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

                         PLANNING AND RECOVERY:


                      COMMITTEE ON SMALL BUSINESS

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION


                             AUGUST 2, 2007


                          Serial Number 110-40


         Printed for the use of the Committee on Small Business

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

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                NYDIA M. VELAZQUEZ, New York, Chairwoman

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

                  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

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



           Subcommittee on Regulations, Health Care and Trade

                   CHARLES Gonzalez, Texas, Chairman

RICK LARSEN, Washington              LYNN WESTMORELAND, Georgia, 
DAN LIPINSKI, Illinois               Ranking
MELISSA BEAN, Illinois               BILL SHUSTER, Pennsylvania
GWEN MOORE, Wisconsin                STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania          MARILYN MUSGRAVE, Colorado
JOE SESTAK, Pennsylvania             MARY FALLIN, Oklahoma
                                     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

CHARLIE Gonzalez, Texas              LOUIE GOHMERT, Texas, Ranking
RAUL GRIJALVA, Arizona               LYNN WESTMORELAND, Georgia


                            C O N T E N T S


                           OPENING STATEMENTS


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


The Honorable Paul Schneider, U.S. Department of Homeland 
  Security.......................................................     3
The Honorable Lurita Doan, U.S. Government Services 
  Administration.................................................     5
The Honorable Dr. James I. Finley, U.S. Department of Defense....     7
The Honorable Lieutenant General Robert Van Antwerp, U.S. Army 
  Corps of Engineers.............................................     9
The Honorable Steven C. Preston, U.S. Small Business 
  Administration.................................................    11
The Honorable Robert Henke, U.S. Department of Veterans Affairs..    13


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    43
Chabot, Hon. Steve...............................................    45
Altmire, Hon. Jason..............................................    46
The Honorable Paul Schneider, U.S. Department of Homeland 
  Security.......................................................    47
The Honorable Lurita Doan, U.S. Government Services 
  Administration.................................................    55
The Honorable Dr. James I. Finley, U.S. Department of Defense....    62
The Honorable Lieutenant General Robert Van Antwerp, U.S. Army 
  Corps of Engineers.............................................    68
The Honorable Steven C. Preston, U.S. Small Business 
  Administration.................................................    71
The Honorable Robert Henke, U.S. Department of Veterans Affairs..    75


                         PLANNING AND RECOVERY:


                        Thursday, August 2, 2007

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:05 a.m., inRoom 
2360, Rayburn House Office Building, Hon. Nydia Velazquez 
[Chairwoman of the Committee] presiding.
    Present: Representatives Velazquez, Shuler, Gonzalez, 
Braley, Johnson, Chabot, Heller.
    Also Present: Representative Jefferson.


    ChairwomanVelazquez. Good morning. I now call this hearing 
to order.
    This hearing continues the committee's examination of the 
government's response to Hurricane Katrina. With the hurricane 
season upon us, it is critical that we fully understand the 
ability of Federal agencies to serve those affected by large-
scale disasters. This past April, the Committee held a field 
hearing in New Orleans to review the government's efforts to 
include local small businesses in Hurricane Katrina recovery 
contracting. What we found was disappointing.
    The Committee uncovered miscoded contracts and missed 
opportunities. Local small businesses testified at the hearing 
that they were unable to get prime contracts and that contracts 
were being awarded to large firms from out of State. The 
agencies' own data supported this testimony. At the end of that 
hearing, I told the agencies that the Committee will continue 
to monitor their contracting practices in New Orleans. So I 
have brought them back today to update the Committee on their 
    Today's hearing will explore what has been done since we 
met in New Orleans. We will also look at any institutional 
changes that may have been made, updated statistics and plans 
for future contract awards.
    I have to say that I am disappointed with the submitted 
testimony. Not one of the agencies testifying today has made 
local small businesses a priority. The testimony does not focus 
on specific and measurable ways to include these local small 
businesses in the rebuilding effort. At this point, I would 
expect less lip service and more action. The use of local small 
businesses is vital. It is vital to the recovery of the gulf 
coast. These agencies' witnesses acknowledged as much at our 
last meeting in front of local small business owners. Today, we 
are going to find out why more action has not been taken.
    When we talk about the Federal Government's response to 
disasters, we generally talk about the SBA Disaster Loan 
Program and with good reason. In the aftermath of the 
hurricane, thousands of small businesses turned to SBA for 
financial assistance but, instead, only found frustration and 
difficulty. Over 200,000 applications set mired in a long 
processing backlog that took well over a year to process. Those 
victims who were approved for loans often waited months to 
receive any funds. We are also beginning to learn that the 
agencies' efforts to improve the backlog employed some very 
aggressive tactics which left many disaster victims without the 
help they needed. A recent SBA Inspector General report 
confirmed this, and this committee continues to review these 
    In addition to these concerns, the SBA released a disaster 
recovery plan that falls short of making the necessary cultural 
and workforce changes to remedy these past problems. While we 
do want to spend time examining this plan, we also need to talk 
about government-wide plans to increase contracting 
opportunities for local small businesses.
    For the agencies here today, it must be a priority for them 
to ensure that small and local firms are part of any rebuilding 
process following a disaster. As Louisiana, Mississippi and 
Alabama begin the long process of reconstruction, we have 
already seen the important contributions that can only come 
from these businesses. Small firms are the largest job creators 
and the engines that power economic growth. Clearly, the 
Federal Government must focus on prioritizing these companies 
in its gulf coast recovery efforts.
    I look forward to the testimony today and I thank all of 
the witnesses for making every effort to be with us today.
    I now recognize Mr. Chabot for his opening statement.


    Mr.Chabot. Thank you, Madam Chair.
    No one disputes the fact that the Federal Government's 
response to the gulf coast hurricanes in 2005, particularly in 
Katrina, was not up to the standards it should have been. It 
was, in general, inadequate. Although, considerable effort was 
made by many individuals, and there were true heroes involved 
in the efforts, but there certainly were holes.
    The Committee held a field hearing in April to assess the 
state of small business involvement in the recovery. I commend 
the chairwoman for her diligence in the continued oversight to 
ensure that the recovery efforts utilize local small businesses 
to the extent possible.
    Local small business involvement after a disaster is 
crucial to economic recovery. Without economic recovery, an 
area will never return to its pre-disaster status. Businesses 
located in the area have a vested interest in ensuring the 
economic vitality of the region that they call home. Local 
businesses will hire members of the community to perform the 
work associated with the response in rebuilding. Funds 
disbursed will stay in the local area because the business and 
the employees are local. Participation by small businesses in 
disaster response and recovery certainly is valuable to the 
community. However, that must be tempered by the realities on 
the ground related to the disaster.
    Federal, State and local agencies certainly should have in 
place disaster response plans that call for the participation 
of small businesses but also recognize that the primary mission 
is health and safety, and that must take priority over small 
business participation. Although, small business participation, 
as I said before, is important.
    To make these types of decisions, it is necessary to have a 
comprehensive set of emergency response plans in place. I know 
that Administrator Preston has worked diligently in deriving an 
emergency response plan, one that provides the necessary 
response, but recognizes that Federal agencies operate under 
certain fiscal constraints. I am sure that the witnesses at the 
table will ensure that proper coordination takes place among 
the agencies in response to the next major disaster and that 
the mistakes associated with a response to Hurricane Katrina 
are not repeated.
    In closing, I would like to thank the distinguished members 
of the panel for coming here today to explain the actions they 
have taken to enhance the participation of small businesses in 
disaster relief and recovery.
    I yield back the balance of my time, Madam Chair.
    ChairwomanVelazquez. Thank you.
    Our first witness is the Honorable Paul Schneider. Mr. 
Schneider is the Under Secretary for Management at the 
Department of Homeland Security. He oversees the department's 
budget, appropriations, expenditure of funds, accounting and 
finance, procurement, human resources and personnel, 
information technology systems, facilities, property, 
equipment, and other material resources. Mr. Schneider 
previously served as a defense and aerospace consultant and was 
sworn in at DHS as Under Secretary for Management on January 
    Welcome, sir.
    I would just like to say that I want every witness to 
adhere to the 5-minute rule, and I am going to be watching the 
clock because we are going to be having a lot of votes today. 
So I want everyone to have the opportunity to make your 
presentation, but your testimony will be submitted into the 
    So welcome, sir.


    Mr.Schneider. Thank you, Madam Chair, Congressman Chabot 
and members of the Committee.
    Thank you for the opportunity to review the actions of the 
Department of Homeland Security that we have taken to increase 
contracting opportunities for local small businesses affected 
by disasters.
    FEMA is the Department's lead agency, an operational 
component, and as such, is the focal point for preparing for 
and responding to disasters. On October 4th, 2006, section 307 
of the Stafford Disaster Relief and Emergency Assistance Act 
was amended by section 694 of the Department's Appropriations 
Act of 2007, public law 109, 295.
    The amendment required that contracts for major disaster 
assistance activities be preferentially awarded to local 
businesses. FEMA responded to the change of legislation through 
the adoption of new procedures and strategies that facilitate 
the maximum level of engagement with local contracting 
communities. Prior to issuing the solicitation, FEMA conducts 
market research to determine whether or not the capabilities of 
small local businesses meet program requirements. The small 
local businesses are determined to possess the necessary 
qualifications. Then the solicitation is structured either as a 
local small business set-aside or as a price evaluation 
preference. If no such business is available, the scope of the 
set-aside is expanded to include all local businesses rather 
than only small local businesses. If no local businesses are 
available, then the geographic scope of the set-aside is 
expanded to the State level, then to the gulf coast region and, 
finally, open to a national pool of contractors.
    On June 22nd, 2007, the Small Business Administration 
provided the Committee with information of DHS contracting 
opportunities to small businesses, including small businesses 
affected by Hurricane Katrina and other disasters, utilizing 
the local set-aside discussed above. This list provided seven 
small business contracting opportunities, ranging from 
construction to professional, administrative and management 
support services to information technology services, including 
telecommunications and communications in detection equipment.
    Since its establishment in 2003, the Department has had a 
solid small business track record. In 2006, we achieved 31.62 
percent in small business prime contracting and 10.75 percent 
for overall small disadvantaged business for a total small 
business obligated dollar amount of over $4.4 billion and a 
total overall small disadvantaged business obligated dollar 
amount of almost $1.5 billion. The government-wide small 
business goal is set at 23 percent for prime contracting. We 
have shown our strong commitment to small business by raising 
the bar from the 23 percent to a proactive and aggressive 30 
percent small business goal for 2006-2007. The government-wide 
small disadvantaged business goal is set at 5 percent. We have 
set our goal at 8 percent for 2006-2007.
    The U.S. Small Business Administration has recognized the 
Department's effort to maximize opportunities for small 
business. During the last 4 years, SBA has twice elected DHS 
for its top award, the Gold Star Award, for overall sustained 
small business achievement and for the Francis Perkins award 
for women-owned small business achievement. I have seen our 
draft SBA scorecard results. They are outstanding, among the 
best in government, and we are very proud of these scores. Our 
small business office head, Mr. Kevin Boshears, who is with me 
today, was recently recognized by the small business community 
as one of the finest small business advocates in government.
    Despite these actions and our demonstrated track record, we 
are very disappointed that the House action on the DHS fiscal 
year budget zeroed out the accounts that fund our Small 
Business Office at DHS. In addition, the House Homeland 
Security appropriations bill, specifically section 537, has 
words in there that require full and open competition for all 
contracts. This will dramatically impact our ability to meet 
the small business goals and dramatically impact our ability to 
basically put more dollars in the small business community by 
requiring full and open competition for all our contracting 
efforts. We are very hopeful that these words and this action 
will be modified during conference.
    Small and local business partners in the Midwest have been 
integral in meeting FEMA mission requirements, resulting from 
the tornadoes which hit Kansas and the flooding which occurred 
in Missouri this past May. In both areas, FEMA utilized small 
local utility companies in order to restore basic needs back to 
the affected communities. In addition--
    ChairwomanVelazquez. Mr. Schneider, your 5 minutes are up. 
You have 30 seconds, but you have an opportunity to make 
whatever other statement you want.
    Mr.Schneider. Well, my testimony, Madam Chair, has some of 
the specific contracting actions that we have identified for 
small business in the gulf coast. I will not repeat them here.
    In conclusion, I would like to thank you for your continued 
support and for the Committee's continued support of our 
Department and of our small business program, and I would be 
happy to answer any questions that you may have.
    ChairwomanVelazquez. Thank you, sir.
    [The prepared statement of Mr. Schneider may be found in 
the Appendix on page 47.]

    ChairwomanVelazquez. Our next witness is Ms. Lurita Doan. 
She is the Administrator of the General Services 
Administration. Ms. Doan has served as the Administrator since 
May 2006. Prior to taking this position, Ms. Doan was the owner 
of a technology company.
    Welcome. Again, 5 minutes.


    Ms.Doan. Thank you. Thank you, Madam Chairwoman, Ranking 
Member Chabot and members of the Committee.
    Creating a more level playing field for all small 
businesses to participate in Federal contracting is one of my 
core priorities at GSA. I have had the unique perspective of 
founding and running a small minority business for 15 years, 
and for the past year, I have had the great privilege to lead 
GSA and manage the government's premiere procurement agency. 
Creating opportunities is a special passion for me that I work 
on every day. At GSA, there has been a revolution in our 
efforts to promote small businesses in Government contracting. 
During the past year, GSA has awarded 32 percent of all 
procurement dollars spent by GSA to small businesses.
    In the gulf region during my tenure, we have awarded 79 
percent of all contracting actions, and 62 percent of all 
contracting dollars from GSA have gone to small business, and 
since this past April, understanding the concerns of the House 
Small Business Committee, we are increasing our efforts to 
ensure that the gulf coast contracting opportunities go to 
local small businesses. During the next 12 months, I fully 
expect these numbers to improve, and I will tell you why.
    First, I know from experience that the single most 
important element to ensure small business success is a 
favorable business environment that rewards and encourages 
entrepreneurs. The President deserves much credit for creating 
the economic environment that small companies need to grow, 
emerge and thrive.
    Second, this is a copy of the 1,800-page FAR that governs 
all Federal procurements. It is an amazing document, but it is 
a big beastie, and small companies need our help to navigate 
the process that is oftentimes expensive and time-consuming, 
and that is why, in my first week at GSA, I announced that GSA 
would commit to reducing the amount of time it takes companies, 
small companies, to get a schedule from 157 days to 30 days or 
less. Lots of folks were skeptical, but we did it. As a result, 
small companies can now sell their goods and services to 
government agencies far faster than ever before. I believe a 
GSA schedule is a small business's first and best chance to 
become a prime contractor.
    Third, we have a special obligation and an opportunity to 
help restore the economic vitality of the gulf that was 
devastated by Hurricane Katrina. I am from the Ninth Ward in 
New Orleans, and I have firsthand knowledge of the 
entrepreneurial talents of small business resources in the 
region. Over the past year, GSA has sponsored over 25 different 
small business events in the region, and GSA is delivering. 
During the past year, 62 percent of all contracting dollars 
spent by GSA in the gulf region were awarded to small business.
    Fourth, I am especially proud of GSA's new VETS GWAC 
directed at small businesses owned and operated by service-
disabled veterans. GSA expects to award $5 billion over the 
next 5 years to some of the Nation's most deserving, dedicated 
and talented Americans. There can be no better way to honor our 
service members than to encourage their entrepreneurial 
    In addition, I am counting on these amazing men and women 
to provide a new source of pride and accountability as they 
help raise the standard of performance in Federal Government 
contracting. You have a determined colleague at GSA, anxious to 
remove roadblocks to small businesses. We are proud of our 
recent efforts. We are also eager to do more, and we need to do 
more, and I am especially eager to work with this Committee.
    I want to note that the helpful legislation introduced to 
reduce bundling is going to help create a more level playing 
field for small businesses, and I think that is terrific. I 
would also like to suggest that it is time to take an even 
bolder approach and to look at ways to advance the cause of 
small business. If you take the time to have a closer look at 
the Federal contracting process, you need to understand exactly 
why contracting officers try to bundle contracts that then 
become too large for small companies to compete on. What is the 
root cause? What structural problems exist? I think you are 
going to find two big problems.
    First, our Federal contracting officers are too risk-
averse. Too often, it is easier and more bureaucratically 
acceptable to award a Federal contract to one of the big 
companies that have a longer history. The challenge is 
analogous to the situation every college graduate experiences 
when trying to get a job. They are often told they have the 
skills, but the position calls for someone with more 
experience. They do not have experience because companies are 
unwilling to give them their first break.
    Contracting officers are reluctant to give small companies 
with limited experience a chance because they know that even 
the smallest procedural error could ruin their careers. So they 
just do not do it. They are blamed, punished and vilified, and 
that has to change. We need to encourage them to take risks and 
to be willing to give these small and especially local small 
companies the opportunity to excel, but I cannot fix this 
without your help, and I would hope that, today, we can begin 
to work together to solve the problem.
    We must remove all barriers that prevent opportunities 
being offered to small, minority and women-owned businesses. I 
have no illusions about how difficult it will be, but to quote 
the late, great Alba Sungadore, "We will soon face the choice 
of doing what is easy or doing what is right." GSA is eager and 
ready to work with the Committee to do what is right.
    Thank you.
    ChairwomanVelazquez. Thank you, Ms. Doan.
    [The prepared statement of Ms. Doan may be found in the 
Appendix on page 55.]

    ChairwomanVelazquez. I understand that you have a family 
commitment and that you are going to stay here until 12:00 
    Ms.Doan. I am going to try and stay as long as I can past 
    ChairwomanVelazquez. Past 12:00?
    Ms.Doan. Past 12:00.
    ChairwomanVelazquez. Thank you very much.
    Our next witness is Dr. James Finley. Dr. Finley is the 
Deputy Under Secretary of Defense for Acquisition and 
Technology. He is responsible for policies and procedures 
governing the Department of Defense's procurement and 
acquisition process. Dr. Finley was confirmed to this position 
by the Senate in February 2006.

                     DEPARTMENT OF DEFENSE

    Mr.Finley. Good morning. Chairwoman Velazquez, Ranking 
Member Chabot and members of the House Committee on Small 
Business, thank you for inviting me.
    Mr.Chabot. Would the gentleman yield for just a second. We 
pronounce it "sha-but," but you can pronounce it "shah-boe," 
which is the French pronunciation, which is fine, but we 
pronounce it "sha-but," just so it is cleared up.
    Mr.Finley. My apologies, sir.
    Mr.Chabot. Yes. No problem. It is all right, Mr. Finley. 
    Mr.Finley. Thank you for inviting me here to appear before 
you today in a follow-up discussion to the meetings we had in 
New Orleans. Katrina was a catastrophe of unprecedented 
proportion. It is a matter of importance for all of us, and I 
welcome the opportunity to participate in this hearing.
    Today, I will focus on three areas--post Katrina local 
business/small business performance. I also plan to discuss the 
steps taken to improve the Department of Defense's emergency 
acquisition policy so we are ready for the next major event, 
also the improvements in DOD's overall small business policy in 
    Since our last meeting of post Katrina local small business 
performance, we have five contracts that we have identified, 
other than what was awarded by the Army Corps of Engineers, 
that we will share with you and that we have submitted in a 
letter to the chairwoman. They are summarized, you know, simply 
as about a $1 million contract to a small business company 
local in Louisiana called Fussell Company Contractors. They do 
runway repairs.
    A second company is called Cann Contracting, Incorporated, 
a civil engineering job of about $700,000 to construct a 
munitions' storage facility. There is a third company called 
Bechter Aviation, contracted for about $560,000 for liquid 
propellants for jet engines. There is a fourth contract for 
about $300,000, also with Cann Contracting, for construction 
repairs on runways. There is a fifth company, also with Cann 
Contracting, for sprinkler system failure at about $150,000.
    We have also worked significantly, from a local business 
point of view, with our PTAC organization on procurement and 
technical assistance centers, and we have a tremendous 
opportunity in New Orleans because our boots on the ground in 
New Orleans have been there for over 20 years. We have about 
nine PTAC people in the State of Louisiana, three or four of 
which are absolutely focused on New Orleans, itself. I have had 
the opportunity to meet them in our previous hearing, and I 
have also had the opportunity to directly talk with them again 
in preparation for this hearing, and I am very pleased to 
report that there is progress.
    I would say that the New Orleans area, in general, has a 
fairly significant way to go, you know, for restoration of 
where we used to be and where we want to be, but nonetheless, 
in our previous hearing, what we shared with you was that we 
had about 300 local New Orleans' companies in our database with 
PTAC pre Katrina. Post Katrina, we had 200. We lost about 100 
companies we could not account for. After the 4/12 hearing, we 
took action on these areas. We also talked to the companies 
that you identified at the hearing. We followed up with about 
half of those companies that we thought we could deal with for 
DOD business. None of those companies, unfortunately, through 
PTAC could we arrange, you know, to find ways to put those into 
DOD contracts.
    Having said that, the mix today--and getting back to our 
300 pre Katrina levels--is about 290 companies, small 
businesses, New Orleans-based, New Orleans doing business in 
New Orleans, if you will, and the mix has changed in what they 
do. They have changed their portfolios a bit, but nonetheless, 
they are, I would say, vibrant, and they are looking for more 
business in New Orleans.
    Based on what I have heard from the Army Corps of Engineers 
in preparation for this, I am very optimistic that we will 
continue to grow small business for DOD in that region.
    In addition to the small business focus, we are improving 
our DOD emergency acquisition policies. The last time we 
identified several initiatives. This time, we have about seven 
initiatives. My formal hearing testimony identifies each of 
those initiatives, and I will be pleased to talk and to address 
each of those during the hearing.
    In addition to that, improving the overall DOD small 
business policies, we have got about six practices that we are 
focused on improving. These include some of the things that the 
previous witnesses have testified about, including bundling and 
what we are doing with acquisition strategies to virtually 
eliminate bundling, if we can, as a practice in DOD.
    In summary, we at the Department of Defense are very 
committed to the health and welfare of our people and of our 
Nation. We have a strong small business program with strong 
performing organizations such as the United States Army Corps 
of Engineers as well as other support organizations like the 
PTACs, the Procurement Technical Assistance Centers. We are 
planning to continue to build on those strengths to provide 
more agility and flexibility for the acquisition of our 
products and services to protect our country and to provide 
emergency health in the time of need due to natural disasters 
here and on the home front and abroad.
    I thank the Committee for their time today and for their 
leadership in addressing the small business participation in 
the aftermath of Hurricane Katrina.
    Thank you.
    ChairwomanVelazquez. Thank you, sir.
    [The prepared statement of Mr. Finley may be found in the 
Appendix on page 62.]

    ChairwomanVelazquez. Our next witness is Lieutenant General 
Robert Van Antwerp. Lieutenant General Van Antwerp is the Chief 
of Engineers for the U.S. Army Corps of Engineers. His office 
is responsible for defining policy and guidance and setting the 
directions for the organizations within the Corps. Lieutenant 
General Van Antwerp succeeded Lieutenant General Carl Strock as 
Chief of Engineers in May of this year.
    Welcome, sir.


    GeneralVan Antwerp. Thank you, Madam Chair, Ranking Member 
Chabot. Is that close?
    Mr.Chabot. Chabot. It is "Chabot" like "rabbit."
    GeneralVan Antwerp. Chabot. We will get this right.
    Mr.Chabot. It is no big deal, really.
    GeneralVan Antwerp. I will just call you "sir." that is 
easier for me.
    Mr.Chabot. I will call you "sir," too.
    GeneralVan Antwerp. Okay. And members of the Committee, I 
thank you for this opportunity to appear before you today.
    The Army Corps of Engineers is committed to using local 
small businesses in both our normal course of duty and also in 
this case when we are reviewing times of disaster.
    In your June letter to us, you asked us to identify five 
small businesses that could be prime contractors. I am happy to 
report today that we have awarded five contracts and that we 
have seven more in procurement action for small businesses as 
the prime contractor in the area of local small businesses.
    I want to just talk for a second about our ongoing and 
future work and one initiative that is, I think, very important 
in this area. First of all, as to our repair and restoration, 
the appropriated funds for that right now are $5.8 billion. Our 
acquisition plan has 34 percent of that, almost $2 billion, 
going to prime small business contractors in both just small 
business, 8(a), HUBZone, and service-disabled, veteran-owned 
small business. We anticipate about 150 contracts all together. 
101 of those are going to be set aside for small business. Just 
to report on where we are to date, 65 contracts have been 
awarded. 60 of them have gone to small businesses.
    Just as a sideline, we have two flood fights in the recent 
past. One is in Oklahoma. The other is in Texas. We awarded 
three contracts in Oklahoma, all three of those to local small 
businesses and, in Texas, two contracts both to local small 
    The initiative I would like to talk about is the Advance 
Contracting Initiative, and this, of course, is the vehicle the 
Corps of Engineers used to be ready for a disaster so that our 
response can be immediate. We have proposals out there, and we 
received them on June 23rd because we are recompeting or 
Advance Contracting Initiative. Before, all of our contractors 
were large businesses, 100 percent, so we are recompeting that, 
and the proposals have been received, and what we are doing is 
establishing three multiple award, task-ordered contracts, and 
two of those will be for HUBZone and 8(a). So, of those three, 
two-thirds of those, and what we will do is we have a local 
office that is set up, and when we have a disaster, they will 
determine on capacity where that award goes, but we think this 
will greatly facilitate the use of local small business.
    Also, we have increased our subcontracting goals for our 
large businesses. They will be hiring in all small business 
categories, 75 percent to small business.
    Finally, I would like to say that we have done a lot of 
engagement down in the Katrina area and in other areas where we 
have had disasters in the past--industry forums, market surveys 
and all kinds of conferences where small business interests are 
represented of which, as to many of them, either General Strock 
or myself in the future will be speaking.
    Again, I thank you for this opportunity to appear before 
the Committee, and I welcome your questions at the right time.
    ChairwomanVelazquez. Thank you.
    [The prepared statement of Lieutenant General Van Antwerp 
may be found in the Appendix on page 68.]

    ChairwomanVelazquez. Our next witness is the Honorable 
Steven Preston. Mr. Preston is the Administrator of the Small 
Business Administration and has testified before this Committee 
several times this year. Mr. Preston was sworn in as 
Administrator on July 11, 2006 after serving as Executive Vice 
President of the Service Masters Company.
    Welcome, sir.


    Mr.Preston. Thank you. Good morning, Chairwoman Velazquez.
    Mr. Chabot, I am trying to find a new pronunciation, but 
you know, I have talked to you too many times, so I will stick 
with "Chabot."
    Members of the Committee, thank you very much for having me 
here to testify with my colleagues.
    When I came to the Agency just over a year ago, the SBA's 
response to the gulf coast hurricanes had many backlogs in it 
and a number of critical areas as you all know. Prior to coming 
into the position, I visited New Orleans to get a firsthand 
account of the pulse on the ground. Obviously, like many of you 
who have been done down there, I was overwhelmed by what I saw, 
and after visiting both our New Orleans district office and our 
processing center that handles those loans, it became very 
clear to me that there were serious issues we needed to address 
very quickly.
    We quickly dug into those issues to address them, and we 
spent months listening to and working with our customers, our 
employees, as well as doing an intensive examination of our 
operational processes. We discovered a number of issues that 
have led to high error rates, backlogs in critical processes 
and decision-making bottlenecks.
    Today, we have not only redesigned the closing and 
disbursement processes needed to complete our work in the gulf, 
but we have fully reengineered the way that the SBA responds to 
future disasters to provide dramatically faster and more 
responsive service to disaster victims.
    On June 1st of this year, we presented to the Committee the 
agency's disaster recovery plan. After months of deliberation 
and countless hours of work, the plan has documented the 
critical steps to be taken by the SBA to prepare for, to 
respond to and to recover from natural disasters. Just as we 
have learned many lessons and made significant contributions on 
the disaster lending side of our response to the 2005 gulf 
coast hurricanes, we have also done a lot of work in assessing 
our role in the contracting process during the rescue relief 
and reconstruction of the region, and we have made important 
progress on that front as well. The SBA was and continues to be 
committed to making sure that our small business customers 
receive fair opportunities following natural disasters. In the 
interest of time, I will dispense with a lot of the statistics. 
I think they are in my testimony, my written testimony that has 
been submitted.
    As we have done on the lending side in our disaster 
response, we are also looking at our role in the post-disaster 
procurement process. Rebuilding communities after a disaster 
requires tremendous strength and dedication from the 
individuals who live there as well as from the small businesses 
that provide jobs and long-term economic stability. The SBA has 
acquired the responsibility for the Hurricane Contracting 
Information Center from the Department of Commerce. We have 
identified an intake point for the information on disaster 
contracts for coordinating staff communication between 
government contracting and our disaster call center and our 
renaming of the Disaster Contracting Assistance Center.
    Additionally, the SBA has begun an initiative to refocus 
the workload of our PCRs throughout our field network to work 
more intensively and specifically with contracting officers and 
specialists at the purchasing agencies to identify 
opportunities for small businesses. Our district office will be 
working more intensively with the small businesses themselves 
to identify the contracts for which they may be eligible to 
apply as well as finding more small businesses interested in 
pursuing new contracting opportunities as they arise.
    I am accelerating the 2008 hiring decisions for PCRs as 
well, and this month, we will actually have 1,200 people from 
the SBA across the country coming in to train them on many of 
the new practices I am talking about, many of which 
specifically are business development people.
    Even since our hearing in April, the SBA has participated 
in and has helped lead multiple events designed to expand small 
business opportunities in the gulf, each touching hundreds of 
small businesses. I personally keynoted the Post Katrina 
Development Summit, which included 268 small businesses and 
many Federal as well as State level purchasing agencies.
    I also want to point out that, just last week, we announced 
changes to the Surety Bond Program that will help enable small 
businesses to bid on public construction projects. The pricing 
structure for the surety bond guaranty is now more flexible, 
which we expect will make the product more affordable for small 
business. We are also working with other agencies, including my 
colleagues here at this table, to assist with and to complement 
their efforts. In the coming months, we will be focusing on 
identifying more small businesses that can fulfill their 
contracting needs. In addition, we plan to work with the Army 
Corps of Engineers and with the GSA as they work to make 
advance contracting arrangements for disaster needs of small 
business vendors and service providers.
    So thank you for allowing me to testify here today. I also 
want to thank my colleagues here at the table for the work they 
are doing with each one of them. I know they have done a good 
job of elaborating on that, but I want to thank them 
specifically, and I look forward to working with this committee 
and with my counterparts in the other Federal agencies to 
continue this important work of improving the Federal 
Government's disaster response and enabling small businesses to 
participate more fully in disaster recovery and rebuilding 
    Thank you.
    ChairwomanVelazquez. Thank you, sir.
    [The prepared statement of Mr. Preston may be found in the 
Appendix on page 71.]

    ChairwomanVelazquez. Our next witness is the Honorable 
Robert Henke. Mr. Henke is the Assistant Secretary for 
Management of the Department of Veterans Affairs. He is 
responsible for the Department's budget, financial policy and 
operations, a position of material management, real property, 
asset management, and business oversight. Mr. Henke was sworn 
into office in November 2005.
    Thank you, sir.


    Mr.Henke. Yes, ma'am. Thank you, Madam Chair, Ranking 
Member Chabot. I did live in Cincinnati from 1993 to 1997, so I 
am not going to get that name wrong.
    I appreciate the opportunity to discuss the VA's commitment 
to increasing contracting opportunities for local small 
businesses participating in rebuilding New Orleans and the 
greater gulf coast region.
    In the aftermath of Hurricane Katrina, the VA very much 
wants to see a sustainable, vibrant, economic recovery in New 
Orleans and in the rest of the gulf coast region. I am honored 
to represent the totally dedicated VA employees throughout the 
country who serve our veterans and our Nation's heroes on a 
daily basis. Last April, the VA testified before this committee 
regarding our complete commitment to small business in New 
Orleans and the greater gulf coast, and I will use my time this 
morning to briefly give you an update on where we are at.
    We have been an active participant in our outreach efforts 
to small businesses in the southeast region. On May 8th, the VA 
attended the Vicksburg, Mississippi Business Procurement 
Opportunities Conference and Trade Fair, sponsored by the 
Mississippi Development Authority and Mississippi PTAC. The VA 
representatives spoke with over 200 small businesses regarding 
opportunities for VA hurricane cleanup as well as ongoing 
operational opportunities. We also participated in the Post 
Katrina Economic Development Summit in June in New Orleans. 
VA's Office of Small Disadvantaged Business Utilization and our 
gulf coast veterans' health care network discussed VA's 
contracting opportunities with over 300 small businesses. Firms 
were provided information, process guidance and networking 
opportunities for VA post Katrina recovery.
    Since this committee's hearing on April 12th, we have been 
in nine outreach efforts in the gulf coast region, and we have 
three more planned for before the end of this year. Also, the 
VA will participate in GSA's small business conference in New 
Orleans next week on August 9th.
    During the hearing on April 12th, the Committee asked each 
agency to commit to working with the SBA to identify five prime 
contracting opportunities that target the local small 
businesses. We have kept that commitment to you, and I will 
just review the results briefly.
    At a medical center in Biloxi, a parking lot design-build 
contract solicitation has been released that we project to 
award this month. At a medical center in New Orleans, there are 
three different projects, one to rebuild a pharmacy. We have 
completed negotiations with an 8(a) firm. We project to award 
it this month. Also in New Orleans, a roof repair. We project 
to award that to a local small business in September. In New 
Orleans, as to the demolition of a damaged building, a local 
small business has been identified, and we project to award 
that contract in September. At the VA medical center of gulf 
port, there is the environmental remediation of the property, 
tank removal. A small business set-aside is planned, and we 
project to award that in September as well.
    At April's hearing, the VA shared with the Committee the 
fiscal year 2006 small business accomplishment of the South 
Central VA Health Care Network. Through June of this year, the 
network had spent approximately $270 million, fully one-third 
or 33 percent of that with small businesses, to include 12 
percent with small disadvantaged and 8(a) firms.
    In closing, I want to reassure you, Madam Chair, that the 
VA is committed to small business in general and specifically 
to those in the gulf coast region.
    Thank you for this hearing, and I look forward to your 
    ChairwomanVelazquez. Thank you.
    [The prepared statement of Mr. Henke may be found in the 
Appendix on page 75.]

     ChairwomanVelazquez. Almost 4 months ago, we met in New 
Orleans, and at that hearing, you clearly saw firsthand the 
agony and the frustration of local small businesses. I hope 
that, today, you come out of this hearing understanding that 
this is more than just local small business participation. What 
this is about are people's lives in the gulf coast, and of 
those who have been suffering so much, they have a lot to offer 
in the recovery and reconstruction of the gulf coast.
    So, as to my question to each of the witnesses, since I was 
not able to gather this out of your testimony, I would like to 
start by asking each one of you to share their local small 
business percentages since we met in New Orleans.
    Mr. Schneider.
    Mr.Schneider. Madam Chair, we wanted to wait until July 
31st so we could get the most accurate, up-to-date numbers, 
which is why it was not in my submitted testimony, and we will 
provide the tables, but I will give you the rough numbers.
    From April 13th to July 31st, 69 percent of the DHS dollars 
obligated in the gulf coast were awarded to small businesses.
    ChairwomanVelazquez. Sir, I am asking about local small 
    Mr.Schneider. As to local small businesses, 49 percent of 
the net dollars obligated in the gulf coast region were awarded 
to local businesses, small and large.
    ChairwomanVelazquez. No. We need to make a distinction 
here. It is not local businesses. It is local small businesses.
    Mr.Schneider. I have got that number. It is 33 percent of 
the total dollars obligated that were awarded to local small 
    ChairwomanVelazquez. Why is it that you did not include 
that in your testimony?
    Mr.Schneider. We wanted to wait until the closeout of the 
books on July 31st. There was no way I could get those numbers, 
get it into my testimony clearing process and get it to you to 
meet the date or the time that you required.
    ChairwomanVelazquez. Let me ask my staff to put up the 
chart. Oh, I am sorry. No. No. I do not want to go there.
    Yes, I will come back to you, sir.
    Ms. Doan, what percentage?
    Ms.Doan. Thank you.
    22.8 percent of all of the small local business contracts 
to Louisiana vendors were awarded since April 12th, and our 
time frame only goes through June 30th because that is when our 
books cut off.
    ChairwomanVelazquez. Local small businesses.
    Ms.Doan. Local small businesses, 22.8 percent.
    ChairwomanVelazquez. General.
    GeneralVan Antwerp. Ma'am, we have awarded 60 of 65 
contracts to small businesses. The local small businesses is in 
the neighborhood of 35 percent.
    ChairwomanVelazquez. Dr. Finley.
    Mr.Finley. Madam Chair, as to the numbers we have, all 
contractors in the area post 4/12 from our FPDS system are $670 
million for all contractors. Instate local contractors amount 
to $560 million of that. So it is well over 50 percent.
    ChairwomanVelazquez. I am sorry.
    Mr.Finley. It is well over 50 percent.
    ChairwomanVelazquez. I am asking if this is contracts or 
money, dollars.
    Mr.Finley. Dollars.
    ChairwomanVelazquez. Dollars. They are not contracts?
    Mr.Finley. Dollars.
    ChairwomanVelazquez. I will go back to the general.
    Dollars or contracts?
    GeneralVan Antwerp. Contracts, ma'am.
    ChairwomanVelazquez. Yes.
    Ms.Doan. We are dollars.
    ChairwomanVelazquez. Sir.
    Mr.Schneider. Dollars.
    ChairwomanVelazquez. Mr. Preston.
    Mr.Preston. We are really not procuring down there. I 
think, though, you appropriately pointed out in the last 
hearing that we did have some issues with small businesses down 
there. Our overall percentages for small business were very 
good, and prior to April, they were not good for local small 
business, and we would be happy to work with your committee to 
help understand why we were not doing the job on that.
    ChairwomanVelazquez. Mr. Henke.
    Mr.Finley. Excuse me, Madam Chair. If I may, I read the 
number wrong. About 25 percent. All dollars. Local.
    Mr.Henke. Yes, ma'am. As to the network, 16 South Central 
Health Care Network, the data I have says that they have 
procured about $88 million to date. 33 percent of that--excuse 
me. That is 33 percent to small businesses, and I also have 
data that indicates--
    ChairwomanVelazquez. Local businesses?
    Mr.Henke. Ma'am, I do not have that by local. I have it by 
small businesses.
    ChairwomanVelazquez. So I will ask you to please provide 
that information to the Committee--
    Mr.Henke. Yes, ma'am.
    ChairwomanVelazquez. --in the next 2 weeks.
    The staff, please. I need for Mr. Schneider to look at 
that. Would you turn that, please.
    Mr. Schneider, you awarded close to $12 million to larger 
businesses since April, and this is in contrast to a net loss 
of $82 million in small business contracts due to modifications 
that removed work.
    I just would like to ask you why is it that large firms 
seem to be able to secure contracts when small businesses are 
losing ground.
    Mr.Schneider. I cannot relate directly to those numbers 
because they do not match with, frankly, the numbers that I 
work with. I think I need to take a couple of minutes to talk 
about why we de-obligate money from contracts, which seems to 
be what the issue is here.
    Most of the contracts that we obligated in the gulf coast 
are on what we call ID/IQ, indefinite delivery/indefinite 
quantity-type contracts. We have two choices. Our contracting 
offices have two choices. They could either negotiate a 
specific price for each order or they can put out a max price 
not to exceed, and the reason we encourage them to put out the 
max price not to exceed is to get an agreement, to make sure 
that we have enough ceiling coverage so that the work can be 
done within that, and to get on with the business, okay?
    So what happens is, when we settle up and the work actually 
comes in less, we deobligate money from the contract. The work 
is done. Small business does not lose out. Industry does not 
lose out. The fact of the matter is it is a way of expediting 
the awarding of the contract. We have specific numbers that, in 
fact, by State show the deobligations, but that is the reason 
for the deobligations.
    ChairwomanVelazquez. Sir, first, those numbers are accurate 
numbers, and they are taken from the Federal procurement data 
system that each of you have to submit. Two, what it shows and 
what that chart shows is the fact that, indeed, you are taking 
money away from contracts that were given or awarded to small 
businesses. You came back. You modified those contracts, and 
you took that money away. Small businesses--local small 
businesses in the region--are losing money, but we do not see 
the same pattern with large firms. My question to you is why.
    Mr.Schneider. Most of the work at large firms is negotiated 
at the actual price of the work. Again, to get on with the 
work, it is contractually expedient that we put out a not-to-
exceed ceiling price, and the fact is we have two choices. We 
could either negotiate down to the decibel point the cost of 
work, in which case that would actually delay the execution of 
the work, or we can agree that it will not exceed, get on with 
the work and settle up with the bills. We always make sure that 
the not-to-exceed is high enough to truly cover the cost of the 
work. So, when we deobligate the money from the contract, and 
this is done after the work is done, we are basically settling 
up. The work has been done. It is not a question of taking 
money from the small business. It is a question of basically 
removing the excess dollars that were obligated as part of the 
financial responsibility that we have.
    ChairwomanVelazquez. Why is it that it always happens with 
small businesses? You are not seeing that. We are not seeing 
that based on the data that we have analyzed.
    Mr.Schneider. With most of our large businesses, we 
negotiate the specific price. When we are talking about just in 
the past--since post April--that 69 percent of the dollars are 
being obligated to small business, the majority of those 
dollars are, in fact, due to these emerging types of work where 
we issue the not-to-exceed, and where the large businesses are 
we basically negotiate the specific price as opposed to a not-
    ChairwomanVelazquez. Look at that chart. Those are the 
contract losses since April.
    Mr.Schneider. With all due respect, Madam Chair, they are 
not losses. They are deobligations. There is a significant 
    ChairwomanVelazquez. Call it the way you want it.
    Mr.Schneider. That is what the financial people call it.
    ChairwomanVelazquez. The fact, sir, is that it is happening 
with small businesses. It is not happening with big firms. Yet, 
we have not gotten to the fact that you are miscoding large 
firms as small businesses.
    Ms. Doan, during the last hearing, you stated that GSA 
awarded more than 70 percent of its contracts to small 
businesses. In fact, since April, when we met in New Orleans, 
GSA has awarded only 6.3 percent of its contract dollars to 
local small businesses. Only $62,000 has been awarded to these 
businesses. When we asked you to identify five prime contract 
opportunities for local small businesses, the GSA provided five 
contracts but did not address local small businesses at all. So 
I ask you:
    What is it that the GSA is doing to increase the 
participation of local businesses in contracting opportunities?
    Ms.Doan. First, Madam Chairwoman, out of the contracting 
dollars, I would like to say that what we reported are Katrina-
related contracts. We also have contracts which are just for 
general procurement work, and none of these, of course, show 
within the construction field contracts that are actually 
subcontract dollars, which would actually also be local small 
businesses. Unfortunately, the way the system is set up for 
metrics it does not allow you to count all of that.
    As for the things that we are doing for small businesses, 
for local small business, first of all, we have issued guidance 
on the Stafford Act, which allows them to have the opportunity 
to have a local preference. I think this is one of the, 
probably, most important things that we are going to be able to 
do because it became clear that a lot of our contracting 
officers, while they understood that was a requirement there, 
did not necessarily feel as empowered to do that, and that is 
something that I can change.
    We have our Chief Acquisition Officer, who is getting 
procurement folks who are trained only in disaster recovery. 
There will be training sessions to make them aware of how to 
utilize and write the justifications for local small 
businesses. We have an invoice modification process which 
requires our prime contractors to account on the front of the 
invoice for all dollars awarded to local small businesses.
    We have put in place something called "workplace 
solutions," which allows us to combine our public building 
service, which has the large contracts for construction, and 
our Federal acquisition service, and those--
    ChairwomanVelazquez. Are you talking about the gulf region?
    Ms.Doan. Yeah. I am sorry. Yes. Yes, Madam Chairwoman. Yes, 
we are talking about within the gulf region.
    ChairwomanVelazquez. But we met in April.
    Ms.Doan. Yes, I know, ma'am.
    ChairwomanVelazquez. From April to this day, you come here, 
and we can point to just only 6.3 percent. You did the same at 
that hearing.
    Ms.Doan. With all due respect, Madam Chairwoman, I would 
appreciate the opportunity to come to you at the end of our 
fiscal year. Much of our procurement at GSA happens in the 
August to September time frame when the end of your spending 
occurs and we have put and positioned our contracting folks in 
place within Louisiana, Mississippi, Texas, and Alabama to 
handle these procurements, and we are set up to handle, and we 
expect quite a bit of procurement in that time frame.
    ChairwomanVelazquez. You will come back at the end of 
fiscal year. I promise you that.
    Ms.Doan. Thank you very much. I appreciate that.
    ChairwomanVelazquez. My next question is: Since you spent 
so much time in your testimony talking about VETS GWAC, how 
many local small businesses got awarded any portion of VETS 
    Ms.Doan. I do not have that.
    ChairwomanVelazquez. --for the gulf region?
    Ms.Doan. I do not have that information at this point, but 
I will be happy to follow up with the Committee on that.
    ChairwomanVelazquez. Well, your answer is totally 
irrelevant because it did not pertain to the gulf region at 
all. So that is why we cannot have any information as to any of 
the contracts going to local small businesses. It was 
nationwide. It did not have anything to do--but you spent all 
of your time talking about this. I asked in the letter that I 
sent to you specifically for you to address local small 
business participation in the region.
    With that, I recognize Mr. Chabot.
    Mr.Chabot. Thank you, Madam Chair.
    Mr. Schneider, let me begin with you if I can.
    After the gulf coast hurricanes, did FEMA undertake a 
critical review of its coordination with the SBA in responding 
to natural disasters, and if so, what lessons did it learn, and 
have those been implemented?
    Mr.Schneider. I am not familiar in detail with how they 
coordinated. I do know, because I researched it in preparation 
from the previous hearing in April, that we were not prepared 
post Katrina for what happened. So I can tell you that we had 
no people on the ground. We had no awareness of small local 
business. We had no contracts people. We had no market analysis 
of what the industry could do locally, and so those are the 
major lessons learned across the board. Though, there really 
was, from what I understand, very little interfacing down in 
that area with the Small Business Administration.
    So what we have done since then is, you know, beef up. We 
have about 60 people. We have contracting officers on site. We 
work very closely with the SBA. We do a tremendous amount of 
outreach. While in the immediate response to Katrina, we 
awarded major contracts to big business, close to 70-some-odd 
percent of the work was actually done by small businesses. So, 
in the course of doing that, we built up a pretty good 
knowledge on the ground of what the capabilities were of small 
and local business, and we have used that. We keep databases. 
We have outreach. We do forums jointly with SBA. We have what I 
consider to be--I have actually met with the people who are 
working it on the ground, and I think we have done a pretty 
good job to make sure we are much better positioned to handle 
that type of problem today.
    Mr.Chabot. If such a review were performed and is in 
writing somewhere, could you make sure that the Committee 
acquires a copy of it, assuming that it is within security 
requirements and thing of that nature?
    Mr.Schneider. Yes, sir. I will go back and look at that.
    Mr.Chabot. Thank you very much.
    Ms. Doan, let me turn to you if I can now.
    Is one of the issues associated with contracting with small 
businesses in these areas such as we are discussing here, in 
areas where there was a disaster, the fact that the area is 
still recovering and that the number of small businesses 
operating in the area remains well below the prehurricane 
    Ms.Doan. Yes, this is very much a problem. And on Friday, 
when I was actually in New Orleans talking with our contracting 
officers, one of the commitments that we made together is that 
every month we will be hosting from now on training sessions in 
New Orleans that we are going to work around the small business 
person's schedule because a lot of them, they are the owner of 
the business, and they are working in the business. So they 
will be very early in the morning, during lunch or in the 
evening, and we will try to get them on the GSA schedule, 
making them aware of procurements. What we have found every 
month, more businesses are returning to the region, and 
therefore, it is important for us to be constantly refreshing 
that information. What we have been doing in the past--we need 
to have a regularly scheduled meeting where new businesses, 
when they return to the region, can come to us and know that 
they can get that help and guidance to get those Federal 
    Mr.Chabot. Okay. Thank you. General, are there some 
functions performed by the Corps of Engineers that small 
businesses, for one reason or another, are unable to perform or 
incapable of performing? And do any of those functions relate 
to disaster response?
    GeneralVan Antwerp. Generally there are always contracts 
that some small businesses can do. But in a disaster, we are 
finding most of those contracts are in the area of water, ice, 
debris removal, temporary roofing and those things, that they 
are capable. Now, we have found that in some instances, the 
affected area, the contractors and some of their workforces are 
affected initially. So one of the things we are looking at is, 
how do you get them under these long-term contracts that are 
standing so they are geared up for it, and they are ready to 
respond. And then, secondly, can we get them re-engaged for 
those--because we will go to them and say, you know, a 
temporary roof contract, can you do this and do you have the 
capacity. And during the disaster or right after the disaster, 
we are going to have to contact each one of those firms. But we 
do know who they are, and we have them under a standing 
contract. So that is our commitment to use them and then we'll 
work with each one.
    Mr.Chabot. Let me follow up on that if I can. From your 
written testimony, it appeared that small businesses were to a 
considerable degree limited to debris removal. And are small 
businesses capable of providing other services to the corps in 
response to the aftermath of the gulf coast hurricanes? And if 
so, are you going to pursue that area and try to do a better 
job in the future.
    GeneralVan Antwerp. Yes, sir. I think there are two areas. 
We separate this. One is the response to the disaster 
immediately, and then there is the rebuild and restoration. 
Right now, most of that $5.8 billion that I spoke of--and it is 
in my testimony--is first rehabilitation and restoration of the 
hurricane protection system. And we are using to the maximum 
extent small businesses in those local areas. I would report on 
one area. Most of our response efforts are under FEMA. And 
there was one area--and this is in the area of demolition--that 
we had a number of contracts prepared for demolition, but it 
has been slow in identifying those areas in the parishes for 
demolition. So FEMA has gone back and taken those dollars back. 
And they will go to individual parishes to do that demolition 
with the idea that the small businesses from those parishes 
would help with that response. So that is one area we have 
decreased a little bit because the work wasn't there yet.
    Mr.Chabot. Thank you. Secretary Finley, in your written 
testimony, you were--you may have done this in your oral as 
well--refer to the reference guide. Does the DOD plan to make 
the reference guide available on the Web so that small business 
owners know exactly what contracting officers in the field are 
utilizing when they are determining emergency contracts?
    Mr.Finley. Yes, sir. The guide has been going through 
numerous--I have a copy of the latest updates here. It has been 
going through what we call red team review. It will be on the 
web. It has gotten inputs back from the air force, the Navy, 
Marine Corps and the Army. We plan to post this, you know, on 
the Web site this week and start to get feedback. And the first 
addition of this is planned to be issued on or around 1 
September this year.
    Mr.Chabot. Good. I think it is important to let the small 
business community know exactly as much as possible so they are 
able to bid and that sort of thing.
    Secretary Preston, last year, storm forecasters predicted a 
more active than normal hurricane season and, of course, as we 
know, no major storm made landfall in the U.S. How difficult is 
it to be fiscally responsible with an employee budget yet 
maintain appropriate readiness for a major disaster on the 
level of Hurricane Katrina or Rita or other major disasters 
that we have had or a major earthquake, for example, in 
    Mr.Preston. Sir, it is a balancing act. I do think it takes 
money to be prepared, but I think there are ways that we have 
looked at preparedness that we think are fiscally responsible 
but also, and most importantly, ultimately will be sensitive to 
the people that we are here to serve. I think it hits in two 
areas. Primarily it hits in--probably three. It hits in having 
a system's capacity to handle the volume with your computers. 
It hits with facilities, having backup facilities to help 
people because we ramp very quickly. And most important and 
most challengingly, it deals with people. And what we have done 
in those areas is we have already expanded our system's 
capacity fourfold. So it has been dramatically expanded. We 
have a very specific facility expansion plan with currently 
active backup facility. And then we also work with people at 
the GSA every month to understand what is available in the 
Federal network should we blow through that which would only 
anticipate an event much bigger than Katrina. And what we have 
never done before is dramatically expanded our reserve corps. 
That does cost money. It costs money to bring people in every 
year for a week so we can train them. But they stand ready to 
come and serve. We have significantly expanded our lending 
train for people who are not in our disaster business in the 
SBA. That costs money, but we think it is a very frugal way 
because we are identifying people, training them but not fully 
employing them at this time. And you really have to kind of 
understand how that ramps with the needs. But I think we have 
done a good job of balancing that.
    Mr.Chabot. Finally, Mr. Henke, since you lived in 
Cincinnati, what I should ask is more, do you miss Skyline 
Chili, Graeter's ice cream or La Rosa's Pizza. But I won't put 
you on the spot for that. Although I will ask--
    Mr.Henke. All of the above, sir.
    Mr.Chabot. If a similar event like Katrina occurred in the 
gulf coast region or elsewhere, how would the VA's response 
differ from the response in Katrina?
    Mr.Henke. We have taken a look at our emergency contracting 
procedures and are trying to establish a core competency in the 
acquisition workforce to handle that. If you look at VA's 
response to Katrina, we had frankly a remarkable achievement. 
Our gulf port facility was completely destroyed. It was planned 
to be consolidated with the facility at Biloxi anyway, and we 
moved ahead and are now rebuilding--or expanding our campus in 
Biloxi, Mississippi. The VA care providers in the hospital in 
New Orleans, there are many of them who stayed in the bed 
tower, in the hospital in New Orleans tending to their patients 
and evacuating their patients as they could. And they could see 
from the hospital tower where their own homes had been flooded, 
had been destroyed. So we are actually quite proud of our 
performance and our response. We didn't lose a single patient 
and many of them were in critical care. But we did 
extraordinary things to evacuate them to safety. We quickly 
established three new community clinics in Hammond, Slidell and 
LaPlace, Louisiana, to re-establish the VA presence in the area 
and start to provide that care. And the workload for veteran 
patients is showing up and is reappearing in the New Orleans 
area. So we are very proud of what the VA employees did in that 
    Mr.Chabot. Thank you very much.
    Yield back, Madame Chair.
    ChairwomanVelazquez. Thank you.
    Mr. Gonzalez.Mr.Gonzalez. Thank you very much, Madame 
Chairwoman. First, it is going to be an observation.
    Assistant Deputy Schneider, you made a comment about 
legislative language out there, about having full and open 
contracts that you think may impede. But let me explain, I 
guess, from the perspective of Congress. The purpose of that 
language that we are attempting to put in legislation is to 
address some problems. And one of those, of course, is to 
assure that we don't have a proliferation of no-bid contracts, 
for instance, or to make sure that we don't have favoritism 
based on political party affiliation demonstrated in the 
awarding of contracts. I will agree with you that we have to be 
very careful that there may be some unintended consequences 
which I think we can address. So I do appreciate the import of 
your observation, but I want everyone to be abundantly clear of 
why we would have such language.
    My question to you would be the following, and it was 
somewhat addressed with the graphs and stuff. But I am still 
somewhat confused. In our memo, it says, although the 
Department of Homeland Security awarded 297 of its 340 
contracts to small businesses, the total dollar value of these 
awards was negative in your responses to the chairwoman's 
questions. Let me see if I sort of understand this. Let us say 
you have 100 small business contracts each at a dollar, and 
that is the upper limit--because you are not real sure what it 
will cost at the end of the process. But at the end of this, 
you still have 100 contracts fully completed but you have de-
obligated and you are down to $30 for those 100 small 
businesses. Now, you would still take credit for contracting 
with a hundred small businesses, would you not?
    Mr.Schneider. The number of the small businesses that we 
contract with doesn't change.
    Mr.Gonzalez. Let me stop you there. Now, in reporting to 
us, would you reflect that you have contracted with the small 
businesses to the tune of $100 or $30?
    Mr.Schneider. It would originally be--
    Mr.Gonzalez. No, no, no. I want to know, when we look at 
your figures, are you going to report to us that you invested 
$100 in small businesses or $30?
    Mr.Schneider. The net ultimately would be reported as 30. 
The process would show a de-obligation in the system of what 
the excess money was. So initially but not to exceed would be 
recorded. Then when the work was done and the work actually 
came in at less money, what was not spent--because it didn't 
need to be spent--would then be de-obligated. And that de-
obligation would show as a negative in the system. So you 
ultimately see the net.
    Mr.Gonzalez. I will tell you something. I don't know. Maybe 
my fellow members are in disagreement with me. We are really 
interested in the net. We understand how you have to do 
business, and I think it is good common sense to say, this is 
the ceiling, and you are not going to exceed it. I understand 
that. But I think for our purposes to see what small businesses 
are really receiving in this country, we need to figure out 
what is the bottom dollar that any department or agency is 
actually paying to that small business. That is the reality. 
Let me move on to something else because I believe our time is 
going to be up.
    Mr.Schneider. In response, I will submit these detailed 
charts so you will be able to actually track the flow by State, 
put in not to exceed, de-obligated and net.
    Mr.Gonzalez. I understand. But we have individuals out 
there that will be using the not-to-exceed numbers as 
representing the effort out there by a department or agency. I 
am just placing people on notice that, to us, that is 
irrelevant. It is totally irrelevant. If you are the business 
person on the end of this transaction, I guarantee you it is 
totally irrelevant.
    The next thing is about miscoding. And I am going to quote 
from the memorandum. In looking at the data, the Committee 
found that hundreds of these contracts had been miscoded. 
Contracts with fire departments and cities have been listed as 
small business awards and then also subsidiaries of bigger 
companies. Now, you would think some of these subsidiaries may 
have misled you. But this is the comment that we have in the 
memo. More often, the companies made no effort to self-identify 
a small business. The miscoding then largely occurred at the 
agency level. Now, as it applies to FEMA and to the Department 
of Homeland Security, how do you respond to that particular 
assertion in our memorandum?
    Mr.Schneider. I am not sure that the memorandum that you 
are reading from--yeah, I am not sure specifically how that is 
worded. But let me tell you a little bit about the coding. I 
went through after the last hearing with the contracts expert 
to actually understand how something gets coded in the system. 
And I asked the question, like, how many contract actions we 
have. We have 66,000 a year. So with an experienced contract 
expert, I went through them and I said, show me why it is so 
hard to enter this data. What they did was actually walk me 
through each of the lines and show how an experienced 
contracting officer, sometimes based on the choices you have, 
can make a mistake. Okay?
    And that is why what we do is the following. We have been 
working closely with the GSA folks. We have identified 
approximately 20 different changes that could be made to 
facilitate the entry. We have an outreach program with all of 
our contracting people in terms of how we can do a better job 
of coding. In November 2006 and May of 2007, we reviewed 4,000 
entries to see how many errors there were. We found errors, and 
we fixed them. What we try to do is figure out where in these 
lines are the errors being made and then let us focus on the 
attention to fix them.
    The other thing I might point out is this. This is the very 
last thing a contracting officer does after they basically sign 
off on a contract. What we have found is that some of the 
practices vary. Sometimes they actually enter right after they 
sign off on the contract. Sometimes they wait until the end of 
the week. Sometimes they wait longer. And the longer they wait, 
the less fresh it is in their memory, and there is an 
opportunity actually for more errors. So I think we were 
aggressively looking at the errors, what causes the errors--
    Mr.Gonzalez. Secretary Schneider, because my time is going 
to be up. Look, I am not questioning your sincerity and 
everything. I think you were finding some of the problems. We 
just want you to hurry up and fix them. And let me explain why 
I am saying that. I have been handed some information that, in 
the spring, 106 miscoded contracts were identified. You still 
have them on the books as constituting small businesses when 
they are not. One of those is the water board of New Orleans. 
And I can name Oakley, Avery Dennison and Global Charter 
Services and such. So much of what you said right now, I don't 
think you have even instituted. We just want to see something 
that is a lot more aggressive, much more thorough in addressing 
these problems. When you give us these numbers about how you 
are engaged with small businesses, they are not representative. 
And we are starting off with some base information which is 
incorrect and inaccurate. So we are starting with a foundation 
that is faulty and trying to build on faulty foundations. That 
won't do anybody any good, whether it is Congress or the 
department or the agencies.
    With that, I yield back. Thank you, Madame Chair.
    ChairwomanVelazquez. The Committee stands in recess subject 
to the call of the chair.
    ChairwomanVelazquez. The Committee is called to order.
    Mr. Preston, I want to follow up on the miscoding issue 
that was raised by Mr. Gonzalez. As we all know, your agency is 
responsible for submitting an accurate report to Congress of 
small business goals. Yet the Committee found approximately 250 
miscoded contracts in FPDS, the Federal Procurement Data 
System, for Katrina-related actions and most are still in the 
data. Since you have stated that cleaning up this problem is a 
priority, can you provide the committee with a timeline for 
when these errors will be corrected?
    Mr.Preston. Yes. As you know, this has been a big issue for 
you, this has been something we publicly talked about a lot. 
Last year, I sent a letter to all the agency heads, along with 
people in the White House asking for clean data not only going 
forward but to restate 2005 and make sure 2006 was correct. We 
have worked with the agencies very extensively to get to a much 
cleaner output when we look at that data. Paul Bennett from 
OFPP has also asked all the Federal agencies to represent to 
the White House the validation and verification procedures they 
will have, having third parties do that. People are responsible 
back to him for that. We will be making a resubmission of the 
2005 data available within the next few weeks. That is the 
result of many months of work with the Federal agencies. We 
think it is a much higher quality product.
    I will tell you, 3 and 1/2 million small business actions a 
year, it won't be perfect. The other thing we are doing is we 
are working with the people at the GSA to make that data--every 
one of those lines of data publicly available and easier and in 
a more user-friendly format. We are working with people a lot 
in the process. We have a lot of support broadly in the 
administration. I think the agencies have worked very hard on 
this, but it is a very extensive project I think that will 
continue forward for a while before I think we really get it 
    ChairwomanVelazquez. When do you think this will be ready?
    Mr.Preston. We will have 2005 and--cleaned up 2005 and 2006 
data available this month.
    ChairwomanVelazquez. Mr. Schneider, I asked the Department 
of Homeland Security to identify five new prime contracts after 
our April hearing in New Orleans. And in your response, you 
included one that was posted prior to the hearing in April. So 
since I requested for each one of the agencies to identify five 
new contracts, I will ask you that you identify one new 
contract, one new prime contracts and explain to me first why, 
when I asked for five prime new contracting opportunities, you 
included one that was old.
    Mr.Schneider. I wasn't aware at the time that one contract 
was old. I think it was the seven total, which were, I think, 
two over and above the five you asked for--
    ChairwomanVelazquez. Well, I want to--
    Mr.Schneider. I will go back and find out why and we will 
take a look to see if there is any other additional contracts. 
But, you know, I don't know why the one. But we did provide 
    ChairwomanVelazquez. Well, I will ask that, in the next 2 
weeks, you provide information with the five new contracts 
going forward after the April hearing. My understanding is that 
two of the contracts were listed twice, so that is why you come 
up with the seven contracts. So we need accurate information. 
And I please ask you that you submit it to the Committee in the 
next 2 weeks.
    Mr.Schneider. Sure.
    ChairwomanVelazquez. Mr. Van Antwerp, In your testimony, 
you mentioned that your debris removal contracts will be more 
small-business friendly. You mentioned 8(a) and HUBZone set 
asides. But now only one mechanism to ensure local firms are 
included. So my question is, why is it that you are not using 
set asides for local small business participation.
    GeneralVan Antwerp. Ma'am, I am not sure exactly how we can 
code local small business. And we are trying to come to grips 
with this as we look at how we code them. But we have small 
business. But we will go after that local small business set 
    ChairwomanVelazquez. If your staff has problems in 
identifying or the definition, I would suggest that you get the 
assistance of the Small Business Administration.
    GeneralVan Antwerp. Thank you, ma'am.
    ChairwomanVelazquez. Mr. Henke, at the hearing in April, 
Admiral Dunn, who represented your agency at the time, 
testified that the agency's policy for the veterans' medical 
center was to have large prime contractors and involve small 
businesses only at the subcontractor level. And he, in our 
exchange, basically made the statement that he thought, based 
on experience but not on data, that there will be no local 
small businesses that could do the job that was required. So in 
the contracts that you are submitting to the Committee, there 
were prime small business contracts for the VA medical center; 
    Mr.Henke. Yes, ma'am.
    ChairwomanVelazquez. So, I guess that Mr. Dunn was wrong in 
his statement because when he came in April, he said there is 
no way that we could identify or set aside five prime contracts 
for small business, yet you are submitting prime contracts for 
small businesses to our Committee. So what happened between 
then and now?
    Mr.Preston. Ma'am, I am not exactly sure what Admiral Dunn 
said before the Committee. Perhaps the discussion was about the 
construction effort that the VA must undertake in New Orleans. 
But I know that when the admiral responded, when the VA 
responded in the letter, we did provide the five, and we are 
executing two of them this month and three of them next month. 
We expect to award all five here in the next month or two.
    ChairwomanVelazquez. You are expecting to?
    Mr.Henke. Yes.
    ChairwomanVelazquez. When.
    Mr.Henke. Two in August and three in September is the 
expected award date for these five efforts.
    ChairwomanVelazquez. Mr. Finley, at 4:30 p.m. Yesterday, 
DOD finally provided contracts in response to the Committee's 
request. These were all contracts that had already been 
awarded. The purpose of my request after the April hearing was 
for the agency to show what they planned to do going forward. 
What DOD did instead was wait until the last minute and then 
simply go back and pull from the contracts that they have 
already let. And I have to tell you that this demonstrates a 
lack of goodwill on the part of the department. And then to 
wait 4 months for you to comply with the Committee's request 
and not providing any new prime contracts, that is 
unbelievable. Four months. Sir, I thought that military time 
was more prompt than 4 months. Do you have anything to say?
    Mr.Finley. Yes, Madame Chair.
    First of all, I apologize for the very late response. The 
letter that you sent to us unfortunately did not reach our 
office in what you might consider a normal fashion. Everything 
gets checked for chemical, biological things. It came in 
through our normal mail and it--
    ChairwomanVelazquez. Two months--excuse me. What do you 
mean by, "it didn't reach your office in a timely manner"?
    Mr.Finley. It didn't reach our office in more of what I 
consider a timely fashion. I am not using it as an excuse. I am 
using it as an example of what slowed our system down.
    ChairwomanVelazquez. Sir, you have to check your system. 
This is the military. Huh? We send it electronically, too.
    Mr.Finley. I will double check on that as well, ma'am. As a 
point of the contracts themselves, Madame Chair, I am not aware 
that these were already awarded prior to 4/12. My information 
was that these were awarded post-4/12. And I will take that 
question for the record, and we will get back to you on the 
facts of those programs. And if we cannot find that those are 
the proper timed programs, we will certainly work to 
identifying in the next 2 weeks five contracts that do fit 
post-4/12 awards.
    ChairwomanVelazquez. Those contracts were awarded prior to 
the April field hearing. I am asking you that you go back and 
identify five new prime contracts that will be posted after 
this hearing for local small businesses.
    Mr.Finley. Okay. Ma'am.
    ChairwomanVelazquez. I ask that you comply in 30 days.
    Mr.Finley. I will.
    ChairwomanVelazquez. Now I recognize Mr. Chabot.
    Mr.Chabot. Thank you, Madame Chair.
    Mr. Preston, let me begin with you if I can. I just have a 
few questions. Not terribly in depth with anybody at this 
point. But did the SBA use the disaster response plan in 
response to the tornados that occurred a few months back that 
devastated Greensburg, Kansas? Because, obviously, Katrina was, 
you know, a number of years ago and you all came up with a 
different disaster plan, I think, which was supposed to be more 
efficient. And how did it work in the Kansas situation? What 
kind of differences--
    Mr.Preston. In Kansas, also with the tornados in Florida 
and in many other cases, a lot of the changes that have 
occurred over the last year and many which are described in the 
disaster recovery plan were in place for those disasters. We 
saw a very responsive turnaround time both for people getting 
approved for their applications and actually getting 
disbursements. In fact, in Florida, the local newspaper 
highlighted the reforms of the agency and how responsive we had 
been down there.
    Mr.Chabot. Thank you.
    And finally, for any of the panel members that might like 
to respond, I would be happy to give each of you, you know, a 
minute or so if you would like to just to maybe clarify 
anything that you think you would like to bring out in response 
to any of the questions that might have been asked or any 
points that you think that you didn't have adequate time to 
explain your answers. I would be happy to give you that time 
now, approximately a minute each. You don't have to take it. 
But if there is something you would like to clarify, I would be 
happy to hear it. I begin with you, Mr. Schneider.
    Mr.Schneider. Yes, sir. I appreciate the opportunity. I 
would like to follow up on the discussion with Congressman 
Gonzalez. His discussion of our concern about the 
appropriations bill where specifically that Section 537 where 
he, I think, used the term there may be some unintended 
consequences. We are very much worried about this. While our 
department clearly supports the tenets of competition and the 
benefits of it, basically the restrictions, the way we see this 
would be absolutely detrimental to all of our efforts in small 
business HUBZones, small disadvantaged businesses, woman-owned 
businesses, et cetera. So the Secretary is given by the statute 
very limited authority only in terms of national emergency. So 
anything that you can do, we would really ask for your support 
basically in conference in getting this turned around. This is 
a big deal for us, so we would appreciate your help in that 
regard, as well as frankly the salary lines for the account 
that basically funds the small business office.
    Mr.Chabot. Thank you. And we can just go down the line.
    ChairwomanVelazquez. Yield?
    Mr.Chabot. I would be happy to yield.
    ChairwomanVelazquez. Sir, can you explain to me more 
specifically how to have these full and open is bad?
    Mr.Schneider. Yes, Madame Chair. Section 537 states none of 
the funds appropriated in this act may be obligated for a grant 
or a contract awarded by a means other than full and open 
competition other than a grant distributed by a formula or 
other mechanism that is required by statute. The Secretary of 
Homeland Security may waive the application of this subsection 
during a national emergency. So full and open competition is 
full and open competition for all businesses. That means we 
would, except in the case of a national emergency, not be able 
to set aside a procurement for small business. We are all for 
competition. We want the benefits to be able to execute the 
small business programs that we have been executing because we 
think they are absolutely essential to stimulate growth in that 
particular area of the economy.
    ChairwomanVelazquez. That is a matter for interpretation.
    Mr.Schneider. This is one of the reasons why we have taken, 
our department, very strong exception to this because we 
believe we are significantly disadvantaged by that statute as 
currently written.
    Mr.Chabot. I reclaim my time, unless you need to continue, 
Madame Chair.
    ChairwomanVelazquez. Yeah. The issue at hand today is local 
small business participation. This is going forward. The fact 
of the matter is small business participation by each and every 
one of the agencies represented here in the gulf coast. And 
there is no way that we can rebuild the gulf coast region if we 
do not address the issue of fair participation by the same 
businesses, local small businesses that will be the ones 
creating the jobs, to help the region recover. This segment 
called for transparency, and that is good for big business and 
small business.
    Mr.Chabot. Reclaiming my time.
    Ms. Doan, did you--
    Ms.Doan. I would also like to add that GSA believes the 
other way to revitalize the gulf coast region is by ensuring 
that local small businesses actually participate in the 
National Federal contracting arena. And that is one of the 
reasons why our GWACs are so important. If we can get them on 
the schedule, our GSA schedules, if we can get them on our 
other government wide acquisition contracts, it gives them a 
chance to participate in all of the Federal contracting dollars 
that are available.
    And I appreciate, Madame Chairwoman, that you mentioned 
that the gulf coast region is more than just Louisiana. 
Because, for example, you know, Alabama was also affected, and 
we have 8(a) stars which are the 8(a) set-aside contracts 
awarded to gulf coast companies there. Each of these are ways, 
even though they are participating on a nationwide arena, to 
help revitalize that region. And GSA is small-business 
friendly. We are local-small-business friendly. And we will 
continue to work with this Committee to be aggressive in 
pursuing these opportunities. Thank you.
    Mr.Chabot. Thank you. And we can go down the line. If you 
don't need to take time, that is fine.
    GeneralVan Antwerp. I might just very quickly say--give a 
status report. We are at about the pre-Katrina authorized level 
as we do the recovery, but that means we have got a very large 
effort to get to the 100-year storm protection. So there will 
be more opportunity here from the Corps of Engineers where we 
have a good acquisition plan to involve local small businesses 
in that next piece to go to the 100-year storm protection. And 
then, as I said earlier, for the advanced contracts to be ready 
for the next hurricane, we have the RFPN, and we have got a 
situation in place where we will use as much small business 
effort as they can provide.
    Mr.Chabot. Secretary Finley?
    Mr.Finley. I will simply reinforce and endorse that local 
small business is the key, is the focus. We have boots on the 
ground through our PTACs in New Orleans, and we are absolutely 
using them as a focus and barometer of our success in making 
results happen in New Orleans in particular.
    ChairwomanVelazquez. Director Preston.
    Mr.Preston. I want to say, in the last year, certainly some 
of the successes we have had down there as well as the lack of 
successes has taught us a lot this year. And it has allowed us 
to refocused our PCRs. We are in the process right now--in 
fact, I think we rolled it out last week, a tool to help 
Federal contracting officers electronically identify small 
businesses specifically in the preference areas to support 
their work. I think it has helped us get a much better degree 
of coordination across the agencies going forward. That is 
going to be a critical element. And certainly, just as the 
leader of the agency, it is put on my radar screen much more 
clearly in the realization that the leadership for this type of 
thing does need to be at the top. I think we are in a better 
position than we have been before, and we will continue to make 
good progress.
    Mr.Chabot. Secretary Henke.
    Mr.Henke. Yes, sir. I'd just make two quick points. The VA 
is very committed to ensuring that we meet our small business 
goals. We met them last year. Our goal is 23 percent. We made 
28 percent. End of note, VA--as VA should be--we made the goal 
for service-disabled veteran-owned small businesses, one of two 
agencies to do that. We are proud of that accomplishment, and 
we are moving forward to implement new legislation that the 
Congress gave us last year, to put service-disabled veteran-
owned and veteran-owned businesses at the head of the line.
    Second point, sir, on the VA medical center in New Orleans, 
we are very committed--the VA is very committed to re-
establishing a presence, a commanding presence in New Orleans. 
We want to put our medical center back down there. We do need 
Congress's help in one way. We have the $625 million 
appropriated for construction to build a facility. We have only 
$300 million authorized to do that. So we need congressional 
authorization to move ahead on that project when the time 
comes. We are very committed to a partnership with LSU in the 
area. And we are very close to a site selection. But this 
hospital in New Orleans, the VA facility will be a million--
more than a million gross square feet. We hope it will include 
more than 140 hospital beds. The outpatient clinic has the 
capacity to receive 410,000 visits per year and a 60-bed 
nursing home. So we intend for this to be a state-of-the-art 
facility. We are pursuing collaboration vigorously with LSU and 
want to find ways we can collaborate and work together. We need 
congressional help to get the project fully authorized so that, 
when we come to the construction point, we can do that. Thank 
    Mr.Chabot. Madame Chair, I yield back the balance of my 
    ChairwomanVelazquez. Mr. Braley.
    Mr.Braley. Thank you, Madame Chairwoman and Ranking Member 
Chabot for holding this important hearing.
    One of the important pieces of legislation to come out of 
this Committee this year was a Small Business Fairness in 
Contracting Act which I was very proud to sponsor and which had 
overwhelming bipartisan support from the Committee as a whole 
and on the House floor where it passed with 409 votes. And the 
chairwoman and Ranking Member Chabot were both cosponsors of 
that legislation. So my question for the entire panel is, are 
you aware of the requirements of the act? And what, if 
anything, are your agencies doing to prepare for it in the 
event that the President signs it into law?
    Mr.Schneider. I am not.
    Ms.Doan. I know there were several portions--and, yes, we 
are aware of the act, and our chief acquisition officer is 
working on a plan. One of the clauses, or whatever you want to 
call it, in the plan is, of course, the anti-bundling, and we 
at GSA, and I in particular, are very proactive in trying to 
prevent anti-bundling because it is probably one of the hardest 
things as a small business to try to perform on these really 
huge contracts. And I might add that is one of the initiatives 
that we are working on because one of the ways that we can 
prevent the tendency to bundle is to make our contracting 
officers comfortable with taking the risk and making those 
awards to small businesses and knowing that they can provide 
those goods and services, that they have that ability to excel. 
And that is one of the things we are working on, is to provide 
that guidance to our contracting officers so that they will 
give those small businesses a chance. And you missed my earlier 
statement, but I said I actually think that it is terrific. The 
small women-owned business clause is in it. We also have a 
group that is working on trying to make opportunities available 
to women-owned businesses. We are working on, how do we handle 
mid-size business opportunities? So, yes, we are aware of it. 
We look forward to working with the Committee on all the many 
aspects of this legislation.
    Mr.Braley. Ms. Doan, can we take it from that testimony, 
then, you would be on record as supporting the anti-bundling 
provisions of the Small Business Fairness in Contracting Act.
    Ms.Doan. Actually when I was looking at it the other 
evening, there are four or five different clauses or phrases or 
caveats in it. And what we are doing at GSA is trying as hard 
as possible to develop our approach to each one of these. The 
ones that we can support, we obviously will. I will tell you 
that there are some challenges with it in that we have to 
balance this with the need to respond to other congressional 
requirements and other statutes. For example, enterprises 
architecture. Enterprise architecture in and of itself is in a 
way a sort of bundling because they are saying that you have to 
have one platform, one performing in a particular area. But 
those are things we will look forward to working with the 
Committee on trying to redefine and find ways to make these 
opportunities available to small business.
    Mr.Braley. But can we take it from your testimony that you 
at least in concept support the idea of eliminating bundling 
obstacles that prevent small businesses from getting their fair 
share of the Federal pie?
    Ms.Doan. As much as possible whenever something comes over 
my desk that I have actually seen that implies there is 
bundling involved, I usually say no.
    GeneralVan Antwerp. Sir, I am aware of the Fairness in 
Contracting Act, and I would agree with your statement that we 
want to make sure that we have removed the obstacles and so, in 
your words, eliminating the bundling obstacles. We are in 
agreement with that.
    Mr.Finley. Sir, I would reiterate that we would very much 
like to work with the Committee on this. I personally have not 
reviewed the language. Bundling is something that we are 
opposed to. And from an acquisition strategy, we do everything 
we can to avoid it. But we very much would like to work closely 
with the Committee and perhaps yourself to better define what 
the concerns would be, if any, and work together to find a way 
out so that when it became law, we could implement it right 
    Mr.Braley. Mr. Preston?
    Mr.Preston. I think the big issue for us is how to support 
the people at the table as effectively as possible. It will 
require us to really redouble our focus in ensuring that they 
see the right small businesses, that we see all the contracts 
that are available for small business to work our network. So, 
in some ways, I think it will up our workload, but that is a 
good thing because I think it will intensify people's focus on 
the small business needs and give us an opportunity to be in 
the middle of that process.
    Mr.Braley. Administrator Henke.
    Mr.Henke. Sir, I am not familiar with the details of the 
legislation you cited. But the VA has a proactive effort to 
reduce contract bundling. It is required that we review every 
action that is $2 million or above. At the VA, we cut that 
threshold in half. We review every action over a million 
dollars. We have reviewed over a thousand contract actions and 
returned about 20 percent of those back to the acquisition 
professionals to say that this needs to be unbundled. So we 
take that effort very seriously.
    Mr.Braley. Thank you, Madame Chairwoman.
    ChairwomanVelazquez. Mr. Jefferson.
    Mr.Jefferson. I am going to commend you and the ranking 
member for the work that you have done in New Orleans and the 
field hearings, all the special attention you've paid is 
extraordinary. And on the awards received this past weekend 
from the Black Chamber of Commerce, the Mitchell award, the 
highest award they can give, I think you deserve it. And I 
appreciate the work you have done to continue the focus on the 
recovery of the gulf. Mr. Braley asked the question whether you 
supported his act. This bundling issue is one of the largest 
ones that we are dealing with down home. The question that I 
would like to ask is--because the chair lady is concerned, and 
we all are, about going forward. We know that it hasn't worked 
so far. Whatever you have done to deal with the anti-bundling 
issue hasn't really worked now. My question is, if you support 
this legislation, in what particular ways do you envision 
undoing this issue of bundling? What specific steps are you 
going to take to make sure this doesn't happen in the future? 
Each of you, if you want to answer that. And the other question 
I want to ask--because Mr. Hsu came before us sometime ago to 
say that--he was the associate administrator for government 
contracting--who said that his job is to contact each agency 
under the leadership of Mr. Preston and to engage each agency 
in finding new opportunities for small business. I wonder, have 
you been contacted, any of your agencies, by Mr. Hsu? Has he 
gotten his program underway to help you identify--work with you 
to identify small business procurement opportunities? And has 
he emphasized the issue of local small business opportunities 
that we are emphasizing at this hearing?
    Mr.Schneider. Well, Congressman, I will answer that last 
part first. The talking to Mr. Boshears, who is the head of our 
small business, yes, his staff has worked with our staffs 
looking at potential opportunities. So it sounds like that is 
working, at least from what Mr. Boshears tells me. I can tell 
you just--
    Mr.Jefferson. What kind of schedule are you on with him to 
get back to him with some answers?
    Mr.Schneider. It is an ongoing dialogue. And I would expect 
frankly that it would be because what we would be interested in 
is a continuing evolution to continuously identify those 
capabilities. I think as I indicated in response to your 
earlier question, I have not read that legislation. Just 
picking up from the discussion, clearly it addresses bundling. 
I can tell you that what we do in terms of our--from our 
contracting--from our chief procurement officer perspective and 
in her dealings with all the chief procurement offices in the 
department, what we do is encourage and we highlight the need 
to basically eliminate the bundling of contracts where it 
doesn't make any sense.
    Mr.Jefferson. I'd encourage you to think hard about that, 
think about some new ways to get after this issue. Have you 
given this any thought, Madame Secretary.
    Ms.Doan. I have given it enormous thought. And the first 
thing I have done is, every time an opportunity has come across 
my desk that appears to be bundling, I say no to it. I did that 
my second week on the job with a $200 million award that was 
going to go to a large business. And I said this has to be 
offered to our small and minority business community before--
    Mr.Jefferson. Have you given particular emphasis of this 
and what is going on--
    Ms.Doan. Yes. As a matter of fact, I did. And one of the 
things I realized is required is our contracting officers get a 
little risk averse because they have to write justifications or 
validations because of the nuances. Is it debris removal? Is it 
collections? So it occurred to me that I as administrator have 
the ability to issue a GSA order that gives them the cover, 
that basically says all contracts that are performed in the 
    Mr.Jefferson. This is something new you have come up with.
    Ms.Doan. Yes, it is, because I realize more has to be done 
in order to empower our contracting officers to--
    Mr.Jefferson. This is a very recent action you are taking.
    Ms.Doan. Yes.
    Mr.Jefferson. So you think this will cure some of the 
issues we are talking about here with respect to this fuzziness 
that may exist as to what agencies can and cannot do.
    Ms.Doan. I believe it will help. I intend to monitor it 
very, very closely. And since we will meet sometime after 
September 30th, I imagine I will be happy to present you with 
any results that we have had as a result of that. But I also 
believe that it is really important for us to work with our 
contracting officers. And our chief acquisition officer is 
providing training for them to make sure that they feel 
empowered to go to the local small businesses.
    Mr.Jefferson. General?
    GeneralVan Antwerp. First of all, I don't believe that we 
have been contacted from my small business people, so we need 
to make contact on that. Of your question with Mr. Hsu--
    Mr.Jefferson. Mr. Hsu's job is to contact you and to try to 
advocate for small business, to find opportunities within your 
    GeneralVan Antwerp. To my knowledge, we haven't been 
contacted yet.
    Mr.Jefferson. What specific steps are you taking different 
from what you have taken in the past to deal with the bundling 
    GeneralVan Antwerp. It is a great question. The best 
indicator is in our advance contract initiative. We have three 
task force orders that we have out there, and we have set two 
of those aside for small businesses. And that is because the 
theory before was, get someone that has the total capacity to 
do it in all different phases of it. But now we are breaking it 
up so it may be on a parish-by-parish level. So we are carving 
that out and taking those things apart, and we will apply them 
as the small businesses have capacity.
    Mr.Finley. Congressman Jefferson, we have a regular 
discussion ongoing that the small business--Mr. Preston and 
myself stay in touch a couple of times every couple of weeks. 
Mr. Hsu has clearly been in touch with myself. He has been in 
touch with Anthony Martocchia, our new director of small 
business programs. This particular subject matter has come up. 
We in the DOD have been streamlining and simplifying our 
acquisition processes on a grander scale. And as it comes into 
small business programs, we are putting in metrics and our 
acquisition strategies have checks and balances to eliminate 
bundling. We are fundamentally opposed to this. We want more--
    Mr.Jefferson. Is this a new procedure you are talking 
    GeneralVan Antwerp. These metrics are new, yes, sir.
    Mr.Preston. I just want to say thank you for acknowledging 
Dr. Hsu. He is a true American success story. He was an 8(a) 
firm owner. And it is sort of a rags to riches story. We hired 
him because of his tremendous passion not only for small 
business. And he is very actively getting out there, meeting 
with the agencies as is his staff. So I appreciate your 
acknowledging that.
    Mr.Jefferson. Is he getting results out of his work?
    Mr.Preston. I think he is. The other thing he does is he 
chairs the Procurement Advisory Committee which has small 
business representatives from all the major agencies. And I can 
tell you the deputy or I are at all of the those meetings or at 
least a portion of them. Paul or Dr. Hsu chairs them. And I 
feel like there is--even the dialogue among the agencies on 
these issues has expanded dramatically.
    Mr.Jefferson. Anything with specific recommendations on the 
anti-bundling that you might pass on to the other agencies?
    Mr.Preston. I think we are working with them on a number of 
those issues. I don't have anything specific here today. But 
what I would tell you is, we work very hard to see bundled 
contracts in the field. Our procurement center representatives 
look at those. A very significant percentage of the small 
business contracts that go out are awarded after we file 
actions to have agencies relook at those procurements and 
redesignate them for small business. And I don't have that data 
here today, but I would be happy to share it with the 
committee. So I believe that our interaction with the 
committees, with the other agencies is a very important part of 
getting those contracts to small business. And much of it is in 
looking at potential bundling situations.
    Mr.Henke. Sir, I do know that Mr. Hsu has been in contact 
with our small business office on a regular basis. I am not 
sure of the exact status of those discussions, but I do also 
know that Administrator Preston had a visit with our deputy 
secretary about 2 and 1/2 to 3 weeks ago. So that just reflects 
the level of dialogue we have with the VA, with SBA.
    ChairwomanVelazquez. Time has expired.
    Mr.Jefferson. Can I ask one last--this is about the--there 
was a commitment on the part of the Homeland Security to go 
back and undue those things and let them be rebid. But most of 
us think that never really happened, that the old contracts 
were added to and people kept on. Am I right on that or have 
you unbundled those things and gotten them out for local folks 
to have a chance at them?
    Mr.Schneider. Congressman, I don't know the details of 
    Mr.Jefferson. The no-bid contracts, the early ones that 
were put out, $500 million a piece--
    Mr.Schneider. The large contracts I think are the ones you 
are talking about? What they did was--if it is the four big 
ones that were awarded immediately after Katrina where they 
were awarded to large businesses, we are in the final--I 
believe in the final closeout phase of most of those contracts. 
I might point out that roughly 70 percent of all the work under 
those four big contracts was done by small business, and so I 
think we are still in the closeout phase.
    Mr.Jefferson. It is way down the--
    ChairwomanVelazquez. Would the gentleman yield?
    You said 70 percent of those four large contracts were 
performed by small businesses. What percentage was performed by 
local small businesses?
    Mr.Schneider. I do not have those numbers.
    ChairwomanVelazquez. Interesting that you remember the 70 
percent but not the other one.
    Now I recognize Mr. Braley.
    Mr.Braley. Thank you, Madame Chairwoman. Certainly contract 
bundling was one of the principle focuses of the Small Business 
Fairness in Contracting Act, but another major component had to 
do with miscoding of contracts. And we discussed this at our 
earlier hearing on this issue and also during the field 
hearing. And one of the problems that was identified during the 
field hearing was that, during an analysis of a list of over 
15,000 Katrina-related contracts, hundreds of contracts had 
been identified as miscoded; 106 in the Department of Homeland 
Security; 79 at GSA; 71 at DOD; and totaling 259 at the 
relevant agencies.
    And, Ms. Doan, let me start with you. Given the fact that 
the Committee has identified $4.6 million in miscoded 
contracts, including 79 that were counted as small business 
contracts that were not in fact awarded to small businesses, 
can you explain for us how it is possible to express 
satisfaction with your agency's small business achievements 
when they include so many awards to large businesses and 
    Ms.Doan. GSA scrubbed its numbers, and we are standing by 
them. We can't actually certify the validity of the other 
agencies' data at this point. But when we were alerted by the 
SBA that there were some significant miscoding, we identified 
those, and we corrected them in May of 2007. So that is a very 
recent correction that we did. The contracting officers who are 
responsible for the procurements were not always the same 
people who were entering the data in the database. We have 
corrected that. And it is possible that the folks who had been 
entering them in were not sufficiently knowledgeable to 
complete the information. The contracting officers themselves 
from now on will be entering the coding and that can assure a 
level of validity that we didn't have previously to that. In 
addition to that, our chief acquisition officer is going to 
stress the importance in our current emergency response 
training program that we are hosting, and they are going to 
stress the importance of coding at the time of the award of the 
contract to ensure that the data is going to be accurate.
    Mr.Braley. I wasn't able to tell from your testimony 
whether there have been any specific changes in interagency 
operations and procedures in direct response to miscoding 
problems. Has that been implemented in any formal way other 
than just a directive to do a scrubbing of the numbers.
    Ms.Doan. I believe that actually came from the SBA, and I 
think they sent letters to every government agency asking them 
to go in and scrub their numbers because each agency is 
responsible for its own numbers within the database. GSA has 
already done the scrub of its numbers as of May 2007. I think 
you will also find now that we have cleaned up the numbers--I 
think government wide, at least within GSA for 2005 and 2006. 
That allows the data that is now going to be certified for 2007 
to be a lot more accurate.
    Mr.Braley. Getting back to my question. Were there formal 
changes in policies and procedures within the agency to deal 
with the problem of miscoding other than in response to a 
directive from SBA?
    Ms.Doan. Yes. Our chief acquisition officer issued a letter 
to all of our regional contracting officers who are responsible 
for performing the contract work within GSA. And I will be 
happy to follow up with you and the Committee with the various 
letters and guidances that our chief acquisition officer has 
put out to correct these issues.
    Mr.Braley. We would appreciate that. And also if there is 
any intended or anticipated training for these contract 
officers on the coding problem that has been identified and to 
make sure that the numbers being reported going forward are 
    Ms.Doan. There is training that is planned, and I will have 
the chief acquisition officer follow up with that information. 
I will take responsibility for sending that over to you and the 
    Mr.Braley. And just for the benefit of my information, who 
is that?
    Ms.Doan. Molly Wilkinson. And she is our chief acquisition 
officer for the General Services Administration.
    Mr.Braley. And does she report directly to you.
    Ms.Doan. She reports directly to me.
    Mr.Braley. Thank you. Administrator Preston, one of the 
things you talked about was the need for better cooperation 
among the agencies. Do you remember that in your earlier 
    Mr.Preston. Yeah.
    Mr.Braley. One of the things we have been dealing with a 
lot, in terms of implementing the recommendations of the 9/11 
Commission, which we just voted on yesterday, is this whole 
concept of interagency interoperability, and that is breakdowns 
in communication system that prevent governmental agencies from 
communicating effectively among each other. Based upon your 
unique role in dealing with a host of Federal agencies in 
trying to reach the small business target goals pursuant to the 
directives from this Committee and Congress, have you 
identified specific factors that are preventing the type of 
interagency communications that can lead to better outcomes for 
small businesses in this country?
    Mr.Preston. Yes. I think there are some, a number to point 
to. Some of it is interagency communications. Some it of it I 
think is enabling the agencies to do their job better and 
having us give them better support as well. I think there needs 
to be formalized bodies that interact on these issues 
consistently. And we do have a consistently standing meeting 
with all of the small business representatives at all of the 
agencies. As I mentioned before--and I am not sure if you were 
in the room yet--either I or the deputy participate in every 
one of those meetings now. We get readouts. It is a terrific 
forum for us to raise issues. We learn a lot of things we are 
not doing right, and it allows us to communicate out as well. 
It also gives me the ability to call people at this table if 
issues arise. So that is on the block in the tackling site. And 
I don't know that it can happen any other way than actually 
having that kind of communication and that accountability with 
individuals. On the systemic side, I think what we are seeing 
is there is a much better opportunity for us, especially with 
some of the improvements that GSA continues to make in the 
Federal procurement contracting system, for us to support 
people by getting them access to better data on who is out 
there, who is available to do contracting. And then putting our 
people in the mix to make sure we help the agencies connect the 
dots. We are also looking very specifically once again within 
our agency and the productivity of our people in the field in 
getting in front of contracting actions and ensuring that those 
get to small businesses where they should.
    Mr.Braley. Thank you.
    ChairwomanVelazquez. Mr. Preston, I would like to address 
some questions to you regarding the improper loan cancelations 
that was reported by the general inspector. And, of course, 
they are all related to victims from the gulf coast region. Did 
loan processing employees have any incentive to cancel or 
withdraw disaster loans in order to appear more efficient, yes 
or no?
    Mr.Preston. The only incentive programs we had in place 
were to increase disbursements. It was clear based on what we 
were trying to achieve that the real issue was getting money 
into people's hands.
    ChairwomanVelazquez. Okay. Isn't it true that your agency 
gave bonuses to employees who resolve the most loans 
irrespective of whether that was by cancellation or approval?
    Mr.Preston. I don't believe so. I believe that the only 
incentive plan in place had to do with disbursements.
    ChairwomanVelazquez. Mr. Preston, clearly the inspector 
general believes there was a deliberate effort by your agency 
to cancel outstanding loans. Was it?
    Mr.Preston. No.
    ChairwomanVelazquez. If there was not a deliberate effort 
from your agency, then why were these loans cancelled?
    Mr.Preston. Well, the inspector general report deals with a 
very specific campaign we had. One of the issues we had at the 
agency is that our interactions with people are primarily 
through the mail. People who needed help in New Orleans didn't 
have somebody to call. So we either took--we fully reengineered 
our process as you know and one of the things we did is we gave 
every individual a human being to talk to, to manage their 
cases. There were about 30,000 people that we--whose loans had 
    ChairwomanVelazquez. And that didn't work.
    Mr.Preston. It did work.
    ChairwomanVelazquez. Were you able to have physical contact 
with those that applied for those loans?
    Mr.Preston. Yeah. Out of the people that we did not get to, 
that the IG is focussing on, is about 3,000 people. These are 
people whose loans had expired. Historically they would have 
simply gotten a letter that said your loan expired. Instead we 
attempted to call every one of them. There were about 7,700 
people that we could not contact. We left messages for them. 
Their loans had expired. We sent them a letter that said, your 
loan has expired. If you want to contact us in 6 months to get 
reinstated, please contact us. A week later we attempted to 
recontact everyone by phone; 1200 people said, actually, we 
don't want our loan reinstated--we don't want our loan 
cancelled, please reinstate us. About 3,000 we couldn't 
    ChairwomanVelazquez. Let me ask you. What harm could 
possibly have come from leaving these loans open for borrowers 
to use when circumstances permitted? We knew that some of these 
victims were no longer there, that they moved and they were 
living either in New York or with some relatives.
    Mr.Preston. They have the ability even today, ma'am, to 
come back and reinstate those loans. We gave them a 6-month 
timeline. Our policy at the end of those 6 months is we extend 
it another 6 months. Today when borrowers come back and say, 
you know, I am sorry, my loan is expired, you haven't heard 
from me, we would still reinstate them today.
    ChairwomanVelazquez. Isn't it true that cancellations--that 
people that apply got a letter stating that their loans were 
cancelled even though they had not been contacted?
    Mr.Preston. Their loans had expired. So they were given a 
timeline and that timeline was extended once to get back in 
contact with us and provide us closing documents. That had 
expired. So what we did was called out to say, do you really 
want this to expire or do you want us to extend it? Those 
people we couldn't contact after two call campaigns--there are 
about 3,000 of them--had their loans cancelled.RPTS SCOTTDCMN 
BURRELL[12:45 p.m.]
    ChairwomanVelazquez. We know that your agency--explain it 
to me. Maybe it is not so--has policies in place whereby a 
disaster victim's application may be withdrawn from 
consideration unilaterally. This is without express consent 
from the person who is applying for that loan.
    So what proportion of loan applications from the 2005 
hurricanes were withdrawn without the express consent of the 
    Mr.Preston. Well, I do not know. From that particular 
campaign, there were somewhat over 3,000 people, but once 
again, these are people we reached out to more than once, sent 
them a letter, and they said, "Call us back if you want, and we 
will reinstate the loan."
    So, you know, let me just also mention, Madam Chairwoman, 
that I have looked at the e-mail traffic that went between the 
leaders and the call campaign people. I have looked at the call 
scripts. I have looked personally at all of the files the IG 
pulled, and these people in Buffalo who undertook this project 
are devastated by the implication that they were doing 
something inappropriate. They worked long hours, 7 days a week, 
with a tremendous heart of service here, and so I think, you 
know, we really need to look at the whole picture on this one.
    ChairwomanVelazquez. Of the 3,000 loans that have been 
canceled, how many of them did you contact?
    Mr.Preston. Well, the 3,000 were the ones we did not, who 
we were not able to contact. So out of the 94,000--and what I 
cannot tell you is that I do not know how many of those people 
got back to us to reinstate, but if they called today, even 
today, they will still get reinstated.
    ChairwomanVelazquez. Yes. I understand that 1,200 borrowers 
requested to be reinstated.
    Mr.Preston. That is right. That is correct.
    ChairwomanVelazquez. So it tells us that, if there is a 
contact between the agency and the borrowers, most probably 
they will ask for their loans to be reinstated.
    Mr.Preston. No, I do not think that is the case. The vast 
majority of the people we contacted from that group either went 
to someplace or--of the 7,700 that we recontacted, that we 
tried to contact again--most of the people who we contacted did 
not want the loan, but they had gotten multiple written 
communications from us, and we have attempted to reach them at 
least twice telephonically.
    ChairwomanVelazquez. So you are telling me there was not a 
deliberate effort from your office to respond or to react to 
criticism about the backlog on these loans?
    Mr.Preston. The criticism--and you know, I read this very 
carefully coming into the job. The criticism was that we were 
not getting money in people's hands. I did not see any 
criticisms that we had loans that we were--there was criticism 
that we were taking too long. When you look at the information 
we track, it is customer response times backlog, that kind of 
thing. So my view is I do not see any incentive for us to 
cancel loans. In fact, the only incentive people had was to 
disburse, and like I said once again, I have reviewed this 
pretty deeply.
    Now, I will tell you there are thousands of people working 
these processes. I cannot tell you that every person on these 
phone calls, you know, conducts business the way we would like 
them to. You know, I get concerned that, you know, in some 
circumstances, people might--you know, nerves fray, whatever, 
but I believe, by and large, these are good people who cared 
about what they were doing.
    ChairwomanVelazquez. Mr. Johnson.
    Mr.Johnson. Thank you, and I must apologize for being 
absent. I had a markup on the Judiciary Committee.
    I wonder if each of you could take about 15 seconds to--do 
each of you have a spare sheet of paper, a blank sheet of 
paper, and something to write with? If you would, take about 15 
seconds to just write down your definition of a "small 
business," and if someone would be prepared--Scott, if you 
could, go down and collect those. It may sound crazy, but I 
think it is important. It does not have to be too verbose 
either. It can be pretty simple maybe with some dollar amounts 
down there also.
    Do you have dollar amounts? Do each of you? Okay.
    While we are collecting those, I might ask Mr. Preston a 
question. There is a memo dated May 10th of 2007 from the SBA 
Inspector General, which addressed an audit of the section 8(a) 
contracts related to gulf coast construction. The memo 
concluded that the handling of data collection was inadequate 
and that there was not one central collection point existing to 
compile data on the awarding of these loans or on how the loans 
were being spent.
    Specifically, the Inspector General noted that the database 
tracking these loans was missing data because, according to the 
district office, that office was short-staffed, and the data 
was not being entered. In addition, the memo notes with concern 
that the database SACS/MEDCOR ceased to exist on April 30th of 
2007 and that the interim database was not known.
    My question to you is this: Is the situation with the 8(a) 
database--well, how does that situation affect the tracking of 
the 8(a) loans?
    Mr.Preston. Okay. Are you referring to 8(a) contracts?
    Mr.Johnson. 8(a) contracts. I am sorry.
    Mr.Preston. Yes. The SACS/MEDCOR is an internal system, so 
what that does is it helps us follow how--it helps us work with 
information on the 8(a) firms.
    What I would tell you is right now a lot of our systems, in 
my view, are deficient. Our systems that we use to work with 
8(a) firms to track them, to work on their annual 
certifications and to work on their initial applications when 
they come in to us all need significant work. In fact, I just 
spent 2 hours with my team earlier this week to work out a 
pathway on how best to upgrade those systems because I think 
what it does--and correct me if I am wrong. Maybe Lurita 
understands this better than I do, but I do not think that 
affects how these people gather data on 8(a). It affects how we 
manage those firms and how we get data on how they are doing. 
So it is very important for us to improve that system as well 
as the other systems that relate to 8(a).
    Mr.Johnson. I have noticed that neither the 8(a) nor the 
SACS/MEDCOR is addressed in the newly released disaster plan.
    Mr.Preston. The newly released disaster plan deals with 
disaster lending and all of the issues around disaster lending. 
It does not address specifically the contracting side.
    Mr.Johnson. So exactly what will be your plan? Do you have 
a plan for addressing those deficiencies?
    Mr.Preston. Yes. We have a number of major projects in 
place right now that deal with two things--number one, 
improving our processes around helping 8(a) firms, making sure 
that we are compliant in what we do and also in making sure 
that we have the capacity to provide them business development 
and then, thirdly, in making sure that we can identify the 
right firms for the right contracts as they come up. A lot of 
this deals with, you know, as you rightly noted, IT systems.
    Mr.Johnson. Okay. All right. Well, let me look at these 
definitions here.
    Mr. Schneider, I think your answer was "small business has 
a revenue of less than--" and then it is blank.
    Mr.Schneider. I left it blank because it depends on what 
the field, if you will, is that--and I forget what the code is 
an NC or NAC, depending on what your field is. It is graded by 
field, and it is graded by the number of employees, and I just 
do not remember what the field designation is. Prior to this, 
for 3-1/2 years, I was a defense consultant prior to taking 
this job 7 months ago. I was a small business. I just do not 
remember what the coding was because I know the criteria is 
    Mr.Johnson. What were your gross revenues?
    Mr.Schneider. Very low.
    Mr.Johnson. Okay. A private firm?
    Mr.Schneider. Well, me. Plus, what I would do is contract 
out for temporary work depending upon the nature of the jobs. I 
also was an employee for a better part of that 3-1/2 years for 
one of the most successful women-owned small businesses in the 
State of California.
    Mr.Johnson. How many employees--
    Mr.Chabot. Madam Chair, I would just note that the 
gentleman's time has expired and that, if he wants an 
additional minute or two I would be pleased to go with that.
    Mr.Johnson. I would love to have an additional minute or 
so, but will we have a second round?
    ChairwomanVelazquez. This is the third round, basically. 
You may have an additional minute.
    Mr.Johnson. Well, all right. I will note for the record 
that you have no idea what a "small business" is, Mr. 
Schneider, according to your definition.
    Then from Ms. Doan, the definition of a "small business" is 
"as per the NAICS and the SBA guidelines," but there is no 
    Ms.Doan. Sir, the NAICS code specifies certain categories, 
if you are in manufacturing with a size standard of 500 
employees or more. If you are in technology, for example, it 
might be 2,500 or more employees. It might be that technology 
is like $23 million as your upward ceiling. Depending on what 
your line of business is, there is a NAICS code that 
corresponds with that particular discipline, and it gives you a 
size standard, and that is the definition of "small business."
    Mr.Johnson. Okay. Then General Van Antwerp, "a business 
that has certain limitations of size and capacity that 
distinguishes it from large business. A categorization is based 
largely on past contracts."
    ChairwomanVelazquez. Mr. Johnson, your time has expired.
    Mr.Johnson. All right.
    ChairwomanVelazquez. Okay. Mr. Chabot.
    Mr.Chabot. Yes. I do not have any more questions. I just 
want to make the point that, to be fair to the panel, I think 
that there are a number of definitions depending on whether you 
are in the construction industry or in steel producing or 
services. There is a whole range of definitions. So I think, if 
we got an exact answer from every one of the panel members, I 
would be very surprised, and my crack staff has advised me that 
the definition is "a small business is one that is 
independently owned and operated and not dominant in its 
field," section 3(a) of the Small Business Act, 15 USC, section 
632(a), which is what I would have said off the top of my head, 
of course.
    ChairwomanVelazquez. I guess the point that the gentleman 
is trying to make is, you know, how can we make sure that--
look, the President in 2002, during the Small Business Week, 
made a great speech. He said, "This is my small business 
agenda." the number one priority on top of that agenda was to 
unbundle contracts, and so the direction has to come from the 
head, from the chief secretary, from the secretaries of the 
different departments, to instruct and to make sure that the 
contracting officers comply with the contracting goals for 
small businesses. I guess that he is trying to make--
    Mr.Johnson. Would the gentlewoman yield?
    ChairwomanVelazquez. Yes, sir.
    Mr.Chabot. It is my time, but I will yield.
    Mr.Johnson. All right. Thank you. Thank you.
    I was leading up to the fact that ITS, which has $69 
million in contracts with Homeland Security, is a company that 
in 2004 reported revenues of $108 million with 950 employees. 
Yet, they are qualified as a "small business." SRS is a company 
that just was purchased for $195 million, a company with $294.3 
million in revenue in the first quarter of 2007, but it has got 
$32 million worth of contracts. Also, last but not least, Clear 
Brook, has multiple contracts, one that is more than $16 
million, but you know, it is another company whose Federal 
paychecks were suspended in 2005 when the DHS Inspector General 
found that they had overcharged the Government by millions of 
dollars. Yet, they are receiving small business contracts as 
    Thank you.
    Mr.Chabot. Reclaiming my time, I think this hearing has 
been helpful to the extent that it continues to focus attention 
on the need to make sure, to the extent that we are able to, 
that small businesses do get their fair share of contracts 
whether it is Katrina or anything else.
    I also want to thank the panel for their testimony, each 
and every one. This can be a very challenging Committee to 
testify before, maybe not to the degree it is if you are on 
patrol in Baghdad or something, but as things go it is pretty 
challenging, and I think the members have done very well, but I 
am sure the Chair and this Committee will continue to keep an 
eye on it to make sure that the small business community in 
this country is being served well.
    I yield back my time.
    ChairwomanVelazquez. Thank you, Mr. Chabot.
    One thing is clear. We have a lot of work to do, and we 
will be exercising our responsibility of this Committee in 
terms of oversight. People love to talk to us and preach in 
this country about accountability. So we are going to hold the 
agencies accountable, and this is the responsibility that we 
have as good Americans in terms of helping in the 
reconstruction and in the rebuilding of the gulf coast. We 
cannot accomplish that without an important element.
    Do not come here and talk to me about small businesses in 
general. We are asking about local small business participation 
from the gulf coast. We will be coming back, and you will be 
asked to report on the progress.
    With that, I want to thank all of the witnesses for your 
cooperation and for your testimony here today. The Chair will 
ask unanimous consent that any statements admitted for the 
record be accepted.
    Hearing adjourned.
    [Whereupon, at 1:05 p.m., the Committee was adjourned.]