contract awards to 
large companies as small business contracts. In 2005, about $12 
billion in contracts were wrongly counted. These false numbers 
make it appear agencies are doing more with small businesses 
than they really are, which makes the true state of opportunity 
even worse.
    One of the real problems here is that when agencies believe 
they are doing well with the small business measurements, they 
are more likely to engage in practices that are harmful to 
small businesses. In the last few years, for example, we have 
seen substantial increases in contract bundling and limited 
contract sourcing.
    Contract bundling has been public enemy number one for 
small businesses that are trying to penetrate the federal 
marketplace. Over the last five years, total government 
contracting dollars have increased by almost 60 percent while 
the number of contract actions to small businesses decreased or 
declined by 55 percent.
    Pure contract actions combined with greater procurement 
spending is proof of contract bundling. Today's hearing will 
allow us to review potential sources to increase access to 
government contracts as contained in H.R. 1873, the Small 
Business Fairness in Contracting Act, introduced by our 
colleague, Representative Braley. I believe this proposal will 
provide the tools necessary to create opportunities for 
increased small business contracts.
    And let me just announce that we are planning to have a 
markup on this legislation on Tuesday since the leadership and 
I discussed the possibility for the bill to be on for floor 
action May 7.
    So I look forward to working with my colleagues as we 
arrange for our mission of expanding and solidifying the role 
of small companies in the federal marketplace.
    Let me thank all the witnesses for coming here and sharing 
their experiences with us today. And I now would like to 
recognize Ranking Member Chabot for his opening statement.

                    STATEMENT OF MR. CHABOT

    Mr.Chabot. Thank you very much. And, first, I would like to 
thank Chairwoman Velazquez for holding this very important and 
timely hearing to examine the practice of contract bundling and 
other federal procurement procedures that deny small business 
opportunities to obtain their fair share of government 
contracts.
    We also will hear testimony from legal experts about the 
Small Business Fairness in Contracting Act and strategies for 
unbundling the contracts. It is well-known that bundling limits 
small businesses from competing for prime federal contracts. 
When small businesses are locked out from competing for prime 
contracts, the small business community loses business 
opportunities. The federal government loses important 
suppliers. And ultimately the taxpayer loses because of reduced 
competition that so often leads to higher prices.
    The availability of federal contracts is at an all-time 
high, as the Chairwoman mentioned. Last year federal spending 
on government contracts amounted to $340 billion. This 
represents an 8 percent increase over the previous year and a 
13 percent increase since fiscal year 2004.
    Recent events, such as the cleanup from the Gulf Coast 
hurricanes and the ongoing war on terror, have created a 
growing need for services by government agencies and an 
increase in the amount of federal government contracts 
available. As the primary engine of innovation and job 
creation, small businesses should be receiving a fair 
proportion of the total prime contracts for property and 
services as required by the Small Business Act. Contract 
bundling is a barrier to achieving this goal.
    We all look forward to hearing from our witnesses so that 
we can all learn more about bundling and strategies for 
increasing small business opportunities in the federal 
marketplace. This is a very important issue that directly 
affects the bottom lines of our nation's small businesses. And 
it is one that I am sure this Committee will continue to 
examine closely. We need to ensure that small businesses have 
and will continue to have a seat at the federal contracting 
table.
    I yield back the balance of my time, Madam Chair.
    ChairwomanVelazquez. Thank you.
    So we are going to start the hearing. Our first witness is 
Mr. Paul Hsu. He is the Associate Administrator for Government 
Contracting and Business Development at the United States Small 
Business Administration. Mr. Hsu has been in this new position 
just a few weeks. So congratulations and welcome.
    Mr.Hsu. Thank you.
    ChairwomanVelazquez. You have five minutes for making your 
testimony.
    Mr.Hsu. Thank you. Thank you very much.

 STATEMENT OF PAUL HSU, ASSOCIATE ADMINISTRATOR FOR GOVERNMENT 
   CONTRACTING AND BUSINESS DEVELOPMENT, UNITED STATES SMALL 
                    BUSINESS ADMINISTRATION

    Mr.Hsu. Chairwoman Velazquez, Ranking Member Chabot, 
distinguished members of the Committee, my name is Paul Hsu. I 
am the Associate Administrator for Office of Government 
Contracting and Business Development at the U.S. Small Business 
Administration. Thank you for inviting me to testify today.
    I would like to take this opportunity, Madam Chair, to 
share with you and the distinguished members of the Committee 
my little experience with SBA's contracting and business 
development program, but, most importantly, I want to let you 
know that why I personally think that these programs are very 
important for small and minority-owned firms and very quickly. 
And here is my short personal story.
    I was born in Taiwan and came to the United States in 1976. 
I was 26 years old and spoke very little English, but I managed 
to obtain a Master's degree in industrial management systems 
engineering from Central Missouri State University. And I got 
married and started having kids. I believe two of them are here 
today. And I got a job at the Harris Corporation and moved to 
Florida.
    Harris was a Fortune 500 aerospace company. Ninety percent 
of our divisional revenue came from DOD. I was a chief 
engineer. And the life was really perfect until the Berlin Wall 
came tumbling down, the Soviet Union disappeared, and the DOD 
started reducing their requirements and Harris started laying 
off people and the entire facility was closed.
    That was 1984, about 23 years ago. And that was the time I 
decided, ``I am going to start my first company because I was 
so afraid that I might get laid off again.''
    But all I had at that time was a dream, a dream of a big 
building filled with people overlooking a parking lot with 
hundreds of cars and a tall flagpole with a huge American flag 
waving under the warm Florida sun.
    So to take my dream to reality, the first thing I did, I 
sent my wife to work. And she did. She worked as a waitress at 
the local Pizza Hut while I was running around and chasing 
contracts. And she is very, very special lady.
    After I had a contract, I realized that I needed money to 
buy parts or the contract itself could not be treated as a 
collateral. So after all the banks turned me down, a banker 
told me about SBA-guaranteed loan. I got a loan, and I started 
learning about SBA.
    Soon I got into an 8(a) program. It was a great, great 
helping hand. A little later I joined the SBA-sponsored mentor 
protege program with Boeing, and I started building avionics, 
building radar components, the guiding system and many critical 
flight hardwares for the Boeing's fighter jet, including F-15s, 
F-18s, T-45s, C-17s, C-130, B-1, B-2, and B-52. I was so 
impressed about the mentor protege program I started my own. At 
one time I had two proteges: a HUBZone STB and a woman-owned 
STB.
    Two years ago, my company has been acquired by a big 
publicly traded company. But, most of all, Madam Chair, it was 
the SBA. The SBA provided me the capital, the training, the 
counseling, and the contract opportunity that I desperately 
needed to go in my company.
    So I can say this. I am the product of SBA and all the 
SBA's programs. And I am the living proof that these programs 
work. It is absolutely an honor and a privilege for me to serve 
an agency that I truly believe in.
    I joined SBA on March 19th, exactly one month ago today. 
What I bring with me is the entrepreneurial spirit dedicated to 
impacting many small businesses as they look forward to achieve 
the success in the federal marketplace.
    Here are some facts. Government contracting dollars go to 
the small businesses have grown significantly since F.Y. 2000. 
There were $30.6 billion more of small business contracts in 
F.Y. '05 than F.Y. 2000 and supporting an estimated about 
235,000 jobs.
    SBA recognized the need to improve the government 
contracting program and has taken the lead along with Office of 
Management and Budget, Office of Federal Procurement Policy to 
carry out a number of initiatives, including addressing the 
contract bundling and working with agencies to ensure their 
reporting is accurate. However, the integrity of the data 
reported to Congress and the public is very crucial to provide 
the confidence in the federal contracting system. Agencies are 
currently in the process of validating their F.Y. '05 and F.Y. 
'06 data to identify the reason for coding discrepancies and to 
correct any error that may occur.
    Additionally, the Administrator had made the contract data 
transparency and accuracy a very high priority and taken the 
issue very seriously. And we are going to continue to hold the 
agency accountable for their progress in meeting the small 
business contracting goal.
    SBA released SCORE CARD, as you know, along with the F.Y. 
'06 contracting report. The SCORE CARD mirrored the President's 
management agenda, and it will more aggressively track and 
monitor the status of each agency's small business goal 
achievement and hold the agency more accountable.
    This allowed the public to see clearly the progress in the 
level of the effort agencies are making to address their weak 
point. For instance, agency would be rated of their 
subcontracting achievement in addition to their prime contract.
    SBA's F.Y. '08 budget, including a request on $500,000 to 
exam how best to serve the 8(a)'s; the HUBZone; the small, 
disadvantaged business community; as well as women and the 
veterans. We recognize the need to improve in this management 
in this important program and will use them, these resources, 
to determine how best to serve the community.
    As an 8(a) graduate myself, I understand the frustration 
that my colleagues in the 8(a) community feel when the 
application, the contract approval--
    ChairwomanVelazquez. Mr. Hsu? Mr. Hsu?
    Mr.Hsu. Yes, ma'am?
    ChairwomanVelazquez. The time is expired. If you need like 
5 to 10 seconds to summarize?
    Mr.Hsu. Okay. Thank you.
    On behalf of the administrator, I relay his desire to work 
with the Committee to ensure the entrepreneurs will have the 
ability to compete with federal contracts and the work agency 
and help them to achieve the goal.
    So, Madam Chair, that concludes my testimony. Thank you.
    [The prepared statement of Mr. Hsu may be found in the 
Appendix on page 37.]
    ChairwomanVelazquez. Thank you, Mr. Hsu.
    Our next witness is Mr. Nigel Parkinson. Mr. Parkinson is 
the owner of Parkinson Construction from Brentwood, Maryland. 
He is testifying on behalf of the Associated General 
Contractors. You will have five minutes.
    Mr.Parkinson. Thank you, Madam Chairman.

 STATEMENT OF NIGEL PARKINSON, OWNER, PARKINSON CONSTRUCTION, 
     BRENTWOOD, MARYLAND, ON BEHALF OF ASSOCIATED GENERAL 
                          CONTRACTORS

    Mr.Parkinson. My name is Nigel Parkinson. And I am 
testifying on behalf of the Associated General Contractors, 
AGC, the nation's largest and oldest construction trade 
association. Founded in 1918, our association represents more 
than 32,000 construction firms nationwide. I serve as Senior 
Vice President of AGC of metropolitan Washington, D.C. And, as 
the Chairwoman said, I am also the President of Parkinson 
Construction Company.
    AGC is pleased to share our thoughts for this year, 
upcoming year, of transition of the Small Business Act. I am 
going to focus on the changes agency made by recommending for 
the impact of contract bundling and the growing concern over 
large construction contracts. AGC can be committed for the 
opportunity to ally these areas of concern to the construction 
industry.
    Contract bundling has been a concern in the construction 
industry for several years. While there is no clear definition 
of bundling, it appears that consolidation of various projects 
is occurring more frequently. Small contracts are being bundled 
to result in large dollar solicitations that small businesses 
are not able to compete for unless they are partners with large 
firms.
    While on the surface this may not seem harmful, this 
practices on the mind's intent of the small business program by 
allowing large business to obtain money set aside for smaller 
firms. AGC recommends that the federal government annually 
reports to Congress on contract bundling so that the magnitude 
can be gauged and the trend can be spotted and addressed by 
Congress. In addition, Congress should require SBA to monitor 
not only total volume of small business contracts, but the 
number of total contracts and the size of this contract as 
well.
    The contract bundling institution is further compounded by 
the fact that small business set-asides keep increasing. A now 
overwhelming number of special preference programs leaves 
little work for small businesses with target preference and 
medium-sized businesses able to compete for work.
    Right now our federal contracting options are very limited. 
We have found it difficult to compete on projects currently 
available for building our own backyard here in Washington, 
D.C. because absolutely every project because of size has a 
preference attached to us. That has excluded us from competing 
for the work.
    Contract bundling combined with pressure on agencies to mix 
your small business charges with different goals is leaving 
firms like mine with no opportunity to grow our businesses. As 
a result, we are often shut out of the federal market.
    Rather than creating a new specialty set-aside goal, the 
Congress should, instead, focus on how the existing programs 
can be improved to increase opportunities for small firms. As 
the Committee moves towards the utilization of the SBA 
programs, construction as an industry should be included in any 
revised definitions of the contract bundling to ensure that 
these consolidations are reviewed for potential negative impact 
on existing small businesses.
    Additionally, agencies concerned that SBA does not 
currently have planning for additional resources devoted to 
ensuring that small companies are not economically aggrieved by 
contract bundling, there is currently an insufficient number of 
procurement censors representative in the SBA to monitor 
bundled contracts.
    As a small business community, we view the issue of 
contract bundling as the time is out to move forward to solve 
the problem, the main issue being that contractors need to 
experience as prime contractors in order to go.
    In the past, increased use of subcontracting has been the 
answer to provide small businesses opportunities to work on 
federal contracts. In the construction industry, small business 
has proven to be an asset. The construction industry has proven 
that small businesses can compete as prime contractors on a 
relatively level playing field. Working from a prime contractor 
opportunity for small to medium-sized businesses should be the 
solution the government and the Committee should seek.
    Since we are talking about the issue of contract bundling, 
I would also like to mention continued concerns by the growing 
reliance on the use of Alaskan Native contracting in sea by the 
federal agencies as a means to easily attain small business 
contracting goals.
    A special contract is awarded to an ANC and is available by 
the traditional 8(a) program. And we believe that this program 
is clearly being used by procurement agency as a tool for 
contracting officials to meet their 8(a) goals.
    We understand the ANC matter is currently under 
consideration by the Committee. And we look forward to working 
with the Committee on this particular issue.
    [The prepared statement of Mr. Parkinson may be found in 
the Appendix on page 41.]
    ChairwomanVelazquez. Thank you, Mr. Parkinson.
    Our next witness is Mr. Todd McCracken. Mr. McCracken is 
the Senior Director of Government Affairs for the National 
Small Business Association. Welcome.
    Mr.McCracken. Thank you very much, appreciate the 
opportunity to be here, Madam Chairwoman.

STATEMENT OF TODD McCRACKEN, PRESIDENT, NATIONAL SMALL BUSINESS 
                          ASSOCIATION

    Mr.McCracken. Again, my name is Tom McCracken. I am the 
President of the National Small Business Association. We are 
the oldest national small business advocacy association, United 
States. And I would like to thank you just for the chance to be 
here, for the opportunity to comment on H.R. 1873, which we 
certainly comment the introduction of, and we are very pleased 
to see the progress it would make for small businesses.
    Federal procurement is of singular importance to many small 
businesses. And small business participation is crucial to 
helping the competitive federal procurement process. In other 
words, expanding the access of America's small businesses to 
federal contracts is beneficial to all involved.
    The importance of expanding small business access to 
federal contracts is certainly recognized by the membership of 
NSBA, which has identified small business contracting as one of 
NSBA's top priority issues during our recent biennial small 
business congress.
    First, I would like to talk a little bit about the small 
business contracting goal. We are pleased to see that H.R. 1873 
would expand the goal to 30 percent for all federal contracts. 
NSBA welcomes the bill's stipulation that each federal agency 
would have an annual small business procurement goal not lower 
than the government-wide goal because there, as you probably 
all know, have been some issues with that in past years.
    Further, we are also pleased that the bill would increase 
the small business contracting gaol and will be benchmarked in 
relation to a more accurate and inclusive federal procurement 
tally that finally will incorporate contracts carried out 
abroad. The inexplicable exclusion of various kinds of 
contracts, such as those carried out overseas, has distorted 
the reality of contracts from the government's small business 
procurement calculations too frequently. And they have resulted 
in escalating exclusions and creative bookkeeping, rather than 
increased small business contracting or even accurate data 
collection.
    Federal contracting is of great importance to small 
businesses as well, despite the absence of the government-wide 
subcontracting goal. From F.Y. '85 to F.Y. '04, small 
businesses received between 34 and 42 percent of all federal 
subcontracting, according to a recent working paper produced by 
the SBA Office of Advocacy. H.R. 1873 would include the entire 
contract award for calculating the percentage of small business 
subcontracts awarded and not just those dollars that are 
subcontracted.
    NSBA also welcomes the subcontracting and enforcement 
mechanism in H.R. 1873, under which prime contractors would 
receive bonus credits for their next bids upon achieving their 
subcontracting goals.
    We do continue to advocate, however, for the codification 
of payment history in the federal evaluation of all prime 
federal contractors as well. In fact, almost 70 percent of the 
respondents to a recent procurement survey we conducted 
supported including payment history and federal evaluation 
process of all prime contractors according to our early 
results.
    I would also like to bill a little bit on the contract 
bundling issue. We think it is really at the center of the 
issues that small businesses face in the procurement world. And 
we are very supportive of the things that the legislation does. 
We think, as I am sure most people in this room probably do 
agree, that we need to more, however.
    In that same survey I mentioned before, over 30 percent of 
the respondents had firsthand personal experience losing out on 
a federal contract, specifically because of contract bundling. 
And bundling statistics that are out there now that we talk 
about are based on a more broad definition of contract 
bundling, that currently used by the federal government, the 
ones that actually show how bad the problem is because the 
federal government lies in our limited definition focused 
exclusively on whether one of the contracts was previously 
performed by a small business.
    This overly narrow definition warps the government's 
calculations on the prevalence of contract bundling in the 
federal procurement arena. And we have long advocated for the 
expansion of the term to include any instance where two more 
individual contracts are combined. So NSBA welcomes efforts 
such as the one in the bill to enhance the definition of 
contract bundling.
    And, finally, I have mentioned data. I would like to talk a 
little bit about reliable and accurate data because that is a 
big problem. Time and again, it has been demonstrated that a 
large number of contracts ostensibly awarded to small 
businesses actually have been awarded to and carried out by 
larger firms. The Office of Advocacy study has found that 44 of 
the top 1,000 small business contractors in 2002 were not, in 
fact, small businesses.
    These exclusions of various kinds of contracts dilute the 
actual procurement data. And we continue to support the 
improvement in that data, such as what is done by H.R. 1873.
    So we think the bill establishes a whole range of 
benchmarks that will move us forward on improving the small 
business procurement system. And we want to thank you for 
introducing the bill. And we want to thank you for giving us 
the opportunity to comment upon it. Thank you.
    [The prepared statement of Mr. McCracken may be found in 
the Appendix on page 44.]
    ChairwomanVelazquez. Thank you.
    Our net witness is Ms. Emily Murphy. Ms. Murphy is counsel 
for Miller and Chevalier, Chartered. Prior to this, she was on 
the staff of this Committee under Chairman Jim Talent. Emily 
served in the administration of both the SBA and the GSA. We 
are happy to welcome you back to the Committee.
    Ms.Murphy. Thank you very much.

  STATEMENT OF EMILY MURPHY, ATTORNEY, MILLER AND CHEVALIER, 
                           CHARTERED

    Ms.Murphy. I am very happy to be here. It really is a 
homecoming. I also want to comment you all for taking the time 
to study these important, what I consider exciting issues and 
introducing the legislation, which is a great step in 
addressing a lot of the problems that small businesses are 
facing in government contracting.
    I am here today even as a lawyer for Miller and Chevalier, 
but I am representing myself. I am not speaking on behalf of 
any of Miller and Chevalier's clients, whether they be small or 
large businesses, or on behalf of the American Bar Association, 
for whom I chair their Committee on Small Business and Other 
Socioeconomic Programs.
    I also just want to say that my written testimony is a 
comment on a prior draft of the legislation. So I am hopefully 
going to be able to tweak it a little bit here today.
    There is so much in this legislation that it is hard to 
even figure out how to start and get it done in five minutes. 
So let me dive right in.
    I want to thank you, first of all, for addressing what I 
consider the key questions in government contracting. What kind 
of opportunities should be made available for small businesses? 
Who is a small business? And how do you make sure that those 
two connect, that those opportunities really are going to 
legitimate small businesses? I think by addressing contract 
bundling, this can be taking an important first step at 
recognizing what opportunities should be available to small 
businesses.
    In the past year, in fiscal year 2006, the federal 
procurement data system was only able to identify 43 contracts 
over $5 million as having been bundled. And those contracts 
totaled over $5 billion. But when you talk to other small 
businesses, you will find that there are a lot more than 43 
contracts being bundled. And so where is the disconnect?
    I think that a lot of that disconnect is in the definition, 
which this Committee is addressing. The prior definition that 
was put into law in 1997 by this Committee took the first 
putting out the primary award for what is contract bundling but 
in doing so stated that contract bundling had to have been for 
work that was currently being performed by small business or 
was suitable for award to small business. So it had to have 
been existing requirements.
    Contracts evolve over time, and requirements evolve. So 
that our changing the definition with H.R. 1873 to include new 
requirements, the Committee is bringing in a whole new scope of 
contracts review. And that is going to create important 
opportunities for small business.
    I also want to commend the Committee for looking at the 
idea of task orders and including those in the definition of 
contract bundling in the review. I would want to argue that 
there are different types of task orders and maybe some 
distinctions need to be made between those task orders, 
specifically that task orders about single award contracts may 
not always be appropriate for review; whereas, the prime 
contractor in a multiple award contract may need review 
depending on whether it is a limited duration contract, but the 
task orders always need review.
    So if it was possible to address that language, I think 
that would help target the limited resources that exist for 
ensuring small businesses can compete.
    I also want to thank you for taking the time to address 
what happens when SBA doesn't get the information on contract 
bundling and giving SBA the right to intervene at that point. I 
think that is going to give them a lot more fact-finding 
ability.
    I noted that you have given them ten days to respond. And 
my question would be, what happens if those ten days hit the 
end of the fiscal year? I would love to see us create a 
situation where agencies want SBA to evolve, to get involved 
and intervene.
    And I would suggest that you might want to look at the 
fiscal laws that involve those dollars. If there were some way 
to keep those dollars valid and valuable until SBA completed 
its review, even if it crossed fiscal years, you might actually 
have agencies beginning SBA to intervene.
    Also, I know this Committee wanted to address the small 
business reserve. And I think that time idea of the small 
business reserve as a simplified acquisition threshold makes a 
lot of sense.
    The small business reserve is currently any contract below 
$100,000. The simplified acquisition threshold is in most cases 
$100,000. However, the simplified acquisition threshold also 
has its minimum, of which the micro-purchase threshold applies. 
And that's $3,000 right now. It may make sense to tie the 
bottom level of this range to the micro-purchase threshold.
    The one question I would like to see the Committee address, 
though, is what happens in times of emergencies. In times of 
emergencies, the simplified acquisition threshold can currently 
be raised to $25,000 for micro-purchases, and up to a million 
dollars for the simplified acquisition threshold. The Committee 
may want to address what ramifications that would have and 
whether added flexibility needs to be incorporated.
    Moving on, since I know I am running out of time, when it 
comes to recertification, which is really the key question to 
address who is a small business, the Committee may want to look 
also at the--in H.R. 2802, which I believe that the Chairwoman 
cosponsored, the Committee suggested that there be a five-year 
review and recertification. And I think that is now in 
regulation.
    This legislation suggests that there will be an annual 
review for companies that are within 80 to 95 percent of the 
size standard. This seems a little difficult for those 
businesses to have that annual review just at a time that they 
are changing their rules. I would suggest that unless they are 
exercising an option, that they be allowed to rely on that 
initial certification because it is not going to go beyond a 
five-year period.
    With small businesses who are legitimate small businesses, 
when they get a contract, grow because of that contract, you 
want to make sure that they have the planning and the time and 
place to make that transition seamlessly. And that is something 
that I believe that the Committee recognized with 2802 when 
they gave the presumption that a business could continue to 
remain small, even if it exceeded the size standard? It may be 
worth considering some of those provisions going forward as 
well.
    Finally,--I promise I will wrap up--as the Committee is 
looking at certifications and databases and where small 
businesses represent themselves, I would hope that they would 
also look at the online representations and certifications 
application or Section K of any application because that is 
where true enforcement can take place. That is where an agency 
can say, ``A firm has misrepresented their size status to us, 
and we are going to go forward.''
    It would be helpful if we could further identify what the 
damages are to the agency at that point in time so that they 
would have a greater bassi for any legal action they were going 
to take. I think that will really help resolve the problems of 
inadvertent or intentional misrepresentations.
    Thank you so much for this opportunity to testify here 
today. And I look forward to answering any questions. I 
apologize for going over.
    [The prepared statement of Ms. Murphy may be found in the 
Appendix on page 49.]
    ChairwomanVelazquez. Thank you so very much, an incredible, 
incredible testimony. Thank you.
    Our next witness is Mr. Grady Taylor. He is the Executive 
Vice President of the TriMega Purchasing Association, a 500-
member organization of office products suppliers. Welcome.
    Mr.Taylor. Thank you, Chairwoman Velazquez, Ranking Member 
Chabot, and the Committee.

 STATEMENT OF GRADY TAYLOR, EXECUTIVE VICE PRESIDENT, TRIMEGA 
                     PURCHASING ASSOCIATION

    Mr.Taylor. I am pleased to be here today to testify before 
your Committee on this very important issue. TriMega Purchasing 
Association is a not-for-profit member-owned cooperative 
focused on the success of the small and independent office 
product dealer. We are the largest such entity in the country.
    If you want to buy office products, there are two ways to 
do so. You can either buy them from a small, family-owned 
company or you can buy them from large, billion-dollar 
corporate companies, of which there are four. Regardless of 
whom you buy your supplies from, both groups are serviced by 
the same wholesalers and manufacturers.
    When you purchase office supplies, they are coming from the 
same major wholesalers and manufacturers. And, in fact, the 
only difference in our industry is size.
    Where TriMega comes into play is that we have successfully 
negotiated on behalf of our independently owned dealer members 
competitive costs of the goods agreements with those same 
wholesalers and manufacturers in order to bring parity to the 
marketplace.
    In spite of that, the office products industry is one, if 
not the most, negatively affected by the issues we are here to 
discuss today. The reason I say this is that when the federal 
government decides to implement a new pilot program that is 
supposed to make the purchasing of goods and services more 
efficient and cost-effective for the government, they usually 
use office products as a first product to test.
    For some reason, the myth in the federal government is that 
buying office supplies is an easy process, the myth perpetrated 
in the '90s by the reinvention of government. I mean no 
disrespect to former Vice President Al Gore, who is credited 
with the reinvention of government concept as at the time, he 
made it look good on paper, but the actual implementation of 
the process has been bad for small business, especially those 
in the office supply industry.
    Streamlining the government to make it more efficient is a 
good idea, but what the federal government has failed to do in 
its design phase is consider all of the issues that go into the 
buying process. It is simply not enough to look at pricing. You 
need to consider service; history of a company; capabilities of 
the company; and, most importantly, the impacts on the 
community your decisions will have if you severely limit the 
number of vendors able to sell to the federal government.
    Limiting your choices of vendors means lost jobs for small 
business, lost tax revenue for the federal government and local 
community. And it means the inability of small businesses to 
grow and thrive.
    Contract bundling has had a negative effect on industry. 
When you continue to make contracts larger and larger, new 
myths are perpetrated. When it comes to contract bundling, the 
myths we still hear from agencies are that independents cannot 
service large national contracts because they are not 
sophisticated enough.
    This is another myth started in the '90s. And, 
unfortunately, it continues today. The reality is independent 
dealers can service national, large national, contracts. We are 
doing it and doing it successfully when given the opportunity 
to compete on a level plaything field.
    I am still stunned to hear how surprised some agencies are 
to learn that independent dealers have Websites, online 
ordering capabilities, quality customer service, and the 
ability to accept government credit cards. We can do that and 
more.
    Four years ago, we came to Congress with these concerns. 
And we were told it was unlikely Congress would address our 
issues. If we hoped to be effective in the government market, 
we needed to change our industry. We did just that.
    The rules governing how and who does business with the 
government were still not in our favor. And it is our hope that 
this time Congress will act to level the playing field. Without 
your help now, industry faces a greater problem than contract 
bundling.
    As you know, the administration is in the process of 
implementing what it calls strategic sourcing initiative. This 
process may be good for industries where subcontracting 
opportunities exist, but it could be the program that drives 
independent office products dealers from the federal market.
    Strategic sourcing is a new contract bundling of our time 
and if fully implemented will mean the federal government will 
do business with less vendors, it will not get the cost savings 
they are seeking due to the lack of competition, keeping 
vendors honest. This is neither good for the government nor 
small business because the likely winners of these contracts 
will be large corporations.
    We have witnessed firsthand the effects this program is 
having on small businesses through the $100 million award made 
to a large corporate entity in our industry by the Department 
of Health and Human Services, the first of many contracts to be 
awarded as part of the administration's strategic sourcing 
initiative.
    I would also like to take this opportunity to highlight 
another issue facing small businesses that doesn't get much 
attention. That is the issue of pass-throughs. Today you have a 
lot of large companies using small businesses to gain greater 
access to the federal government market.
    The way this works is a large company will approach a 
legitimate small business and create a relationship they label 
as mentoring. There is absolutely no mentoring going on. It is 
nothing more than circumvention around the intent of the 
statute.
    Really, what happens is when a government agency wants to 
buy office supplies, they are using the small businesses who 
were awarded the contract, but the fulfillment and all of the 
work comes from the larger companies. In return for their 
willingness to sell their small business status, these dealers 
are getting a percentage of the sale but doing nothing. And the 
large corporate company continues to build its revenues and 
access to the market.
    Not only is this abuse bad for the entire independent 
community, it is bad for the government. By turning a blind eye 
to these abuses, the government is taking credit for small 
business purchases that help agencies meet their 23 percent 
small business goals, even though these purchases were made 
through a large company.
    In most cases, the only thing the small business provides 
is its Website is a face for these pass-throughs. This practice 
helps the agencies build up their small business purchases, 
making it look as if they are doing everything they can to meet 
the needs of the small business community.
    ChairwomanVelazquez. Mr. Taylor?
    Mr.Taylor. Yes?
    ChairwomanVelazquez. Time expired.
    Mr.Taylor. Yes.
    ChairwomanVelazquez. Would you summarize, please?
    Mr.Taylor. Chairman Velazquez, more can be done. In fact, 
more has to be done. Our industry cannot continue to fight an 
uphill battle without your help.
    Thank you for all of your support. You have been a real 
strong advocate on our behalf. And you give us hope that we can 
make positive changes to the process. Thank you.
    [The prepared statement of Mr. Taylor may be found in the 
Appendix on page 69.]
    ChairwomanVelazquez. Thank you.
    And the Chair now will recognize Representative Braley from 
Iowa, who is the main sponsor of the Small Business Fairness in 
Contracting Act, H.R. 1873, for an opening statement.
    Mr.Braley. Thank you, Madam Chairman. And thank you for 
holding this important hearing.
    Over the past five years, government agencies have greatly 
increased contract bundling, oftentimes combining small 
businesses. They are combining work small businesses could 
perform into giant packages that exceed small firms' ability to 
compete for this work. But during that same 5-year period, 
total government contracting has increased by 60 percent while 
small business contracts have decreased by 55 percent.
    This is unacceptable. That is why on Tuesday evening I 
introduced H.R. 1873, the Small Business Fairness in 
Contracting Act. This bill will unbundle many of these 
contracts and level the playing field for small businesses. The 
bill will ensure proper competition among many businesses, 
saving taxpayer money and opening up opportunities for 
America's small businesses.
    By law, federal organizations are required to support small 
businesses. However, contract bundling has resulted in less 
small business participation in federal contracts. It is 
essential to help remove the barriers blocking small businesses 
from entering into the nearly $400 billion per year federal 
marketplace.
    Small businesses are the number one job creators in this 
country. And we need to ensure that this engine not only 
remains healthy but also has the support that it needs to grow. 
Let's make sure small businesses are not shut out of the 
federal marketplace.
    Unfortunately, my state, Iowa, ranks near the bottom in 
terms of government contracting dollars awarded to small 
businesses. Small businesses are the backbone of the 
communities within my district in Iowa, as they are in most 
congressional districts. allowing them a fair opportunity to 
bid on federal contracts can bring economic vitality to these 
towns and cities.
    Today I am hopeful we can begin a discussion that sends a 
message to small business owners that they will get a fair 
opportunity to compete for and win federal contracts.
    Thank you again, Madam Chairwoman, and thank you for the 
witnesses who came in today and shared this valuable testimony.
    ChairwomanVelazquez. Thank you, Mr. Braley.
    And now I would like to address my first question to Mr. 
Hsu. Mr. Hsu, I have met with the administrator, Mr. Preston, 
on several occasions. And one of the issues that I have been 
discussing with him is miscoding.
    I know that you have been in your position only four weeks, 
but today you are the witness representing SBA on this issue. 
So you are sitting in the hot seat.
    My question to you is, given the fact that your former 
company, MTI, still is being miscoded as a small company, so 
you bring a new perspective into your new job and given the 
fact that miscoding is a real problem for us, I will ask you 
how are you going to approach this issue?
    Mr.Hsu. Yes, ma'am. Yes. Miscoding for sure, I agree, is a 
very important issue. Speaking for SBA, we are doing something 
about it. The new recertification rule will be applied in the 
end of June. After simplifying these, there are two things 
about this. The small business must recertify after the five 
years after long contract, long-term contract.
    And, secondly, if the small business gets acquired or are 
buying somebody, they have to recertify. So that will ensure--
    ChairwomanVelazquez. Now let me just say that the actions 
taken by the administrator regarding the miscoding issue only 
address 20 percent of the whole problem. So this is why we need 
to get this legislation passed.
    Mr.Hsu. Yes, ma'am.
    ChairwomanVelazquez. Let me talk to you about the fact that 
from 2004 through 2006 SBA filed 4 secretarial appeals on 
contract bundles. And it seems to me that SBA is like the 
Washington Generals. We lost 2,495 straight games to the Harlem 
Globetrotters.
    (Laughter.)
    ChairwomanVelazquez. Since SBA has not been able to win one 
of those appeals, how do you think the appeal system is 
working?
    Mr.Hsu. Madam Chair, SBA as of today, at my office, I have 
54 procurement representatives. And they review anywhere 
between 50,000 to 60,000 requirements every year. So that's 
average about 1,000 review requirements per year.
    Yes, we filed the secretarial appeal on the average about 
five to ten years, but, again, this is my own philosophy. I 
feel like we need to try to work things out with agencies to 
secure the small business opportunities before they take the 
action a more formal way. Many of our successes occur in this 
level.
    ChairwomanVelazquez. I hear you. Given the facts of a poor 
record of SBA regarding appealing those contract bundles, are 
you telling me that how many PCRs are you hiring?
    Mr.Hsu. Fifty-four right now.
    ChairwomanVelazquez. Does that mean--
    Mr.Hsu. We expect to get to 66 by the end of this year.
    ChairwomanVelazquez. Do you think that will be enough?
    Mr.Hsu. Yes, I do because these are the very experienced 
PCRs. They understand the agency's requirements. And also we 
are working very hard to provide them with all the training 
tools. One of them, for example, is the quick market search.
    ChairwomanVelazquez. Sir, the problem that we have is that 
SBA is going to have fewer, even of the 54 PCRs that you are 
telling me, they are going to have fewer, than the agency had 
in 1993, when federal buying was $100 billion less than in F.Y. 
2005.
    Mr.Hsu. Well, there are tools available, Madam Chair. The--
    ChairwomanVelazquez. I guess those tools are not working, 
sir, given the track record and continuing to lose your appeals 
to those agencies.
    Mr.Hsu. I will take a look on that.
    ChairwomanVelazquez. I will recognize Mr. Chabot.
    Mr.Chabot. Thank you very much, Madam Chair.
    Mr. Taylor and Mr. Hsu, if I could address my first 
question to you two? Mr. Taylor, could you briefly describe 
what you described before relative to a lot of these office 
supply arrangements, where you have a small business who really 
is kind of a front man and you have somebody else that is 
really getting it and not getting the work?
    And if you could listen to this, Mr. Hsu?
    Go ahead, Mr. Taylor?
    Mr.Taylor. Okay. Thank you.
    The situation we have, you know something is not right when 
you have a firm that has 3 employees and is doing over a 
billion dollars a year in business. Those guys work awfully 
hard. And basically what happens is they are approached by one 
of the four corporate players we were talking about earlier and 
say, ``We can bring this business, but we need to run it 
through you. We will pay you a certain percentage.''
    Basically you go to their site. The contract is, all the 
computer work, the e-commerce is, all put together by the 
publicly traded corporation. But, in essence, the agency that 
is doing the procurement is getting credit for doing business 
with small business. We are saying that is nothing but a 
circumvention over what the intent was supposed to happen.
    Mr.Chabot. And, again, following up with what the 
Chairwoman said, Mr. Hsu, even though you have only been there 
four weeks, I am just wondering, do you know if the SBA has 
been aware of this information? And is there anything currently 
being done to remedy that, do you know?
    Mr.Hsu. Yes, sir. As a matter of fact, last week I had a 
meeting with the administrator. And we did talk about that. But 
my point is this, though.
    There are so many different types of small business. The 
small business can be manufacturer. The small business can be 
dealer. A manufacturer, a three-people company, it is almost 
impossible to do one billion dollars. But if this is a 
dealership, distributor, that can be possible because they deal 
with a big, big, big amount of business as a distributor or 
dealership.
    And the bundling, sir, if I may, yes, SBA we understand 
these are very important issues. And as a small business owner, 
I can relate some of my experience in dealing with the 
bundling.
    Very quickly, back in the early 1990s, I received, as I 
recall, anywhere between 2 to 3 a day from the PCRs calling 
them breakout specialists because their job is to break a big 
contract out to smaller contracts so I can bid on them. And 
they require three small businesses per separate contract so 
they can do that. And now, like the pendulum shifted the other 
way.
    But, again, the problem is this, though. I don't think the 
definition is the issue. I think the enforcement is the issue. 
There are contracts that are suitable for bundling; for 
example, like fire control systems. You want one company to 
build that.
    But, again, the maintenance contract, for example, that is 
not a good idea to bundle because that requires some lawn 
services, regards some janitorial, regards elevator repair. So 
those are not good for bundling. So we need to concentrate on 
the enforcement, instead of a definition.
    Mr.Chabot. Thank you. I would just say that I think we need 
to look closely at what the congressional intent was here 
relative to doing what we can to make sure that small 
businesses get their fair share of the business nationwide and 
what that does to the economy. And there are policy issues.
    So I think, you know, it may be necessary for Congress to 
look at this issue very closely and make sure that the 
administration and the SBA know what the intent is and make 
sure that it is ultimately carried back. I appreciate your 
comments.
    Ms. Murphy, if I could turn to you at this point? I have to 
say I was very impressed with your testimony. And, really, all 
of the witnesses were very good, but, I mean, you know, you 
certainly have a wonderful grasp. I was impressed with you 
saying how exciting this issue is, too.
    [Laughter.]
    Mr.Chabot. I would be interested to see how you would be 
under something that really is exciting, not that this isn't, 
of course.
    [Laughter.]
    Mr.Chabot. But if you wouldn't mind--and I think, Mr. 
Braley, if I am not mistaken, has this changed a bit, your 
bill, or is it evolving somewhat or is it pretty much in its 
final form at this point?
    Mr.Braley. It was filed yesterday.
    Mr.Chabot. It was filed yesterday? Okay. I would be very 
interested--and I am supportive of the bill, and I think its 
intent is very good. If you wouldn't mind, with your expertise, 
having been on this Committee and etcetera, now being in the 
private sector, I would be interested to see if you could go 
through this and perhaps critique it somewhat and make any 
suggestions that you think might be helpful. And then both 
sides could take a look at that and see if they are warranted.
    Obviously we are not the fawn of all wisdom, nor even that 
much of it, to tell you the truth, but we try. And so we may be 
able to improve this bill and make sure that it benefits the 
small business community even more than its intent is right 
now. And I don't know if you would like to comment on that.
    Ms.Murphy. Well, I would be thrilled to provide any 
assistance I can with this because I know that you were saying 
that you would like to see me with something that is even 
really exciting, but I spent the last ten years focusing on 
this area. And I do think it is exciting.
    I think it is a great area where you can figure out how to 
make sure that taxpayers get the best value for every dollar 
spent and that you are creating jobs and that you are bringing 
new technologies to the government and that you are making the 
system work. I think it is fun.
    So I would love to sit down and talk to you about that or 
with anyone who wants to talk to me about it. I have a feeling 
I am not getting a lot of offers.
    I highlighted a couple of areas where I thought that some 
changes might be appropriate, particularly in the area of 
recertification and in the area in looking at various types of 
indefinite delivery vehicles. And it is a very technical area, 
but it could really help better focus where a limited number of 
PCRs and the contracting personnel are spending their time.
    Two very general comments I would make on it, though, would 
be that any regulations that the Committee requires to 
implement this, I would strongly suggest that they be put in 
place simultaneously with changes to the federal acquisition 
regulations.
    Most acquisition professionals do not spend a lot of time 
reading 13 CFR, the contracting officers on the line day to 
day. By having the two occur simultaneously, you end up having 
less confusion between the two different sets of rules and 
regulations and making it a more consistent process so that it 
is implemented uniformly.
    I would also suggest that at the same time that the 
Committee require that training be provided to contracting 
officers and contract specialists across the government, not 
just to small business technical advisers, because often 
training on small business programs isn't made available as 
quickly to contracting officers for the ones who have to 
implement the programs. And there is funding through the 
acquisition workforce training fund that could easily be tapped 
to do that.
    I know that one of the issues that the Committee is looking 
at is appeals on bundling. And I know that the legislation has 
provided to address having that appeal go to the Office of 
Federal Procurement Policy. There is currently a statutory 
provision, though, in the Office of Federal Procurement Policy 
Act that prohibits the administrator from becoming involved in 
specific procurements.
    And there are some legitimate reasons why you would want to 
keep decisions about individual contracts out of a political 
office. Depending on which direction the Committee decides to 
go, you need to amend the underlying LFPP Act as well or you 
may want to consider putting that appeal process someplace 
else.
    GAO might be a place. Agency IGs might be an interesting 
idea as well. I haven't thought this one through completely, 
but an agency IG would be better positioned to understand both 
the agency's opinion, have expertise and insight into that 
agency's contracting programs, and still have independence so 
that they could be weighing those decisions. Those are just a 
few things that come to mind.
    Mr.Chabot. Thank you very much.
    Madam Chair, I yield back the balance of my time.
    ChairwomanVelazquez. Mr. Jefferson?
    Mr.Jefferson. Thank you, Madam Chair.
    Mr. Hsu, I have been waiting for you for a long time. The 
job that you have has been vacant for 18 months. It is a very, 
very important job. As I appreciate it, you are to aggressively 
advocate with the 23 or 24 federal agencies that are out there 
for them to set aside, if you will, contracts for small 
business procurement.
    I mean, the job hasn't been done for 18 months. At least it 
hasn't been done by anyone who has had the single focus of this 
work. What is your plan to contact these agencies? What are you 
going to do that will be different and aggressive about getting 
this job done that will have the agency setting aside these 
opportunities and to look forward to getting them accomplished?
    Mr.Hsu. Thank you, sir, for the question. Yes. We are 
implementing a program that is called the SCORE CARD. And so I 
plan to start visiting the agency. And I just had a wonderful 
meeting with the DOD, Linda Oliver. And so by next week, I will 
have my first meeting with the Air Force and then the Navy and 
the Army and the Marine Corps. I want to attack the DOD first.
    Mr.Jefferson. What schedule are you working on to get 
through all of these agencies? In three months? In four months? 
When do you think you will have contacted all of the agencies 
to develop a plan with them?
    Mr.Hsu. Well, it depends on how many hours I work, sir. But 
I would say probably 9 months I would be able to visit all 24 
agencies.
    Mr.Jefferson. Well, that is a real long time. It puts down 
the road. We have 18 months waiting for you, and we have got 9 
months to wait for you to get at least talking to them and 
getting some goals set.
    Now, we had a meeting down in New Orleans here recently 
that the Chair Lady took our Committee down. We dealt with 
local contracting issues and the issues of how the agency would 
handle emergencies.
    That is a real set of questions for us now because we are 
in a recovery phase back home; in New Orleans, I should say. 
Only 70 percent of the contracts that are being let are local.
    How much are you focusing on a place on this issue?
    Mr.Hsu. I was mentioning that we have 54 PCRs and in 6 
different areas. The New Orleans area, I believe, is area 
number five. And that will be the first area that we are going 
to implement this quick market search. And we are going to 
refocus the PCRs' effort. And, in other words, sir, instead of 
letting the PCRs concentrate on the 77 percent of those 
unrestricted contracts, we are going to ask them to look at the 
23 percent which has already been set aside.
    ChairwomanVelazquez. Would the gentleman yield? Sir, we 
help Bill in New Orleans. And it is clear there is a problem 
with contracting money going to local small businesses, not 
only to small businesses but local small businesses. I 
understand you have five PCRs assigned to that area.
    Mr.Hsu. Right, right.
    ChairwomanVelazquez. And, yet, only seven percent of all 
contracting dollars have been going to local small businesses. 
I instructed the administrator in that hearing to meet with 
every agency that is involved in that area and to identify five 
prime contracts for small businesses. So, again, I am going to 
reinstate and to make it clear to the administration that we 
are going to be following it up.
    We gave 30 days for the administrator to come back to us 
regarding contracting practices in the Gulf Coast. So this is 
quite important for this Committee but, more importantly, if 
this administration is really concerned and committed with the 
rebuilding and revitalization of the Gulf Coast.
    Mr.Jefferson. Madam Chair, if I might ask you or as you--
    ChairwomanVelazquez. Thank you for yielding.
    Mr.Jefferson. Yes, ma'am, but as you are in the process of 
trying to figure out the directive, if you will, you want to 
give to the agency, one might be to make sure that there is an 
accelerated schedule on meeting with these agencies to get some 
focus out of them about what they are going to do here. Nine 
months isn't a very good plan.
    ChairwomanVelazquez. Well, you know, the duty, the 
responsibility of the Committee is not to do the job of the 
Small Business Administration. That is their responsibility. 
And if there is one thing about this Committee now under my 
leadership, it is going to be oversight. So we gave them 30 
days. And they will have to come back to--
    Mr.Jefferson. I appreciate that. With respect to Mr. Hsu's 
answer to my question, it was going to take him nine months to 
even talk to the agencies about getting after--
    Mr.Hsu. Well, sir, I--
    Mr.Jefferson. I hope we can accelerate this. I don't know 
what takes nine months to talk to agency heads.
    Mr.Hsu. Yes, sir. What I was referring to is to provide all 
the training and everything in nine months. But just talking to 
them, no, I don't need nine months to do that.
    Mr.Jefferson. When you talk to them--
    Mr.Hsu. Probably a couple, you know, two, months.
    Mr.Jefferson. Yes. I hope you will emphasize the notion of 
prime contracts versus subcontracts in your review with them, 
the commitment to the goals. I don't know how you feel about 
these goals. Do you think these goals that are set in here are 
too aggressive? Do you think that they are too aggressive? Do 
you think they are just right? Do you think they ought to be 
higher? What do you feel about the goals for minorities, for 
women, for small business generally, and for the local 
participation?
    Mr.Hsu. It is a statutory goal. And our job is to implement 
it. Yes, I definitely agree because as a former 8(a) business 
owner, I am all for that.
    Mr.Jefferson. Now, there is definitely a connection between 
the bundling and the bonding issues. The larger these contracts 
are, the less the bonding authorizations in the statute are of 
assistance to small business people.
    I don't know if in your experience you have determined 
whether these bonding issues are too low. We are trying to 
figure out how we can work the bonding a little bit better for 
the contract size, the sizes that are coming out now. Tell me 
how you feel about that.
    Mr.Hsu. Well, my understanding, when I was in the private 
sector, I owned a high tech electronic firm. I never had any 
kind of a bonding issue. But I do understand there are two 
different types of bonds: the performance bond and payment 
bond.
    I am going to defer to Mr. Parkinson.
    Mr.Parkinson. Well, traditionally the bond initiative has 
been a problem for small and minority contracts in construction 
and that there is a threshold. I don't know what the threshold 
is now for bonded projects. I think it is only 1,000-25,000.
    But I think that is something that if you want to achieve 
the participation in New Orleans and the Gulf Coast, that the 
SBA should look closely at that to see how they can assist 
small businesses.
    ChairwomanVelazquez. Time is expired. I'm sorry. Time is 
expired.
    Ms. Fallin?
    Ms.Fallin. Thank you, Madam Chair. I appreciate it, 
Chairwoman.
    Mr. Parkinson, can I ask you just a question about the 
contract bundling? I think you had said that it was more 
prevalent in the construction than any other kinds of 
contracts. Can you explain that a little further, please?
    Mr.Parkinson. Well, with bonding in construction is that 
you have the proliferation of the larger companies who can bond 
and a few companies who can bond large size projects. And by 
breaking up the project to smaller sizes, you get an increased 
number of contractors, medium size and small businesses, who 
can be able to participate in those contracting.
    And we have found that, even in this area, in the 
Washington area, where we operate, that a lot of large 
contracts exclude medium-sized companies in the $50 to $25 
million to be able to participate and work on this contract and 
prime contractors.
    As I alluded earlier, traditionally SBA has looked on the 
program to assist small businesses through the subcontracting 
mechanism. And we feel that after a while, you know, we have to 
grow up and develop into being prime contractors and that by 
having larger contracts, we cannot be able to develop from the 
subcontracting mode to become prime contractors.
    Ms.Fallin. All right. Thank you so much.
    Mr.Parkinson. Okay. Sure.
    Ms.Fallin. And I have another question for Mr. Taylor. You 
mentioned in your written testimony the positive experience 
your members have experienced in the teaming arrangements, 
enabling them to be selected for an award for large bundled 
requirements.
    Can you explain a little bit further how the process works? 
And are there any ways that we could improve that? And should 
agencies do more outreach to the vendors and federal 
acquisition committees in the teaming arrangements?
    Mr.Taylor. Thank you, Congresswoman. I think everything 
possible to ensure that small businesses get more business is a 
good thing, of course. What we have seen is large companies 
basically who have self-certified or actually outgrown their 
status continue to utilize the small business status keep 
getting the contracts.
    I think anything that would make the process more 
transparent would be good for the government and for small 
business.
    Ms.Fallin. And if I can just ask any of you--and, Emily, 
you or Mr. McCracken could answer this--I hear back in my home 
state in Oklahoma from our small business owners that so many 
times they just don't know how to always go about searching out 
the government contracts and getting the information. Some do 
that have been doing it for a while, but it seems like there is 
a population of the small business communities that are 
uneducated on this.
    Are there any ways that we could improve upon or outreach 
to educate the small business owner or the general public about 
what is available? What is your best suggestion for us to 
continue to reach out to those folks and help them learn how to 
work with the federal government on the contracting?
    Mr.McCracken. Well, I actually think that the best way is 
actually to begin on this path that we are talking about, which 
is breaking up a lot of the bundling, because what we have is a 
situation where the companies who are able to get these 
contracts are the ones who really know how the system works. 
They specialize in them. And the typical small business that 
might do the occasional government contract is the ones that 
are most left out, not exclusively left out, obviously. So I 
think that if we can improve the system, I think that is the 
most important piece of it.
    Outreach is what it is, but certainly being much more 
effective, I think, in electronic posting of things, although, 
actually, you have to know about them, but there are some 
private sector businesses that do a pretty good job of letting 
people know about opportunities as well. So the marketplace 
does, I think, work in that regard.
    Another issue that sort of ties into this that I would just 
bring to your attention, we talk to small businesses all the 
time because it sort of ties into teaming, although not 
exactly. We talk to small businesses all the time who feel like 
they were used kind of as a front for coming to get a contract 
because they say, ``Well, we are going to partner with this 
company.'' And they put them in their bid and they say they are 
going to use them, and they never do. In fact, that company 
never winds up getting used by the large company who gets the 
contract, even though they say they are going to. That is 
something that needs to be addressed as well.
    Ms.Fallin. Have any of you had any experience with the 
Indian tribes? I know I hear a lot about different companies 
trying to team up with Indian tribes to help them on getting 
federal contracts for small business.
    Mr.McCracken. It's not an area where I have a great deal of 
expertise. I know Mr. Parkinson mentioned it specifically in 
his testimony that it is an issue. It is certainly something 
that we have heard about and are looking into, but I couldn't 
speak to it specifically.
    Ms.Fallin. I think Paul raised his hand there.
    Mr.Hsu. Yes, I do. About ten years ago, when I was still in 
the private sector, one of my proteges was the tribal-owned 
company. The tribe is called the Muscogee Creek Indians. They 
are 80 percent the reservation in Alabama, 20 percent in 
Florida. So we had a strategic alliance agreement with this 
tribal-owned small machine shop. And we grew the company from 5 
people to about 150 people, yes, about 4 years after that.
    Ms.Fallin. Thanks. Thank you, Ms. Chair.
    ChairwomanVelazquez. Mr. Braley? Yes?
    Mr.Braley. Thank you.
    Mr. Hsu, that hot seat you are sitting in is about to get a 
little hotter. You made the comment ``I don't think the 
definition is the issue. I think enforcement is the issue.'' 
And then you said we need to concentrate on enforcement, not 
the definition. Yet, at the beginning of your testimony, you 
said, ``We are going to continue to hold agencies accountable 
for meeting the small business contracting goals.''
    I think there are people up here on this panel and a lot of 
people back there in the audience who believe your agency has 
not been enforcing the existing law, the existing regulations, 
and has not been holding agencies accountable for meeting the 
23 percent contracting goal.
    So what I want to know is how the culture of the Small 
Business Administration is going to change under your 
leadership to start to meet the goals that Congress has 
established to give small businesses their fair share of the 
pie?
    Mr.Hsu. Well, sir, as a former small business owner, I can 
tell you this.
    Mr.Braley. No, I don't want to hear your personal 
perspective. I want to hear what you are going to do to change 
the culture of an agency that, quite frankly, has not been very 
favorable towards the businesses it is supposed to be 
supporting.
    Mr.Hsu. Well, with my limited experience with SBA, that is 
quite contrary.
    Mr.Braley. Well, that is why we are concerned. You talked 
about having 54 PCRs who work under you.
    Mr.Hsu. Yes, sir.
    Mr.Braley. And, yet, even though my state represents one 
percent of the U.S. population and even though this Committee 
is fortunate to have two University of Iowa law school 
graduates serving as staff counsel, a remarkable achievement,--
    [Laughter.]
    Mr.Braley. --and considering the advice they provide the 
small business owners in the State of Iowa, we have no PCR 
serving the small business owners of our state, despite the 
fact that they represent an enormous component of the economic 
opportunity that businesses provide to the people of my state.
    Now, your agency administrator has talked about putting 
more PCRs in the field. And I want you to tell me and the 
people back in Iowa whether one of them is going to be in my 
state.
    Mr.Hsu. Well, it is a hot seat.
    [Laughter.]
    Mr.Braley. I think these are reasonable questions that 
taxpayers of this country have a right to know. Shouldn't there 
be a PCR in every state in this country? How do we expect to 
provide opportunity and access to small business procurement in 
federal agencies if we don't have a PCR assisting small 
businesses throughout this country?
    Mr.Hsu. Yes, sir. To me it's an issue of supply and demand.
    Mr.Braley. Well, I don't care about supply and demand. I 
care about the small businesses in Iowa or North Dakota.
    Mr.Chabot. Madam Chair, sir, if I could ask a procedural 
question? Is it the policy of this Committee to allow the 
witnesses to answer the questions?
    Mr.Braley. I apologize to the ranking member. You are 
absolutely correct. And I will certainly give the witness the 
opportunity.
    Mr.Chabot. And I think the gentleman raises very good 
points and points that deserve an answer, but I just think we--
    Mr.Braley. I apologize.
    Mr.Hsu. If the federal government issued a forecast--and we 
all know what the federal government, the DOD, the DOT, 
whatever, and they are looking for. And our job is to match the 
demand and the supply.
    I don't know the situation in Iowa, but I am hoping that 
there would be a lot of high tech small companies that can 
manufacture the guiding systems, the radar components, you 
know, and to supply the Boeing, the Lockheed, the Raytheons, 
the tanks, and whatever the government is required. And that is 
going to be our job.
    If your state has a big demand for those items, yes, we 
definitely will take a very hard look on that.
    Mr.Braley. But isn't part of the problem that there are 
states in this nation who are growing in population and 
business opportunity and there are states who aren't? And if we 
only tie PCRs and outreach to the states that are growing, we 
are going to continue to reinforce existing negative trends 
that affect businesses all over this country? Isn't that true?
    Mr.Hsu. Yes, sir.
    Mr.Braley. Mr. McCracken, I have a question I wanted to ask 
you. One of the things that we know is that this 23 percent 
contracting goal has been viewed by some agencies as a ceiling, 
rather than as a minimal goal.
    And one of the things you talked about was partnering 
abuse. And I wondered if you could offer some comments on what 
type of penalties might be necessary to minimize and eliminate 
partnering abuse.
    Mr.McCracken. Well, I certainly think that penalties ought 
to be relatively stiff for that sort of abuse because often 
because you have a small business that I believe is going to 
have a certain amount of work that is coming up. There are 
things that they have to do to get ready for that, but it winds 
up not happening.
    I mean, that is just how it affects the individual small 
company that is involved in that arrangement. It doesn't speak 
to the companies that may not get contracts at all because this 
contract went to a certain company because of what the agencies 
believed it was or was not going to do with the contract 
itself.
    So I think the penalties should be relatively stiff, you 
know, perhaps including and going beyond losing the contract. 
The key is there has to be review. I mean, right now they are 
able to get away with this for quite some time before there is 
the necessary follow-up on their subcontracting plans.
    So that really is the key, but we would favor pretty 
substantial penalties.
    Mr.Braley. Mr. Parkinson, right now the definition of 
bundling excludes certain types of categories. And one of those 
categories is construction. We have heard some testimony about 
why that has existed in the past and whether it is good or not.
    From your perspective, is there any good reason for 
including those categories like construction from unbundling 
requirements?
    Mr.Parkinson. Yes, sir. Because construction is a several 
billion-dollar industry. And the participation of small and 
medium-sized businesses is critical to that industry. And the 
fact that with large contracts, it limits the small and medium-
sized businesses to subcontracting mode.
    Now, the SBA should look and the Congress should look at 
how we can increase small and medium-sized businesses in 
participating on this federal contract as prime contractors. 
And by the bundling of these projects or these contracts, that 
will facilitate and enable several companies, especially if you 
talk about the State of Iowa and other parts of the country, 
where you do have large construction companies, most of the 
members, I would say that $50 to $75 million range. And so this 
would enable them to participate and get more work outside of 
the preference program.
    And, as I said earlier, if a lot of these programs are put 
in--if they are not pretty large, they are put in specific 
preference programs. And if you are not in a preference 
program, then you are excluded from participating in some of 
these contracts.
    Mr.Braley. Thank you.
    Mr. Hsu, I want to just close by assuring you that my 
frustration was not directed at you personally but, rather, at 
the agency that you are here to represent today and the fact 
that it has had an impact on business owners all over this 
country. And I think it is a cumulative frustration. So please 
accept my apology in the spirit it was intended.
    ChairwomanVelazquez. Well, the frustration--and I just want 
to say, look, you are here. You have been in the job only four 
weeks, but you are now in a position to say to the 
administration that they had better take corrective actions to 
deal with this issue. This is an issue that I have been working 
the last ten years, like Ms. Murphy said, that she has been 
working on, ten years that I have been issuing a scorecard.
    In fact, in 2002, I was so excited when I heard President 
Bush to issue his small business agenda. And he said that at 
the top of that agenda, the number one issue will be contract 
bundling.
    Well, as a reaction to my excitement to listen to his 
commitment to bundled contracts, I put together another report. 
And I said, ``Mr. President, here it is. You don't have to 
instruct the agency to do any research regarding mega 
contracts. Here is the list.''
    Do you know how many contracts that were in this list have 
been unbundled? Zero. So we are not going to give up. Believe 
me that we are not going to give up.
    The problem that you have, sir, is that back in 1993, you 
had 65 PCRs, 65 PCRs, when the federal buying was $240 billion. 
Today, with a federal buying of $340 billion, you only have 54. 
So that is the problem.
    And now I recognize Ms. Moore.
    Ms.Moore. Thank you, Madam Chair. I have to apologize for 
being late. Other responsibilities kept me. So I hope I don't 
repeat things that have already been asked.
    I do have a question for you, Mr. Hsu as it relates to--I 
think Mr. Braley and others have brought it up--about your 
perception that we don't need to change the definition of 
contract bundling. So I guess my question to you would be as we 
look at this definition and it says that construction, of 
course, is not included and other new work that small 
businesses have not been engaged in previously.
    So I think of building a bridge or building a hospital or 
housing or prosthetics for injured veterans. Almost anything 
that I can think of would fall into the category of any new 
work that small businesses are not already doing.
    So I guess I would like to hear--and hopefully you are not 
repeating yourself, for the sake of others here who were on 
time. Can you just clarify for me why and how just almost any 
work you could think of wouldn't be, you know, a small business 
would be excluded?
    Mr.Hsu. Yes, ma'am. Maybe I am misspoken about the 
definition versus the enforcement. Definition definitely is 
important, but I think the enforcement is also important 
because the bottom line, there are some contracts that need to 
be bundled. And some contracts do not need to be bundled.
    Ms.Moore. Okay. I think I heard that. Well, thank you for 
that answer. There has been a lot of discussion here today 
about the abuse of contracts where larger companies involve 
smaller companies in a marginal way and then take all of the 
money.
    One of the things that distressed me recently, we are 
having a Job Corps center built in my district, $28 million 
project, which they claim could not be unbundled. And they are 
building like dorms, a cafeteria, training center, clearly 
three different components of the same project.
    So when we asked SBA whether or not we could have a 
consortium of small businesses, like an electrical contractor 
and carpenters and plumbers, numbers of small businesses get 
together, do what they said they couldn't do that either.
    So perhaps this is a question for Ms. Murphy and you, too, 
Mr. Hsu, or anyone else who would like. I am having a hard time 
understanding why we couldn't have consortia, consortia of 
small businesses, bid on projects.
    Mr.Hsu. If I may, ma'am, the consortium of a small 
business, it is a good idea, but the only challenge that we are 
facing is that when the agency lets the contract, they have to 
look for one, so to speak, belly button to push. There has got 
to be a leader, one leader, and as many followers we don't 
really care. But there must be one company that has to be the 
lead.
    Ms.Moore. Well, then that means that it is wired for a 
larger company, then.
    Mr.Hsu. Responsible.
    Ms.Moore. And then everybody else has to be a sub.
    Mr.Hsu. If we don't, ma'am, you are dealing with 15-20 
smaller companies. And there is no leadership. There is no--
    Ms.Moore. Mr. Parkinson, do you have any thoughts on that, 
you know, where you could have a consortium, where you could 
have a lead worker, like an architect or someone in charge? Can 
you comment on that and maybe Ms. Murphy? Okay. Grady wants to 
talk about it. Okay. Let me start with Mr. Parkinson.
    Mr.Parkinson. Well, I guess the SBA can encourage an agency 
to use construction managers. And the construction managers can 
break up the work into packages that can allow small and 
medium-sized companies to participate as general contractors.
    Take, for example, you have a $20 million contract in your 
district and you hire a construction manager with a fee. And 
then you break the package into mechanical, plumbing, 
electrical. And you can allow a $5 million plumbing contractor 
or mechanical contractor to bid the job as the prime 
contractor. And that is the way you can get around it where you 
get as many participation for your local contractors--
    Ms.Moore. Did you see that as an ideal situation?
    Mr.Parkinson. In a lot of cases, it is because it gets the 
medium and small businesses in--
    Ms.Moore. Mr. Taylor?
    Mr.Taylor. Congresswoman Moore, as Congresswoman Fallin 
mentioned a while ago, in a teaming arrangement, we do that 
quite often. We have GSA schedule contracts. One of our lead 
dealers in Washington, D.C. administers it. And we have about 
100 dealers across the country that are all part of that 
contract. And it has been very successful.
    So I would take exception that it is not a possible 
solution as the SBA saying. Frankly, from the SBA perspective, 
we have notified them on numerous occasions about what we 
consider some of the abuses as an organization.
    As independent dealers, we do not feel the SBA is an 
advocate for us. In fact, the ultimately irony is SBA buys all 
of their office supplies from among those four large corporate 
companies we mentioned earlier.
    ChairwomanVelazquez. Timing is expired. We just got a 
notice from the leadership that there are going to be votes 
soon, like in ten minutes. So I would like to recognize Mr. 
Johnson.
    Ms.Moore. Madam Chair, I realize my time has expired. I 
just want to comment on this wonderful legislation. And I just 
hope that when it is in its final form, that you will look at 
this issue that I just raised, the teaming you called it,--
    ChairwomanVelazquez. Yes.
    Ms.Moore. --as something that we sort of mandate them to do 
if possible.
    ChairwomanVelazquez. Thank you.
    Ms.Moore. Thank you.
    Mr.Johnson. Thank you, Madam Chair. Sorry for being late. 
Other responsibilities held me up, but I am glad to be here on 
such an important hearing.
    I would like to ask a question of Mr. Hsu. Mr. Hsu, in 
2004, the SBA proposed to restructure the size standards 
governing small business. And, in essence, the proposal would 
have collapsed the categories from 37 to 10. And the result 
would have been that many large firms would have been defined 
or the definition would have included a lot of large firms, 
thus excluding a lot of small businesses for the sake of 
federal contracts. This proposal was withdrawn after opponents 
very vocally voiced their concern with such changes.
    Does the SBA still believe that changes must be made to the 
size standards?
    Mr.Hsu. Yes, sir. We definitely do that. As you know, in 
September 2006, the SBA and OPP jointly issued a policy to ask 
the small businesses to recertify themselves in the two 
different circumstances. What we are really trying to do is to 
make sure that we level the playing field.
    Mr.Johnson. Any changes in terms of restructuring the size 
standards, how do they differ, the current methodology, if you 
will, from the 2004 proposed size standard change?
    Mr.Hsu. I am really not familiar with that particular 
issue, Congressman. I will definitely get back to you on that.
    Mr.Johnson. All right. How does the SBA plan to fight 
fraudulent identification of small businesses for the sake of 
contract awarding?
    I know this has been gone over a little previously. I hope 
I am not plowing up any ground that has already been plowed 
today.
    Mr.Hsu. We cannot stop anybody trying to cheat, but there 
is a mechanism built in. It is called protest. And so you would 
be surprised how well the system really works. So I think the 
system will police itself.
    Mr.Johnson. So, in other words, there are no plans to fight 
fraudulent identification by the SBI,--
    Mr.Hsu. Well, no. I--
    Mr.Johnson. --no plans to fight fraudulent identification 
by businesses parading as small businesses, when, in fact, they 
are large businesses? Is that what you are saying?
    Mr.Hsu. No. I'm pretty sure they are.
    Mr.Johnson. But what is this self-policing mechanism? 
Explain that to us.
    Mr.Hsu. It is called the protest procedure.
    Mr.Johnson. Protest. And who is it that has to protest?
    Mr.Hsu. If you don't feel like the winning company who won 
the bid has qualified, you know, either their capability or the 
size standards, then you definitely have the right to file the 
protest to SBA.
    Mr.Johnson. And then--
    Mr.Hsu. And in SBA, we can also protest the size standard 
to the agency.
    Mr.Johnson. So, in other words, it would be on the losing 
bidder, if you will, to protest to I guess the SBA about the 
fraudulent package that was submitted by the winning bidder? Is 
that what we are--
    Mr.Hsu. If they are not being honest with themselves, then 
I think we would definitely have the right to check into it and 
to make sure the playing field is level.
    Mr.Johnson. All right. Do any of the other panelists have 
any comments on this particular issue?
    Mr.Taylor. Congressman Johnson, the only problem is it is 
very costly for an independent small business owner to run 
through the protest procedure with SBA. In essence, if you are 
not sure you are going to win, by the time it is all done, you 
are out quite a bit of money.
    Mr.Johnson. So there really needs to be kind of like a 
policing effort by the SBA itself, you would suggest, as 
opposed to leaving the onus on the small business person to 
contest and then spend money all the way through whatever 
channels there are to try to expose the fraud?
    Mr.Taylor. Absolutely. We are not the experts. We think 
there is somebody else to enforce it for us. We have got to 
raise a flag every time.
    Mr.Johnson. All right. Yes, ma'am?
    Ms.Murphy. I was just going to say that I was really 
excited about four weeks ago to see that the Office of Hearings 
and Appeals has expanded the period of time that they will 
consider a size protest also. They are now allowing challenges 
to size, even after a contract was awarded. In the past, once a 
contract was awarded, the protest became mooted, for all 
intents and purposes. That I think is going to open up a lot 
more enforcement possibilities.
    Hopefully also there could be a link between the 
representations and certifications businesses make to some sort 
of consequences. A false representation to the government bears 
with it potential False Claims Act issues, but there has never 
been a way to define what the harm to the government is. When a 
court will look at that, they will say, ``Well, the government 
still got the value of the goods and services they were 
purchasing.''
    Until there is a way to quantify what the harm to the 
government is, which could be done legislatively, I don't think 
that it is going to be very easy to enforce against bad actors.
    Mr.Johnson. Has there ever been a referral to the U.S. 
Attorney's Office for criminal prosecution that anyone knows of 
the false statements in procuring federal contracts? Would 
there be anything that any of you all know about to prevent 
that from happening? Are the criminal laws sufficient? Mr. Hsu?
    Mr.Hsu. Sir, from the SBA point of view, we protest. We 
can, and we will continue to protest to protect the small 
business. And the false certification is definitely a problem. 
And I guess we are trying to stop it.
    Mr.Johnson. Well, I guess we will have to take your word on 
that.
    [Laughter.]
    Mr.Johnson. How does the SBA ensure that it obtains--
    ChairwomanVelazquez. Time is expired. I'm sorry, but they 
are going to call votes. And I would like to give an 
opportunity to Mr. Sestak to make a question.
    Mr.Sestak. Thanks. Thanks, Ms. Chairman.
    This isn't the question I was going to ask, Ms. Murphy, but 
as I was walking back here from the Armed Services Committee, I 
understand that you stated that unbundling of already bundled 
contracts provides a good opportunity for unbundling, correct?
    Ms.Murphy. In my written testimony, I commented on the fact 
that all of the efforts to date have been focusing on 
preventing bundling.
    Mr.Sestak. Right. But there is another opportunity here.
    Ms.Murphy. There is another opportunity to look at existing 
contracts or contracts going forward that are not being 
consolidated and seeing if they could be broken out.
    Mr.Sestak. Does SBA have procedures to search for such 
contracts or are there tools that we might provide to help move 
that process and take advantage of this new opportunity?
    Ms.Murphy. SBA actually has specific breakout PCRs as well 
as their regular PCRs, who can review any contract that is not 
being set aside for small business. There are over eight 
million contract actions that are taking place each year. So 
that is a lot of contracts for them to be trying to review.
    And the tools that they have, there are tools to go in and 
protest that, but then there is a question of, how does that 
get resolved?
    Mr.Sestak. But then what would be the procedures that you 
would recommend to take advantage from what I understand is 
looking for those that are bundled and unbundling them? I mean, 
if I gathered it right, this is an opportunity, but how go 
about it?
    Ms.Murphy. I think that when you are looking at each 
individual contract, one of the parts of the definition that 
exists in the Small Business Act refers to a contract. The only 
contracts that are reviewed are those that are suitable for 
award to small business. The opportunity had to have been 
suitable for award to small business in the first place before 
it is reviewed for bundling.
    If you look at the Armed Services' definition of contract 
consolidation, it does not include that clause. So it looked at 
any two contracts that are being brought together or any two 
requirements and doesn't require that they already be suitable 
for small business. So it gives a greater opportunity to look 
at the scope of requirements that are out there and see if 
things can be broken out for small business.
    If the definition of bundling were reconciled with that of 
contract consolidation, that might provide additional 
opportunities to break out those contracts.
    Mr.Sestak. All right. And, Mr. Hsu, one question. And I 
know you are relatively new. And I gather this question was 
probably asked in some way, but do we actually have any hard 
data or is hard data available soon that you think can 
demonstrate that there--and potentially you may have answered 
this--is a movement to be a decrease in bundling? I mean, is 
there a process by which you have been able or is there one 
ongoing where they can reach in and demonstrate an actual 
decrease?
    Mr.Hsu. Well, sir, I think the recertification effort, that 
will definitely hep to make sure that the small business is 
small business. And to clean up the FPDS-NG file, that also 
will be very helpful.
    And the bundling issue has a very special place in our 
heart. We understand that. The PCR is working on it very hard. 
And we review, like I said before, anywhere between 50,000 to 
60,000 requirements every year.
    Mr.Sestak. But is there a data?
    ChairwomanVelazquez. This is what we have. Over the last 5 
years, total government contracting dollars have increased by 
almost 60 percent while the number of contract actions to small 
businesses declined by 55 percent.
    Mr.Sestak. Yes. My district gets 6.7 percent, not that it 
needs to be equal to everybody else's, and lost 607 small 
businesses.
    Thank you, sir.
    ChairwomanVelazquez. Okay. Mr. Chabot, do you have any 
other questions?
    Mr.Chabot. I don't have any other questions, Madam Chair, 
but I would just want to just note for the record, just make 
clear where there have been a lot of questions and a lot of 
responses today, I think we agree, both majority and minority, 
that there is an issue here, there is a problem that needs to 
be dealt with.
    We have reviewed pretty thoroughly Mr. Braley's suggestion 
and have cosponsored the legislation. And I commend him for 
bringing that forward. And I think it is something that this 
Committee and the Small Business Committee need to continue a 
dialogue and open communications and work on a real fix for 
this because I think the small business community; whereas, the 
SBA does do considerable good in some areas, I think that this 
is an area of demonstrated weakness. And we need to make sure 
that small businesses are getting a fair shot at these 
government contracts. And I don't think it has been established 
that there are at this time. And we need to continue to work, I 
think, in a bipartisan manner to improve the track record.
    ChairwomanVelazquez. I thank the gentleman. And I really 
want to thank you and your staff for working in a bipartisan 
manner to address this issue.
    But before we adjourn, I have two questions that I want to 
make. I want to be helpful in putting the final brushes to the 
legislation that we are trying to mark up on Tuesday.
    Mr. McCracken, do you think a business and an agency should 
both certify that a business is a small business before they 
can be counted as fulfilling a contract goal and requirement?
    Mr.McCracken. You are saying that the agency that they are 
applying for the contract for should certify they are a small 
business and they should self-certify they are a small business 
as well? In principle, yes. I haven't thought through all the 
machinations of how that would work, but in principle, I would 
think that would be a good idea.
    ChairwomanVelazquez. But let me ask you, do you think it is 
really difficult and expensive for a small business who bid in 
a federal contract to challenge that contract?
    Mr.McCracken. Oh, definitely, absolutely.
    ChairwomanVelazquez. Okay. Ms. Murphy, I heard you when you 
talk about the OFPP being a mediator on contract bundles, but 
let me just share this with you. In March of 2002, the 
President charged OMB with developing the plan to address 
contract bundling as part of the administration's small 
business agenda. That was when he released his small business 
agenda.
    Section 7 of executive order 13170 states, ``If there is an 
irresolvable conflict on a bundled contract, then the SBA or 
the department or agency can seek assistance from OMB. OMB was 
charged with developing a scorecard to hold agencies 
accountable for improving success in achieving small business 
goals and the President's contract bundling initiative.''
    In August 3rd, 2006, a letter was sent to Senator Snowe, 
Clay Johnson, the Deputy Director for Management within OMB, 
stating that a senior position in OMB has been designated with 
primary responsibility for small business issues, including 
contract bundling.
    Can you comment on that?
    Ms.Murphy. I don't think that what I am suggesting is 
actually contrary to what you are noting. OMB does have an 
incredibly important, and particularly OFPP has an incredibly 
important, role in telling agencies what will be acceptable in 
terms of federal contracting practice.
    They chair the committee that creates all the regulations 
to implement the laws that you all provide us with. However, 
the executive order you are referring to designates OMB, not 
OFPP. And I think that I was just trying to point out that 
there is already provision in statute that says OFPP has to 
keep their hands off of this.
    And so that any way that you are going to go forward with 
it, that it needs to be at least reconciled or addressed. 
Whether OFPP is the appropriate place or whether you want them 
to be focusing on the policies and the implementation of those 
policies is obviously a question for this Committee. I don't 
get to make the decisions.
    But I was also suggesting that as you are considering that, 
there are other alternatives that would leave OFPP in a policy 
role and have an independent arbitrator between the two 
agencies that helps them resolves that difficulty.
    ChairwomanVelazquez. I hear you. I want to thank you. It 
has been an incredible session, hearing. And, as we mentioned 
before, we intend to mark up this legislation this coming 
Tuesday.
    Yes, Mr. Braley?
    Mr.Braley. Madam Chairwoman, I just want to thank you and 
Ranking Member Chabot for cosponsoring this important bill. And 
I look forward to working with both of you as we move forward 
from this point. I think we have heard today there is a lot of 
interest in crafting a bipartisan bill that will really address 
this problem. So thank you both.
    ChairwomanVelazquez. Small Business Committee hearing 
adjourns.
    [Whereupon, at 11:50 a.m., the foregoing matter was 
concluded.]

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