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






                   FULL COMMITTEE HEARING TO CONSIDER
                   LEGISLATION UPDATING AND IMPROVING
                     THE SBA'S CONTRACTING PROGRAMS

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



                      COMMITTEE ON SMALL BUSINESS

                         UNITED STATES HOUSE OF 

                           REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 4, 2007

                               __________

                          Serial Number 110-50

                               __________

         Printed for the use of the Committee on Small Business


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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
BRIAN HIGGINS, New York
MAZIE HIRONO, Hawaii

                  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...............................................     3
Braley, Hon. Bruce...............................................     4

                               WITNESSES


PANEL I:
Preston, Hon. Steven C., U.S. Small Business Administration......     5

PANEL II:
Styles, Angela, Crowell & Moring.................................    23
Sharpe Jr., Joseph, The American Legion..........................    25
Dorfman, Margot, U.S. Women's Chamber of Commerce................    28
McCracken, Todd, National Small Business Association.............    30
Denlinger, Steven, U.S. Hispanic Chamber of Commerce.............    32

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    41
Chabot, Hon. Steve...............................................    43
Braley, Hon. Bruce...............................................    45
Preston, Hon. Steven C., U.S. Small Business Administration......    47
Styles, Angela, Crowell & Moring.................................    51
Sharpe Jr., Joseph, The American Legion..........................    58
Dorfman, Margot, U.S. Women's Chamber of Commerce................    64
McCracken, Todd, National Small Business Association.............    68
Denlinger, Steven, U.S. Hispanic Chamber of Commerce.............    73

                                  (v)
















 
                   FULL COMMITTEE HEARING TO CONSIDER
                   LEGISLATION UPDATING AND IMPROVING
                    IMPROVING THE SBA'S CONTRACTING
                                PROGRAMS

                              ----------                              


                       Thursday, October 4, 2007

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

           OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

    ChairwomanVelazquez. Good morning. I'm pleased to call this 
hearing to order.
    Today's hearing will review legislation to strengthen small 
firms' ability to secure federal contracts. Action to update 
and modernize this initiative is long overdue.
    In Fiscal Year 2006 the federal government purchased a 
record $410 billion in goods and services. Unfortunately, the 
reality is that little was purchased from small businesses. 
Government buyers continue to turn to just three percent of the 
nation's companies, large corporations, for nearly 80 percent 
of their work. This makes little sense when it is small 
businesses that provide the best value of the taxpayer's 
dollar.
    In an effort to rectify this imbalance, the SBA's 
contracting programs were developed to give newer, less 
established businesses an entry point into the federal 
marketplace. However, a number of these initiatives have not 
been modernized for decades, and as a result, small firms are 
falling behind.
    The purpose of today's hearing is to examine legislation 
that will start to turn this around. There are four critical 
programs that we intend to address: 8(a), HUBZones, the Women's 
Procurement Program, and the Service Disabled Veterans 
Contracting Initiative.
    Each of these efforts play a vital role in helping various 
segments of the small business community to break into the 
federal marketplace, and it is clear that as they stand today, 
these programs are failing to accomplish this intended mission.
    It is my goal to insure that this legislation accomplishes 
two primary purposes. First, these programs must operate in a 
way that maximizes taxpayers' value.
    Second, each initiative must be implemented in a manner 
that increased the efficiency of the federal procurement 
marketplace. To insure that taxpayers' interests are protected, 
the proposed legislation takes several important steps.
    Given recent occurrences of fraud, this bill prohibits the 
award of a contract if the business owner lacks integrity. It 
also requires that there are both prime and subcontracting 
goals for each SBA contracting program, as well as annual 
reporting on employment and income for all participants.
    Together these changes will enhance the quality of 
participants and weed out any bad actors in SBA contracting 
programs. In an effort to maximize the efficiency of each of 
these initiatives, the bill standardizes several key elements. 
The most important area this is accomplished is with regard to 
the soul source limitation, the level at which contracts can be 
awarded without competition.
    Above these, companies will be required to compete for 
contracts. This will provide much needed clarity to the 
agencies employing these programs.
    Another major issue is the need to modernize these 
programs. Right now there is concern that many of the companies 
that have graduated from the 8(a) company are actually 
receiving work. In order to reverse this, we have required the 
SBA to get back into the contracting process.
    The proposal also updates the net worth limitation so that 
companies can continue to grow stronger while maintaining their 
8(a) status.
    At long last the Women's Procurement Program will be 
implemented. We propose that the SBA has 90 more days to finish 
the studies and studies of studies until such time as the SBA 
finishes agencies will be able to determine what industries are 
under represented.
    Further, we suggest that the SBA should use a broader 
definition of under representation so that programs are not so 
narrow as to only help an estimated 500 businesses.
    During our September 19th hearing, the SBA concurred that 
the HUBZone program is flawed and subject to widespread fraud. 
We have proposed a number of actions to mitigate this problem, 
including on site verification of businesses, limitation on 
offices outside of HUBZones, and insuring that the benefits of 
contracts awarded through the program go to low income areas.
    We have also heard the concerns of the veterans community 
and are proposing to require the SBA to implement its 
responsibility under Executive Order 13360. Little action has 
been taken to date and these businesses deserve more.
    We have also suggested that companies that falsely 
represent to be owned by service disabled veterans are subject 
to civil penalties. This is not different than what is in 
current law for every other business that misrepresents itself.
    With this legislation I am confident that we are taking an 
important and long overdue step to modernize the SBA 
contracting programs. These initiatives all have record levels 
of participation, and these business owners deserve more than 
what they are just getting.
    I look forward to continuing my collaboration with the 
Ranking Member, Mr. Chabot, and I now yield to him for his 
remarks.

                OPENING STATEMENT OF MR. CHABOT

    Mr.Chabot. Thank you, Madam Chair.
    And good morning and thank you all for being here as we 
examine the craft of the Small Business Contracting 
Improvements Act of 2007. This legislation that we are going to 
be discussing today modifies government contracting programs 
authorized by the Small Business Act.
    I would like to thank Chairwoman Velazquez for holding this 
hearing and each of the witnesses, including Steven Preston who 
is the head of the Small Business Administration, and all of 
the witnesses for taking the time to provide important 
testimony to this Committee.
    As early as World War II, Congress recognized that a strong 
economy and industry base requires a robust small business 
economy. More than 60 years ago Congress created the Smaller 
War Plants Corporation to purchase goods and services from 
small businesses acting as subcontractors.
    At the end of the Korean conflict, the Small Business 
Administration was created to provide assistance to small 
businesses. One aspect of that policy and the one we are 
examining today is the requirement that small businesses be 
awarded a fair proportion of contracts for the purchase of 
goods and services by the federal government.
    Despite the extra assistance from the SBA, small businesses 
owned by socially and economically disadvantaged individuals, 
women, service disabled veterans, and those located in 
historically under utilized business zones do not receive their 
fair proportion of contracts to sell goods and services to the 
federal government.
    If federal contracting is to benefit the entire small 
business sector, agencies must do better in dealing with these 
targeted small business groups. The legislation before us today 
will rectify some of the problems associated with the operation 
of these programs. However, I believe that some aspects of this 
legislation need modification to avoid undue regulatory burdens 
on small businesses.
    Furthermore, there are some parts of the legislation that 
simply need clarification to remove ambiguities that could make 
implementation difficult.
    Finally, I look forward to hearing from the witnesses on 
other suggestions that could better integrate these targeted 
programs into the overall federal procurement process.
    Again, I thank the Chairwoman for holding this important 
hearing and look forward to working with her as the final piece 
of the Small Business Act reauthorization moves through the 
legislative process.
    And I yield back.
    ChairwomanVelazquez. Thank you, Mr. Chabot.
    And I would like to recognize now Mr. Braley, Chair of the 
Subcommittee on Contracting and Technology, for an opening 
statement.

                OPENING STATEMENT OF MR. BRALEY

    Mr.Braley. Thank you, Madam Chairwoman.
    As Chairman of the Small Business Subcommittee on 
Contracting and Technology, I have a special interest in the 
issues we will be discussing today. In our first Subcommittee 
hearing, we heard witnesses representing women-owned businesses 
describe how the federal government was failing to keep its 
commitment to them. They talked not only about the five percent 
goal for women-owned businesses not being met, but also how the 
Women's Procurement Program, which was enacted in 2000, has yet 
to be implemented by the SBA. This is a disgrace.
    I also want to talk about the HUBZone Program. Established 
in 1997, this program promotes community development for low 
income or high unemployment areas. In Iowa's First 
Congressional District there are 21 HUBZone areas.
    One thing I like about the legislation we're discussing 
today is that it prohibits the use of HUBZone preference for 
construction contracts that are further than 150 miles away 
from the recipient's HUBZone. I want to be sure that the work 
being done in these zones is truly contributing to the local 
economy.
    By law, federal organizations are required to support small 
businesses. However, over the past five years, total government 
contracting has increased by 60 percent, while small business 
contracts have decreased by 55 percent. This suggests that the 
SBA's procurement initiatives are not bringing work from the 
large business' share to the small business share, but rather 
are forcing small businesses to compete for an increasingly 
smaller piece of the pie.
    It is essential that small businesses have access to the 
over $400 billion per year federal marketplace. The Small 
Business Contracting Improvements Act nicely complements H.R. 
1873, the Small Business Fairness in Contracting Act, a bill I 
introduced in April that passed later in the House on May 10th 
by an overwhelming bipartisan vote of 409 to 13.
    My bill will give small businesses more opportunities to 
compete for federal contracts, raise the small business federal 
contracting goal from 23 percent to 30 percent. This means that 
all of the programs we discussed today will have greater 
opportunities to compete for federal contracts.
    As we have heard, small businesses are the driving force 
for job creation in this country, and we must insure that these 
businesses not only remain healthy, but they have the support 
they need to grow. This Committee needs to work together to 
make sure that small businesses are not shut out of the federal 
marketplace.
    Unfortunately, my State of Iowa ranks 48th in terms of 
government contracting dollars awarded to small businesses. 
Small businesses are the backbone of the communities within my 
district in Iowa, as they are in most congressional districts. 
Allowing them a fair opportunity to bid on federal contracts 
can bring economic vitality to these towns and cities.
    I am pleased that we will continue our discussion on this 
important subject and send a clear message to small business 
owners that they will finally receive a fair opportunity to 
compete for and win federal contracts.
    I want to thank our witnesses for taking time from their 
busy schedules to join us today.
    ChairwomanVelazquez. We are going to start with our first 
panel. I want to welcome--is there any other member who wishes 
to make an opening statement? Sorry.
    So we are going to start with our first panel, and I want 
to welcome the Administrator of SBA, Mr. Steven Preston. He has 
held this position since July of 2006, and I welcome him again 
back into this Committee.
    Thank you very much.

 STATEMENT BY THE HONORABLE STEVEN C. PRESTON, ADMINISTRATOR, 
               U.S. SMALL BUSINESS ADMINISTRATION

    Mr.Preston. Thank you, Chairwoman Velazquez, Ranking Member 
Chabot, members of the Committee.
    We at the SBA are committed to creating an environment 
where under served and economically disadvantaged groups will 
flourish and enter the federal marketplace with fair access to 
federal contracts. We have taken many actions to advance that 
objective, and I will briefly outline a few of them here today.
    First of all, as you all know, we have changed rules on 
certification to make sure that small businesses are, indeed, 
the ones getting small business contracts, the first ever rule 
change in that area.
    Secondly, with the joint request of me and the White House 
Office of Federal Procurement Policy, federal agencies spent 
months reviewing 11 million contract actions from the past two 
years to cleanse the database of miscoded contracts. Those were 
incorrectly reported as small business contracts. Almost five 
billion of misrepresented contracts have been cleaned out of 
the database for 2005 alone. We need to feel confident that the 
data we're using is correct so that we can prevent those from 
happening in the future.
    In addition, we are holding federal agencies accountable 
for hitting their goals. In fact, just a couple of months ago, 
we released the first ever small business procurement score 
card. We rated agencies red, yellow or green on goal 
achievement and progress. The score card will help agencies 
measure their achievement in small business contracting and 
increased transparency and accountability while working with 
federal agencies to achieve mandates.
    I am very proud of the progress we have made in those 
areas, but we are not stopping here. We continue to pursue 
further opportunities that may be less visible to the Committee 
internally at the SBA. We have increased training for our field 
staff to enable them to improve outreach and improve support 
for small business clients and refocused our PCRs on their 
primary responsibility, identifying small business 
opportunities at the federal agencies.
    In fact, almost 1,500 SBA employees in various functions 
have received a full week of training in the past several 
months with an approximately 90 percent strong approval rating 
on the part of employees in terms of the quality of the 
training. This is very important to pushing the mission of the 
agency forward and our ability to serve well.
    Within the HUBZone program, we are taking steps to insure 
that those participating in that program are following the 
rules. We are committed to reviewing five percent of all 
certifications through a full scale program of examinations. We 
are either implementing or have already implemented all of the 
recommendations from the Inspector General's 2006 report.
    SBA has acted to reduce misrepresentation and miscoding of 
HUBZone awards. In the past contracting authorities failed to 
verify HUBZone status of the awardees for HUBZone contracts. To 
resolve this, we currently have a regulation pending before the 
FAR Council that will require firms to test to the HUBZone 
status not only at the time of bid, but also at the time of 
award.
    This regulation will help resolve both miscoding and the 
certification issue. At the same time, the federal procurement 
database is being reconfigured to block any entry for HUBZone 
firms that do not have the required certification.
    In addition, SBA is working with our agency colleagues to 
educate contracting officials on the simple steps that they 
need to take to verify HUBZone status.
    In the 8(a) Business Development Program, we have taken a 
number of steps to improve the processes, to eliminate the 
backlogs of processing 8(a) and STB certifications, to increase 
the flow of firms into the program quickly and easily, as well 
as to approve oversight of the program.
    The agency has revised its partnership agreements which 
delegate 8(a) contract execution function from the SBA to 
various federal procuring agencies to clarify their roles and 
their responsibilities for monitoring contract compliance of 
and performance by 8(a) firms.
    Agencies will now be held accountable for meeting all SBA 
regulations as well as FAR regulations. Our goal is to broaden 
the access to 8(a) contracts to more program participants and 
insure that firms and agencies are using the program properly.
    Now I would like to comment briefly on the legislative 
proposals from the brief outline that we received. SBA would be 
opposed to the elimination of that delegation of authority as 
proposed. Agencies, we believe, need a streamlined process for 
making 8(a) awards. Since the delegation of authority was 
created in 1998, the program has grown nearly 40 percent. 
Without this authority, SBA and the agencies will be required 
to return to the laborious process of passing letters of intent 
back and forth.
    Out of concerns about significant delay, SBA would suggest 
amending the process rather than eliminating it, and as I 
mentioned before, SBA has already redrafted the agreement with 
the agencies.
    Regarding the net worth standard, SBA has not found that 
the current 250,000 level is a barrier to entry in the program. 
The program participation stands at an all time high. 
Applications are coming in steadily. While studies have shown 
that index for inflation since the time it was instituted, the 
standard would be approximately 550,000, we do have concerns 
over a blanket $750,000 minimum.
    I must also point out that our Inspector General has 
repeatedly expressed concerns over the nature of economic 
disadvantage and our existing definition.
    SBA is concerned over the proposal to require on-site 
evaluations before a firm's second contract in the HUBZone 
program. We do foresee significant cost and logistical 
challenges in implementing that program effectively. The FAR 
regulation SBA has pending will improve accuracy significantly, 
and that will require attestation of HUBZone status at the time 
of an award of any contract.
    However, consistent with the Committee's concern, SBA is 
committed to pursuing greater enforcement and assessment of 
penalties against firms that violate the program rules. We're 
equally concerned about the other provision in this title 
restricting the award of HUBZone construction contracts outside 
of a 150 mile radius from the HUBZone's primary location.
    Depending on the state or the location of the HUBZone, this 
would effectively eliminate any HUBZone firms from competing 
for work at all. For example, a HUBZone construction firm on a 
Native American reservation would potentially be unable to bid 
on contracts in the nearest city.
    We have no objection to the provisions included in the 
veterans portion of the proposal. False certification affects 
all firms, and obviously SBA does not object to the 
codification of the terms of President Bush' executive order. 
So we're committed to implementing that order.
    And then finally, we do have concerns about the proposal 
for increase in the sole source award authority to ten million. 
This provision has the potential to create a significant pool 
of large sole source contracts that would be outside the reach 
of most small businesses. If the Committee's concern is to 
reduce this disparity in the 8(a) program, we would not suggest 
this approach because creating that authority we think is only 
likely to increase the gap between small and large 8(a) firms.
    So that completes my testimony, and I would be happy to 
answer any questions at this time.
    [The prepared statement of Mr. Preston may be found in the 
Appendix on page 47.]

    ChairwomanVelazquez. Thank you, Mr. Preston.
    Mr. Preston, SBA is opposed to conducting background 
investigation on companies participating in SBA contracting 
programs. Yet according to your testimony, because of the 
unique relationship between SBA and 8(a) companies, they must 
have this reviewed. That's what you stated in your testimony.
    So if they lack character, they will not be approved. The 
SBA does not do this with the HUBZone applicants. A company 
associated with the recent bribery scandal, Shirlington 
Limousine, has an owner with a long list of convictions, 62 
pages. He had plead guilty or been convicted for crimes such as 
robbery, attempted auto theft, bail jumping, receiving stolen 
goods, drug possession and contempt of court.
    How did this company, who would not be approved into the 
8(a) program with this record get approved into the HUBZone 
Program?
    Mr.Preston. As you know, in most of these other programs 
the contracting officers at the agencies have the primary 
responsibility for understanding the firm that they are dealing 
with and their capability to provide services.
    We manage the 8(a) program. It is a very different program. 
It is a business development program. We have these people for 
nine years potentially, ten under your rules. It is our 
responsibility to oversee those companies, and we provide very 
extensive support of them.
    And so I think the 8(a) program is different than these 
contracting designations in the other subgroups.
    ChairwomanVelazquez. Mr. Administrator, help me understand 
this. When you talk about the unique relationship between the 
8(a) and the agency, I thought that the agency delegated that 
authority in 1993.
    Mr.Preston. We are delegating contracting authority to 
them.
    ChairwomanVelazquez. Yes.
    Mr.Preston. We continue to run the 8(a) program. We 
continue to do their annual certifications. We continue to 
provide business development services. We continue to work 
actively with those firms in helping them find federal 
contracts, both through our business development specialists 
and our PCRs.
    And, by the way, the agency spends over $30 million 
administering this program to support these people.
    ChairwomanVelazquez. If you continue to provide all that 
you claim you are providing, the agency is providing for the 
8(a) programs, then how could you explain that in 2006 the 
universe of 8(a) companies were 12,262 enrolled in the 8(a) 
program, yet 93 percent of those companies did not get anything 
and only seven percent got work?
    I believe that your agency has taken, you have taken 
yourself out and no longer work with those companies to make 
sure that they get the federal contracts.
    Mr.Preston. Well, ma'am, I think that data may be 
extrapolated from a very small sample, and we are pulling that 
data together to look at the full picture. We do not believe 
that the number is that small.
    And what I would tell you is we are taking many actions. It 
is very important for us, you know, to allow these people to 
get a fair showing in the federal contracting picture.
    ChairwomanVelazquez. I hear you, but I want for you to hear 
me. This is your report. These are your numbers. In 1999, there 
were 6,409 8(a) company. Only 31 percent got work. In 2006, 
things are getting worse. Only seven percent got work. So 
something is not working there.
    Mr.Preston. I think you need to read the footnotes in that 
report and understand what it says and the standard sample that 
it was taken from. We are going down the road of getting full 
data on this, but it's a heavily manual process, and we would 
be happy to provide that to the Committee when we get it.
    ChairwomanVelazquez. Let me ask you: would you oppose the 
provision that will require background checks for all the 
companies, including the HUBZone?
    Mr.Preston. I do not have a comment on that right now. I 
apologize. I did not know that there was a provision that--
    ChairwomanVelazquez. SBA does not have a position regarding 
a provision that will help without criminals?
    Mr.Preston. For us to provide background checks on every 
one of those firms that want to get a qualification for any one 
of our programs would be a very significant undertaking, and I 
feel the need to look into it more before I give you a comment.
    I think I need to understand more broadly what it means to 
the contracting picture. Our understanding of what you all are 
proposing did not include that from my understanding.
    ChairwomanVelazquez. Well, we are talking about background 
check now required to all the companies and on-site reviews of 
those companies in the HUBZone program. You have two Inspector 
Generals reports, one that was conducted in 2003 that 
identified definitively fraud in the HUBZone program, and then 
another one in 2006 where the inspector general concluded that 
virtually no improvement, except that there are more companies 
in the program, but no improvement in dealing with the issue of 
fraud. You've got a problem. It has got to be fixed.
    And if the agency is not doing it, the Committee will do 
it.
    Mr.Preston. Well, I think we have taken a number of actions 
since then, and I think it is also important to understand when 
you look at that data that when we do examinations on HUBZone 
firms and when we ask them to recertify, there are many reasons 
why they do not recertify and most of them have nothing to do 
with fraud.
    Many of these firms do not exist any longer when we go for 
the recertifications. Many of them aren't getting federal 
contracts through set-asides. So they choose not to recertify.
    In addition, we have taken many actions, some of which I 
described in my testimony, that we think significantly tighten 
up the process around HUBZone, and I should also mention that 
we have met with our IG, and we are in concurrence and acting 
on every single one of those recommendations.
    ChairwomanVelazquez. Yes, and I heard for the first time 
today in your testimony that you talk about a regulation, and 
this is in reference to your concern on the on-site 
examination. And you said that could be duplicative of pending 
regulations.
    This is the first time that I heard that you are working on 
regulations, if the implementation of those regulations will 
take as long as the regulations to implement the Women's 
Procurement Program, seven years.
    Mr. Administrator, the 8(a) program requires an owner to 
have a personal net worth of less than 250,000 to enter and 
cannot exceed 750,000. The Deputy Administrator indicated that 
the SBA was going to propose legislation to raise this 
threshold. Because this concern has not been addressed for 
nearly 30 years, the Committee intends to act.
    Do you believe, and just give me an answer, yes or no, that 
the current net worth limitation is out of date?
    Mr.Preston. The current net worth limitation has not been 
updated for many years, and if it is your intent to provide a 
higher threshold, then I suppose it is.
    ChairwomanVelazquez. Does the SBA believe that kicking 
companies out of the 8(a) program because they have exceeded an 
arbitrary net worth limitation is fair?
    Mr.Preston. Ma'am, I think that we need to look at what 
your objectives in the program are and set a net worth 
limitation based on that. My understanding of the language is 
that it is designed to represent economic disadvantaged, and I 
think we have to understand what we think economic disadvantage 
is.
    That is different than just keeping people out of the 
program. There is a construct there statutorily that we need to 
kind of work through.
    ChairwomanVelazquez. But also we should be not penalizing 
companies for doing much better and growing their companies.
    Mr.Preston. We are not.
    ChairwomanVelazquez. And with today's economy, I just want 
to ask you. In today's economy is $750,000, isn't that just too 
low?
    Mr.Preston. Ma'am, well, first of all, the $750,000 is net 
worth excluding equity in the home and excluding equity in the 
business. So the net worth level is in most cases going to be 
dramatically higher.
    Secondly, I think the way the statute reads is we are 
looking at personal economic disadvantage, but it is applying 
it to a business program. So as a business person sitting here, 
you know, I think we have got a little bit of a mismatch, 
frankly.
    So if you are asking me what describes personal economic 
disadvantage, I would tell you that most of those people are 
going to be in the top ten percent net worth in our country.
    If you are asking me what puts somebody in a competitive 
position, as in overall business against other businesses in 
that area, I think it is an entirely different analysis. But my 
understanding is that is not what the statute leads us to.
    ChairwomanVelazquez. Why is that your understanding?
    Mr.Preston. I believe that is what it says, individual 
economic disadvantage.
    ChairwomanVelazquez. Does the SBA concur that an owner of a 
construction company, given that it is a very capital intensive 
company, needs a higher net worth than the owner of a 
janitorial service company?
    Mr.Preston. We are not talking about the net worth of the 
company. Your proposal is the net worth of the individual in 
addition to the net worth of the company. So I think those are 
two different discussions.
    ChairwomanVelazquez. We are talking here and my question to 
you is the owner of a construction company. We are talking 
about the individual net worth. I am not talking about the 
construction company itself.
    Mr.Preston. I think if you are asking about the 
competitiveness of the construction company owned by an 
individual, you need to look at the capitalization of that 
company when you are considering its ability to compete 
effectively.
    And that is my initial comment, is I think we are sort of 
talking about apples and oranges.
    ChairwomanVelazquez. No, those are not apples and oranges, 
Mr. Preston.
    Mr.Preston. Ma'am, if I have a construction company that 
has got five million in net worth or 20 million in net worth 
and the individual has 100,000 in his bank account or an 
individual that has got a million in his bank account but no 
net worth in the construction business, you know, I think those 
are two different analyses. And that is why I am perplexed by 
the question.
    ChairwomanVelazquez. Doesn't he have to personally 
guarantee the bonds? Doesn't he have to personally guarantee 
the loans?
    Mr.Preston. In many cases, but you are asking me about 
competitiveness.
     ChairwomanVelazquez. Let's go now and talk about a program 
that we have been talking since I do not know; I just cannot 
recall, but this is a question that I hate to ask and I know 
that you hate to answer, but here we go again, Mr. Preston.
    The regulations to implement the Women's Procurement 
Program have been in OMB under a 90-day review since March 
21st, more than six months. In your testimony before this 
Committee on February 8th, I asked when the program will be up 
and running. You told me that you hoped to be through the 
regulatory process this last summer.
    And your Deputy Administrator was here on September 19th 
again, and I asked the same question, and I have heard every 
excuse in the book as to why this program is not up and 
running.
    So tell me why this Committee should not take action at 
this time to get this program implemented?
    Mr.Preston. Well, I agree that it is taking a long time, 
and it is taking too long, and it is taking longer than 
certainly we expected it would. And so I share your 
frustration, and I understand it.
    I will tell you that in spite of these delays, we have had 
many people in our agency heavily dedicated to try to get this 
thing across the line, and we committed to work hard to get the 
RAND study done. That happened. We promised you or we told you 
we hoped to make it public when it came out. We made it public 
right away. We put preliminary rules in the interagency process 
in April, and we have been working on it very hard since then.
    Yesterday we resubmitted a proposed rule to the interagency 
process, which incorporates everything. Our understanding is 
based on the issues that have to be addressed, our 
understanding is that under the Administrative Procedures Act 
we need to go to proposed rule, and so it's back in the 
interagency process.
    And we will continue to do everything we possibly can to 
support the 24 agencies that need to review it and the other 
departments in the federal government to help them through the 
process.
    ChairwomanVelazquez. Will that mean that the 90 days--
    Mr.Preston. That means that--
    ChairwomanVelazquez. --clock will start again?
    Mr.Preston. --the 90 days clock starts ticking again, and 
then it will be available for public comment.
    ChairwomanVelazquez. You are lucky I am not the previous 
Chairman. Mr. Manzullo used to threaten witnesses here, 
including the CMS Administrator, to bring their toothbrush and 
toothpaste until things got done. Maybe we need to start 
adopting that.
    Let me ask you a final question now. In November of 2005, 
the U.S. District Court for the District of Columbia found that 
SBA had unreasonably delayed implementation of this program. 
The court found that, and I quote, ``the defendants have 
sabotaged, whether intention or not, the implementation of a 
procurement program which will have and will likely benefit 
women-owned businesses.''
    Given that two years ago the court determined that SBA had 
unreasonably delayed and there is still no program, I ask you 
again: why should Congress not act?
    Mr.Preston. Well, I am not telling you not to act, ma'am, 
and I understand you have--
    ChairwomanVelazquez. We will.
    Mr.Preston. --provisions in your bill.
    ChairwomanVelazquez. We will.
    Thank you, Mr. Preston.
    And now I recognize Mr. Chabot.
    Mr.Chabot. Thank you, Madam Chair.
    Mr. Preston, welcome back to this Committee once again this 
year.
    Mr.Preston. Back home.
    Mr.Chabot. I know. I know you have been here a number of 
times this year yet, and we appreciate your cooperation in 
being here.
    ChairwomanVelazquez. I think that he enjoys it.
    Mr.Chabot. I think he thoroughly enjoys it, Madam Chair.
    [Laughter.]
    Mr.Chabot. Well, Madam Chair mentioned about bringing 
toothbrushes and toothpaste and things. I would just remind the 
Administrator that Proctor & Gable, P&G, is headquartered in my 
district in Cincinnati. One of their brands is Crest, of 
course.
    Mr.Preston. But they are not a small business.
    Mr.Chabot. They are not a small business, but we like them 
nonetheless.
    Just a couple of things. Going back to the Shirlington 
Limousine issue, isn't the issue in that matter a failure of 
the contracting officer to find that firm was not responsible? 
They were not a responsible bidder under the federal 
acquisition rules?
    Mr.Preston. That is exactly right. That responsibility lies 
with the contracting officer.
    Mr.Chabot. Okay. Thank you.
    And would you please explain the detailed procedures that 
the SBA uses in reviewing HUBZone applications?
    Mr.Preston. Well, in reviewing a HUBZone application, in 
reviewing a new purchase, okay, so that if a HUBZone company 
wants to purchase or--I am sorry--to sell goods or services to 
the federal government, first of all, they have to be entered 
in the contracting registry, the central contracting registry.
    Then they need to submit information with respect to their 
payroll, their location, various other information that shows 
that they qualify for HUBZone status, if there are NAIC codes, 
various other things.
    Then the FAR requires that before they actually bid on a 
contract, they have to attest once again to their eligibility. 
The new rule we are proposing requires them then to attest one 
more time to their eligibility before they actually get an 
award, and then now based on upgrades to the system, a 
contracting officer, if he or she puts that data into the 
federal contracting system as a HUBZone firm and it is not 
registered as a HUBZone firm, it will not take it anymore. So 
there is a block in the system to validate that.
    If there is an award, the agency, the SBA, and other firms 
bidding on the contract have the ability to protest any awards 
if there is concern that they do not comply with the 
requirements.
    Mr.Chabot. Thank you.
    Let me shift gears a little bit here. Would you discuss 
briefly the constitutional considerations that are required 
when implementing a gender based contracting program?
    Mr.Preston. Well, I am neither a lawyer nor a 
constitutional scholar. So it is hard for me to get into a 
whole lot of detail there, but I do know that based on the 
Adarand decision a number of years ago, any gender or race 
based programs do receive a relatively high level of scrutiny 
to determine their eligibility for it under the Constitution.
    But I unfortunately cannot provide for you the criteria for 
the specific considerations that are undertaken in that 
process.
    Mr.Chabot. But there are constitutional issues because of 
previous Supreme Court cases that one has to take into 
consideration--
    Mr.Preston. Exactly, yes.
    Mr.Chabot. --when putting together one of these programs. 
So you cannot necessarily just do what you want to do. You have 
to really comply with existing case law or it will be thrown 
out.
    Mr.Preston. That is true.
    Mr.Chabot. Or law suits, et cetera.
    Mr.Preston. That is true.
    Mr.Chabot. Next, what steps is the SBA taking to insure 
participation by the targeted groups in federal government 
procurement?
    Mr.Preston. Oh, well, I think we have made a lot of 
progress on that just in the last number of months. I mentioned 
a lot of the overview, kind of the oversight issues, the pre-
certification, cleaning up the data, and the score card. You 
know, the score card we are actually already beginning to see a 
response by a number of federal agencies coming to see us to 
say, you know, we are not happy with the rating we got. What 
can we do to improve it.
    In addition, specifically for categories that they are not 
hitting, for example, if an agency isn't hitting HUBZone or 
SDB, we are working with those agencies giving them electronic 
tools, giving them other support specifically to help them hit 
those numbers.
    We have rolled out a new electronic tool that helps 
agencies input their location, the NAIC code, and the 
preference group, and they can get a list of companies that 
qualify that has just been in place for a few months that is a 
whole new tool that is out there.
    Once again, we have retrained our entire field network to 
do more outreach to the individuals, to the small businesses, 
and refocused our PCRs to focus entirely on working with those 
federal agencies to hit those numbers, and so you know, it is 
oversight. It is technology, and it is really kind of arms and 
legs and better training for our people.
    Mr.Chabot. Thank you.
    Do you know what the track record is or the failure rate or 
the success rate of those firms once they leave the 8(a) 
program? Is that something that your agency could provide for 
us?
    Mr.Preston. I do not. I do not know the failure rates. We 
may have that statistic. I just do not know.
    Mr.Chabot. I see you staff members nodding that we can get 
that provided.
    Mr.Preston. They do.
    Mr.Chabot. So I would like to get that at some point, as 
detailed as possible.
    Mr.Preston. Okay.
    Mr.Chabot. So that we can consider that as well.
    And finally, just one more question. Has anyone ever 
examined, to your knowledge, the cost benefit ratio of these 
programs? In other words, is the government getting sufficient 
return in terms of job growth, that type of thing, given the 
resources expended to operate all of these programs?
    Mr.Preston. I don't know that the review has ever taken 
place. I know in many of our programs we will look at jobs 
created. I know we do that for our lending programs.
    I am looking back at my staff to see if historically--that 
is right. HUBs only have jobs created, right? Yes.
    We have jobs created for HUBZone, but more broadly, I do 
not think we have actually done a hard cost benefit analysis.
    Mr.Chabot. Would you have your staff check and see if there 
are any studies out there that we may have access to? I am not 
suggesting that we spend more money for studies like that at 
this time, but I would be interested to see if anybody, perhaps 
some colleges or something--
    ChairwomanVelazquez. Would the gentleman yield?
    Mr.Chabot. Yes, I would be happy to yield.
    ChairwomanVelazquez. Maybe the Inspector General report has 
some of the data since they concluded that after three years 
the HUBZone companies are ineligible. So in terms of job 
creation we question how many.
    Mr.Chabot. So if we could get that, thank you very much.
    Reclaim my time.
    Mr.Preston. Thank you.
    Mr.Chabot. And then yielding it back. Thank you.
    ChairwomanVelazquez. Mr. Braley.
    Mr.Braley. Thank you, Madam Chairwoman.
    Mr. Preston, my first encounter with you was when you 
testified in front of us in February, and I will have to be 
very candid and tell you why I was impressed with your 
testimony. You seemed to have a level of commitment to 
resolving some of the longstanding problems of your agency that 
from my contact with other committee members was sorely missing 
in your predecessor.
    But when you tell this Committee that you share our 
frustration wit the lack of progress on the Women's Procurement 
Program, I do not believe you. When we had the Women's Chamber 
of Commerce here for the first Subcommittee hearing of Contract 
and Technology, this entire room was packed with frustrated 
women who own their own businesses who have been waiting far 
too long for progress on this program.
    And when you told us that the regulatory process for the 
women's procurement program would be completed by the end of 
the summer, I think most of us assumed that the traditional end 
of summer is the autumnal equinox, which occurred on September 
23rd, at 5:51 a.m., Eastern daylight time.
    So the fact that you are here today telling us that the 
Administrative Procedure Act is going to cause further delays, 
which is part of the regulatory process you knew about when you 
made that representation to us, I just do not find your 
explanation plausible. And I would like you to explain to us 
what you as the Administrator of the Small Business 
Administration are going to do between now and the next 90-day 
period to insure that this program receives the resources, the 
attention from the top down to make it happen.
    Because, quite frankly, the fact that this rule was 
released one day before your testimony here I find remarkable.
    Mr.Preston. Well, I would be remiss to imply that my one 
year of work on this rule would be similar to seven years of 
frustration among the affected parties. So I share your 
frustration. I would not imply that it is to the same extent 
because obviously many of these years preceded my participation 
in it.
    I think if you spoke with my policy staff, they would tell 
you that there is nothing higher on their agenda, that they 
have pushed harder on or have been more engaged with or been 
pushed on harder by me than this rule.
    I have spent a tremendous amount of time with my 
counterparts around the federal government on this issue 
personally, and I will continue to do that, and I will continue 
to do that over the next three months.
    It is a complicated set of issues, and--
    Mr.Braley. It has been a complicated set of issues for 
seven long years.
    Mr.Preston. It has been, and we have had a number of 
missteps, and we have had the RAND study since April, and that 
now has put in motion a whole other set of activities.
     The other thing I do have to remind you of is I never said 
it would be done by the end of the summer. I said I hoped it 
would be, and I specifically said in my testimony I cannot give 
you a hard time line on that.
    So I just want to make sure to state before this body that 
it was never a hard commitment on my part. I committed to do 
everything I could to move the process forward. I have done 
that, and I will continue to do that.
    Mr.Braley. One of the other things that we talked about at 
your first appearance here this year were the PCR increases 
that were being contemplated by the agency. Do you remember 
that?
    Mr.Preston. Yes.
    Mr.Braley. And when Deputy Administrator Carranza appeared 
before us last week, she brought some very nice, fancy charts 
showing where those PCRS were going to be placed. Did you ever 
see those charts?
    Mr.Preston. I haven't seen the charts, but I have seen the 
list of where those are located.
    Mr.Braley. Okay, and when I talked to you during that 
hearing in February, I specifically asked you based upon the 
fact that I come from a state that ranks 48 in terms of federal 
contracting dollars, whether you were going to commit to 
devoting a PCR to my state and other states who do not have 
access to the benefit of that type of program.
    Are you aware of whether one of those PCRs is being placed 
in Iowa?
    Mr.Preston. Sir, Iowa has no major federal contacting 
activities, and the way it works is the PCRs are physically 
located where the agencies are. Iowa does have four procurement 
technical assistants, which specifically are experts that work 
with small businesses to get those contracts. Iowa also has 
dedicated personnel in our Iowa district office, which are 
business development specialists, that work specifically with 
small businesses to help them in the contracting picture.
    But the PCRs do not work with small businesses. They are 
housed at the federal agencies with major buying activities, 
and my understanding is there are no major buying activities 
located in Iowa. So our focus has been reaching out to the 
small businesses there because that is what is going to provide 
the most support to them.
    Mr.Braley. Well, my time has expired, but we will continue 
to revisit that topic.
    ChairwomanVelazquez. Mr. Bartlett.
    Mr.Bartlett. Thank you very much.
    Welcome, again, sir. I live about 50 miles from here and I 
have to get up early to get down here for an eight or nine 
o'clock meeting, and so when I leave the farm at 6:20 in the 
morning, I have to be able to put my clothing on quickly. And 
so in each of my suits are the essentials. I carry a 
Constitution in one of my pockets and I carry pens and paper 
and so forth.
    And the pen I pulled out to write my notes with this 
morning says, ``HUBZone contracting, it is good for America.'' 
That just happens to be the pen that is in this suit. There are 
different pens in different suits.
    Mr.Preston. Confidential.
    Mr.Bartlett. HUBZone is, indeed, good for America, and I 
notice that it is sort of under attack now by this Committee. 
The first HUBZone contract in the whole United States was in my 
district. I have a number of HUBZone contractors in my 
district. I have a whole county which is a HUBZone, and HUBZone 
businesses have started there which is employing people at 
three and four times the mean salary, the average salary in 
that district.
    All of the other programs of which I am very supportive 
help people. The HUBZone program helps not only people. It 
helps whole areas because we really are upgrading these areas 
when these HUBZones move in.
    I know that there are some problems in certifying that they 
are, in fact, HUBZones. There are two ways that we could make 
sure that nobody is cheating. One way is to do what some are 
suggesting, to have you certify all of these companies and do 
recertifications. Since there are very many of those, that 
would be enormously expensive, would it not?
    Mr.Preston. It would be very expensive.
    Mr.Bartlett. We would have to increase your staff.
    Let me ask you. What is wrong with pure surveillance? The 
people who are most interested that nobody cheats is the other 
guy who submitted a proposal and did not get it because the 
cheater got it.
     Shouldn't we encourage them to report that and what is 
wrong with that as a way of monitoring this?
    Mr.Preston. I do not think that there is anything wrong 
with that. In fact, we get hundreds of cases a year filed 
through that mechanism.
    Mr.Bartlett. Would that not be the cheapest, most effective 
way to make sure that only legitimate firms get these 
contracts?
    Mr.Preston. It is a very efficient way to do it because you 
have people that are familiar with the other firms, familiar 
with the contract specifically, and it then results in our 
specifically following up on a concern.
    ChairwomanVelazquez. Would the gentleman yield?
    Mr.Bartlett. I would be happy to.
    ChairwomanVelazquez. Two things. The program is not under 
attack. Fraud is under attack.
    Two things. In terms of protest and self-policing, that 
could be done. The problem is we have for 10,000 companies only 
20 or 25 projects to this date.
    Yield back. Thank you.
    Mr.Bartlett. Thank you.
    But we ought to encourage them to protest. Protesting 
should not be a stigma. You know, if there is something wrong, 
why we should encourage them to protest.
    I came here as one of maybe--I do not know--maybe 35 or so 
people in the Congress who belong to NFIB before I came here. I 
was, among other things, in a former life a small business 
person. I have a lot of small businesses in my district, and I 
have a lot of protests in my district. So I am very familiar 
with those. They come to our office, and we try to mediate a 
number of those things.
    Is this one of our newest programs?
    Mr.Preston. It is one of the newer programs. It is about 
ten years old. So it is not brand new.
    Mr.Bartlett. Are there not growing pains with most of these 
new programs?
    Mr.Preston. There are growing pains with new programs, and 
I think we have a long way to go to improve the effectiveness 
of this program, and I think a lot of it is in our sights.
    Mr.Bartlett. Well, I am glad to hear the Chairwoman state 
that HUBZones are not under attack; that what is under attack 
is fraud and, of course, there is nobody who is more interested 
in making sure there is no fraud in the HUBZone programs and 
the legitimate contractor's net program, right?
    Mr.Preston. That is right, and I think it is important to 
understand that when you look at the statistics of firms that 
have not recertified or not completed the work on examinations, 
many of these firms are no longer in business, specifically the 
ones during the IG review.
    One of the biggest concerns I have is when you look at the 
firms that are coded as HUBZone, somewhat around ten percent of 
them, of the contract value, was gotten through set-asides. 
Most of them either came in through a different program or they 
were small businesses who won it in a small business 
competition.
    So the federal agencies actually are not using the program 
as actively to bring in HUBZone firms specifically, and as a 
result, when we go out there to do a recertification or do an 
examination, a lot of these firms do not even bother sending us 
the paper work because they are not seeing the benefit from 
that aspects of the program.
    So I think we actually have to get out there and encourage 
usage of the program more because I think that is what is going 
to make it viable.
    Mr.Bartlett. Thank you very much. They have been very 
effective in my district.
    Mr.Preston. That is good to hear. Thank you.
    Mr.Bartlett. And most of the government agencies are 
falling far, far short of the goal, and we appreciate your 
attention to this.
    Thank you very much.
    ChairwomanVelazquez. Time has expired.
    Mr. Shuler.
    Mr.Shuler. Madam Chair, thank you for holding this hearing 
today.
    You know, if you instate this toothbrush/toothpaste policy, 
you know, I think we create some real revenues through a 
reality TV show. I think we have all seen Big Brother 1 through 
8 now. So I think there may be some really good merits to 
creating some revenues.
    I do have one question though in all seriousness. A little 
over a year, have been as the Administrator. How much longer is 
it going to take for you to truly feel like you have been here 
long enough to not saying make a difference, but truly get some 
of the problems and issues, and I am not asking you to step on 
the toes of your predecessor, but to truly be able to implement 
some of the processes that really need to be implemented?
    Because seven years is a long time, and I think we would 
all agree that is unacceptable. And obviously you see a 
tremendous amount of emotions that is play a part in this.
    I commend the Chairwoman because she has certainly made 
this Committee what it should be, and I know it is putting 
excess work on your entire staff partly because of what people 
did not do before.
    Mr.Preston. Well, to answer--
    Mr.Shuler. How long is it going to take? I mean I have only 
been here nine months. Okay? So it is still a learning process 
as we go along, just as I am sure you are learning through this 
process.
    How long is it going to take for you to truly feel like you 
are going to get your feet up underneath you to be able to 
truly manage this the way you want it to see, and that we as a 
Committee do not have to every time you show up here feel like 
things are going really bad?
    Because right now from all looks of it, it is really bad.
    Mr.Preston. Yes. Well, I would tell you that we have made 
incredible progress in this agency, and unfortunately for 
better or worse when we were up here in front of the Committee, 
we are generally addressing problems.
    But I will tell you, and I think you all understand it, we 
have made remarkable progress in the disaster operation of this 
agency which affects your district obviously. We are in a 
dramatically better position to serve disaster victims in this 
country.
    When I go down to the Gulf of Mexico, people hug us. People 
in that area are constantly telling us what a remarkable 
transformation we have made. We are hearing it from legislators 
from both sides of the aisle, from citizens.
    I was down there doing a television interview. I had the 
cameraman and the producer come up to me. I had no idea they 
were even borrowers. I was down there for the second 
anniversary. In our 8(a) program we are making tremendous 
progress.
    Eight (a) firms when they were coming into our program a 
year ago had backlogs, very long backlogs to get into the 
program. We worked through most of those backlogs. We are now 
giving every one of them somebody on the phone to help them. We 
have simplified the process. We are giving them tools to help 
them get through it more quickly. That is happening.
    We have rolled up any number of new lending products to 
bring in more small businesses, and behind the scenes if you 
look at the operations of this agency, we have dramatically 
improved our efficiencies, the quality of our processes, our 
focus on the customer.
    And the other thing, and I should not be talking about this 
ahead of time, but 15 months ago we were the agency in the 
federal government that had the lowest morale of any federal 
agency. We are going to be sending out a new survey in about 15 
days, and we will be sharing the results with you, and I cannot 
hide anywhere. Okay? Because that was finished the day before I 
came in, the last survey. We are asking the exact same 
questions, and we will provide that to this Committee, and then 
we will get to see how we have done with the employees.
    So I would tell you I think we have done a tremendous 
amount, and I do not want any of that progress to in any way be 
diminished by the work we still have to do.
    Mr.Shuler. And there is a lot of work to do and continue 
your hard work because I know that this Committee will keep you 
accountable for the hard work and to truly get to the point 
that we can feel that it is not every time that you come to 
this hearing that it is always the bad news because we have a 
Chairwoman that truly cares.
    Mr.Preston. Well, I truly think most of the issues that we 
are addressing are issues that the Chairwoman discussed with me 
before I came into the job, and really I think we are 
addressing the issues that are most important to this 
Committee.
    We do not always agree on how to get there, but I really 
believe we are.
    Mr.Shuler. Very good.
    Chairwoman, I yield back.
    ChairwomanVelazquez. Thank you.
    Ms. Clarke.
    Ms.Clarke. Thank you very much, Madam Chair, Ranking Member 
Chabot.
    Mr. Preston, in, I guess, response to Congressman Braley's 
question I feel certainly his frustration as well. I was under 
the impression that earlier this year you had talked about a 
deadline of September 30th as well.
    Maybe I was under the wrong impression, but somehow that 
came across as a benchmark or a goal. What you have done today 
is made it a fluid situation. Now I hear that the program's 
regulations are still being reviewed by 24 federal agencies and 
you do not know when contracts will be set aside for women-
owned businesses in the federal procurement process.
    At this stage, I believe that, you know, there is a real 
blockage there, and so the question I have is do you believe 
that the SBA and by extension the federal government is 
discriminating against women-owned businesses.
    Mr.Preston. No, ma'am. I think if you look at what has 
happened in the last year or so, we completed the RAND study. 
We made it public. We submitted--
    Ms.Clarke. Can I just ask? You mentioned the RAND study. So 
is everyone sort of just holding in place until studies are 
done? What type of work is happening within the agency, within 
the people who you employ that it is contingent upon the RAND 
study?
    This is seven years, seven years. Let me just say this. 
Black's Law Dictionary defines discrimination as differential 
treatment, especially failure to treat all persons equally when 
no reasonable distinction can be found between those favored 
and those not favored.
    Here we have an administration that for seven years has not 
implemented any part of the program. Women-owned businesses are 
under represented as many as 87 percent of all industries in 
the federal marketplace. That has cost women- owned businesses 
about six billion in contracts.
    If that were any other part of our society, I think we 
would be hearing so much more of an outcry. We have made a 
commitment to women-owned businesses seven years ago, seven 
years ago, and the sense of urgency has turned into a fluid, 
well, we will have RAND study. I mean, where is the urgency for 
getting this done and how do you feel comfortable coming back 
to this Committee time after time with excuse after excuse, you 
know, and not come with anything tangible that says the 
commitment is there? The commitment is there.
    You are not representing a commitment to this, and I think 
that has to be the most frustrating part. So I want you to 
really think about the definition of discrimination and think 
about whether, in fact, you know, your intent does not match 
your act.
    Mr.Preston. Well, ma'am, I take great exception with any 
implication that I am showing any discrimination in this 
process. So let me just tell you right now that if that is what 
you are implying, I am offended by your comment, and I would 
have to protest it strongly.
    I would also tell you that women's procurement--
    Ms.Clarke. Let me say that I am offended and the women of 
America are offended--
    Mr.Preston. I do not know how you can imply--
    Ms.Clarke. --that seven years--listen.
    Mr.Chabot. Madam Chair. Madam Chair.
    Ms.Clarke. If the shoe fits--
    Mr.Chabot. Point of order. Madam Chair--
    Ms.Clarke. If the shoe fits, you need to wear it.
    Mr.Chabot. --point of order.
    ChairwomanVelazquez. Would the gentlewoman suspend.
    Mr.Preston. Totally, totally unacceptable on your part to 
imply that.
    Mr.Chabot. Madam Chair, isn't it the policy of this 
Committee that the witnesses be permitted to answer the 
questions?
    ChairwomanVelazquez. That is correct.
    Mr.Preston. Okay. Six years before I came in here I would 
say you may not have seen a whole lot of tangible activity. 
Study had to be done before any under represented industries 
could be designated. The study was done. The study was made 
public. We submitted a rule for interagency clearance. 
Unfortunately, we have to resubmit based on various issues. We 
have resubmitted today. That is going into clearance again. 
Those are all action points.
    Also, in the last year we saw women's procurement go up a 
billion and a half. That is 15 percent increase from '05 to 
'06. We continue. We are now in the process with federal 
agencies because the women's goal is not being hit specifically 
identify women-owned businesses as a category that they need to 
improve on. We are actually in the process of negotiating 
memoranda of understanding specifically around women-owned 
businesses and other categories that have not been met.
    In addition, we have rolled out a tool that helps other 
agencies find women-owned businesses that meet their 
qualifications. So we have taken action.
    Now, I spent 24 years in the private sector. Far be it from 
me to opine on why after a year in the government it takes a 
while to get stuff done. I could wax eloquent on that for many 
hours and we would all have to bring our toothbrushes.
    ChairwomanVelazquez. Would the gentle lady yield for a 
second?
    Yes. Mr. Preston, if the SBA's regulations are implemented, 
what would be the process to get them into the Federal 
Acquisition Regulations?
    Mr.Preston. The process from here on out is we are in the 
interagency process. When that is completed, it will go out for 
public comment. Everybody will have an opportunity to look at 
what the rule says, to comment on it. My understanding is, you 
know, and I would prefer to bring in my legal experts on this, 
it is approximately a three-month process, and after that we 
would then take those comments and implement them in the 
Federal Acquisition Registry.
    ChairwomanVelazquez. Okay. Now I recognize Ms. Hirono.
    Ms.Hirono. No questions.
    ChairwomanVelazquez. Okay. Let me ask you a question about 
the HUBZone program. You expressed in the testimony and you 
stated that the HUBZone construction contract limitation 
provision, you were concerned about it, and I just want to ask 
you if a company is performing work more than 150 miles away, 
the odds are that it is hiring employees and renting equipment 
elsewhere. This does not benefit the company's HUBZone, the 
reason they got approved into the program in the first place.
    So explain to me how a contract far away benefits the 
HUBZone of a company who got into the program because of their 
location in a particular zone?
    Mr.Preston. I think it is a very fair concern. I think our 
concern around that has primarily to do with companies in rural 
areas that cover a large range of activity.
    I was in North Dakota last week, which I should mention to 
you is launching what we think may be an alternative to Low 
Dock. You and I can talk about that later, but many of those 
companies travel far, and specifically I mentioned in my 
testimony companies located on Indian reservations. So it is 
primarily for companies in areas where we think they travel a 
long way.
    In addition, those companies may send people to those job 
sites far away. So those people may still be located in those 
HUBZone areas.
    ChairwomanVelazquez. I hear you, and I just would like to 
ask you that you and us work together on this issue about the 
rural communities, because I think it is a valid point.
    Mr.Preston. Yes.
    ChairwomanVelazquez. But I could not accept the fact that 
if we have a HUBZone company located in Southeast here in D.C. 
that could get a construction contractor 150 miles away, 
meaning Virginia Beach. It is going to benefit the people 
there, not the low income community that it was targeted to 
benefit, and that is the problem that we have.
    Winter Park in Florida or in Utah, it is not supposed to be 
that way.
    Mr.Preston. Well, they still would need to have 35 percent 
of their employees from HUBZones, and the one thing I would say 
is even if they are performing work in an area further away, it 
does allow them to hire people from HUBZones close to that job 
site.
    ChairwomanVelazquez. Well, and you mentioned the hiring and 
the job creation of that company, HUBZone company, for that 
community, but is that the business? The only requirement as 
far as employment of people from HUBZones far away from the 
company's home zone is that the business attempt to maintain 
employment of 35 percent of the company's employees from 
HUBZones.
    So given this, can you provide some insight as to how we 
can be assured that HUBZone companies performing contracts a 
long way from their home zone will hire HUBZone residents?
    Mr.Preston. Well, I know before the award is accepted, they 
have to test, not yet, but in our proposed rule, they would 
have to test that they met their HUBZone requirements. I 
unfortunately cannot comment on that, and recognizing a 
loophole here, I think it is something we need to understand.
    ChairwomanVelazquez. Because you know that is one of the 
points raised by the Inspector General.
    Mr.Preston. Right.
    ChairwomanVelazquez. Mr. Chabot.
    Mr.Chabot. Thank you, Madam Chair.
    Just one final point. Administrator Preston, you have been 
asked a lot of questions this morning. Are there any 
clarifications, anything you want to expound upon that you 
think that might make any of your testimony more clear, 
anything that you do not think came out right that you would 
like to comment on?
    Mr.Preston. You know, I think much of what we are working 
on is to make this agency more effective in reaching out to 
small businesses, and specifically this group of small 
businesses that we talked to today. You know, our effectiveness 
is heavily influenced by how we are training our people, the 
kind of outreach we are doing, the support we are giving to the 
other agencies, the way we are holding them accountable, and I 
just want to reinforce that we have made, I believe, a lot of 
progress on a number of fronts. We will continue to do that.
    And I would also like to commit to all of you here any time 
you want us to come over and meet with you informally to go 
through any of the initiatives, to show how we are doing, we 
would welcome those opportunities.
    Mr.Chabot. Thank you. Thank you very much.
    I yield back, Madam Chair.
    ChairwomanVelazquez. Thank you, Mr. Preston, and the 
Administrator is excused. But before you leave, I want to thank 
you. I know this is not easy, and especially I know that you 
have been before this Committee too many times, but it is 
important, and the message is clear, you know. Before oversight 
was not conducted by this Committee, and I intend to make the 
agency better for the business community, and I am not going to 
abdicate the responsibility of this Committee to hold hearings 
so that we can make sure that people are accountable and that 
we are all doing what is right on behalf of taxpayers, but most 
importantly, the small business community that we represent and 
that we are committed to serve.
    Mr.Preston. Thank you.
    ChairwomanVelazquez. With that, you are excused.
    So the Committee is going to be in recess, and we are going 
to go to vote, and then immediately after the votes we will 
resume.
    [Recess.]
    ChairwomanVelazquez. The Committee hearing resumes.
    And we are going to start with the second panel. The next 
witness is Ms. Angela Styles. Ms. Styles, now in private 
practice with Crowell & Moring, was the Administrator for the 
Office of Federal Procurement Policy within the Office of 
Management and Budget from 2001 to 2003.
    Welcome. You have five minutes to make your presentation.

     STATEMENT OF ANGELA STYLES, PARTNER, CROWELL & MORING

    Ms.Styles. Chairwoman Velazquez an d Congressman Chabot, it 
is an honor to be here today. I also have three very special 
guests with me here today. I have my daughter and my son and 
our au pair from Brazil, my daughter Ellie Styles, my son Rett 
Styles, and Jennifer Madina del Mada, who is from Brazil on the 
State Department program.
    ChairwomanVelazquez. Welcome.
    Ms.Styles. Thank you very much.
    I have been a passionate defender of small business both 
inside and outside the government, and it really does give me 
great pleasure to be here today. I only wish that I had a more 
positive story to tell you.
    Our patchwork system for small business contracting just is 
not working, and it is not working for anybody, our country 
small businesses, our federal contracting officers, our federal 
agencies, or the U.S. taxpayer. We have created such a complex 
amalgamation of laws, regulations, and policies that even the 
best of lawyers are really struggling to figure out the maze 
right now.
    Now exactly then can we expect small businesses with 
limited resources or contracting officers at the GS-12 and GS-
13 legal to understand this hodgepodge system? There is a 
reason that fraud, abuse, and even simple errors are on the 
increase. Very few people understand the system. There are not 
resources at SBA to understand the questions, and those who do 
understand it can manipulate it to their benefit.
    In essence, we have half of the contracting officers 
spending double the money in a constantly changing and complex 
regulatory environment with little training on small business 
issues.
    On the small business side, the complexity of the programs 
is a significant barrier to entry. Many small businesses give 
up trying to understand the regulatory complexities or make 
significant errors in application with little help from SBA. 
Those inclined to commit fraud or to abuse the system have a 
complex and changing structure within which to hide their 
misdeeds. It is not a wonder that the system is experiencing 
problems.
    And while many of the legislative changes you are 
considering today are perfectly targeted at solving real 
problems, there will be unintended consequences of adding a new 
layer of complexity that our over burdened federal contracting 
work force will have difficulty implementing and small 
businesses will have difficulty understanding.
    Frequent changes to these programs also make it difficult 
to identify and ferret out fraud and abuse in the system, but 
let me give you a few real world examples that I have found in 
the practice of law very recently.
    Last week I got a call from an old client of mine. She is 
an 8(a) firm, and she had just bid on nine different contracts 
that had been sent to her from one contract specialist. The 
RFPs, the requests for proposal, had been sent from the 
contract specialist's home E-mail. Almost simultaneous with 
those RFPs the contract specialist sent requests for this 8(a) 
company to buy Hawaiian candles and to host a Hawaiian candle 
party for her as well.
    Lo and behold, when my 8(a) client ignored and properly 
ignored the Hawaiian candle request, seven contracts in a row 
were awarded to a Hawaiian company. Each award to the Hawaiian 
company was cents lower than my 8(a) client's offer, and it was 
not until she complained about the abuse that she was actually 
awarded one of those nine contracts.
    I can also tell you that I get a number of calls from large 
businesses because they have been contacted by one person, 8(a) 
companies, that have a deal to supply a federal agency with a 
particular product. The 8(a), this one individual, acts as a 
pass-through for the large business. The 8(a) does nothing but 
act as a pass- through. The large business gets a sale. The 
agencies meet their small business numbers, and the only loser 
there is really the taxpayer.
    But what is driving this problem? It is legal but I think 
abusive. There is a lot of pressure on the agencies to meet 
their small business goals and they find ways to do it, some of 
which I think we would all consider to be improper and abusive.
    And I do not think the goal of the 8(a) program is to 
enrich one individual by passing through a product without 
adding value, but that is the reality of the small business 
contracting world for small businesses, one that seems, I 
think, almost accepting of the abuse.
    So what can we do to solve these problems? I do not have a 
magic wand, but I do think you can simplify the process. You 
can reduce the barriers' entry, eliminate the vast 
opportunities for error and fraud, and eliminate the ridiculous 
numbers of representations and certifications our small 
businesses must make every day.
    The best place to start is what I reference as a single 
automated point of entry, a place where a small business could 
go, enter the data about their company, and find out whether 
they are actually small and what programs for which they are 
eligible to certify that the information they have supplied is 
accurate and complete and seek approvals of their joint 
ventures and mentor-protege agreements.
    Without monumental effort, SBA should be able to take this 
data, verify the information submitted, and give it to 
contracting officers electronically through the central 
contractor registration. It sounds simple, and frankly, it is 
and should be simple. It takes out multiple layers of process 
and room for error and abuse on the small business side and the 
federal contracting side.
    I think the barriers' entry should be low. The statutes and 
regulations should be clear and easy to understand, and the 
information regarding these programs should be accurate.
    That concludes my prepared remarks, but I am very happy to 
answer any questions you may have.
    [The prepared statement of Ms. Styles may be found in the 
Appendix on page 51.]

    ChairwomanVelazquez. Thank you.
    My understanding is you will have to leave?
    Ms.Styles. Well, we have a plane to catch. I can stay until 
about 1:15.
    ChairwomanVelazquez. Our next witness is Mr. Joseph Sharpe. 
He is the Director of the Economic Commission for the American 
Legion. The American Legion was established in 1919 and has 
three million members in nearly 15,000 posts worldwide.
    Welcome, sir.

STATEMENT OF JOSEPH SHARPE, JR., DEPUTY DIRECTOR OF ECONOMICS, 
                      THE AMERICAN LEGION

    Mr.Sharpe. Thank you.
    Madam Chairwoman and members of the Committee, thank you 
for this opportunity to present the American Legion's view on 
the role that legislation could play in increasing procurement 
opportunity.
    ChairwomanVelazquez. Excuse me, Mr. Sharpe. Can you bring 
the microphone closer to you? Thanks.
    Mr.Sharpe. Currently, the American Legion seeks and 
supports legislation to require a five percent goal with set-
aside and sole source authority for federal procurements and 
contracts for business owned and operated by Service disabled 
veterans and businesses owned and controlled by veterans. This 
includes those small businesses owned by Reserve component 
members who have been or may be called to active duty or may be 
affected by base closings and reductions of our military 
forces.
    The American Legion has encouraged Congress to require 
reasonable set-asides of federal procurements and contracts for 
businesses owned and operated by veterans. the American Legion 
supported legislation in the past that sought to add Service 
connected disabled veterans to the list of specific small 
business categories receiving three percent set-asides.
    Public Law 106-50, the Veterans' Entrepreneurship and Small 
Business Development Act of 1999, included veteran-owned, small 
businesses within federal contracting and subcontracting goals 
for small business owners and when thing goes for the 
participation of small businesses and federal procurement 
contracts.
    Agency compliance with Public Law 106-50 has been minimal, 
with only two agencies self-reporting that they have met their 
goals, and that is the VA and SBA. In 2004, President Bush 
issued Executive Order 13360 to strengthen opportunities in 
federal contracting for Service disabled, veteran-owned 
businesses.
    Some of our recommendations have been, one, to create an 
interagency task force. The American Legion supports the 
creation of an interagency task force made up of the 
Administrator of SBA and one additional representative of SBA; 
also representatives of the VA, DOD, DOL, GSA, and OMB, and 
four representatives of veteran service organizations that 
should be appointed by the President.
    The task force should be charged with developing proposals 
regarding (a) increased capital access; (b) increasing access 
to federal contracting/subcontracting; (c) increasing the 
integrity of certification of status as a small business 
concern of a Service disabled veteran, or small businesses 
controlled by veterans; (d) reducing paper work and 
administrative burdens on veterans in assessing business 
assistance; and finally, making improvements relating to 
support veteran business development.
    The task force must send an annual report to the Senate and 
House Small Business Committees and Veteran Affairs Committees.
    Another recommendation is 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 Veteran Business Affairs, FY 2006 
report, and it states the SBA needs to reemphasize 
implementation of Executive Order 13360 and establish it as a 
federal procurement priority across an entire federal sector. 
Federal agencies need to be held accountable by the SBA for 
their implementing that executive order and the progress toward 
the three 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.
    Also, to achieve the SDVOB procurement goal contained in 
the executive order, the SBA must identify all agencies 
affected by the executive order under the directive of 
Congress. Then the SBA should assist those agencies to develop 
a demonstrated, measured, strategic plan and establish 
realistic reporting criteria.
    Once the information is received, SBA should disseminate 
that data to all agencies, veteran service organizations, and 
post its findings on the SBA web site as a bellwether of 
program progress.
    We would also like to make some changes to the 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. The proposed 
revision would eliminate existing restrictions on the award of 
sole source contracts to SDVOBSes, such as the Rule of Two. The 
change would mirror 13 CFR 124, Part C, which applies to 8(a) 
program participants and states.
    In order to be eligible to receive a sole source 8(a) 
contract a firm must be a current participant on the date of 
the award. Accordingly, adopting this language would eliminate 
all restrictions on sole source awards to small disabled 
veteran- owned businesses.
    ChairwomanVelazquez. Your time is up, but I will give you 
an extra 45 seconds to summarize whatever is left. If not, 
during the question and answer time, you will be able to make 
any other points that you might not be able to make now.
    Mr.Sharpe. In conclusion--
    ChairwomanVelazquez. Yes.
    Mr.Sharpe. --the American Legion appreciates this 
Committee's attempt to restructure many of the important small 
business programs within the SBA which will result in a 
tremendous benefit for veterans.
    Currently the veterans community is the only community that 
represents every social, cultural, small business group within 
SBA. There are presently 10,451 registered Service disabled 
veteran-owned small businesses, of which 3,300 are minority and 
1,300 are women.
    The American Legion is looking for a program that works for 
all small businesses and which would make an immediate 
demonstrative impact on federal procurement.
    Madam Chairman, this concludes my statement.
    [The prepared statement of Mr. Sharpe may be found in the 
Appendix on page 58.]

    ChairwomanVelazquez. Thank you, Mr. Sharpe.
    Our next witness is Ms. 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.
    And you will have five minutes to make your presentation. 
Welcome.

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

    Ms.Dorfman. Chairman Velazquez, Ranking Member Chabot, and 
members of the House Small Business Committee, I am honored to 
be here today speaking on behalf of the millions of small 
business owners across America to discuss updating and 
improving the SBA's small business contracting programs.
    And while our constituents are women, they are also 
included in HUBZones, 8(a)s, and Service disabled veterans. In 
a recent hearing before this Committee, Ranking Member Chabot 
asked me what principal changes I would make in order to remedy 
some of the failings of the SBA.
    Well, my view is that many of the challenges we see come 
from a failure of leadership and commitment of the SBA. It is 
also clear that there are several areas in which Congress can 
help the process of improvement through legislative action.
    As these programs are facilitated by the SBA and assessed 
by this Committee, it is critically important that the 
Committee observe three things: the quality and commitment of 
the implementation by the SBA; the quality of expected 
outcomes; and the consequences of the unexpected outcomes.
    In looking at women-owned small business programs, the 
Small Business Administration has shown a lack of commitment to 
the women's program that this very Committee has designed. It 
has been nearly seven years, and it sounds like it will be more 
than seven years since this legislation has become law, and we 
are still waiting for the regulations to be published, the list 
of under represented industries to be published, and the FAR 
updated so that agency leaders may effectively leverage this 
program.
    In the interim, the SBA has stated many times that their 
web site Women's Office and matchmaking sessions are more than 
enough to serve women small business owners. Unfortunately, the 
statistics do not support this assertion.
    Women own one-third of all businesses in the United States 
and more than 50 percent of all small businesses, but we still 
only secure 3.4 percent of all contracting dollars. I call upon 
this committee today to take action. The SBA has tried every 
way possible to avoid compliance with this law. Simply writing 
letters to the SBA does not help. Calling SBA leaders into this 
hearing has not helped. So now I strongly urge you to establish 
very clear legislation that compels the SBA to implement this 
program.
    The method of collecting and assessing the data was made 
clear by the NAS. The RAND study collected the data and 
reported the women-owned small businesses are under represented 
in federal contracting in over 87 percent of all industries.
    Again, I ask you to compel the SBA to implement this seven 
year old law.
    For the 8(a) program, we are not seeing broad based 
activity in the 8(a) program. A lot of emphasis is placed in 
signing business up as 8(a) contractors, but now we need the 
SBA to work diligently with these businesses and with agency 
leaders to achieve the real 8(a) goals.
    We need to increase the net worth provisions and the time 
businesses may stay in the 8(a) program so that they can reach 
the level of size and strength and survive after they graduate 
the 8(a) program.
    Our HUBZone program, of prime concern with the HUBZone 
program has been the validity of HUBZone contractors and the 
inappropriate leveraging of the HUBZone designation when 
performing work clearly well outside of the HUBZone. We need to 
tighten up the process for being designated as HUBZone.
    Additionally, there are several small business contracting 
issues that I believe should be addressed. Transparency, I 
strongly encourage you to require that the SBA provide a much 
deeper reporting that shows the true representative of 
diversity of contracts going to small businesses. We need to 
measure the total number of small businesses receiving 
contracts by agency and small business program and the 
disbursement of these contracts by size and location.
    The size standards. I encourage you to require annual 
reporting on employment and revenue for all SBA small business 
contracting programs. We need to assure that the firms taking 
par in small business programs are small.
    The goals. I encourage you to push goaling more deeply by 
requiring the establishment of prime contract and 
subcontracting goals for each SBA program within each agency.
    Accountability. We need to hold agencies accountable at the 
top level, starting with the Secretaries and including the 
program managers.
    Integrity of contractors. Given the large amount of fraud 
we have seen in small business programs and federal contracting 
in general, I encourage you to require a background of 
integrity to take part in any SBA small business program.
    And finally, effective implementation of small business 
contracting programs. I hear time and time again from agencies, 
small business, and contracting personnel that the small 
business contracting programs are challenging and time 
consuming. Consequently, the small business contracting 
programs are not utilized to their fullest extent.
    I encourage you to consider this when drafting legislation.
    I thank you for the opportunity to make these views heard 
before this Committee, and I applaud your diligence on behalf 
of small business and hope you will act now to improve the SBA 
small business contracting programs.
    [The prepared statement of Ms. Dorfman may be found in the 
Appendix on page 64.]

    ChairwomanVelazquez. Thank you, Ms. Dorfman.
    Our next witness, Mr. Todd McCracken. Mr. McCracken is the 
President of the National Small Business Association.
    Established in 1937, NSBA is the oldest small business 
organization in SBA's advocacy, such as more than 150,000 
companies around the nation.
    Welcome, sir.

STATEMENT OF TODD McCRACKEN, PRESIDENT, NATIONAL SMALL BUSINESS 
                          ASSOCIATION

    Mr.McCracken. Thank you very much.
    We appreciate the chance to be here, and with your consent 
I will submit my written record as the statement and just try 
to summarize in the interest of time.
    Federal procurement is an enormous challenge and issue of 
importance to the small business community nationally as you 
know and as you have identified, but small business 
participation is also crucial to a healthy federal procurement 
process, from that point of view as well.
    Small businesses provide high quality goods and services to 
federal contracting agencies and infuse the federal procurement 
system with much needed competition.
    In turn, the federal government invests in the most dynamic 
and innovative sector of the U.S. economy. Although small 
businesses comprise 99.7 percent of all employers, firms in the 
U.S. employ over half of all private sector employees, and you 
know all the rest. They only receive a small fraction of 
federal contracting dollars and a tiny sliver of federal 
research and development investment.
    In 2006, small companies received just 19 percent of 
federal contracting expenditures, according to data compiled by 
Eagle Eye Publishers, and according to the SBA, the percentage 
of federal contracting dollars going to small businesses in 
2006 was just 22.8 percent, and that is clearly insufficient.
    We are pleased that this Committee and now the House of 
Representatives has passed H.R. 1873, which takes many steps, 
we think, to expand the size of contracting opportunities for 
small companies, and we think that is a crucial goal because as 
we often see in hearings like this, what we see are competing 
programs in the small business community, competing with one 
another for federal dollars, and we think that is rather 
unfortunate because we need to find ways to increase the 
opportunities for all small companies, not simply figure out 
who should be first in line among the small business community.
    While those rules we think have to be clear and they have 
to be fair, we are hopeful that we can expand opportunities for 
all small companies and not just some at the expense of others.
    So we hope that you will keep that in mind as you move 
forward as well.
    Specifically, one of the issues I think that you have tried 
to address in this hearing and, I think, legislation that you 
are thinking about is the issues of fraud. So I would like to 
talk about that a little bit more as well.
    Large businesses too often are the real recipients and 
executors of federal contracts ostensibly awarded to small 
companies. I think Ms. Styles alluded to some of that earlier 
and one particular instance, but there are many others as well. 
Up to a third of the SBA's list of top 100 small business 
contractors in 2005 were actually large businesses, according 
to Eagle Eye, again.
    Additionally, more than 20 percent of the respondents to 
our own internal survey reported losing out on a federal 
procurement opportunity that instead went to a large firm that 
had been identified as a small business.
    So allowing large companies to masquerade as small for the 
purposes of obtaining federal protections intended for the 
nation's small businesses is an affront to the will of 
Congress, a breach of the trust of the American people and to 
the infringement of the principles of fair play and 
competition.
    We welcome efforts to combat fraud in SBA's small business 
contracting programs, including actions such as on-site 
verifications and geographical limitations and civil penalties 
for firms found to have falsely represented themselves as 
service disabled veteran-owned.
    In addition to combating it, NSB urges enforcement against 
companies committing fraud. Since 1988, the Small Business Act 
has provided for felony convictions up to ten years, criminal 
fines of $500,000, mandatory three- year debarments, and 
forfeitures for companies determined by the SBA to have 
misrepresented their small business status. Prosecution under 
these provisions has been lacking, however and the SBA rarely 
rules on whether companies have misrepresented their small 
business status. This should change and SBA urges prompt 
prosecution for companies found to have fraudulently claimed 
small business status, and SBA also can use increased authority 
for the SBA to disbar large contractors that fraudulently 
identify themselves as small businesses.
    Despite being the world's largest buyer of goods and 
services, the federal government of the United States remains 
something of an unknown commodity to America's small 
businesses, and that gets at points that have been made by 
earlier speakers as well.
    Specifically, Ms. Styles talked about the complexity of the 
system, and that continues to be an enormous barrier preventing 
a lot of small businesses from even considering getting into 
federal procurement, and that is something I think we should 
address as well.
    There are lots of correlations between federal procurement 
system and the tax system. We talk a lot about the tax gap and 
how people are cheating and the core crux issue there is the 
overwhelming complexity of the tax system.
    People make a lot innocent mistakes, and people who are out 
to do wrong find it very easy to do that and hide it. And I 
would submit to you that the procurement system is reflective 
of that as well, and we think about ways that we can simplify 
and make things a lot clearer.
    Thank you very much.
    [The prepared statement of Mr. McCracken may be found in 
the Appendix on page 68.]

    ChairwomanVelazquez. Thank you.
    Our next witness, Mr. Steven Denlinger. Mr. Denlinger is in 
personnel of the Latin American Management Association and is 
testifying today on behalf of the U.S. Hispanic Chamber of 
Commerce.
    The Chamber represents 2.5 million Hispanic-owned 
companies, small business companies.
    Welcome, sir.

 STATEMENT OF STEVEN DENLINGER, PROCUREMENT POLICY CONSULTANT, 
               U.S. HISPANIC CHAMBER OF COMMERCE

    Mr.Denlinger. Thank you, Madam Chairman and Representative 
Chabot.
    It is an honor to testify before you today in representing 
the United States Hispanic Chamber of Commerce and LAMA. We are 
here in full support of the Small Business Contracting Program 
Improvements Act of 2007. We submit our full statement for the 
record.
    I would like to talk briefly about four points, two of 
which are not addressed by the legislation.
    First, delegation. A decade or so ago SBA delegated 
contract oversight to the federal agencies because of the 
tremendous logjam in getting paperwork processed by the SBA. It 
was just frustrating the contracting officers throughout the 
federal government.
    We welcomed that at the time. I personally have spent a 
tremendous amount of time trying to solve these kinds of 
problems in advocacy for our members. So I am personally 
familiar with it.
    At the same time, I do agree that it is time to revisit 
this issue because SBA has essentially abandoned its business 
development function with respect to the contracting process, 
and more and more 8(a) contracts are falling into the hands of 
fewer and fewer companies.
    While we do that, we need to keep in mind two very 
important things. One is the massive SBA staff reductions will 
make it even more difficult for SBA to engage in business 
development as compared to ten years ago.
    Secondly, acquisition reform has made it far more easy for 
federal agencies to contract with firms across the board 
through existing contracting vehicles, and anything that makes 
the 8(a) program a slower contracting process is going to make 
the 8(a) program less attractive and less competitive in the 
present federal marketplace.
    So the question is: what do we want SBA to do with respect 
to business development, and what can SBA do with existing 
staff?
    I want to talk a little bit about PEA. We recommend that 
PEA be applicable to all federal agencies. PEA is one of those 
tools that is not very well understood and that has been 
ineffectively utilized. We recommend that the federal agencies, 
including DOD, be specifically required to use PEA in two 
instances: instances wherein individual federal buying 
activities are not meeting the contracting goals assigned to 
them by federal statute or by the SBA.
    And when I say individual procuring activities, there is 
somewhere between 1,000 and 2,000 individual procuring 
activities across the country.
    And secondly, in instances wherein the federal buying 
activities have poor track records of contracting with minority 
businesses in technical areas, such as IT, precision 
manufacturing, telecommunications based maintenance, 
environmental remediation, and so forth.
    SDB set-asides. They were suspended during the Clinton 
administration while the administration was assessing the 
impact of the Adarand Supreme Court decision on federal 
government procurement preference programs. The SDB set- aside 
program, of course, has now been reinstated after all these 
years.
    We believe that as implemented in the past, it meets the 
strict scrutiny requirements of the Adarand decision, and 
therefore, the SDB set-aside program should be reinstated.
    Lastly, I want to touch on the issue of the impact of 
Alaska Native corporations on the 8(a) program. This is a 
contentious issue. I realize that, and I just want to share a 
few thoughts with you. You will find in the attachment to this 
testimony a summary that we presented last week before another 
committee of the Congress.
    Basically what we are looking at is the series of special 
privileges that have crept into the 8(a) program through a 
number of amendments over the years that have now rendered this 
program out of control. ANCs are not small, impoverished tribal 
businesses struggling to survive in remote villages in Alaska. 
ANCs are billion dollar corporate conglomerates that have 
thousands of employees, hundreds of subsidiaries and affiliates 
and hundreds of offices scattered across the United States, in 
some cases across the world.
    There really are two 8(a) programs, the special rarified 
privileged world of the 8(a) ANCs and then the rest of the 
portfolio. The disparities between the ANC program and the 
regular 8(a) program are sometimes quite dumbfounding.
    For example, to participate in the 8(a) program, the net 
worth of a normal applicant may not exceed 250,000. Yet a 
billion dollar ANC can participate in the 8(a) program 
virtually automatically. There are many more examples.
    In addition, a normal 8(a) company can receive sole source 
contracts up to and only up to 3.5 million. Yet an ANC can 
receive sole source contract awards of any size, and there are 
many sole source awards to ANCs of 100 million, 250 million, 
500 million and a billion.
    The notion that a billion dollar corporation with 1,000 
employees and dozens of corporate offices across the country 
can be an 8(a) participant and receive billion dollar sole 
source contracts totally discredits, in our opinion, the 
original purposes of the 8(a) program.
    Congresswomen Velazquez, several years ago, you 
characterized bundling as the number one public enemy of small 
business, and we agreed with that, and I have used that 
statement on many occasions.
    What we have allowed to happen is a bundling mechanism that 
sits right smack in the middle of the 8(a) program. The 8(a) 
program was not designed as a subcontracting program for 8(a) 
companies to be supplicants to ANCs for subcontracts. The 8(a) 
program was designed as a program that would give small 
disadvantaged businesses across the board participating in the 
portfolio access to the privilege of participating in federal 
prime contracting.
    That concludes my testimony, Madam Chairman. Thank you so 
much.
    [The prepared statement of Mr. Denlinger may be found in 
the Appendix on page 73.]

    ChairwomanVelazquez. Thank you.
    Mr. Denlinger, I would like to address my first question to 
you. In 2006, and you were here, I believe, when the 
Administrator was testifying, only seven percent of companies 
participating in the 8(a) got work as a result of their being 
in the program. Ninety-three percent of companies got nothing.
    In 1999, one-third of the companies got work. In your view 
did the SBA delegation of its authority to enter into contracts 
to other agencies contribute to this problem?
    Mr.Denlinger. Oh, absolutely. No question about it. Yes, 
that is the oversight that SBA needs.
    ChairwomanVelazquez. If we required the SBA to get back 
into the contracting process, do you think this problem would 
start to be corrected?
    Mr.Denlinger. Yes, but we have to address the under 
staffing issues. That is critical.
    ChairwomanVelazquez. Yes, that is one of the issues that we 
have been dealing with in terms of the budget submission and 
the Administrator coming before this Committee and saying that 
the budget is sufficient when we saw what happened in Katrina. 
The response of the federal government, particularly SBA with 
their disaster relief program. We saw what it means to have a 
budget that is totally inefficient.
    Mr.Denlinger. May I just say that the main thing I think 
SBA needs to do is to make sure that companies coming into the 
portfolio, into the program have an opportunity to secure the 
smaller contracts that the federal agencies tend to award to 
other more experienced firms.
    ChairwomanVelazquez. Mr. Denlinger, I am sure you heard my 
exchange with Administrator Preston regarding the need to raise 
the 8(a) personal net worth limitation. The SBA is opposed to 
raising this limitation to 750,000 at program entry. What kind 
of effect does the 8(a) program's personal net worth limitation 
have on the growth of the small, minority-owned company?
    Mr.Denlinger. Our opinion has always been that the $250,000 
net worth level encouraged only the weaker companies to come 
into the portfolio, and so we have long advocated, as you know, 
an increase in the personal net worth for entry into the 8(a) 
program.
    Let me say also keep in mind the purpose of the net worth 
ceiling is to establish an eligibility, an economic 
eligibility, disadvantaged eligibility for the program. We do 
not think that should be applied during the program. So we 
think that the net worth ceiling should be eliminated for 
participation.
    We want companies to become as strong as they can. Owners 
have to rely on their own personal bank ability, their own 
personal net worth in order to finance the growth and 
development of their companies.
    ChairwomanVelazquez. So how do you respond to the concern 
that a large percentage of the population has a net worth below 
these limitations?
    Mr.Denlinger. That is a good question. I think if we look 
at it in the context of a business development program, it 
makes all the sense in the world. We have got to understand 
that people have to have good, strong net worths in order to 
succeed and in order to be bankable.
    ChairwomanVelazquez. Thank you.
    Mr. Sharpe, in the legislation the Committee is considering 
we have included a provision to require the SBA to carry out 
its obligation under Executive Order 13360. In your view, when 
the SBA complies with these requirements, will this increase 
the likelihood that Service-disabled veterans will be more 
successful in winning contracts?
    Mr.Sharpe. Yes, I do, and that has been a big issue with 
SBA. We want to see them more proactive. We want to see them 
more active as far as monitoring agencies and clients, and I 
think by doing that, all veterans will be better off.
    ChairwomanVelazquez. Thank you.
    Ms. Dorfman, should the Committee intervene now to insure 
that the Women's Procurement Program is implemented?
    Ms.Dorfman. I would say yes because after today, hearing 
that it is going to be delayed at least three more months and 
knowing what that entails after the fact, we need some sort of 
assistance. The Administrator mentioned that, gee, women-owned 
firms got a million dollars this past year in contracts and 
isn't that wonderful, but the reality is if you multiply out 
what we have lost over the last seven years, that is $42 
billion, and subtract one billion dollars, then you have got 
$41 billion that we have lost and that number will continue to 
grow.
    ChairwomanVelazquez. Is it the concern of the U.S. Women's 
Chamber of Commerce that there is the possibility that the SBA 
will not implement the Women's Procurement Program at all, or 
if it does, that it will not be done properly?
    Ms.Dorfman. Absolutely. We have seen stonewalling from the 
beginning. It has been seven years. We have watched the 
deadlines self-imposed come and go, and I do not suspect that 
the behavior will change. We absolutely need some sort of 
assistance to get this done.
    ChairwomanVelazquez. What will be the effect if the 
administration fails in implementing the Women's Procurement 
Program? What effect will that have?
    Ms.Dorfman. Women-owned firms will continue to lose the 
billion dollars of revenues annually. That impacts not just 
their business but their families, their communities because 
they hire even men who have families.
    So this is not a woman's issue. This is a community issue, 
and it is the country's issue because, again, the whole growth 
of the economy is dependent on small business growth.
    Women-owned firms represent one-third of all businesses in 
the United States. It just makes sense to assist them in 
accessing federal contracts.
    ChairwomanVelazquez. And this is not a handout.
    Ms.Dorfman. It is absolutely not a handout.
    ChairwomanVelazquez. Mr. McCracken, does it seem reasonable 
to you for the Committee to want to insure that companies who 
participate in SBA's procurement programs conduct themselves 
with integrity and are of good character?
    Mr.McCracken. It certainly sounds reasonable, yes. The 
question, of course, are the definitions of integrity and good 
character and who makes that determination, but assuming that 
can be done in a reasonable way, it is not an unreasonable 
expectation I do not think.
    ChairwomanVelazquez. In your estimation, how important is 
it that the Committee act decisively when we learn that small 
business contracting programs are being misused and benefits 
are actually going to ineligible companies?
    Mr.McCracken. I think it is pretty crucial because it does 
contribute, I think, to the overall culture that can pervade 
the procurement system, and you do wind up with a lot of 
gamesmanship because there begins to be a feeling, I think, 
among too many people that this is how the game is played and 
that you figure out how to use the system rather than how to 
provide the best service and the best quality contracting at 
the right time.
    That would be a very unfortunate consequence and, I think, 
not in the long-term interest of the small business community 
or the federal government. So we think it is pretty important 
that when you design programs, that they be designed clearly so 
that they are not easy to abuse and that they are clearly 
targeted, and that if you have to fix some of that going back, 
it needs to be fixed.
    But I am also very sympathetic to the argument that we 
cannot keep constantly changing these programs either because 
that creates a great deal of confusion.
    ChairwomanVelazquez. I am sorry, but you cannot?
    Mr.McCracken. Keep changing the programs year after year 
either because that creates a great deal of complexity and 
confusion that I think leads to the same kinds of abuses you 
are trying to address.
    ChairwomanVelazquez. The fact of the matter is that some of 
these programs have not been modernized for the last decade.
    Mr.McCracken. Right.
    ChairwomanVelazquez. Ms. Styles, in your testimony, you 
have suggested severe and tangible penalties for fraud. The 
problem with this is before you can get to the penalties, you 
have to catch someone. The SBA's Inspector General has reported 
that 80 percent of HUBZone companies are not eligible three 
years after they have been approved.
    What is your proposal for how we catch these people?
    Ms.Styles. Well, I think there are two issues. One, there 
are seven people at the SBA that work on the HUBZone program. I 
am not sure how much you can do with thousands of companies and 
seven people. You need to allocate resources to it or you are 
not going to find them.
    And second, when you find them, send them to jail. Refer 
them over to the Department of Justice and make examples of 
these people. If there are not examples, you are going to have 
people out there that see that there are seven people in the 
program and then they can continue to commit fraud.
    ChairwomanVelazquez. Well, again, we go back to the budget 
issue and the problem that we have is that every time the 
Administrator comes before this Committee to testify on the 
budget submission and we on this side point to the fact that it 
is insufficient and that for the least five, six years it has 
been cut by 42 percent, they always say that they can do more 
with less.
    Ms.Styles. Well, I would add that if you take people out of 
the 8(a) program and put them in the HUBZone, then you will 
start having problems in that program. I mean, it is not a 
matter of being able to adjust their resources. It is a matter 
of the Office of Management and Budget realizing that they need 
to commit the money, I think.
    ChairwomanVelazquez. And for the record, Ms. Styles, I know 
that you are here testifying on your own, but do you represent 
the HUBZone Council?
    Ms.Styles. Not currently. They were a client at my old 
firm, but they are not a client at my current firm.
    ChairwomanVelazquez. Thank you.
    Mr. Chabot.
    Mr.Chabot. Thank you.
    Ms. Styles, I will begin with you first. Before I do that, 
I want to compliment you on your children, how good they have 
been, how quiet, and of course, this testimony has probably 
been riveting for them.
    [Laughter.]
    Ms.Styles. In spite of the Three Musketeer bars that your 
staff gave them.
    Mr.Chabot. But it is quite amazing how good they have been. 
So my compliments to you.
    Ms.Styles. Thank you.
    Mr.Chabot. Give them some treats and all that kind of 
stuff, take them to a show, do all kinds of good stuff. They 
have been real good.
    Your example about the Hawaiian example that you mentioned, 
could you tell us a little more about that and what was going 
on there and how widespread you think that type of thing might 
be in the system?
    Ms.Styles. Well, I come upon examples like that rather 
frequently, I hate to say. This one was just a stunning and 
stark one, and my client asked me not to reveal her name, but 
that I was perfectly happy to use the examples because it was 
really stunning.
    I mean, you know, you have got this contract specialist at 
home sending out RFPs and then trying to benefit herself 
through a candle company at the same time, and a small 
business, you know. I mean, this woman knows me personally. She 
is a friend and has been a client for a long time. So she has 
me to come to say, ``What can I do about this? How can I handle 
that?''
    Well, there are a lot of small businesses out there that 
will buy the candles because it will help them get, you know, 
the business or have no idea what to do in a situation like 
that, and there are a lot. I mean, it is not just the small 
businesses that may be having problems. It is the contracting 
officers. There are not very many of them. They do not have a 
lot of oversight, and things like this can happen with some 
frequency.
    Mr.Chabot. Thank you very much.
    And unless the Chairwoman has any additional questions, I 
know you have a flight to catch.
    Ms.Styles. Thank you very much.
    Mr.Chabot. So if you have to go at some point, you are 
welcome.
    Ms.Styles. I appreciate it. Thank you very much for having 
me.
    Mr.Chabot. Madam Chair, did you have anything else you 
wanted to ask this specific witness?
    ChairwomanVelazquez. No, not to her.
    Ms.Styles. Thank you.
    Mr.Chabot. Thank you very much for your testimony.
    ChairwomanVelazquez. Thank you.
    Mr.Chabot. We appreciate it.
    Mr. Sharpe, if I could go to you next, how would you 
increase the integrity of certifications of eligibility for 
Service-disabled veterans?
    Mr.Sharpe. Well, I would require those agencies whose job 
it is to do that to actually do it. You know, again, we talk 
about SBA and their lack of resources. We should have the 
resources available so that those agencies that are required to 
fulfill the law that has been already put out there do it, and 
that is all it takes for them to follow the law.
    Mr.Chabot. Thank you.
    Ms. Dorfman, what further actions is the Women's Chamber of 
Commerce taking or planning to take or will take perhaps in the 
future to enforce the judgment of the Federal District Court in 
its lawsuit against the SBA?
    Ms.Dorfman. Right now what we wanted to do is get through 
this hearing and see what was happening here. The statement, 
thinking maybe today would be the day it was going to be 
implemented, oh, well. At any rate, so at this point we will 
have to get back with our attorneys and talk about what the 
next steps are.
    Mr.Chabot. So at this point you are not really sure and 
would not even want to speculate as to what that might be, I 
assume.
    Ms.Dorfman. No.
    Mr.Chabot. I am assuming you wouldn't want to speculate as 
to what type of things you might consider?
    Ms.Dorfman. Not at this time, no, but we will be talking 
with our attorneys based on today's outcome and see what 
choices are to move forward.
    Mr.Chabot. Thank you.
    Mr. McCracken, you talked about fraud and, you know, large 
businesses masquerading as small business and that sort of 
thing and how prosecutions are lacking. How widespread do you 
believe that this fraud is, for example, the Hawaiian case that 
we had there? And would you like to expound upon that?
    Mr.McCracken. I can try. And, again, my information 
unfortunately in terms of how widespread it is at various 
levels is somewhat anecdotal, but my impression is that 
certainly in larger doses than we would like, and with any kind 
of whether it is outright fraud or what you would think of as 
just abuse, you know, not using the program in the way it was 
intended or that most of us would think that it would be used, 
I think it is more common than I think that a lot of us would 
like to think. Id o not know that I would single out a 
particular program per se for that because I think there are 
lots of different things going on at different times.
    But I think my biggest concern is not those individual 
cases. It is the culture that it can lead to if left unchecked 
long term and that we could actually have, you know, a 
political backlash against some of the programs that should be 
and could be and often are extremely helpful to small 
companies.
    So we do have to make sure that they are as straight up as 
they can be and that they are being implemented in the way that 
we all expect that they are implemented. So enforcement, I 
think, is a big part of that.
    At the same time, I think a lot of transparency and 
simplification, as I mentioned before, is a big part of the 
solution to that as well. I think when you were talking with 
the Administrator you talked about the example of how do you 
catch some of this stuff and should we rely on other 
contractors who see it happening and say, well, this guy is not 
really on the up and up here. Should they be reporting that?
    And I think one of the reasons that may not work in all 
cases is because the other contractors themselves may assume 
there is some loophole this guy used to get into the program 
that they do not understand, and there may not, in fact, 
actually be. So they will not report those cases because the 
system is so complicated that a lot of those things people will 
just shrug their shoulders and say, ``Well, what can I do?''
    And I think if we had a clear, transparent, relatively 
simple system, we could--
    Mr.Chabot. My time is running short. I just wanted to get 
one more question and then I am going to get to you, Mr. 
Denlinger, in just a minute.
    You also referred to the complexity of the tax code as 
being one of the principal problems, and I agree very much with 
you. Could you take maybe 30 seconds to 60 seconds to tell me 
what the problem is there?
    Mr.McCracken. Oh, well, I do not know that I can do it in 
30 to 60 seconds, but essentially we think that the code is 
enormously complex. We have this tax gap issue that we have 
been talking about a great deal over the last year or so, and 
we think too frequently the solutions are, well, let's ramp up 
enforcement and do a bunch of other things. So we are going to 
impose a lot of burdens on people who are actually complying 
with the law.
    And we are willing to look at simplifying the tax code 
because that is really at the root of things because it allows 
people to get away with things and hide things and find 
loopholes that I do not think any of us intended to be there.
    And so I could talk ad nauseam about our idea solution to 
those problems and what kind of tax system we ought to have, 
but it is not the one we have now. That is for sure.
    Mr.Chabot. Okay. Thank you.
    And finally, Mr. Denlinger, it is my understanding that a 
few firms dominate the 8(a) procurement arena. Would the SBA 
awarding subcontracts provide greater opportunity to a more 
diverse cross-section of 8(a) firms?
    Mr.Denlinger. Would the SBA awarding subcontracts? I did 
not understand that part of your question.
    Mr.Chabot. Yes, because of the SBA going back and being the 
prime subcontractor.
    Mr.Denlinger. Oh, I think that would be a disaster. That 
tripartite agreement where SBA was the prime contractor of the 
federal agencies and 8(a) companies were the subs, that is a 
disaster. That is just a formula for chaos. It just cannot 
work. Please do not take us back there.
    Mr.Chabot. Okay. All right. Thank you very much.
    [Laughter.]
    Mr.Chabot. I yield back.
    ChairwomanVelazquez. Mr. Denlinger, in your testimony you 
commented on the importance of on-site reviews or verification 
to insure the eligibility of companies for the HUBZone program. 
You compare it to what is currently done for 8(a). Can you 
expand on this?
    Ms.Dorfman. Well, as all of us know, the certification 
process for 8(a) is very rigorous, very thorough, and our sense 
is why not apply that standard across the board. What we are 
giving companies in these various programs is a tremendous 
advantage in the federal marketplace that ordinary citizens do 
not have. That demands a lot of respect, and I think that 
everybody should be subject to the same type of scrutiny.
    To me it is a no brainer. Let's have background checks for 
everybody. Let's do on-site surveys for everybody.
    ChairwomanVelazquez. Thank you.
    I want to thank you all for being here and as you can see, 
it shows the fact that we have not really reauthorized the SBA, 
the Small Business Administration; that a lot of these programs 
have not been modernized; and that we will continue to work 
with the Ranking Member, Mr. Chabot, to make sure that our 
legislation accomplishes what we really intend to do in terms 
of responding to the concerns and the problems that we are 
seeing with all of those programs.
    And my intention is to try to move this legislation through 
the Committee within this month, in October.
    With that, again, thank you all for being here. Members 
have five legislative days to submit additional materials and 
statements for the record.
    Thank you again. This hearing is adjourned.
    [Whereupon, at 1:20 p.m., the Committee hearing was 
adjourned.]

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