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

                         FULL COMMITTEE HEARING ON THE
                        SMALL BUSINESS ADMINISTRATION'S
                              CONTRACTING PROGRAMS

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

                          COMMITTEE ON SMALL BUSINESS
                     UNITED STATES HOUSE OF REPRESENTATIVES

                           ONE HUNDRED TENTH CONGRESS

                                 FIRST SESSION

                                   __________

                               SEPTEMBER 19, 2007

                                   __________

                              Serial Number 110-45

                                   __________

             Printed for the use of the Committee on Small Business

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

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                       HOUSE COMMITTEE ON SMALL BUSINESS

                    NYDIA M. VELAZQUEZ, New York, Chairwoman

    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

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

                                      (ii)

    ?

               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

                                     (iii)

    ?

                                C O N T E N T S

                                  ----------

                               OPENING STATEMENTS

                                                                       Page

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

                                   WITNESSES

    PANEL I
    Carranza, Hon. Jovita, United States Small Business
      Administration.................................................     3

    PANEL II
    Alford, Harry C., National Black Chamber of Commerce.............    19
    Chamrin, Ronald F., The American Legion..........................    21
    Dorfman, Margot, U.S. Women's Chamber of Commerce................    23
    Goel, P.J., Associated General Contractors.......................    25
    Newlan, Ron, HUBZone Contractors National Council................    27
    Brown, Dr. Trevor, The Ohio State University.....................    29

                                    APPENDIX

    Prepared Statements:
    Velazquez, Hon. Nydia M..........................................    45
    Chabot, Hon. Steve...............................................    47
    Carranza, Hon. Jovita, United States Small Business
      Administration.................................................    49
    Alford, Harry C., National Black Chamber of Commerce.............    53
    Chamrin, Ronald F., The American Legion..........................    57
    Dorfman, Margot, U.S. Women's Chamber of Commerce................    61
    Goel, P.J., Associated General Contractors.......................    67
    Newlan, Ron, HUBZone Contractors National Council................    71
    Brown, Dr. Trevor, The Ohio State University.....................    74

    Statements for the Record:
    Report Commissioned by the Black Caucus Foundation...............    80
    U.S. Hispanic Chamber of Commerce Submission.....................    85

                                      (v)

                      FULL COMMITTEE HEARING ON THE SMALL
                     BUSINESS ADMINISTRATION'S CONTRACTING
                                    PROGRAMS

                                  ----------

                         Wednesday, September 19, 2007

                         U.S. House of Representatives,
                                   Committee on Small Business,
                                                        Washington, DC.
        The Committee met, pursuant to call, at 10:00 a.m., inRoom
    2360, Rayburn House Office Building, Hon. Nydia M. Velazquez
    [Chairwoman of the Committee] Presiding.
        Present: Representatives Velazquez, Braley, Clarke,
    Ellsworth, Chabot, Bartlett, Akin, and Jordan.

               OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

        ChairwomanVelazquez. Good morning. I call this hearing to
    order. Today the committee continues its work toward opening
    the Federal marketplace to small businesses. Important tools in
    this endeavor are an array of programs that through their
    training and business development help this Nation's
    entrepreneurs get a foot in the door. The need for this
    initiative could not be greater. Recently, the Small Business
    Administration announced that for the sixth year in a row, the
    Federal Government failed to meet its small business goal
    costing entrepreneurs $4.5 billion in lost opportunities. The
    committee took an important step in building equity through our
    procurement system when we passed Mr. Braley's bill H.R. 1873,
    The Small Business Fairness and Contracting Act.
        However, to fully benefit from the changes that were made a
    strong implement of contracting programs is also required. We
    rely on this initiative to spur the next generation of supplies
    providing diversity that allows the taxpayer to get the best
    value for his dollar. Unfortunately, many were created in the
    1960s and have seen little change since then. As a result, they
    have fallen into complete disarray largely due to
    mismanagement, underfunding and neglect. Modernizing, and in
    some cases, such as with the veterans and women's procurement
    program, simply implementing them will be a start.
        The way the government purchases services and products is
    constantly changing. And the bottom line is that this
    initiative needs to keep pace. No Fortune 500 company will
    enter into a long-term relationship without a strong
    understanding of the types of resources that are necessary to
    keep the partnership growing. But that is exactly what agencies
    are doing today with the 8(a) program. If we are serious about
    business development, then it is critical that barriers are
    removed, true incentives are provided and long-term
    relationships are treated as such. This will ensure efforts
    vested by both sides result in tangible benefits for the
    Federal marketplace. It is also vital that programs stay true
    to their original intent.
        Earlier this year, this committee took steps to address the
    practice of large businesses receiving small business
    contracts. Just as we closed loopholes which cost small
    business in opportunity, we also need to make sure that
    contracting initiatives don't small prey to similar unintended
    consequences. Certain initiatives like the HUBZone have strayed
    from its initial purpose.
        On the surface, it has a goal of economic development in
    low-income communities. But in many cases, this program fails
    to accomplish that. Today, 80 percent of all firms are not even
    eligible after 3 years. And a preliminarily committee review
    found that many HUBZones contain multi-million dollar homes.
    This is not exactly what one would expect for an initiative
    design to spur development in low income areas. Not only are
    more resources needed for oversight, but also greater
    protections to weed out the bad actors. While many who raise
    opposition over this initiative point to the shortcomings, it
    is important that as the committee proceeds, we focus on the
    regional intent of supplier development. They are not intended
    to be handouts and this Nation's entrepreneurs aren't looking
    for one.
        What they do want is a fair opportunity to provide goods
    and services. With proper reform, this program can do just
    that. Small businesses play an important role in all of our
    communities. They are innovators discovering one-third of all
    new patents. They are the market pioneers representing 99
    percent of all exporters. And they are the job creators
    providing nearly 75 percent of Americans with their first job.
    Through thoughtful improvements, coupled with legislation
    passed earlier this year, small businesses can add another
    function to the list of critical roles that play in today's
    economy; suppliers to the Nation's taxpayers. With that, I
    yield to the ranking member Mr. Chabot for his remarks.

                    OPENING STATEMENT OF MR. CHABOT

        Mr.Chabot. Good morning. And thank you for all being here
    as we examine the government contracting programs authorized by
    the Small Business Act and their effectiveness in providing
    greater opportunities for small business concerns to contract
    with the Federal Government. This hearing also will provide an
    overview of the Small Business Administration's management of
    these programs. I would like to thank the chairwoman for
    holding this hearing and each of the witnesses for taking the
    time to provide this committee with the testimony that you will
    be giving here this morning.
        The Small Business Act states that the essence of the
    American economic system of private enterprise is competition.
    The preservation and expansion of such competition is basic,
    not only to the economic well-being, but to the security of
    this Nation. Such security and well-being cannot be realized
    unless the actual and potential capacity of small business is
    encouraged and developed. Small business embodies so much of
    what America is all about: Self-reliance, hard work,
    innovation, the courage to take risks for future growth. They
    are values to be passed on from generation to generation. We
    must ensure that our small businesses continue to thrive and
    prosper, not just for their own sakes, but for all our
    benefits.
        To help achieve this objective, Congress recognized that
    providing goods and services to the Federal Government would be
    one way to support the growth and development of small
    businesses. The Small Business Act contains congressional
    direction to use Federal acquisition policies to ensure that
    small business concerns receive a fair proportion of the total
    contracts for property and services. Despite the growth in
    small businesses, the overall share of small business in
    selling goods and services to the Federal Government does not
    reflect the growth of these businesses in the overall economy.
    This has occurred even with a number of programs that are
    specifically designed to help targeted small businesses sell
    their goods and services to the Federal Government.
        The SBA oversees programs providing contracting assistance
    to socially and economically disadvantaged groups, more
    commonly called the 8(a) program, firms located in historically
    underutilized business zones or HUBZones, including a number of
    such zones who happen to be in my congressional district in
    Cincinnati, service disabled veterans and a women's procurement
    program that has yet to be implemented some 7 years after
    congressional enactment and 2 years after a judicial decision
    finding the SBA unreasonably withheld action in not
    implementing the program. As the committee continues its works
    on these programs I think it should seek legislation that meets
    the noble objectives of the various SBA contracting programs
    while reducing the friction that exists among these various
    groups of small businesses.
        In addition, the committee should ensure that these
    programs operate in the most cost effective manner possible. We
    have excellent witnesses here today to provide us with insight
    into government contracting programs authorized by the Small
    Business Act as amended. I look forward to their testimony and
    any ideas they may have concerning the objectives that I just
    laid out. And again, I want to thank Chairwoman Velazquez for
    holding this important hearing and look forward to working with
    her on necessary improvements to the contracting programs
    overseen by the SBA. And I yield back the balance of my time.
        ChairwomanVelazquez. Thank you. Now I welcome Ms. Jovita
    Carranza. Ms. Carranza is the deputy administer for the United
    States Small Business Administration. Ms. Carranza was
    confirmed in December of last year. Welcome.

       STATEMENT OF JOVITA CARRANZA, DEPUTY ADMINISTRATOR, SMALL
                        BUSINESS ADMINISTRATION

        Ms.Carranza. Thank you. Glad to be here. Good morning.
    Chairwoman Velazquez, Ranking Member Chabot, and members of the
    committee, I am Jovita Carranza, Deputy Administrator of the
    SBA. I appreciate the opportunity to testify today regarding
    the operations and successes of SBA's procurement program and
    to discuss our continued efforts to make progress in terms of
    increasing opportunities for small businesses.
        Progress in the area of government contracting dollars
    going to small businesses has been significant since fiscal
    year 2000. There were 30.3 billion more in small business prime
    contracts in fiscal year 2005 than in fiscal year 2000
    supporting an estimated 235,000 jobs. However, SBA recognizes
    the need to improve our government contracting programs and is
    taking the lead, along with the Office of Management and
    Budget's Office of Federal Procurement Policy to carry out a
    number of initiatives, including working with agencies to
    ensure their small businesses contacting number reporting is
    accurate.
        The integrity of the data reported is crucial to instill
    confidence in the Federal contracting system. Under
    Administrator Preston's leadership, SBA has taken a number of
    steps to make contracting data more accurate. Last month we
    published the Official Small Business Goaling Report For Fiscal
    Year 2006. And we also reissued the fiscal year 2005 report
    based upon extensive scrubbing of data over the last year.
    While these reports may not be flawless, they reflect
    substantial improvement in the quality of small business
    procurement information, and we are committed to further
    improvements as we proceed.
        The restated goaling report shows that $77.7 billion in
    Federal contracts were awarded to small businesses in fiscal
    year 2006, up $2.7 billion from the previous year. This equates
    to 22.8 percent of all Federal contract dollars for fiscal year
    2006 just short of the goal of 23 percent. We are confident
    that these improvements have increased accuracy and
    accountability providing a true reflection of the opportunities
    provided to America's small businesses.
        Although the Federal Government was not successful in
    meeting the procurement goals for HUBZones, women-owned
    businesses and veterans, the report does show that contracts
    with small disadvantaged businesses were up from $21 billion in
    fiscal 2005 to $23 billion in fiscal year 2006 representing
    6.76 percent of total contract dollars, well above the 5
    percent goal. Contract dollars for participants in the 8(a)
    business development program were up in fiscal year 2006 to
    $12.5 billion. Contracts with women-owned small businesses
    increased 1.4 billion to $11.6 billion. Meanwhile contracts
    with HUBZones increased more than $1 billion to 7.2 billion.
        A great example of the progress being made in this area is
    SBA's recent publication of the first of a twice annual small
    business procurement scorecard. The scorecard is a method of
    ensuring that Federal agencies provide the maximum possible
    opportunity for small businesses in the Federal marketplace. It
    reflects current performance. And more importantly, progress.
    Federal agencies are making and improving such performance. The
    new scorecard ensures that agencies have clear goals and action
    plans and are regularly assessed on their performance. This
    scorecard is a significant step or has taken significant steps
    in adding transparency to the goaling process.
        In the scorecard category of meeting small business
    goals,seven agencies scored green,five scored yellow, and 12
    were red. In the category related to progress, 12 agencies were
    rated in the green column,eight were yellow, andfour were red.
    SBA is working with all agencies to improve these scores going
    forward. The administration continues to give agencies the
    encouragement to meet small business goals and give them credit
    for this progress. Each scorecard will be tailored to the
    individual procurement characteristics of the agency and SBA
    will work with each agency to establish its milestones while
    addressing their unique procurement requirements and
    challenges.
        Each agency will be measured against its own achievements
    in identifying small business opportunities. I would like to
    take just a moment to let the committee know that SBA is in the
    process of implementing its new size recertification rules.
    This new regulation requires small businesses to re-certify
    their size status on long-term contracts at the end of the
    first 5 years of a contract and thereafter whenever a contract
    option is exercised. In addition, recertification is required
    for short term contracts when a small business is purchased by
    or merged with other business.
        When contractors can no longer certify their businesses as
    small business size status buying activities can no longer
    count awards to them toward their small business goals.
    Ultimately the new size recertification rule will ensure more
    accurate data and further support our efforts to help small
    businesses receive more prime contracts throughout the Federal
    Government. As we further our efforts to assist underserved
    markets, such as women-owned small businesses, HUBZone
    certified firms and service disabled and veteran-owned small
    businesses, we continue to be concerned and cognizant of making
    sure we do not set as rivals one program against another as
    they share the same end goal.
        To this regard, SBA's fiscal year 2008 budget includes a
    request of $500,000 to examine how best to serve these
    communities while not restricting the success of any one
    program. We recognize the agency can improve on the current
    progress in the management, as well as the effectiveness of
    these important programs and will use these resources to
    determine how to best do that. Furthermore, SBA has already
    committed to and is in the process of hiring additional
    procurement representatives with a proposal in our fiscal year
    2008 request to fund five additional PCRs.
        Additionally, we are very focused on back-filling any
    positions that become vacant in a timely fashion as we realize
    the importance of these individual's role. To better serve
    small businesses who do business with the government, SBA is
    redefining roles and responsibilities so that PCRs can devote
    more time to finding opportunities for small businesses with
    procuring agencies while the district offices, SBA and nonSBA
    resource partners, focus more time providing training and
    counseling to getting small businesses positioned to compete
    for Federal contracts.
        Chairwoman Velazquez, this includes my testimony and I look
    forward to answering any questions you may have.
        [The prepared statement of Ms Carranza may be found in the
    Appendix on page 49.]

        ChairwomanVelazquez. Thank you very much, Ms. Carranza, for
    your testimony. But I am disappointed that you know this
    hearing was about contracting programs, and you choose 5
    minutes after your testimony to start talking about contracting
    programs. We needed to know what are the problems and what you
    intend to do or what are you doing to fix some of the problems
    that those programs are facing today. Maybe you can help me
    through the questions that I need to ask. The study done by
    RAND for the women's procurement program identifiedfive
    industries as underrepresented when using contract dollars as
    an indicator. Only .005 percent of women-owned firms will
    benefit using this metric. If a number of contracts were used
    as the metric 87 percent of the industry will qualify making
    the majority of businesses eligible. So I would like to ask you
    what do you intend to use; are you going to use contracting
    dollars or number of contracts?
        Ms.Carranza. Chairwoman Velazquez, in all due respect,
    today was to actually discuss not only the acknowledgement that
    you have just expressed of the data that was made available
    during the RAND study, or the results of the RAND study. But at
    this point, I am not in a position to actually take one
    position or the other. I mean, I am not here to indicate which
    role we are going to take. We have been, though, in the process
    since April to develop the regulation SBA had submitted, and we
    have taken that particular analysis, along with the RAND study
    data that you are referring to, and have submitted all of that
    information and the position of SBA to the 24 agencies that are
    required and allowed opportunity to comment on it.
        ChairwomanVelazquez. Are you aware that the administrator
    came before this committee this past February and that I asked
    when the program will be up and running and what his answer was
    to my question.
        Ms.Carranza. Yes, Chairwoman Velazquez. I believe you also
    asked the same question during my hearing as to when were we
    going to make progress.
        ChairwomanVelazquez. Not progress. Up and running.
        Ms.Carranza. Up and running. However, at the time that I
    indicated that I expected quick recovery results on the RAND
    study, I soon learned that it was a very onerous process where
    it requires not only receiving the results of the RAND report,
    but also sharing that information with the particular agencies
    for their commentary. Because we cannot, as I'm sure you are
    cognizant, and I am learning, cannot work in a vacuum. We have
    to obligate the other agencies to have participation in it, and
    that is what is gaining traction as we speak.
        ChairwomanVelazquez. But the administrator came to this
    committee and informed us that he will have this program up and
    running, up and running by the end of the summer.
        Ms.Carranza. What we learned in the process, Chairwoman
    Velazquez, once again, is that our expectations were that. What
    we are very pleased to report to you, not that we have a result
    of the study, but that the results--not only that we have a
    result of the study, but it is now in play. It has gained
    traction, it is out in the agencies for review.
        ChairwomanVelazquez. I would strongly suggest an advice
    that when you come before this committee, you better tell us we
    don't know, but don't make promises that you cannot keep. This
    is 7 years after this legislation was enacted. And you are
    doing everything between SBA and OMB to stall the process. This
    is the message that you are sending to women business owners in
    our country; we are not interested in doing business with you.
    That is the message that the Administrator on the SBA is
    sending to the women business owners in this Nation. My next
    question. When the administrator--in the past when we have
    raised the issue of increasing the net worth for the 8(a)
    program, we have run into criticism. People have generally said
    that they are concerned about creating rich minorities.
        However, if Bill Gates or Warren Buffett owned a $1 million
    home in Park City, Utah, they will qualify for the HUBZone
    program. Why is this right?
        Ms.Carranza. We have received an IG assessment of the
    HUBZone and the 8(a), I am going to say HUBZone 8(a) because
    they interact programs. And I assure you that we are just as
    knowledgeable of the gaps and the deficiencies and
    vulnerabilities of each program Chairwoman Velazquez. And
    between the administrator and the team that we have assembled
    and the resources that we have allocated to look at this
    completely and further, we are going to clamp down on three
    components; the oversight, the broad definition of the program
    and also a different focus as far as accountability. Because we
    have data--
        ChairwomanVelazquez. Okay. Let me ask you a specific
    question. Do you think that the HUBZone program has flaws?
        Ms.Carranza. Yes. We have recognized the flaws, we have
    actually taken the position where we are going to implement, if
    not 90 percent, approximately 100 percent.
        ChairwomanVelazquez. When did you recognize that the
    HUBZone program has flaws?
        Ms.Carranza. Well, I have been in the Agency about 5 months
    or so, and 8 months really engaged in the programs. Actually, 8
    months in the Agency and 5 months really engaged in the
    programs. The Administrator and I have been very focused in all
    of the program, not only the process reengineering, the
    integrities of the program, and I will--
        ChairwomanVelazquez. Do you intend to propose anything to
    rectify the flaws of the HUBZone program?
        Ms.Carranza. Yes. Once again I will review that, reiterate,
    emphasize that the recommendations of the IG team has
    positioned for us to recognize and acknowledge, and that we
    have already positioned to put in place.
        ChairwomanVelazquez. Do you, right now, have any internal
    control to deal with the flaws of the HUBZone program so that
    there is not fraud and abuse?
        Ms.Carranza. We are cognizant and fully aware of those
    vulnerabilities, and we are addressing them.
        ChairwomanVelazquez. How?
        Ms.Carranza. We have automation, we have resources tracking
    that, we are reengineering the process, we have actually
    allocated the $500,000 to contract--
        ChairwomanVelazquez. You will qualify that as internal
    controls.
        Ms.Carranza. The development of internal controls, much
    more sophisticated, much more focused and much more simplified,
    so that we can execute them immediately, Chairwoman Velazquez.
        ChairwomanVelazquez. As the ranking member said here, we
    are about having programs in place that are cost effective. And
    how are you preventing abuse and fraud from being committed in
    terms of the HUBZone program right after there is an
    investigation and a report by the inspector general?
        Ms.Carranza. I will reiterate, working with the IG closely,
    who has closely assessed the program, made recommendations and
    immediate execution of those recommendations.
        ChairwomanVelazquez. So let me ask you, of the 14,200
    companies that are in the program, how many examinations are
    conducted every year?
        Ms.Carranza. We have a goal of 5 percent--
        ChairwomanVelazquez. No, no, no. I am not asking a goal. I
    am asking you how many examinations are you conducting every
    year?
        Ms.Carranza. I can't give you the exact number, but I will
    tell you that--
        ChairwomanVelazquez. So I guess that the next time I need
    to bring the Administrator here so that he can be able to
    answer questions.
        Ms.Carranza. I could get back to the staff to make sure
    that I have that exact number. But the reviews are being
    conducted Chairwoman Velazquez. Also, recognizing that as we
    conduct those reviews, the decertification of HUBZone is at a
    high number.
        ChairwomanVelazquez. Let me ask a question to you so that
    maybe you realize that, yes, there is not only flaws in the
    program and how it is being used and abused, but also that it
    requires immediate action. There are now more than 14,200
    companies in the program with 500 program examinations each
    year and 2,000 companies approved. How can the Agency keep up
    with that? Does it make sense to have additional on-site
    reviews?
        Ms.Carranza. Which we are recognizing and putting in play,
    not only through automation, but also through the advisory
    council for procurement, advisory council. There is 24 agencies
    that we are bringing this concern to them as well. Identifying
    the particular controls that we have agreed as a result of the
    IG audit.
        ChairwomanVelazquez. You say automation. My question is on-
    site reviews.
        Ms.Carranza. On-site reviews in the headquarters office,
    yes.
        ChairwomanVelazquez. No. I want for you to send your
    people, and this is all those companies that are established in
    HUBZone, so that you determine if it is a valuable and lawful
    company and not shared with a telephone company and one person.
        Ms.Carranza. Chairwoman Velazquez, I share your frustration
    in this area.
        ChairwomanVelazquez. All I need to know is are you prepared
    to have on-site reviews given the extent of what the inspector
    general found?
        Ms.Carranza. Yes. And with that on-site audit, we have to
    recognize the fact that it will require additional resources.
    Because the resources we have now, Chairwoman Velazquez, are
    processing the audits that you just referred to. The business
    of HUBZone companies that we have, once again when we perform
    the certification evaluations, we recognize that 81 percent of
    those companies or firms are decertified, which says that maybe
    the frequency of those particular reviews has to be
    accelerated.
        ChairwomanVelazquez. Yes. I want to move to my next
    question. The SBA's 8(a) program has a personal network
    limitation of 250,000 for small business owners that has been
    the same since 1988. Things have changed since 1988. Then a
    gallon of gas was $0.91. Now it is $2.79. The average price of
    a new home was $91,600. Now it is $300,100. A 1998 Ford F-150
    truck was around $13,000. In 2000, it is at least $30,000. So
    my question is, can I get a commitment from you today that the
    Agency will start the process to raise the limitation within
    the next 30 dayssince the net worth limitation of the 8(a)
    program can be changed to a rule making?
        Ms.Carranza. I will share with you, Chairwoman Velazquez,
    that the administration is looking at revamping the 8(a) in
    three areas. One recognizing exactly what you indicated that in
    the past 30 years, the threshold has not--the net worth
    threshold has not been revisited, and legislation is being
    proposed to raise that particular threshold. So I acknowledge
    your concern, and I also heard you loud and clear about 30
    days. I am not in a position to commit to 30 days, but I will
    tell you that there is legislation to revisit that threshold.
        ChairwomanVelazquez. Legislation?
        Ms.Carranza. Legislation being proposed, it is being
    proposed, I am sorry.
        ChairwomanVelazquez. Now I recognize the ranking member.
        Mr.Chabot. Thank you, Madam Chair. Good morning. First I am
    curious about your compensation. Do you have to get combat pay
    or anything when you come over to this committee?
        Ms.Carranza. No. Actually, UPS kind of prepared me for that
    after 30 years there, but I welcome the inquiries.
        Mr.Chabot. Thank you. I guess my second question I guess,
    the Chair mentioned first of all that the OMB and the SBA are
    sending out a message that neither is necessarily interested in
    contracting with women-owned businesses. I don't think you
    really had an opportunity to fully answer that comment. Would
    you like to do so now.
        Ms.Carranza. Yes. The process that is required to keep the
    integrity of the proposal and the positioning, because of the
    fact that this is not only disparity study, but it is also the
    first Federal gender-based proposal. And with that we are
    actually just processing all the due diligence that is
    required. When we initially indicated that would be resolved,
    the intent was to resolve it as quickly as possible because of
    the chronology of that particular study. And I am confident
    that based on the progress we are making, we will bring that to
    fruition.
        ChairwomanVelazquez. Will the gentleman yield?
        Mr.Chabot. I will be happy to yield.
        ChairwomanVelazquez. Seven years, a lot of due diligence,
    you have given new meaning to it. Thank you, sir.
        Mr.Chabot. In your testimony, you note that the government
    is not meeting its goals for the targeted programs that are the
    subject of this hearing, at least some of them. Would you again
    expound somewhat on what actions the SBA is taking to ensure
    that agencies meet these goals.
        Ms.Carranza. If you will allow me, Congressman, I would
    like to display the scorecard.
        Mr.Chabot. Sure. Could you tilt that just a little bit so
    that perhaps the people who have taken the time to come here
    can also see it. It is so small I don't think the members can
    probably see the numbers anyway necessarily.
        Ms.Carranza. What the scorecard has done for us is actually
    put the performance of 24 agencies in a particular
    accountability framework. One that it gives us total
    transparency to the performance. Also the understanding and
    appreciation of the goaling process that we have used. With
    this most recent exercise of putting all of the data, cleansing
    the data, as well as applying the data to ranking and
    evaluating the 24 agencies in the particular program, it has
    revealed opportunities to us as a procurement advisory council
    that we should go back and look at how the goaling has actually
    been established.
        So as a result of that, knowing that there are some areas
    that need to be revisited, we have developed a steering goaling
    committee within the procurement advisory council to ensure a
    couple of things; data integrity every year, best practices as
    it relates to how some agencies have been able to achieve a
    green status, those that are in the bottom list, the red. We
    need to look at how much more effectively and aggressively we
    can partner with those particular agencies.
        I should share with you that as a result of revealing this
    performance, which is not favorable for some agencies, much
    more promises for others, however still requiring revisiting of
    the particular goaling strategy, is that we have had a lot of
    calls from the agencies where we are looking at developing some
    partnerships with the VA, with DOD and GSA. The executive level
    of those particular agencies have visited already our office.
        And we are forming a strategy on how we can move forward to
    make significant gains because we are not pleased with the
    results, this is not a finished product and there is work to be
    done. So again, it is one of simplifying the process, but much
    more effectively applying the goaling concepts.
        Mr.Chabot. Thank you. I notice you have a couple more
    charts there. I don't know if those would shed any light on the
    purposes for this hearing that would be of any help or not. I
    don't know if those are yours there.
        Ms.Carranza. Yes. As a matter of fact, I should take you to
    the next level and that is the procurement. We have a community
    within the agency of procurement contracting resources. Now, we
    always delve into the number of PCRs from 53 current to what we
    are going to be putting in place by 2008, which will bring us
    at a ceiling of 66. But we have also recognized under roles and
    responsibilities our focus has been where we have only required
    them to work with the agencies. And what we are going to do is
    also incorporate, because it has been the committee's urging
    that we should access our resource partners SBDC, as well as
    the field offices from the bottom up.
        So what we are doing is taking about 340 what we call
    business development specialists and realigning their
    responsibility so it is not totally focused on 8(a), we call it
    annual reviews. But a portion of their day is now going to be
    business development. And we will leave the procurement
    personnel, the PCRs, to work with the agencies on-site.
        As a matter of fact I attended a base myself at a
    transitional assistance program to get a feel for how SBDCs
    score and our field people interact to reinforce not only
    contracting opportunities but technical assistance. And with
    that we have identified, we have mapped out where the PCRs are
    located. We have also identified where the government goods and
    services are actually sold. And with the SBDCs, the district
    offices, as well as the PCRs, I think we can service quite
    adequately those needs to penetrate the government contracting.
        Now, there is other chart which is the one behind that. You
    will see that--and the recent one is actually allocating where
    the new PCRs are going to be assigned. And then this one is the
    top 100 buying activities. So what does that say? We are
    analyzing it, we are looking at resource optimization and we
    are also taking to heed what the committee has always urged us
    to do, is optimize the resources that we have in play and do
    more with other agencies partnering with the 24 other
    government agencies.
        Mr.Chabot. Thank you, Deputy Administrator Carranza. And in
    order to give other members the opportunity to ask questions, I
    yield back my time.
        ChairwomanVelazquez. Mr. Ellsworth.
        Mr.Ellsworth. Thank you, Madam Chair. Thank you, Ms.
    Carranza for being here today. Going back to your testimony on
    page 1, it talks about Administrator Preston's leadership. SBA
    has taken a number of steps recently to make contract data more
    transparent and accurate. Can you just give me a quick what
    some of those things, how recently they have done that and what
    some of those steps are to make it more transparent?
        Ms.Carranza. When the Administrator began working, and I
    will give you an example, with the scorecard, when the
    Administrator began working with Paul Dennett and jointly
    pushed forward the agenda of transparency accountability, it
    was an unprecedented act to have two administrators pursue
    framing our performance of agencies and gaining the support
    from OFPP, engaging GSA to make sure that they were responsive
    to the data needs that we had on the recertification, as well
    as just the data cleansing for 2004, 2005--I should say 2005,
    2006 and then protecting 2007.
        So the rules of engagement have been expanded. We also have
    a focus on compliance. And compliance means you have to reveal
    how out of compliance you are. And once we have identified
    those gaps, we now track the exposure and we apply resources to
    it. And on a weekly basis, we have metrics that tell us where
    we stand in each one of those programs, whether it is our
    outreach project planners, our MOU status with other agencies,
    as well as sending out strong messages, not only internally,
    this is inter-agency, intra-agencies, and we have stakeholders
    sitting behind us where we have attended summits, conferences,
    trade association meetings, town hall meetings, to project the
    message that we have of hold us accountable for what the
    committee has been urging and challenging us with. I think we
    are on the same page.
        ChairwomanVelazquez. Will the gentleman yield for a second?
        Mr.Ellsworth. Yes, ma'am.
        ChairwomanVelazquez. Ms. Carranza, I am so happy to see the
    type of partnership, historic partnership between SBA and OMB
    regarding the collection of data and transparency process so
    that we guarantee that you have the most accurate data
    reporting coming from all the Federal agencies. But does that
    action correspond with the fact of the committee's report
    regarding $12 billion, contracting dollars, going to large
    businesses that were intended to go to small businesses.
        Ms.Carranza. That is a start of discovery as it relates to
    once we started cleansing the data, Congresswoman Velazquez.
    There are other areas that we need to continue looking. One,
    work aggressively with the procurement advisory council to not
    only, should we say, urge them to ensure that the data input is
    accurate. Secondly, we are in the process of looking at anomaly
    reports. And we are working through that to ensure that any
    discrepancy of a large business on there, we can justify it and
    expose it on the Web site. So we are working through that,
    another level of oversight and transparency.
        ChairwomanVelazquez. I yield back.
        Mr.Ellsworth. Thank you. Ms. Carranza did you come straight
    from UPS to your position now?
        Ms.Carranza. Yes, I did.
        Mr.Ellsworth. Then I am sure that after coming from a very
    efficient company like that, that the Federal Government
    frustrates you. I have been in Federal Government about the
    same amount of months you have and I find that it is not as
    efficient as private companies like UPS. I saw on page 3 of
    your testimony that the SBA requested $500,000 to examine how
    best to serve the 8(a) HUBZone and small SDAC. In your past
    experience, isn't that what you and the other administrators,
    they are supposed to be the ones that are deciding, that is why
    they brought you on, with the expertise. Can you tell me what
    the $500,000--that is not a consultant from outside when they
    have experts like you and others to examine that, and I hope
    that is not coffee and donuts or we need to check the prices of
    that too. So can you kind of go into that a little bit?
        Ms.Carranza. Absolutely. What we have identified in the
    Agency is that project analysts, systems analysts, because we
    are going through process redesign on a lot of the programs, we
    are proposing electronic applications in about four of our
    programs from ODA disaster recovery, to improving the HUBZone
    accessibility, as well as electronic application for, improving
    the electronic application for the 8(a) certification. There is
    a great need for streamlining our processes. We have identified
    the skill-set gaps. And we can train.
        But time is not on our side. The needs and the demands of
    the constituency are great. The need to restructure and
    upgrade, enhance all of our programs needs to be accelerated.
    So to expedite that we have what we call rapid results, it is
    people that are very specialized in trying to get 30, 60, 90-
    day implementation. So the methodology of UPS is not that we
    have 24 months to get a job done. The urging by this committee
    is when are we going to get it done. And it is holding us
    accountable. So that is the backdrop. That is the reinforcement
    that the Administrator and I have asked. They have mapped out
    every program that we are responsible for. And we have revealed
    opportunities in service, cost and resource allocation. I think
    it is money well spent. Thank you for the question.
        Mr.Ellsworth. Thank you very much.
        ChairwomanVelazquez. Mr. Bartlett.
        Mr.Bartlett. Thank you very much. I apologize for being
    late. I am on the Armed Services Committee also and we had a
    classified hearing on how we inadvertently transferred six live
    nuclear weapons from Minot Air Force Base to Bardsdale Air
    Force Base. I am sure you have seen the references to that in
    the public press. But I am very pleased to be here. More than
    half of all the employees in our country work for small
    businesses. And far more than half of all of the innovation in
    our country comes from small businesses. That is because large
    organizations, whether they are government or big businesses
    tend to be stifling. So our government agencies, and I am more
    familiar with the intelligence and defense community, where the
    lion's share of all our contracting dollars are spent.
        Those two cultures are really cognizant of the value small
    business involvement because they recognize that most of the
    new creativity innovation is going to come from small business.
    But the red tape in dealing with government is so intimidating
    that many small businesses are just turned off. What we have
    done very successfully is to hold now for several years
    procurement conferences where we have the government people
    there. And they come outside the gate at Fort Detrick because
    you are intimidated just going through that security to get
    inside to the procurement office. So they come outside the
    gate. We have had more than 500 attendees at this. And always,
    the Small Business Administration is always there, thank you
    very much for your participation.
        We have actually had the reverse of that where the
    government contractors come and listen to the ideas that our
    small business people have. Because you can't ask what you
    don't know exist. And so these cultures, defense and
    intelligence, need to know what is out there that they don't
    know about. So I want to thank the Small Business
    Administration for your participation in those conferences. We
    have been trying to help move the small business activity in
    our government contracting along with another way too. Bundling
    is both good and bad. And the first bundling that came to our
    attention was when DOD decided to bundle all of their moving.
        Now, it is obvious that one mover can't move everybody in
    the whole world for DOD. And what we had previously done was to
    compete that. And one company won and they could move all that
    they could move. And anybody else could move at the same rates
    that were negotiated with that company. So this was a great
    win-win situation. Most of the movers are mom-and-pop shops.
    And so our small business community was really, really
    concerned when this was bundled. And so we worked with DOD to
    make sure that the prime who got this was going to in fact have
    a lot of small subcontractors working for him. The second
    bundling was a really interesting one, and that is one that I
    supported. And that was the Navy and Marine Corps were bundling
    their procurement of information technology equipment.
        Our bureaucracy in the government prohibits us from rapidly
    buying things. If it takes you 14 months to buy something and
    15 months is the life stock of what you have bought, you have
    got one month of useful life in it after you bought it. And so
    we sympathized with their need to be able to procure very
    rapidly. And they could do that by bundling this.
        And so we asked them to come in because small business was
    concerned they were going to be cut out. And to the great
    credit of the Navy and Marine Corps, they withdrew their RFP
    and they issued another one which said that 35 percent of all
    of the money was going to go to small business and 10 percent
    of that was going to be direct pay. And the next bundling was
    the big ground breaker program at NSA, and they had the same
    problem; you got to buy this new equipment and with the
    government procurement cycles it takes too long to buy it. So
    they were bundling. We went to talk to them and they said, oh,
    gee, you know, we are so big and spread out that we can't
    really commit to that. We reminded them that the Marine Corps
    and the Navy were more spread out than they were. And so they
    now are committing to 35 percent of all of their subcontracting
    will be with small business. We have a long way to go in some
    of the programs. And in a few minutes, Mr. Newlan will testify
    relative to the HUBZone program, which is a relatively new
    program which has had enormous benefits to the district that I
    have the honor of representing. And most of our government
    agencies are falling woefully short of meeting those goals.
        We will have more time to talk about that with his
    testimony. We have got a long way to go. And what we need to do
    is to partner at all levels. In the business community, our
    government agencies that are procuring and Small Business
    Administration is working with them to make sure that they
    adhere to the--this is not really a law, these are goals and
    they are failing to meet those goals. And the shame is that
    their failure is meet those goals is they are denying the
    taxpayer the benefits that would accrue to these agencies if
    they were able to have more contracting with small business,
    because that is where the creativity and the interest is. So I
    want to thank you very much for what you are doing to help move
    this along.
        ChairwomanVelazquez. The time is expired. Mr. Braley.
        Mr.Braley. Thank you Madam Chairwoman. I am pleased to see
    that on Thursday, Administrator Preston is scheduled to be
    appearing before the committee, because I think it would be
    good for someone to ask him why he should not be held in
    contempt of Congress for failing to deliver on his promise that
    this women's procurement program would be implemented by the
    end of the summer. Because the summer is starting to end here
    in Washington, D.C. And at the rate we are going, this women's
    procurement study program will make the Capitol Visitors Center
    seem like it is on a fast track towards completion.
        And I would ask you, Ms. Carranza, who do you think should
    be held accountable for the failure of the administration to
    complete that program after more than 7 years when it was
    directed to do so by Congress?
        Ms.Carranza. Congressman, I can tell you who the public
    holds responsible for that. Every time I attend a women's
    summit or I attend a WHIP function or a Chamber of Commerce
    where 60 percent of the attendees are women, the question they
    ask me is where do we stand and when will we see it? So in
    addition to being here and addressing your question, I also, as
    well as the Administrator, deal with the consequences of having
    to explain the process when we are in general public.
        Mr.Braley. But there is no accountability. What has
    happened to change the status quo? When you worked at UPS, can
    you fathom the CEO of UPS tasking an individual with the
    responsibility for a major review of the failing program and
    accepting year after year after year for 7 years no results.
        Ms.Carranza. I can speak Congressman that when I arrived
    here, there was $500,000 allocated by this administrator to
    implement the RAND study. As a result of that, for the past 5
    months each month there has been progress in the roll-out in
    addition to the anticipation that you and I would not have to
    talk about this again based on the progress that is being made
    this year. I can't answer for the previous 7 years, and I can't
    get into the technical aspects of what occurred in the past
    years, but I can answer, and you can hold me accountable for
    the process that is in place today.
        Mr.Braley. Well, everyone in this room knows that if this
    happened at UPS, the person tasked with that responsibility
    would be gone, fired. That is what happens in the private
    sector. We all know that. And one of the things that concerns
    me is that we have people come here in front of this committee
    time and time again making apologies for the conduct of someone
    who preceded them in their position without accepting
    responsibility for getting it done. That is what we expect,
    that is what the American people expect.
        Now, you have brought some very nice charts with you here
    today, and I would like to talk to you about some of them.
    Let's start with the first chart, which is this scorecard. And
    when you were asked by the committee chairwoman about this,
    your comment was that you were not happy with these results. Do
    you remember that?
        Ms.Carranza. Correct.
        Mr.Braley. Now, I understand the red to mean that is a
    failing grade, right?
        Ms.Carranza. Yes.
        Mr.Braley. Yellow means somewhere in between making
    progress and not making progress.
        Ms.Carranza. Yes. 4 out of 5. We look at how many of the
    programs they have made, not only progress, but have hit their
    targets. The only way that you can get green is you can make
    all your targets. And you hit your goal and you have shown
    significant progress.
        Mr.Braley. So this column that says current status color,
    to me as a member of the committee, suggests that is the
    current status that each of these agencies is at in reaching
    those targets?
        Ms.Carranza. Correct.
        Mr.Braley. And so the way I read this report card,
    currently over half of these Federal agencies are getting a
    failing grade.
        Ms.Carranza. Correct.
        Mr.Braley. So what does this progress status color mean?
    What does that suggest to us, this column?
        Ms.Carranza. Well, that they are showing progress. They may
    not have hit their target, but they have all the right
    mechanisms in place; they just missed the mark. Now, that gives
    us a window of opportunity to say you have to intensify it, you
    have the right program in place or the right initiative in
    place, but what more can we do so that you can make the
    necessary gains.
        Mr.Braley. But given your earlier example of this women's
    procurement program, they have had a process in place to
    complete that study so they could be given a green score even
    though it has not been completed in 7 years.
        Ms.Carranza. And to that point, what I am encouraged about
    Congressman, in this particular stage of the women's
    procurement or women's small business gains is that we are not
    waiting for the RAND study to keep us focused on what is
    necessary to address the underserved. We developed outreach
    programs that addresses both socially economic disadvantage and
    also with focus on the women's procurement and/or small
    business goals.
        Mr.Braley. Okay. Well, let us move on to the discussion
    about the PCR locations. You don't have any PCRs located in the
    State of Iowa, you would agree with that?
        Ms.Carranza. That's correct.
        Mr.Braley. There are none that are scheduled to be included
    there?
        Ms.Carranza. No.
        Mr.Braley. And there are no plans to put one there in the
    future?
        Ms.Carranza. At this given time.
        Mr.Ellsworth. [Presiding.] The time is up.
        Mr.Chabot. Mr. Chairman, I would ask to speak out of order
    for just a second.
        ChairwomanVelazquez. Without objection.
        Mr.Chabot. Thank you. I think the gentleman was obviously
    excellent in the courtroom, I think is excellent in this
    committee and I would just note that I agree with the
    gentleman's point about the relevant efficiencies of the
    private sector versus the government. And I would invite the
    gentleman, if he can identify any of the areas of the
    government that we could put more in the private sector and
    privatize, I would be willing to join him in that effort, both
    in the small business and a whole range of other governmental
    agencies as well, because I think you make a good point. And
    that is that, in general, the private sector seems to be more
    efficient than the government, and we ought to therefore have
    less government and ought to rely more upon the private sector
    in individual responsibilities, et cetera. Thank you very much
    for making that point.
        Ms.Carranza. Congressman Chabot, may I speak?
        Mr.Ellsworth. If it is brief.
        Ms.Carranza. Very brief. I just wanted to acknowledge
    Congressman that we have identified those areas that do not
    have dedicated PCRs. And that is why we are galvanizing our
    resources, so that if there is a need of a contracting entity
    they have access to technical assistance and support. So we
    will see to that.
        Mr.Braley. Mr. Chair, if I might, since the witness has
    made a response to a concern I raised, I would like a chance to
    respond to her comment briefly.
        Mr.Ellsworth. This will be the last response back and
    forth. We will move to the second panel.
        Mr.Braley. Every witness who has appeared before this
    committee on the subject of PCRs I have asked whether they had
    plans to put one in the State of Iowa which has never had one
    and ranks 48 percent in the percentage of Federal contract
    dollars. And if you look at these underserved areas, it is
    obvious to me that the administration's plan to implement new
    PCRs is not going to address some of these states that are
    getting a very small share of Federal contract dollars, and
    that was a concern that I was raising.
        Mr.Ellsworth. Thank you very much. In all the excitement I
    overlooked Ms. Clarke, so I will recognize Ms. Clarke for her
    questions.
        Ms.Clarke. Thank you very much and to our Chair in
    absentia, our ranking member. This is a very important hearing.
    We can see by the tenor of the discussion here how critical it
    is. And I would like to first of all associate myself with the
    remarks of my colleague from Iowa and to say to our ranking
    member that there is a place for the private sector and there
    is a place for government.
        When we appoint individuals to our government agencies,
    particularly one with this domain, we expect the utmost in
    professionalism and integrity in the work that we do. I don't
    believe that we have to supplant that intellect, that talent
    and that skill in our government in order to make sure that it
    works. I think that is what the people of the United States
    require of us and request of us, and that is part of what our
    conversation is here today.
        But I would like to say that my good friend Congressman
    Braley introduced the Small Business Fairness and Contracting
    Act so the small businesses from Brooklyn, Iowa to Brooklyn,
    New York would have a better chance to compete for Federal
    contracts. While overall contract spending has grown to more
    than 425 billion, up from 388 billion last year, the percentage
    of awards to small businesses has continued to decline. We
    can't reconcile this. And I think again the points that have
    been raised by Congressman Braley really hits the nail on the
    head with respect to our expectations and the fact that we are
    not meeting them, we are not meeting them. We have to say that
    forthrightly in order for us to get on track and get to the
    business at hand, which is to meet these marks for the small
    businesses that will be the employers of the people of our
    constituencies. That is why it is such an urgent matter.
        The concentration of contracts in the 8(a) program is
    severe. In 1999 the top 10 companies received 13 percent of the
    dollars. In 2005 the top 10 companies received more than 40
    percent. Are you aware of this problem?
        Ms.Carranza. Yes. Are you referring, Congresswoman, to the
    8(a) or government contract?
        Ms.Clarke. The 8(a).
        Ms.Carranza. Yes, we are cognizant of the fact that there
    are about 9,000 firms in our portfolio and the tendency has
    been that a portion of those firms are utilized more often than
    others. And the acknowledgment that once you hit a success rate
    with a firm obviously, Congresswoman, they are going to keep
    going back to that firm. It does not make it right, we have
    addressed it. We have been acknowledged to the fact that there
    is a vulnerability there and it is up to the agency as well as
    the 24 other agencies to recognize that, and we are going to
    bring that to a test.
        Remember earlier I said we need to clamp down on the
    administrators about oversight, about accountability. It is
    about definition of each of these programs. It is program
    integrity and focus.
        Ms.Clarke. But with all due respect, Madam Deputy, the
    agencies are not charged with developing 8(a) companies. That
    is the SBA's responsibility in statute. Why is the SBA side-
    stepping its obligations here?
        Ms.Carranza. Congresswoman, I cannot agree that we are
    side-stepping. Could we have missed the mark as it relates to
    ensuring that we had everyone engaged in the oversight and
    assessment--
        Ms.Clarke. But if you are mandated by statute, it would
    seem to me that that would be foremost in the mind of anyone
    who is presiding over the program. And so it is semantics to
    say we are not side-stepping when indeed the results
    demonstrate that.
        Ms.Carranza. The integrity of the program is of utmost
    importance to the agency. Side-stepping, I could not accept
    that term. Could I say that we have missed the mark as it
    relates--not intentional, but because of the focus and/or
    execution of the program, I can share with you the same
    frustration and also the same focus. And I look forward to
    working with your particular staff to address those particular
    issues and perhaps collectively we can work to a resolve.
        Ms.Clarke. Madam Deputy, are you aware that in 2005 93
    percent of the companies got nothing?
        Ms.Carranza. In 2005?
        Ms.Clarke. Um-hum.
        Ms.Carranza. I am not in a position to answer that.
        Ms.Clarke. Well, I think that should be something that you
    really focus on.
        I have run out of time. I want to thank you, Mr. Chair.
        Ms.Carranza. Thank you very much.
        Mr.Ellsworth. Thank you. This will conclude the first
    panel. Ms. Carranza, I would like to thank you for your
    testimony. I appreciate you coming before this group this
    morning. I am sure we will run into you again down the road.
        Ms.Carranza. I am sure, thank you very much, I appreciate
    it.
        Mr.Ellsworth. We invite the second panel to come forward. I
    would like to advise the Committee and the panel members as we
    switch that we have been notified that there is a possibility
    we will be interrupted for votes some time during this part,
    and hopefully Ms. Velazquez will be back and will determine how
    to handle that at the time.
        Mr.Chabot. Mr. Chairman, I would ask once again that while
    the panel is coming in to speak out of order for just a moment
    just to make a point. This will take me about 60 seconds.
        Mr.Ellsworth. Without objection.
        Mr.Chabot. I happened to be at a meeting this morning and
    the speaker was former Speaker Newt Gingrich, in comparing the
    private sector versus the government and how efficiently both
    operate. He used an example of--I do not recall if it is
    Federal Express or UPS versus the government, and he said
    whichever one it was, UPS or Federal Express has at any one
    time about 25 million packages that are going around the world,
    you can literally go on-line and know in real-time where your
    package is in that process. That is the private sector. The
    Federal Government, we have 11 to 12 million people here
    illegally, the government has no idea where they are at. Sort
    of difference between the private sector and the government.
    And then he also mentioned that somebody suggested that perhaps
    we could mail a package from Federal Express or UPS to illegal
    folks here in this country and we could figure out pretty
    quickly where they are at. But in any event that was Newt's
    suggestion.
        I yield back.
        Mr.Ellsworth. We will start hiring people away from those
    great companies to work for the government. I agree that we
    should do a better job.
        If it please the panel, I will introduce you one at a time.
    We will hear the testimony in that order. Just be advised we do
    try to keep it strict to the 5-minute rule. If your testimony
    or your paper, your written testimony, is longer than that, it
    will be submitted for the record.
        With that, if everybody is in place Panel II consists of
    Mr. Harry Alford. Mr. Alford is the President of the National
    Black Chamber of Commerce. The Chamber represents nearly
    100,000 companies through a network of nearly 200 chapters.
    With that, Mr. Alford we would appreciate your testimony.

    STATEMENT OF HARRY ALFORD, PRESIDENT, NATIONAL BLACK CHAMBER OF
                                COMMERCE

        Mr.Alford. Thank you, Mr. Chairman, acting chairman.
    Distinguished members of the Committee, thank you for giving
    the National Black Chamber of Commerce the opportunity to speak
    about the contracting programs of the Small Business
    Administration. We will submit a full testimony within the
    subsequent 5-day time span, but for now I want to voice a few
    important views about the current status of the SBA and how it
    impacts our membership.
        The National Black Chamber of Commerce is a nonprofit
    501(c)(3) organization that is dedicated to the economic
    development of African American communities through
    entrepreneurship and capitalistic activities. We have over 130
    chapters located in 41 States and various chapters in eight
    nations. We have reach to over 100,000 black owned firms and
    consider ourselves the largest business association
    representing black owned firms.
        Back in 1996 the Deputy Administrator of the SBA told my
    Board of Directors that the SBA was no longer going to
    concentrate on procurement and become simply a lending
    guarantee institution. We protested her attitude and demanded
    and eventually received her resignation. As time went by, it
    appears that her forecast has slowly taken form. It was in the
    late 1990s that the SDB contractors with the Federal Government
    was dropping at the rate of a billion dollars per year. In the
    early 2000's it started to take a miraculous turn upwards.
    However, that appears to be due to misrepresentation,
    fraudulent reporting and a skyrocketing increase in Alaska
    native corporation activity. Minority businesses in the lower
    48 States have been decimated in direct government contracting
    and subcontracting.
        As a current example, the SDB contract participation in the
    gulf rebuilding seems to be approaching, in terms of black
    business participation, at $400 million. Contracts affected by
    the National Black Chamber of Commerce in southeast Louisiana
    is approaching a billion dollars. I never would have thought
    that our fledgling organization could effect more contracts for
    black business owners than the Federal Government, but that is
    indeed the case.
        Now if you take that $400 million that they have alleged
    with black businesses, most of that has come from the tirade,
    if I may say, of the Honorable Bennie Thompson when we
    submitted a report to him that FEMA and others were at 0.02
    percent in black business participation in the gulf. He hit the
    ceiling and FEMA jumped. And all of a sudden we had $400
    million in forecasted dollars. We will audit this later and see
    if that comes true.
        We at the National Black Chamber of Commerce are so fed up
    and disgruntled with the SBA lack thereof, district directors,
    PCRs, business opportunity specialists, PTACs. Where are they?
    They are gone. They are more than endangered, they are gone.
    Los Angeles, Kansas City, Chicago, Brooklyn, Cleveland, they
    are not around. Some of my chapters have not seen an SBA
    individual in 7 to 8 years, not since the beginning of this
    century.
        So what are we doing? We are encouraging our members to
    follow the Federal dollars through State agencies. U.S. DOT,
    the billions that they give to the State Department of
    Transportation officers. Follow the HUD money. Most of the
    money in southeast Louisiana that we proclaim is HUD money,
    Housing Authority of New Orleans, who has $1.6 billion in RFPs.
    Two of our members have 50 percent of that, and the other two
    RFP winners are committing to working with the local minority
    business community.
        DOT, we have a model location in Illinois. The Illinois
    State Black Chamber of Commerce has put every contractor in
    central and downstate Illinois at full capacity through the
    IDOT program, to the point that the Governor has given them two
    contracts worth over a million dollars for technical assistance
    for minority contracting in the State of Illinois.
        The State of Ohio legislature has just appropriated $1.2
    million to develop two more black chambers within the State of
    Ohio for economic development within that State. Everyone has
    given up out there on the SBA for developing small and minority
    businesses.
        The point I hear about women business, they obviously have
    decided they are not going to do it. That is the deal. And I
    think that is the challenge to this Committee. What are we
    going to do to make them do it? We have given up.
        Now, we are doing other creative things. We are working in
    a partnership with the Alaska native corporations. We are using
    their expertise for technical assistance in finding contracts
    with the Corps of Engineers. We have had some good examples.
    The only problem is the SBA is trying to stop us from doing
    this, which we have resisted and are turning that around.
        8(a) program, we are supposed to have 45 days to have your
    application processed. We have got people who are taking 6, 7,
    8 months trying to get an 8(a) application processed. I have
    had one guy who waited 7 months and he was told, a native of
    New Orleans was told, a survivor of Katrina was told he is not
    economically disadvantaged. He lost all his business in the
    storm, he was born in the inner city of New Orleans, and they
    are telling him he's not socially disadvantaged. I think it is
    absurd.
        At the same time you have 8(a) males in the greater D.C.
    Area where these white males are out recruiting some of our
    members asking them to sign up for the 8(a) program through
    them. They can get them in 2 to 3 weeks guaranteed because they
    have connections with the SBA. Then when they get approved as
    an 8(a) business they assign them a new address somewhere in
    D.C. To be a HUBZone in addition to 8(a).
        Then they have what is known as a handshake agreement,
    which says they are deviating from the application from the
    8(a) program and assigning them project managers doing the
    bidding, doing the project work, and all they have do is just
    sign paperwork and checks. This is fraud. And if I can see it,
    I am the last person they want to know about this. It seems
    like the SBA might want to pick up a phone, talk to us and we
    can take them to the door.
        That is my time. I will answer your questions, sir.
        [The prepared statement of Mr. Alford may be found in the
    Appendix on page 53.]

        Mr.Ellsworth. Thank you, Mr. Alford. I'm sure we will give
    you a chance with some questions.
        Next, Mr. Chamrin is the Assistant Director of Economic
    Commission for the American Legion. The American Legion was
    established in 1919, has 3 million members and nearly 15,000
    posts worldwide.
        Mr. Chamrin, we welcome your testimony.

     STATEMENT OF RONALD F. CHAMRIN, ASSISTANT DIRECTOR, ECONOMIC
                    COMMISSION, THE AMERICAN LEGION

        Mr.Chamrin. Thank you. Mr. Chairman and members of the
    Committee, thank you for this opportunity to present the
    American Legion's view on the SBA's contracting programs in
    relation to veterans. American Legion views small business as
    the backbone of the American economy. It is the driving force
    behind America's past economic growth and will continue to be a
    major factor as we move further into the 21st century.
        Currently more than 9 out of every 10 businesses are small
    firms, which produce almost one-half of the GNP. The impact of
    deployment on self-employed reservists is severe with a
    reported 40 percent of all veteran owned businesses suffering
    financial losses and in some cases bankruptcies. Many small
    businesses have discovered that they are unable to operate and
    suffer some form of financial loss when key employees are
    activated.
        Additionally, the Office of Veterans Business Development
    within the SBA remains crippled and ineffective due to a token
    funding of only $750,000 per year. This amount, which is less
    than the office supply budget for the entire SBA, is expected
    to support an entire nation of veterans entrepreneurs.
        The American Legion feels that this pittance is an insult
    to American veteran business owners that undermines the spirit
    and intent of Public Law 106-50 and it continues to be a source
    of embarrassment for this country.
        American Legion strongly supports increasing funding of the
    SBA's Office of Veterans Business Development to $2 million.
    This will provide enhanced outreach and community based
    assistance to veterans and self-employed members of the
    Reserves and National Guard. Additionally, the American Legion
    supports allowing this same office to enter into contracts,
    grants and cooperative agreements to further its outreach
    goals.
        The Office of Veterans Business Development must be
    authorized to develop a nationwide and community based service
    delivery system specifically for veteran and members of reserve
    components of the United States military.
        I'll talk about the Federal procurement opportunity for
    veterans. The American Legion has supported legislation in the
    past that sought to add service connected disabled veterans to
    the list of specified small business categories receiving 3
    percent set-asides, and Public Law 106-50 was passed in 1999.
    Agency compliance with Public Law 106-50 has been minimal and
    non-compliant. In 2004 President Bush issued Executive Order
    13360 to strengthen opportunities in the Federal contracting
    for service disabled veteran-owned businesses.
        In contrast to the SBA scorecard, if you dug a little
    deeper, the following agencies have failed to meet the 3
    percent goal for fiscal year '06 for service disabled veteran-
    owned businesses. That has been established since 1999 and
    enhanced by the Executive order in 2004.
        Agriculture, Homeland Security, Transportation, Justice,
    Labor, Nuclear Regulatory Commission, Treasury, Defense,
    Interior, Education, the EPA, GSA, HHS, NASA, State, National
    Science Foundation, OPM, Social Security Administration and
    USAID. Once again these 19 agencies did not meet the 3 percent
    goal. SDVOBs had the potential to award it approximately $7 to
    8 billion for fiscal year '06 and about the same for fiscal
    year '07.
        Brief recommendations, we with like to incorporate
    Executive Order 13360 into SBA regulations and standard
    operating procedures. The American Legion agrees with the
    recommendations given from the SBA Advisory Committee on
    Veterans Business Affairs in their fiscal year '06 report. The
    SBA needs to reemphasize implementation of the Executive Order
    13360 and establish it as a Federal procurement priority across
    the entire Federal sector.
        Federal agencies need to be held accountable by the SBA for
    their implementing of Executive Order 13360 and their progress
    toward the 3 percent goal. The SBA needs to establish a means
    to monitor agencies' progress and, where appropriate, establish
    a vehicle to report or otherwise identify those that are not in
    compliance and pursue ongoing follow-up.
        To achieve the SDVOB procurement goal contained in the
    Executive order the SBA must identify all agencies affected by
    the Executive order and under the directive of Congress. Then
    the SBA should assist these agencies to develop a demonstrable,
    measured strategic plan and establish realistic reporting
    criteria.
        A change of sole source contracting methods. To provide
    parity among special emphasis procurement programs, the SBA
    should take immediate appropriate steps to promulgate
    regulations to revise 13 CFR 125.20. The proposed revision
    would eliminate existing restrictions on the award of sole
    source contracts to SDVOBs such as the "Rule of Two". This
    change should mirror 13 CFR 124.508 part C which applies to the
    8(a) program and states, in order to be eligible to receive a
    sole source contract in regards to 8(a) the firm must be in
    current participation on the day of the award. Accordingly,
    adopting this language would eliminate all restrictions on sole
    source awards to SDVOBs.
        And finally, our final recommendation, is to develop a user
    friendly procurement database. The American Legion supports
    that the Federal Government and DOD utilize its available
    technology to create, fund and support a veteran procurement
    spending database within the DOD. Why the DOD? As Congressman
    Bartlett said before, they have the largest dollar amount of
    contracts awarded, yet have awarded only one-half of 1 percent
    of all the contracts to service disabled veteran-owned
    businesses. This action will finally put veteran-owned and
    service disabled veteran-owned businesses on equal footing with
    all small business special interest groups in regards to
    Federal procurement opportunities.
        In conclusion, the American Legion appreciates the
    opportunity to present this statement for the record and to
    continue our proud history of advocating for veterans. I
    appreciate this opportunity and would be happy to answer any
    questions that you have.
        [The prepared statement of Mr. Chamrin may be found in the
    Appendix on page 57.]

        Mr.Ellsworth. Thank you, Mr. Chamrin.
        Next is Margot Dorfman. Ms. Dorfman is the CEO of the U.S.
    Women's Chamber of Commerce based in Washington, D.C. The USWCC
    represents 500,000 women-owned companies throughout the
    country.
        Ms. Dorfman, we appreciate your testimony.

       STATEMENT OF MARGOT DORFMAN, CEO, U.S. WOMEN'S CHAMBER OF
                                COMMERCE

        Ms.Dorfman. Thank you very much. I greatly appreciate the
    time to be here today. I am here today representing the
    millions of American women business owners seeking your urgent
    assistance.
        In 2000, Congress recognized that the gross
    underrepresentation of women-owned businesses and Federal
    contracting had to end and established the set-aside program to
    reach women-owned businesses in underrepresented industries.
    Through a bipartisan effort Congress passed the Equity and
    Contracting for Women Act. This act required the Small Business
    Administration to conduct a study to identify industries in
    which women-owned small business were underrepresented and
    established procedures to verify eligibility to implement the
    program.
        Nearly 7 years later the SBA has still not implemented this
    important law. The U.S. Women's Chamber of Commerce filed a
    claim against the SBA for failure to implement this law. The
    court agreed with the Women's Chamber and said that the SBA had
    sabotaged the implementation of the program. The court demanded
    a timeline for implementation, which the SBA provided and then
    failed to meet.
        Let me now address why this was so urgently needed. We read
    endlessly about the huge growth in women-owned businesses for
    marketers seeking to sell to women. One of my favorite hyped up
    headlines states that over the last decade women-owned
    businesses grew 42.3 percent, but the real story is that while
    the number of women-owned businesses grew by 42.3 percent,
    their annual revenues grew by only 4.4 percent.
        One of the reasons women-owned businesses are not seeing
    stronger growth is for the devastating failure of the Federal
    Government to provide fair, competitive opportunities for
    women-owned firms. Without access to government contracting
    opportunities, women-owned businesses are struggling to get the
    traction they need to grow their businesses and increase their
    capacity. Even though women own nearly one-third of all
    businesses in America we received only 3.4 percent of the total
    2006 Federal contracting dollars, resulting in losses of
    billions of dollars annually.
        After 7 years the SBA is still not ready to implement the
    women's contracting program, and has even signaled that they
    plan to only implement a very, very narrow version of this law.
    If the SBA takes this narrow action, the intent of Congress
    will not be fulfilled, and women-owned businesses will not
    receive increased access to contracts.
        The SBA has taken three steps. Step 1, in 2002 the SBA
    prepared a draft study containing a preliminary set of
    estimates. On step 2, the SBA asked the National Academy of
    Sciences to conduct an independent review of relevant data and
    estimation methods prior to finalizing the study. NAS
    recommended that a new study be completed, employing four data
    sets measuring options of contract dollars and actions as well
    as the whole universe of women-owned small businesses versus
    only those listed in CCR.
        The NAS recommendation entitled Clear Cases of
    Underrepresentation states and I quote, "Because almost any
    data source and measure of disparity will be subject to errors,
    and because stakeholder views of appropriate disparity measures
    may differ according to their views on the usefulness and
    appropriateness of preferential contracting programs, it is
    unlikely that a single disparity measure will go unchallenged."
        We recommend that the SBA identify industry groups for
    which more than one disparity measure finds underrepresentation
    using a disparity ratio of.80 or less. The NAS also makes it
    clear why it is important to look at a diverse picture of
    underrepresentation rather than narrowly at only one view.
        The report states differences in purchasing methods caused
    differences between different agencies, making it important to
    look at both contract actions and dollar amounts. Shares and
    terms of dollars and actions are similar from any cabinet
    departments, but there are exceptions. Notably the Department
    of Energy in fiscal year 2003 exhibited a relatively high share
    of contract actions going to women-owned small businesses, 15
    percent, but the share of its contract dollars awarded to
    women-owned small businesses was only.5 percent.
        The point the NAS makes is that the SBA should not narrow
    the selection of industry severely, as purchasing methods and
    contract sizes across different agencies vary.
        Step 3, using the RAND study outcomes, the SBA should now
    select industries that appear on more than one of the disparity
    measurement tables. Using the standard to determine
    underrepresentation, women-owned businesses are
    underrepresented in over 86 percent of the industries.
        In summary, the NAS told the SBA how to prepare the
    relevant data and estimation methods. The RAND study provided
    the relevant data. The next step is clear, the SBA should
    immediately implement this program for all industries that
    appear on more than one of the four data sets. I call upon you
    today to do everything within your power to compel the SBA to
    implement the law as you had intended it to be done so.
        Thank you.
        [The prepared statement of Ms. Dorfman may be found in the
    Appendix on page 61.]

        Mr.Ellsworth. Thank you, Ms. Dorfman.
        Our next witness is Mr. P.J. Goel, the President of Goel
    Services, Incorporated here in Washington, D.C. Mr. Goel is the
    President of a local company in the construction industry. Goel
    Services, Incorporated is certified in both the 8(a) program
    and the HUBZone program. He is testifying on behalf of the
    Associated General Contractors. The AGC is the oldest
    organization representing the construction industry, has 33,000
    members, 100 chapters throughout this country.
        Mr. Goel, thank you very, very much.

      STATEMENT OF P.J. GOEL, PRESIDENT, GOEL SERVICES, INC., ON
              BEHALF OF THE ASSOCIATED GENERAL CONTRACTORS

        Mr.Goel. Thank you very much, Acting Member Ellsworth,
    Ranking Member Chabot, members of the Committee of the SBA
    which is here, and the agency for letting me speak.
        I submitted testimony, but I think after listening to what
    most of your concerns are I was going to try to focus in on
    what the problems are as a small business in these programs and
    what would the recommendations be to fix them.
        First of all, there are six programs that the Federal
    Government recognizes: Alaskan Native, Tribal Indians, Service
    Disabled, Woman Owned, 8(a), HUBZone. It is very hard for the
    government contracting officials that we have met with over
    time to actually know all of the individual rules for each of
    these six programs. Five of the six programs are socio-
    disadvantaged programs. Everything except for HUBZone is race
    based or whether you have been injured or whether you came from
    an area where you have been disadvantaged.
        My personal recommendation as a small business outside of
    any organization is to consolidate them into one program.
    Immediately women owned could have equal parity to 8(a) and the
    HUBZone would run parallel. Alaskan natives, who have an
    unlimited cap on the amount of sole source, would be restricted
    by 8(a). Tribal Indians, which have an unlimited cap on sole
    source, would be unlimited by 8(a). Service disabled, which are
    seeking to have parity with 8(a), would have 8(a). Either to
    make all five programs similar, identical in nature so that
    there is equal competition and to make it simple for the
    government to use. The more simple it is, the contracting folks
    at GSA or all the ones who are not meeting the goals will have
    an easier way of meeting their goals.
        The second issue is the SBA does not have enough money for
    on-site inspection. Instead of increasing the budget the
    recommended approach would be make the contractors applying for
    these program pay for the fee. For example, DSS uses third-
    party investigators for clearances for employee background
    checks. We are the ones that benefit from the background check
    to make sure that the fraud doesn't exist. Why not eliminate
    the fraud, make sure that there is a third party. You can have
    guys in Brooklyn, Iowa, even though the SBA isn't there, you
    could have people representing the SBA instantly on a roll out
    across the country.
        Accountability, accounting-wise the SBA is underfunded to
    actually implement, manage and watch what the other agencies
    are doing. The State of Maryland, MDOT does on-site inspections
    and they make every contractor comply. They make the
    contractors that subcontract, the subcontractors that are small
    businesses actually submit affidavits stating that they were
    paid the funds that were claimed to have been paid by them,
    reducing fraud. There is an actual body that actually cross
    references all these documents and comes up with it. That I
    believe the SBA needs significant funding for, and that could
    put the teeth into this program for enforcement.
        Agencies like GSA have been undermining a lot of the rules,
    like for example on HUBZone there is a price preference. In
    2005, they wrote a memorandum of understanding stating that
    they weren't going to do evaluations. One year later after zero
    comments were issued, I didn't even know that there was a
    rulemaking issue, they enacted it. So today there is no price
    preference for GSA. They are one of the ones in red across the
    board. I believe all programs should have equality, should be
    fair, simple, easy to use.
        One of the issues brought up was that a majority of the
    contract dollars were going to a select group of contractors,
    brought up by Representative Clarke. This is because there is a
    high degree--from the contracting side there is a risk of using
    small business. To replace a small business costs a lot of time
    and money. And so there is not equality. I mean to the
    government we are all commodities. I provide asbestos,
    demolition. There are a hundred companies that provide it. We
    are commodities. The question for the government, how do they
    reduce their risk exposure?
        I don't know if I could be afforded more time. I have four
    or five more items as problems and solutions.
        Mr.Ellsworth. Mr. Goel, they are going to call votes
    probably during this testimony. If we could do it and maybe get
    to it during the question and answer period, that would
    probably be preferable to the Committee.
        Mr.Goel. Thank you very much for your time.
        [The prepared statement of Mr. Goel may be found in the
    Appendix on page 67.]

        Mr.Ellsworth. Thank you, Mr. Goel.
        I will introduce Mr. Newlan. If it please the chairwoman,
    Mr. Newlan is our next guest. Mr. Newlan is founder and board
    member of the HUBZone Contractors National Council. The council
    represents companies participating in the SBA's HUBZone
    program. Mr. Newlan, thank you for being here.

    STATEMENT OF RON NEWLAN, DIRECTOR, HUBZONE CONTRACTORS NATIONAL
                                COUNCIL

        Mr.Newlan. Thank you, Acting Chairman.
        With the Chair's permission, I would like to put up a large
    visual display of New York's 12th District and the HUBZone
    areas within that district. In a few minutes we will swap it
    out and put up Ohio's First. I do have packages to hand out to
    the members and the staff of the HUBZone map of your own
    district, of every district represented on the Committee. And
    with your concurrence, Madam Chairwoman.
        ChairwomanVelazquez. [Presiding.] Without objection.
        Mr.Newlan. We will hand those out as I am testifying.
        Thank you for inviting me here today. I am particularly
    honored to be testifying before the Committee and a special
    hello to my good friend Congressman Bartlett, who has been a
    strong, strong supporter of the HUBZone program since the
    beginning of the program.
        The HUBZone council is the only national trade association
    that focuses exclusively on expanding the implementation of the
    Federal HUBZone contracting program. A HUBZone is an area of
    our Nation that has high unemployment or low household income
    or both. Today nearly 37 million Americans live in poverty.
    There is a strong correlation between the locations of
    America's HUBZones and the locations where these 37 million
    impoverished Americans live.
        This program was designed to create good jobs where America
    needs the jobs the most. The program creates these jobs by
    offering competitively awarded contract opportunities to small
    businesses that locate in a HUBZone and hire employees who live
    in these HUBZones.
        Awarding Federal procurements to HUBZone firms is good
    policy for several reasons. Firstly, awards under the program
    are almost always based on competition so the government
    receives the advantages of competitive pricing.
        Secondly, each HUBZone firm must have its largest office in
    a HUBZone. This stimulates the economic development in these
    zones of poverty.
        Thirdly, at least 35 percent of each HUBZone firm's
    employees must live in a HUBZone. In many instances these
    employees before being hired by a HUBZone firm were drawing
    unemployment and/or welfare. So there is a double win. We move
    the unemployed or welfare recipient back to the rolls of
    productive tax paying employees.
        Today there are approximately 13,000 HUBZone firms. Their
    collective annual revenues exceed $25 billion. If they were
    collectively ranked they would be ranked number 90 on the
    Fortune 500 list, larger than General Dynamics or Coca-Cola.
    Our resources as a community are vast. For example, in the
    district represented by Chairwoman Velazquez, New York's 12th
    District, I estimate that approximately 25 percent of the land
    area of the district has been classified as a HUBZone. In the
    12th District there are 9 HUBZone firms and they employ
    approximately 200 people.
        In Ohio's First District represented by the Committee's
    Ranking Member Chabot, a large majority of the geographical
    area in and around Cincinnati has been classified as a HUBZone.
    Ranking Member Chabot's district has 24 certified HUBZone firms
    that employ normally 1,500 people. In Texas' 20th District,
    represented by Congressman Gonzalez, there are more than 85
    HUBZone firms that create more than 1,500 jobs annually.
        Unfortunately, this well designed program has been very
    poorly implemented by the Federal agencies that buy America's
    goods and services. The HUBZone statute sets a goal for
    contracting for HUBZone firms at 3 percent. Despite the large
    size of our HUBZone contractor community the Federal Government
    has never come close. In 2005 they achieved 1.9 percent and in
    2006, 2.1 percent.
        If I had to attribute the program's lack of success to one
    thing, I would attribute it to the procurement community's
    reluctance to change their method of doing business. For every
    one HUBZone set-aside competition conducted in 2005 there were
    78 small business set-aside competitions conducted. Yet the
    statutes and the regulations are clear, the HUBZone program is
    a higher priority program than the small business set-aside
    program.
        The HUBZone statute and regulations require a contract to
    be set aside for HUBZone competition when a contracting officer
    has a reasonable expectation of receiving two or more offers
    from HUBZone firms and if the award can be made at a reasonable
    price. We refer to this as the HUBZone "Rule of Two". It is
    very disappointing to see how often a procurement community
    ignores the "Rule of Two" and conducts tens of thousands of
    procurements each year outside the HUBZone program that should
    be awarded using the HUBZone set-aside procedures.
        If current regulations were followed by the Federal
    contracting community, more than 100,000 more jobs could be
    created annually for America's poorest residents. Now to make
    matters even worse, the House of Representatives has passed a
    bill, H.R. 1873, and sent it to Senate. One aspect of this bill
    is to increase the contracting goals for SDBs and women-owned
    firms to 8 percent annually. The House bill did not increase
    the HUBZone bill to 8 percent. If this was become law this
    would increase emphasis on SDB and women-owned contracting at
    the expense of the HUBZone and the service disabled veterans
    program. It is time for the Federal procurement community to
    follow the law.
        ChairwomanVelazquez. Um--
        Mr.Newlan. I ask the Committee to convey to all senior
    officials and Federal procurement officials that the HUBZone
    "Rule of Two" means what it says and reemphasize that the
    HUBZone program has priority over the small business set-aside
    program.
        ChairwomanVelazquez. Mr. Newlan, unfortunately we have to
    go to the floor to vote, but in the question and answer period
    you will be able to accommodate your statement.
        Mr.Newlan. Thank you, Madam Chairwoman.
        [The prepared statement of Mr. Newlan may be found in the
    Appendix on page 71.]

        ChairwomanVelazquez. Now the Committee stands in recess.
        [Recess.]
        ChairwomanVelazquez. The Committee is called to order. Our
    next witness is Dr. Trevor Brown. Dr. Brown is an Assistant
    Professor at the John Glenn School of Public Affairs, Ohio
    State University. Mr. Brown's research focuses on public
    management, contracting and contract managing and performance
    measurement.
        Welcome, sir. You have 5 minutes to make your presentation.

    STATEMENT OF DR. TREVOR BROWN, ASSISTANT PROFESSOR, JOHN GLENN
          SCHOOL OF PUBLIC AFFAIRS, THE OHIO STATE UNIVERSITY

        Mr.Brown. Thank you very much. Before I begin, I think Mr.
    Newlan was partly through his testimony. I don't know if there
    is time for him to finish off his testimony.
        ChairwomanVelazquez. He will have time during the
    questioning.
        Mr.Brown. I wanted to make sure I did not cut in.
        Well, Chairwoman Velazquez, Ranking Member Chabot and
    honored members of the Committee, thank you for the opportunity
    to share my thoughts on the Small Business Administration's
    contracting program.
        As a professor in the John Glenn School of Public Affairs
    at Ohio State University, as you just heard I study government
    contracting and contract management. My research examines why
    governments decide to contract for some services and not for
    others, perhaps more importantly what investments governments
    make in the capacity to manage contracts once they have been
    let.
        This morning, or this afternoon I am going to offer my
    professional opinions on some of the SBA's contract
    requirements. In particular, I am concerned that the increased
    push to further limit combining multiple tasks into a single
    contract vehicle, sometimes referred to as contract
    consolidation or contract bundling, will inhibit Federal
    procurement personnel from maximizing public value.
        I think that everyone would agree that government agencies
    should target two primary goals when they turn to the market,
    first, the procurement of high quality goods and services and,
    second, acquisition of those goods and services at the lowest
    possible cost. The problem is that these two objectives may at
    times be in conflict with each other.
        Lower costs may undermine the quality. Reflecting on the
    launch of his mission to orbit the Earth, former Senator, U.S.
    Astronaut and patron of the school where I teach, John Glenn
    replied, All I could think about was the 2 million parts that I
    was sitting in were built by the lowest bidder." Senator
    Glenn's seemingly prosaic thoughts as he hurtled through space
    starkly illustrate the challenges faced by public sector
    procurement personnel: How to use purchasing to deliver high
    quality goods and services at the lowest post cost. As a
    taxpayer this is exactly the question I want Federal Government
    procurement personnel focused on.
        Fortunately, policy and practice has evolved since Senator
    Glenn's first days in space when procurement personnel were
    mandated to focus on cost and cost alone. Now procurement
    personnel have been given more flexibility and discretion to
    balance cost and quality. For example, the FAR, Federal
    Acquisition Regulations, now allow the use of vendor past
    performance as a decision criteria in contracting decisions.
        Over the years additional requirements have been layered on
    top of the basic costs and quality calculus, and high on the
    list are goals for targeted classes of organizations of central
    importance to this Committee, Small Businesses. Now from the
    perspective of this Committee, taking steps to ensure
    government agencies utilize small business and procurements is
    an admirable goal. The SBA's data and other data clearly show
    the important role that small businesses play in the American
    economy.
        However, the more goals, preferences, set-asides and other
    associated requirements that are layered into the procurement
    process, the more difficult it becomes for Federal procurement
    personnel to achieve the sweet spot between cost and quality.
    My written testimony that I have submitted discusses some of
    these reasons, but for time I will not go into those.
        Increased requirements and the increased oversight and
    scrutiny that follow will cause public procurement personnel to
    focus more on the maze of rules and regulations, perhaps at the
    expense of maximizing public value and contract decisions. This
    tension is perhaps the most apparent in the SBA requirements
    restricting and combining of previously independent task
    requirements and the larger procurements, again referred to as
    contract bundling, but goes under the name sometimes of
    contract consolidation or strategic sourcing.
        As the Subcommittee is well aware, contract consolidation
    increased considerably after Congress passed the Federal
    Acquisition Streamlining Act in the 1990s. Now there are good
    reasons for this increase. It can potentially lead to reduced
    costs as a result of price competition among larger firms, or
    as a result of scale economies. Contract consolidation can also
    increase the government's leverage over vendors. Private firms
    routinely use bulk purchasing to manage their supply chains.
    And as we heard from the honorable Representative Bartlett,
    contract consolidation can also result in reduced time in the
    acquisition process.
        Contract consolidation or the consolidation of tasks into
    the single contract can, however, have detrimental impacts on
    small businesses. A growing body of research shows that bulk
    purchasing is a primary barrier to small business participation
    in government contracting as a prime contractor. On this point
    in the research there is little debate. Individual small
    businesses are unlikely to win bids from many bundled
    contracts.
        As you can see, clearly the question of contract bundling
    sits at the center of the tension between providing Federal
    procurement personnel the flexibility to optimize cost and
    quality and the goal of trying to ensure the equitable
    participation of small businesses and Federal procurements.
        I am concerned though, based on information that I have
    seen, that the trend is toward excessive policing which comes
    at the expense of public value in Federal procurement.
        As members of this Committee, you are chiefly concerned
    with the plight of small businesses. I propose that as you
    continue to make changes to the Federal procurement process you
    also continue to assess the impact of your decisions on the
    ability of Federal procurement personnel to deliver public
    value to the American taxpayers. This does not have be a zero
    sum trade off.
        In moving forward, I strongly encourage the Committee to
    try to identify ways to achieve your goal of maximizing small
    business participation in the procurement process without
    unduly inhibiting the other goal of achieving best public value
    for American taxpayers in the form of the balance between cost
    and quality.
        To that end I just briefly will offer three specific
    recommendations that focus on increasing the capacity of the
    Federal procurement system.
        ChairwomanVelazquez. Dr. Brown. Are you able to summarize
    the three recommendations?
        Mr.Brown. Sure. To address both goals. The first is to
    enhance SBA capacity to facilitate rather than police. I think
    you have heard that already from members today, increasing the
    number of staff.
        The second is to encourage collaboration of learning within
    the procurement system. There is a real opportunity over the
    next several years to build networks between SBA procurement
    staff and the contract staff within Federal agencies. The
    partnership for public service projects that the need for
    procurement staff there will be 8300 new opportunities
    throughout the Federal Government by 2009. The more that SBA's
    staff can work in partnership with those staff the better.
        Finally, the third recommendation is to gather more
    information on the impact of contract bundling. As noted
    earlier, research is clear that contract consolidation harms
    small businesses in their drive to service prime contractors.
    But we don't know a lot about the impact from the research
    standpoint on small business participation and subcontractors.
        I was happy to hear this morning about efforts to improve
    the access you all have to data. The other one that I would
    recommend you if you are not involved in already is that I am
    hopeful that recent congressional action to improve the quality
    of information in the Federal Procurement Data System, FPDS, is
    scheduled to go in effect in 2008 will also improve the
    knowledge base. To that end I encourage you to include
    information in that process on small businesses and subcontract
    arrangements.
        I thank you for my time.
        [The prepared statement of Mr. Brown may be found in the
    Appendix on page 79.]

        ChairwomanVelazquez. Thank you. Thank you, Dr. Brown, and
    thanks to all the witnesses for your participation this
    morning.
        Mr. Newlan, we reviewed a sampling of HUBZone awards. Five
    went to large businesses. 40 percent of the companies weren't
    even certified into the HUBZone program. Can you tell us why is
    it that so many improper certifications are taking place?
        Mr.Newlan. Well, I think it would be the same reason there
    is improper certifications taking place in all the programs.
    Contracting officers aren't checking. There is a database that
    you could go to and you could determine quickly whether they
    were HUBZone certified or not. That is a less than a 30-second
    drill on the Internet. A contracting officer has a HUBZone set-
    aside procurement, 5 HUBZone bidders, ready to make an award,
    doesn't bother to check.
        ChairwomanVelazquez. Mr. Newlan, Mr. Goel in his written
    testimony testified that SBA does not take the allegation
    seriously that the program is being abused. What would you
    propose that we need to do to ensure that these allegations are
    properly addressed?
        Mr.Newlan. I am not going to agree that the program is
    being abused. However, one incident of improper certification
    is one too many. But it is a pretty clear-cut program. You are
    either in compliance or not. It is self-policed by your
    competitors.
        ChairwomanVelazquez. Um-hum.
        Mr.Newlan. There is a very clear avenue for protesting the
    HUBZone size status of any winner of a HUBZone procurement,
    just like there is for a small business size protest of a small
    business procurement. And we encourage our members to protest
    if they have any reason at all to believe the winner of a
    HUBZone procurement is not a certified, in compliance HUBZone
    firm. I have firsthand experience that the SBA takes those
    protests seriously and renders detailed, meticulous decisions
    in each and every case.
        ChairwomanVelazquez. So you don't agree with the Deputy
    Administrator who previously stated that the program is flawed?
        Mr.Newlan. I'd have to hear what flaw she's talking about.
        ChairwomanVelazquez. Well, it was in response to my answer.
        Mr.Newlan. Well, again, maybe I'd have to meet with her or
    perhaps you and your staff and hear what flaws you have. I
    don't believe any program in the Federal Government is perfect.
    HUBZone would be in that category. It is not perfect and there
    is always room for improvement.
        ChairwomanVelazquez. So you disagree with the Inspector
    General's report?
        Mr.Newlan. Which aspect of the report?
        ChairwomanVelazquez. Where he found that there are serious
    flaws in the program.
        Mr.Newlan. I would disagree with that.
        ChairwomanVelazquez. Mr. Newlan, the government has a
    program, Section 8, that allows residents of low income areas
    to receive vouchers for housing assistance. Clearly no one will
    support low-income housing vouchers to be used to rent million
    dollar homes. Why should we have a program that allows people
    who own million dollar homes to get contracts intended for low
    income communities?
        Mr.Newlan. Because the contracts are intended to create
    jobs where we need them the most. Just as in a similar fashion
    you were asking questions earlier, Madam Chairwoman, regarding
    increasing the net worth of the 8(a) program.
        ChairwomanVelazquez. So is Winter Park in Florida one of
    those areas?
        Mr.Newlan. Excuse me?
        ChairwomanVelazquez. Winter Park.
        Mr.Newlan. I'd have to check the SBA map to determine. I
    have never been to Winter Park, so I don't know.
        ChairwomanVelazquez. Well, I have been there, I know the
    area. I know that it is a part of Florida where you find multi-
    million dollar houses. They don't qualify, that area doesn't
    qualify for HUBZone.
        Mr.Newlan. Are you suggesting that it shouldn't qualify but
    it is now qualified? I'm trying to understand the question.
        ChairwomanVelazquez. HUBZone companies are in that area.
        Mr.Newlan. Well, the definition of a HUBZone is where
    unemployment is high and wages are low. I suspect there is no
    county in the country or very few counties in the country as
    you get into rural America--as you know HUBZones are determined
    based on county basis in rural America, but as you go to rural
    America I suspect just about every county has one or more
    multi-million dollar homes while they have a lot of poverty in
    the county as well.
        ChairwomanVelazquez. Winter Park is not a rural area.
        Mr.Newlan. Pardon?
        ChairwomanVelazquez. Winter Park is not a rural area. I
    assure you Winter Park does not have the unemployment rate that
    would qualify the area for HUBZone companies to be established.
        Mr.Newlan. If Winter Park is not rural, it would be urban
    and in urban the determination is by census data regarding
    average household income. So they must have average household
    income under the statewide average for Florida.
        ChairwomanVelazquez. I want for SBA--and they are here
    today--to submit to this Committee the rationale for Winter
    Park to have HUBZone companies.
        Mr.Newlan. I would just state that I am not firsthand
    involved, but I have heard that it is HUD that determines
    whether some area is or is not a HUBZone and SBA just
    implements the HUD determination.
        ChairwomanVelazquez. It doesn't matter, it doesn't matter.
        Ms. Dorfman, in 2001 the regulations to implement the
    women's procurement program were in an OMB review with an
    extension granted by the SBA. Today the regulations are in the
    exact same place. Given this, what do you believe about the
    SBA's commitment to implement the program?
        Ms.Dorfman. It is my estimation that they have no
    commitment, especially when talking to Administrator Barreto a
    few years back and he actually stated to me, and this is a
    quote, that this administration has no intention of
    implementing this program.
        It is now 7 years later and it has still not been
    implemented and we are hearing echoes in the hallways that
    perhaps that if it gets implemented it would be implemented
    only by the narrowest way of assessing women-owned firms which
    would be to a detriment to our members and to the American
    women businesses across the United States.
        ChairwomanVelazquez. Mr. Chamrin.
        Mr.Chamrin. Yes, ma'am.
        ChairwomanVelazquez. What are some of the unique challenges
    faced by service disabled veterans in accessing government
    contracts that other small businesses don't share?
        Mr.Chamrin. First of all, I want to thank you, Madam
    Chairwoman, for allowing the American Legion to testify.
        Service disabled veterans can be anywhere from 0 percent to
    100 percent, they could have PTSD, traumatic brain injury,
    amputations, blindness. Some of these factors are hindering
    them from going to these contracting officers. A lot of these
    small business owners are individual owners, they are IT
    experts, they are computer experts. So they are sitting at home
    and it is hard for them to travel.
        Another problem is that the contracting officers are not
    knowledgeable of all the service disabled veteran laws,
    especially Public Law 106-50, Executive Order 13360 and the
    Comptroller General decision B-299291. And we believe that if
    these contracting officers knew the laws and then implemented
    the laws service disabled veteran businesses would be gaining
    the 3 percent goal.
        ChairwomanVelazquez. So in your testimony you state that
    each Federal agency should incorporate Executive Order 13360
    into the regulations and standard operating procedures. Why is
    it so important to the American Legion that each agency
    incorporate this Executive order?
        Mr.Chamrin. Well, veterans along with other people on my
    panel have access to the entire federal Government and their
    procurement authority. And the Department of Veteran Affairs, a
    lot of these agencies feel that the Department of Veteran
    Affairs should have the onus and should have the priority of
    helping veterans. Well, that is just not the case, especially
    in procurement and contracting. And Executive Order 13360, it
    is an Executive order by the President of the United States to
    the Secretaries at the Cabinet level positions. And if they
    don't implement the orders, then one has to become accountable
    for it.
        ChairwomanVelazquez. So let me ask you, under current law
    there are no penalties if a company falsely represents itself
    to be a service disabled veteran business. Should there be
    penalties?
        Mr.Chamrin. American Legion has no position on penalties.
    However, there is a Center of Veterans Enterprise operated by
    the VA which has the veteran business roster and each veteran-
    owned business is advised to go to the VA, and then they get
    certified by the VA as a veteran and as a service disabled
    veteran-owned business. We along with the Center of Veterans
    Enterprise and other small business owners are advising the
    Federal agencies to refer back to this list so that they
    guarantee that these are certified veterans and certified
    service disabled veteran-owned businesses.
        You asked one question about false representation and you
    talked about contract bundling. We are chiefly concerned with
    some of the prime contractors going to our service disabled and
    veteran-owned businesses, having them on the initial contract,
    checking the block and having them be part of the award
    paperwork. And then when the actual implementation of the
    contract and the services, and especially the payment goes out,
    these companies are not being awarded these monies.
        ChairwomanVelazquez. That is the problem we are seeing
    across the board and, believe me, we are looking seriously to
    see what kind of remedies we can put into the law to prevent it
    from happening.
        Mr. Alford, when the SBA has testified about the 8(a) net
    worth limitation they have said that the average net worth for
    companies in the program is less than $750,000. In your view is
    the $750,000 personal network ceiling realistic for a business
    owner in 2006?
        Mr.Alford. No, it is not realistic at all and I think it is
    kind of a self-fulfilling prophecy to limit people to a net
    worth of $750,000 and then turn around and say, you see,
    everybody is less than $750,000. I think we need to get up to
    the modern days and times.
        ChairwomanVelazquez. Mr. Goel, your business is
    construction.
        Mr.Goel. Yes.
        ChairwomanVelazquez. Is the $750,000 personal net worth
    limitation reasonable for your industry?
        Mr.Goel. I would say no. To get bonding you need capital.
        ChairwomanVelazquez. Are you required to personally
    guarantee bonds and other business-related loans?
        Mr.Goel. All of my bonds I personally guarantee them. I am
    signed as an indemnity for the bonding company.
        ChairwomanVelazquez. Mr. Alford, several years ago agencies
    could limit competition to only minority-owned companies. That
    was put on a 2-year moratorium that has never been lifted. How
    important would it be to minority businesses to allow agencies
    to once again have this ability?
        Mr.Alford. In effect in moratorium it became law I guess
    you could say, but yes, it should be lifted and we should be
    able to go back. It was an excellent instrument to get into the
    fray and to develop them.
        ChairwomanVelazquez. Would allowing agencies to restrict
    competition to minority-owned businesses help to ensure that
    companies survive after graduating from the 8(a) program?
        Mr.Alford. Yes, indeed. They have got to have that
    experience before they graduate. Graduating with nothing is
    like graduating from high school and you can't read or write.
    What good is it? So you have to have that experience and that
    is the best approach to take.
        ChairwomanVelazquez. Thank you, and I will recognize Mr.
    Chabot.
        Mr.Chabot. Thank you, Madam Chair. Mr. Alford, I will begin
    with you if I can.
        Mr.Alford. Yes, sir.
        Mr.Chabot. It is my understanding that the majority of the
    8(a) contracts are awarded to our relatively small subset of
    companies. What recommendations would you make to spread it out
    more so that more businesses are able to participate?
        Mr.Alford. I think lifting the moratorium for one. And I
    would like to see an analysis of these so-called super star
    8(a) companies. You have got one in Silver Spring, Maryland
    that is in the staffing business. The chairman of my
    association is in the staffing business, and somehow this
    person goes to $200 million first contract, $150 million. Now
    she is up to about a billion dollars in work and there is no
    way in the world that this has any sense of logic to it other
    than she is representing somebody else who is well established
    and are using her 8(a) status to get in there and get some
    preferences.
        Now, going back to the talk of these false certifications,
    Attorney General Janet Reno took a very good approach when she
    came in and she considered false certifications a violation of
    the False Claims Act, and she made a very good example of Peter
    Kiewit, the largest construction company, and a few others who
    were using these front companies. And she tracked some off to
    jail and seriously fined Peter Kiewit and that sent a word out
    for a few years.
        Mr.Chabot. Thank you.
        Mr. Chamrin, I will go next to you if I can. In your
    opinion, what is the primary barrier to greater participation
    by service disabled veteran-owned small businesses in the
    Federal procurement sector and what changes would you suggest
    that we make to remedy that?
        Mr.Chamrin. As I said earlier, it is the lack of knowledge
    of these contracting officers. They are not educated in the
    law, and if they were educated and if there was proactive
    enforcement coming from the top down, from the Secretary level
    down to the Administrator and make these contracting officers
    have not just a tutorial, but a competency based test to make
    sure that they are aware of these laws. And with the recent
    decision, the decision from the Comptroller General dealing
    with Porta-Pottys, there was a decision that allowed these
    contracting officers to award a sole source contract as long as
    they have the intent of knowing that there are two possible
    service veteran-owned businesses out there. And what these
    contracting officers have been doing is requiring that they
    have two possible contracts in hand and that is not the law.
    They are enforcing something that is more strict and stronger
    than what the actual law is.
        Mr.Chabot. Thank you.
        Ms. Dorfman, if you were to lead the U.S. Women's Chamber
    of Commerce as one of the top folks at the SBA, what would be
    the changes that you would make in order to remedy some of the
    failings that you address this morning?
        Ms.Dorfman. Well, first I have to say I am very happy to
    say you would hire me and not appoint me, because my only
    allegiance is to small businesses and I think that is the
    downfall. We have two people who are at the top of the SBA who
    come from large corporations that have no idea of the
    complexity of the small business environment. And I think we
    need to get knowledgeable people in there that are not the dog
    and pony show for every administration, Democrat, Republican,
    it doesn't matter, but we need qualified people heading up
    these.
        The other thing is if you get somebody who has been a small
    business owner that you are going to get the best quality of I
    guess fiduciary responsibility, so to speak, because we know
    the value of a dollar, and we are going to make sure that we
    have the broadest programs available with the least amount of
    money going out the door. So there is that to it.
        I think a lot of things have to happen that we first of all
    must go back to listen to Congress and implement the laws that
    are put forth. We also need to be part of the Cabinet at the
    leadership level to make sure that the voice of small business
    is heard so in the changing environment that there are experts
    there at the table that can help folks understand what needs to
    happen and the shifting climate, the different programs that
    need to happen right now.
        We have had some comment and discussion about well, we have
    got all these small business programs, different set-asides,
    and can we combine them, what would that look like? I think one
    flaw in all the programs is that they keep you small. The small
    businesses are not able to grow, they get to a certain size,
    they graduate the program and, lo and behold, they are out
    competing with Lockheed Martin and there is no in between place
    to grow.
        So we need to have some support so that instead of having
    these false ceilings of growth that we can help small business
    grow, and I think ultimately the SBA has to get back to the
    roots and realize that small businesses are the answer to the
    growth of the economy, that we are here as an investment for
    the American people and that small business has always been.
    When you think of the United States, you think of small
    business growth and the opportunities that are here and I would
    love to see that return.
        Mr.Chabot. Thank you very much.
        Mr. Goel, in your testimony you asserted that the HUBZone
    program really isn't achieving its goals. What reforms would
    you like to see made in order to accomplish that?
        Mr.Goel. Well, in our particular case, we are a HUBZone
    certified firm. We are also 8(a) certified. The opportunities
    that exist in the 8(a) market are significantly larger and more
    plentiful. There are more Federal acquisitions for 8(a) than
    any of the other avenues out there. But I don't believe it is
    effective. I know we bid on a contract for asbestos removal I
    believe in--forgive me--I think it was Scott Air Force Base in
    Illinois? Forgive me, I am not as familiar, but we specialize
    in asbestos and we can do this anywhere in the country--set-
    aside for HUBZone. And there was one contractor that
    specialized in asbestos and across the river he had another
    sister company that was his counterpart. I actually submitted
    the fraud incident to the SBA on that under an anonymous name.
    I don't want to be the trouble maker, but again literally on
    the Web site you could tell that they are the same company.
    That was the incumbent contractor for the contractor. It set it
    up for the HUBZone so that the specific contractor got it. It
    wasn't a matter of opening competition. They wanted that
    contractor. There was no longer 8(a) and they liked him and so
    they created a requirement to do it and they picked somebody
    that was in a HUBZone across the river that met the criteria
    and it happened to be the same firm.
        I think to fix the HUBZone program you need full
    enforcement. The SBA is totally underfunded to do it. I talked
    with my business opportunities specialists and they are
    overworked, they don't have the funds, they don't have the
    ability capital wise to actually go to every location, they
    have to go to every location. And if it meant for me to make
    sure that the competition was equal and fair and they weren't
    fraudulent and I had to pay $1,000 to have a private, third
    party from the Federal Government go out and investigate each
    firm, so be it. I mean, I am the one that benefits. If there is
    a HUBZone opportunity, I am the one who is damaged when there
    is a fraud out there because they are taking advantage of the
    program. If it means $1,000 to fund the SBA from us the
    contractors that benefit to create that third party like they
    do for the top security clearances in the United States, so be
    it. I mean, it is a minor price to pay for equality in the
    workplace.
        Mr.Chabot. Thank you. I don't mean to cut you off. Do I
    have time--
        ChairwomanVelazquez. I would like to ask you to yield for a
    minute.
        Mr.Chabot. I would be happy to yield.
        ChairwomanVelazquez. Mr. Newlan, listening to Mr. Goel's
    recommendation here, for the good name of the HUBZone program
    would you support on-site reviews?
        Mr.Newlan. We don't have any problem with on-site review.
        ChairwomanVelazquez. Good.
        Mr.Newlan. But I am not sure I want to support the thousand
    dollars that he just said that HUBZone firms might have to pay.
    If Congress authorized the SBA the money and they have the time
    and energy to come out, we would fully support aggressive
    enforcement of all aspects of a HUBZone.
        ChairwomanVelazquez. You will support on-site review for
    all participants of the program?
        Mr.Newlan. Federal funded, yes.
        Mr.Chabot. Reclaim my time.
        ChairwomanVelazquez. Thank you, sir.
        Mr.Chabot. Thank you.
        What recommendations, if any, would you have for any low
    cost mechanisms that could be implemented for HUBZones that
    would ensure that only eligible firms receive government
    contracts? I think you mentioned in your testimony, for
    example, many rely upon somebody else to tell on them basically
    because they are competing and that sort of thing, but are
    there any recommendations you would make in that area?
        Mr.Newlan. I think all small business programs rely on
    self-policing, and your competition is watching closely, just
    like Mr. Goel saw this action going on and he reported it. So I
    think that is first and foremost. The other is let's put some
    teeth into what happens if you get caught. If you break the
    law, if your commit fraud or whatever the exact legal term is,
    you should be dealt with and you should be punished. There is
    nothing wrong with that. You know the rules, you sign up for
    the rules, and if you break the rules, I am sure the Congress
    can come up with that or maybe it is already in the law, but
    let's enforce it and, as Mr. Alford said, once the word gets
    out less people with break the law.
        Mr.Chabot. Thank you.
        Mr.Newlan. There is nothing wrong with that.
        Mr.Chabot. And finally, Dr. Brown, let me just note that
    obviously being from Ohio State University, my home State, our
    colleague who unfortunately passed away a couple of weeks ago,
    Paul Gilmore, who many of us attended his funeral in Columbus
    just last week, he was one of the biggest Ohio State Buckeye's
    fans that I have ever known. He was always at every Saturday
    home games and many of the away games as well. It was one of
    the great pleasures that he had in life, and so we are all
    going to miss him tremendously.
        Mr.Brown. Your sentiments are shared by the Buckeye family
    and the State of Ohio. The people in my department were very
    saddened.
        Mr.Chabot. Thank you and quit losing to Florida, okay? That
    is not the question.
        If past performance plays such a crucial role, how should
    Congress enact policies that balance the need for experienced
    government contractors with the goal of helping new entrants?
        Mr.Brown. Well, I think one of the most important things
    that relates to this particular issue, as you heard here a
    theme throughout, is acquiring sufficient numbers of government
    procurement personnel. That is clearly a pressure that will
    exist, but acquiring those with sufficient skills and knowledge
    of how the system works and not only how the system works, but
    how the market works.
        Again, one of the themes I am trying to get across with my
    comments is acquisition personnel historically have been back
    office functions that were largely follow the rules, but with
    the incredible volume of dollars that government is engaged in
    outsourcing they have elevated in prominence. These are people
    who are at the strategic center of most agencies and you need
    to ensure to the degree that you can, whether it is through
    funding or through the requirements that are set out there for
    procurement personnel, that they have adequate training and
    adequate experience in the rules, but also in the way that
    markets work. It isn't simply rewarding the same companies over
    and over again, but it is trying to go out and stimulate new
    market development. Businesses are one avenue for that.
        I have spoken with one government personnel individual in
    procurement personnel in the Department of Homeland Security.
    They facing a tremendous crush of a need for new acquisition
    personnel, and they describe it as squeezing the balloon. We
    take them from someplace else and somebody else needs them. DOD
    has tremendous needs so this is a challenge that faces the
    government's system as a whole.
        Mr.Chabot. Thank you. I yield back, Madam Chair.
        ChairwomanVelazquez. Ms. Clarke.
        Ms.Clarke. Thank you very much, Madam Chair.
        Mr. Goel, it is clear that when it comes to expressing your
    concerns about the HUBZone program you had some difficulty
    getting the SBA to take some action. As a result of your
    experience with the HUBZone and 8(a) programs, you expressed a
    litany of suggestions during your testimony. It was quite
    intriguing.
        For instance, you state that the HUBZone program should
    apply only to contracts for the construction of Federal
    projects within a 150-mile radius of the HUBZone contractor's
    principal place the business. Only those projects can offer
    employment to a significant number of HUBZone residents and
    only those projects can promise to make a lasting change in
    their economic circumstance.
        Are there any other reasons why the program should be
    limited to construction projects in or near a HUBZone that you
    can identify?
        Mr.Goel. Well, I will use an example in D.C., and obviously
    it is the largest area where the Federal Government spends
    money. There is no HUBZones in the County of Montgomery or all
    of Northern Virginia so and yet there are how many tech firms
    that are in the HUBZone? I mean, I have a hard time fulfilling
    HUBZone requirements here in the Washington, D.C. Area and I do
    demolition with unskilled labor, okay? I mean, to try to find
    workers that reside, that actually do live in a HUBZone, this
    being the largest area where the Federal Government spends its
    money, I mean I don't know of any tech firm that could qualify
    in the Washington region.
        Ms.Clarke. Thank you, that is a very, very important point
    and the example you have given, perhaps we need to visit HUD
    about that. But thank you for sharing that with us.
        Do you believe that Congress should require the SBA to
    revise the self-certification process by requiring HUBZone
    companies to file annual reports certifying their annual sales
    and affiliation, including partnerships with large firms
    performing subcontract work for the HUBZone businesses, and
    why? And I would like to actually put that out for the rest of
    the panel to answer as well.
        Mr.Goel. Well, my personal opinion is there should be a
    yearly audit and it should be funded by the beneficiaries so
    that the taxpayers of the United States don't to pay. It would
    enforce equality. As I stated earlier, personal opinion, not
    that of AGC, is there are so many programs that it is not
    simple for contracting officers to actually make sense of these
    programs.
        And the one thing that I didn't get to discuss is, for
    example, we do demolition and I am going to use this building
    as an example, the Rayburn Building. This is being modernized,
    everybody in Washington sees the Clark signs, let's say Clark
    was renovating this. And underneath them if you were going to
    modernize this building, let's say 35 percent of this building
    would be the mechanical systems, so that might be a John J.
    Kirlin or major mechanical, $100 million to renovate this
    building, $35 million for the mechanical installation package.
    The Federal Government in their accounting structures only gets
    to account for prime and first tier. So after first tier and we
    do mechanical insulation, John J. Kirlin doesn't have a
    requirement to meet a subcontracting goal for their mechanical
    insulation or the people that put in their ductwork or all of
    the rest.
        The majority of us small businesses we exist on a third
    tier, that is where we are at. There is no accounting for it.
        Ms.Clarke. I would like to ask Mr. Alford and others to
    give their opinion as well.
        Mr.Alford. Yes, ma'am. I believe self-certification is an
    invitation to abuse, big abuse, it is just human nature. You
    must have site visits. And I think the HUBZone program is so
    similar to section 3 of the HUD Act, that probably if you look
    at section 3 of the HUD Act, where of all the housing
    authorities in the United States maybe 10 are actually using
    section 3, which is hiring residents of public housing, or
    those living under the poverty level to become a section 3
    company, it is so similar. And if we were to enforce section 3,
    viola, you probably would have a lot of HUBZone companies being
    developed.
        But we filed a complaint against the City of Jacksonville,
    it is a test case, and after 15 years, Secretary Jackson gives
    them until September 30th to come up with the program or else
    he is going to come in and establish it for them. And this is a
    first case after 15 years, but if we can implement that and we
    have got promises to do it in New Orleans, where 40 percent of
    that workforce in New Orleans will be coming from public
    housing residents who have for the first time a chance to learn
    the skills of construction and we are very excited about that,
    but they are so similar.
        Mr.Chamrin. There is some real data out there with the VIP
    page operated the Center of Veterans Enterprise, and Scott
    Dennison is the director and he can probably give you the
    numbers, but approximately the numbers went up from 12 to
    13,000 supposedly certified veteran-owned businesses to 9,000
    since VIP has implemented their new program of how to certify
    and they are much more proactive. As I said before, if we can
    refer everyone, all the governmental agencies, to use the VIP,
    you are guaranteed a veteran and service disabled veteran-owned
    business.
        ChairwomanVelazquez. Go ahead.
        Ms.Dorfman. I just want to from the women's standpoint and
    women's Federal procurement program, we would find that a bit
    challenging. As self-certification works right now, it is on,
    we would be able to police it from the outside and hopefully if
    there was a charge that fraud was found that we could actually
    hold the accountability and go through that process.
        The issue right now that stands before us, if we go into
    the whole certification issue, that the question is how long
    will it take it to happen because then that will extend the
    implementation of the law that we are waiting to be implemented
    today.
        In the first draft of the regulations that came out from
    the SBA, they said that yes, they wanted to do their own
    certification and maybe they would do 2,000 certifications a
    year for women-owned firms. There are 76,000 women-owned firms
    registered in CCR right now, and that means it would take
    another 38 years to implement our program, and I find that very
    challenging and I would hope that would not be a requirement.
        Thank you.
        ChairwomanVelazquez. Time has expired.
        Mr. Bartlett.
        Mr.Bartlett. Thank you very much.
        Mr. Newlan, you had some excellent recommendations for our
    Committee in your testimony and I would like to give you an
    opportunity to go through those, if you would.
        Mr.Newlan. Thank you, Congressman.
        You know, we have got to get the attention of the senior
    officials at all the agencies that HUBZone rule 2 and for that
    matter all the rules that apply to the programs here at the
    table are there for a reason and they have got to be followed.
    We need to reemphasize that the HUBZone program has priority of
    the small business set-aside program and that the regulations
    mean what the statutes say. The SBA headquarters HUBZone
    program needs to regain its line item status, and I would ask
    the Congress to appropriate no less than $15 million annually
    for this hardworking SBA headquarters staff department that
    oversees the HUBZone program today. There has been a lot of
    dialogue here about oversight of the HUBZone program and if the
    Congress wants to increase oversight over the HUBZone program,
    put the money into the program and it can be done
    appropriately.
        An earlier question of Ranking Member Chabot was if you
    were in the SBA and you could change something, what would you
    do, and I was hoping they might ask me that question. But I try
    to come up with some carrot and stick for the other
    departments, for the DOD and the HUD and Department of Labor,
    and all these agencies that don't hit their HUBZone and other
    goals. How can we convince and motivate?
        Again, the earlier dialogue was with UPS. UPS wouldn't put
    up with that I am sure, never having worked there, but we have
    got to figure out how to get the attention of those agencies
    that fail to meet the red in the scorecards.
        And I would add if we are going to increase any small
    business program goals to 8 percent, you have got to take the
    HUBZone goal and the service disabled veteran goal with you. If
    not, you are going to just take the business right away from
    the HUBZone firms today and give it to the SDBs and the women-
    owned firms.
        Mr.Bartlett. Thank you very much.
        I would just like to give personal testimony for HUBZones.
    The first one in the Nation was in my district in Garrett
    County. Garrett County had 14 percent unemployment when I came
    here to Washington and we have several HUBZone contractors
    there now and one of them just is bringing 70 jobs there, and
    he will be paying his people three to four times the mean
    average salary in Garrett County. HUBZones really help areas.
    These others programs help individuals and businesses but the
    HUBZone program really uplifts an area. So I am a huge fan of
    HUBZones.
        Our staff prepared for us a little memorandum for this
    Committee and lead me read here. It says, nearly 84 percent of
    all 8(a) dollars in fiscal year 2005 were modifications to
    contracts awarded to companies that graduated from the program
    prior to that year.
        Can somebody on the panel tell me what that means? I hope
    it doesn't mean what I think it means. Let me tell you what I
    think it means and you tell me if I am wrong. What I think it
    means is that companies who have been 8(a) contractors,
    noncompetitive; just because you are who you are you get the
    contract. And they have been on that for what, 9 years; is that
    right? And then you graduate from the program. But 84 percent
    of all the money in 2005 went to companies that had graduated
    but they still couldn't compete in the private sector so they
    were now still--I don't want to be uncharitable in what they
    are doing, but they are kind of still feeding at the public
    trough after 9 years. What do we need to do? It shouldn't take
    9 years to learn how to run a business. What do we need to do
    to fix that?
        Mr.Goel. If I may, I would guess, since I don't have any
    firsthand knowledge of why that would occur, a lot of the
    contracts to come out are multiyear contracts. So for example,
    we have a demolition contract for the Norfolk region of the
    Navy businesses. It is a base year plus 4 years. So if an 8(a)
    contractor came in on its 8th year, won a multiyear contract
    and it was for 5 more years, then the funding would be for 4
    more years above and beyond its 8(a). The 8(a) would only last
    on the date of--
        Mr.Bartlett. I understand. I would just like to ask our
    chairwoman if she could have the staff find out how many of the
    84 percent of the dollars were going to follow-on contracts to
    8(a) companies and how many of them were new dollars that were
    going to the company that should have graduated.
        I would just like to say, Madam Chairman, that all of the
    8(a) programs, as I understand it, are sole source and
    noncompetitive, essentially all of them. Am I not correct that
    all of the HUBZone contracts are competitive contracts? By the
    way, they are going to help people in the same kind of areas,
    poor people who don't have jobs and who have low income,
    because that is the only place a HUBZone can be located.
        ChairwomanVelazquez. Does the gentleman yield?
        Mr.Newlan. There virtually is no HUBZone sole source.
        Mr.Bartlett. That is my understanding.
        ChairwomanVelazquez. It does have a sole source component.
        Mr.Newlan. Yeah, but you have to be the only certified
    HUBZone firm in America that can do the job.
        ChairwomanVelazquez. But it does have a component of sole
    source.
        Mr.Newlan. Yeah, but virtually there never is only one
    HUBZone certified firm, there is only two or more.
        ChairwomanVelazquez. The answer to the question of the
    gentleman is it does have the component of sole source.
        Mr.Bartlett. It is rarely used.
        ChairwomanVelazquez. Well, maybe we need to do an
    investigation and we cannot rely on the information and the
    data provided by SBA on any of the agencies.
        Mr.Goel. On the 8(a) side.
        ChairwomanVelazquez. Time is expired. I would like to ask a
    question to Mr. Alford.
        Currently for SBA contracting programs, 8(a), HUBZone,
    women contracting and service disabled veterans, they are all
    fighting each other for supremacy in the declining small
    business segments of the Federal market. How best do we refocus
    these programs to target the nearly 80 percent of Federal
    contracts that are being performed by large businesses?
        Mr.Alford. Yeah, well, I think first we need to identify
    how many SDBs are minority, how many women are veteran business
    owners also, and how many are disabled veteran business
    directors. I am looking at my board of directors who are
    entrepreneurs; 75 percent of them are veterans and may have a
    disability but don't claim it. So we need to find out what the
    capacity out there actually is on these and you have got to be
    specific.
        Mr.Alford. And if we want to go by the Supreme Court and
    the Adarand decision, you have got to be specific and tailor
    these things to specific groups. You cannot lump them all in as
    one, because they are not the same, and they are coming from
    different backgrounds and for different reasons. So an African
    American female who is disabled as a veteran, does she hit all
    four? Does she hit all the categories or is that different?
        Mr.Chamrin. Madam Chair, could I just add one thing to
    that? May I?
        To quote one of our small business task force members, it
    is not just a slice of the pie, but it is the layers of the
    cake, and there are so many opportunities out there for all of
    these business owners to achieve these contracts. What they
    need to do is to lower the threshold of some of these
    contracts.
        Why are they making the requirements A, B, C, and D where
    one small business cannot achieve all of these? Why can't they
    just have a $20,000, $30,000, $50,000 contract of just
    requirement A and just make the layers of the cake much, much
    more dense and with many more layers?
        Mr.Alford. I would agree with that.
        ChairwomanVelazquez. I know that Ms. Clarke asked this
    question to the deputy administrator, regarding the
    concentration of contracts in the data program that is so
    severe. In 1999, the top 10 companies received 15 percent of
    the dollars. In 2005, the top 10 companies received more than
    40 percent. In 2005, 93 percent of the 8A contracts did not get
    any money. So what does that tell us?
        Mr.Alford. That tells us there are a favored few, and most
    of them probably are A and C companies or others who have some
    very close relationships with a Lockheed or a Boeing or what
    have you; and they serve as the ones who go out into the
    vineyards and bring back the grapes for big daddy.
        Mr.Chamrin. The super primes. They just call it the "super
    primes." Like he said, they are just so integrated with all of
    these other small businesses that they get all of the big
    contracts.
        ChairwomanVelazquez. Thank you.
        I want to thank all of the witnesses, if the ranking member
    does not have any other questions.
        Mr.Chabot. No, Madam Chair, but I would just like to
    comment. I thought all of the witnesses were very, very good,
    very effective in conveying their points of view and answered
    the questions, I thought, very well; and I want to thank them
    for contributing to this hearing.
        Thank you very much.
        ChairwomanVelazquez. Again, I want to thank the witnesses
    for staying here and participating in this panel and for
    sharing your experiences with us. As we can see, there is much
    work to do to get these programs so that they comply with the
    intended mission that they were set up for.
        So, with that, I ask unanimous consent that all members
    have 5 legislative days to submit material.
        With that, the hearing is adjourned. Thank you.
        [Whereupon, at 1:13 p.m., the committee was adjourned.]

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