[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/
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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
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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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