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



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

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

                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 19, 2007

                               __________

                          Serial Number 110-45

                               __________

         Printed for the use of the Committee on Small Business


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


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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


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

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

               Kevin Fitzpatrick, Minority Staff Director

                                 ______

                         STANDING SUBCOMMITTEES

                    Subcommittee on Finance and Tax

                   MELISSA BEAN, Illinois, Chairwoman


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

                                 ______

               Subcommittee on Contracting and Technology

                      BRUCE BRALEY, IOWA, Chairman


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

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

                                  (ii)

  
?

           Subcommittee on Regulations, Health Care and Trade

                   CHARLES GONZALEZ, Texas, Chairman


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

                                 ______

            Subcommittee on Urban and Rural Entrepreneurship

                 HEATH SHULER, North Carolina, Chairman


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

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, PENNSYLVANIA, Chairman


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

                                 (iii)

  
?

                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

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

                               WITNESSES


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


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

                                APPENDIX


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

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

                                  (v)

  


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

                              ----------                              


                     Wednesday, September 19, 2007

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

           OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

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

                OPENING STATEMENT OF MR. CHABOT

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


   STATEMENT OF JOVITA CARRANZA, DEPUTY ADMINISTRATOR, SMALL 
                    BUSINESS ADMINISTRATION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STATEMENT OF RON NEWLAN, DIRECTOR, HUBZONE CONTRACTORS NATIONAL 
                            COUNCIL

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

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

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

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

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

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