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


 
                       FULL COMMITTEE HEARING ON 
                      ARE NEW PROCUREMENT METHODS 
                      BENEFICIAL TO SMALL BUSINESS 
                              CONTRACTORS? 

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

                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 6, 2008

                               __________

                          Serial Number 110-77

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


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

                                 ______

               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

                                 ______

            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              DAVID DAVIS, Tennessee
HANK JOHNSON, Georgia

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, PENNSYLVANIA, Chairman


CHARLIE GONZALEZ, Texas              MARY FALLIN, Oklahoma, Ranking
RAUL GRIJALVA, Arizona               LYNN WESTMORELAND, Georgia

                                 (iii)

  




























































                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

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

                               WITNESSES


PANEL I:
Denett. Honorable Paul, Administrator, Office of Federal 
  Procurement Policy, Office of Management and Budget............     3
Williams, Jim, Commissioner, Federal Acquisition Services, 
  General Services Administration................................     5
Johnson, Ron, Deputy Commanding General, U.S. Army Corps of 
  Engineers......................................................     7

PANEL II:
Palatiello, John, Administrator, Council on Federal Procurement 
  of Architectural and Engineering Services......................    17
Zelenka, Anthony, President, Bertucci Contracting Corporation, on 
  behalf of the Associated General Contractors...................    19
Salus, Arthur, President, Duluth Travel, on behalf of the Society 
  of Government Travel Professionals.............................    21
Leazer, Mark, Director of Management Information Services, Forms 
  & Supply, Inc., on behalf of the National Office Products 
  Association....................................................    23
Spotila, John, Chief Executive Officer, R3i Solutions............    25

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    33
Chabot, Hon. Steve...............................................    35
Altmire, Hon. Jason..............................................    36
Denett. Honorable Paul, Administrator, Office of Federal 
  Procurement Policy, Office of Management and Budget............    37
Williams, Jim, Commissioner, Federal Acquisition Services, 
  General Services Administration................................    48
Johnson, Ron, Deputy Commanding General, U.S. Army Corps of 
  Engineers......................................................    55
Palatiello, John, Council on Federal Procurement of Architectural 
  and Engineering Services.......................................    59
Zelenka, Anthony, President, Bertucci Contracting Corporation....    79
Salus, Arthur, President, Duluth Travel, on behalf of the Society 
  of Government Travel Professionals.............................    84
Leazer, Mark, Forms & Supply, Inc................................    91
Spotila, John, R3i Solutions.....................................   126
Letter to Chairwoman Nydia Velazquez from Honorable Paul Denett, 
  Administrator, Office of Federal Procurement Policy, Office of 
  Management and Budget..........................................   126

                                  (v)

  


                     FULL COMMITTEE HEARING ON: ARE
                        NEW PROCUREMENT METHODS
                    BENEFICIAL TO SMALL CONTRACTORS?

                              ----------                              


                        Thursday, March 6, 2008

                     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 
[chairman of the Committee] presiding.
    Present: Representatives Velazquez, Cuellar, Johnson, 
Chabot, and Gohmert.

           OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

    Chairwoman Velazquez. I call this meeting to order.
    This morning the Committee will continue its examination of 
small business' role in the federal marketplace. Today we will 
review the effect of emerging contracting methods which are 
being driven by the decline in the federal acquisition work 
force.
    Just 25 years ago, there were more than 135,000 contracting 
personnel. Now it has shrunk to only 85,000 staff, a decline of 
more than half. This has occurred while the dollar amount of 
contracts has increased by nearly $200 billion dollars.
    Clearly, something has to give, and unfortunately it is 
small businesses that are left out and suffer the most. The 
result of this dramatic shift has been more pressure on 
agencies to consolidate contracts and employ automatic IT 
driven procurement systems.
    People keep saying that this is easier, but for whom? Not 
small business; not easier for the taxpayer. It is just easier 
for the bureaucrat, and that should not be driving federal 
procurement policy.
    The truth is that we hear a lot about the problems of 
contract bundling, but the increased reliance of these new 
approaches is just as significant for small businesses. Many 
cannot even gain access to these systems, and when they do, 
they're forced to compete with larger firms.
    Similar to the big box retailers rooting the local hardware 
stores out of businesses, these new methods are creating an 
uneven playing field for small businesses. Three of the major 
methods that have been growing in significance are GSA 
Schedules, reverse auctions, and the e-travel initiative. Some 
of them are unproven and may only be suitable for certain types 
of purchases. Others create administrative nightmares that 
cause small businesses to incur unnecessary costs.
    And some of these approaches may run counter to federal law 
and may be providing taxpayers with a bad deal.
    Taken together, these new processes are creating roadblocks 
for small firms as they try to navigate the federal procurement 
system. If left unchanged, this could lead to a marketplace 
without the contributions of small business ingenuity and 
innovation. This will result in a less diverse supplier base, 
leaving taxpayers to pay more for less.
    It is important that those small businesses are not being 
put at a competitive disadvantage simply because of the 
adoption of new systems. These practices must be modified to 
provide greater equity and fairness to small firms. This will 
help ensure that government is getting the best value.
    After all, what good is a one dollar hammer that falls 
apart after its first use and then you have to purchase another 
one? That is not the lowest cost, and it is not the best deal 
for the taxpayer.
    With this hearing, these new procurement methods will be 
examined in a more systematic manner than has been done before. 
Each new approach should be evaluated as is done with federal 
regulations.
    What is its impact on small businesses? How will their 
ability to compete be affected? Going forward these questions 
must be asked and the pros and cons weighed before any 
procurement method is implemented.
    Small businesses are the bedrock of the economy and must be 
given the opportunity to compete in the federal procurement 
marketplace. Methods that obstruct their participation would 
only serve to reduce the government access to innovative goods 
and services.
    I thank all of the witnesses for being here today, and I 
look forward to all of your testimony.
    I now recognize Mr. Chabot for his opening statement.

                OPENING STATEMENT OF MR. CHABOT

    Mr. Chabot. Thank you, Madam Chair.
    Good morning, and thank you, Chairwoman, for holding this 
hearing on how well federal agencies' acquisition strategies 
balance the need for quick and efficient contracting with the 
achievement of small business goals.
    The agencies must implement this balance in the face of a 
shrinking federal workforce and increased federal spending.
    I would like to extend a special thanks to our witnesses 
who have taken the time to provide this Committee with their 
testimony this morning.
    Small businesses have been long recognized as one of the 
nation's most valuable economic resources and serve as seeds of 
innovation. Small businesses participate in all major 
industries and represent 50 percent of all private sector 
workers. In addition, small businesses employ 39 percent of 
high tech workers, such as scientists, engineers, and computer 
workers.
    The federal government is the single largest buyer in the 
world, spending over $400 billion in 2006.
    Until the mid-1990s, procurement rules as implemented by 
the Federal Acquisition Regulation, were designed around two 
major procurement statutes. The Competition and Contracting Act 
of 1984 established the rules for awards based on full and open 
competition, and two, the Truth in Negotiations Act of 1992 
established rules for disclosure of cost information.
    Acquisition reform from the mid-1990s to present resulted 
in several changes to government-wide procurement practices. 
Legislative reform included the Federal Acquisition 
Streamlining Act of 1994, FASA, that formalized the use of 
large, multi-agency, indefinite delivery, indefinite quantity, 
ID/IQ, order contract. FASA also encouraged the use of 
electronic tools, like government purchase cards to improve 
efficiency and to insure supplies and services were acquired at 
a competitive fair price with timely delivery.
    The Service Acquisition Reform Act of 2003, SARA, 
established an advisory panel to review and improve acquisition 
laws and regulations. The SARA panel published a final report 
on January 2007 with 89 recommendations.
    We have excellent witnesses here today to provide us with 
insight into how well the federal agencies' acquisition 
strategies are structured and how to balance the need for quick 
and efficient contracting with the achievement of small 
business goals.
    I want to again thank you, Madam Chairwoman, for holding 
this hearing. I know we look forward to hearing from both 
panels, and I yield back the balance of my time.
    Chairwoman Velazquez. Thank you.
    And we are going to proceed with our first panel. I welcome 
all of you, and I thank you for your participation.
    Our first witness the Honorable Paul Denett. Mr. Denett is 
the Administrator for Federal Procurement Policy in the Office 
of Management and Budget. The Office of Federal Procurement 
Policy plays a central role in shaping the policies federal 
agencies use to acquire goods and services.
    You will have five minutes to make your presentation.

 STATEMENT OF THE HONORABLE PAUL DENETT, ADMINISTRATOR, OFFICE 
 OF FEDERAL PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET

    Mr. Denett. Thank you.
    Chairwoman Velazquez, Ranking Member Chabot, and members of 
the Committee, I appreciate the opportunity to appear before 
you today to discuss small business contracting and the impact 
that emerging acquisition trends are having on small 
businesses.
    I have prepared written remarks that I would like the 
Committee to enter into the record and would like to briefly 
summarize them now.
    Chairwoman Velazquez. Without objection.
    Mr. Denett. Thank you.
    Mr. Denett. Let me say at the outset that the Office of 
Federal Procurement Policy is committed to providing maximum 
opportunities for small business in federal contracting and 
subcontracting. Increasing opportunities for small businesses 
has always been a priority for me. When I was the Senior 
Procurement Executive at the Department of Interior, I pursued 
a number of initiatives to create a small business friendly 
environment. Those efforts helped ensure Interior's small 
business contracting awards were well above the government-wide 
goal.
    In fact, Chairwoman Velazquez, I left in 2001, and I am 
proud that Interior is probably the only department that you 
ever gave an A rating to that year. So I am just letting you 
know I am a strong and consistent supporter of small business.
    Chairwoman Velazquez. I am waiting to do the same with the 
rest of all the federal agencies.
    Mr. Denett. Okay.
    [Laughter.]
    Mr. Denett. I am looking forward to teaming up with you to 
accomplish that.
    As OFPP Administrator, I have taken a number of actions to 
increase management attention government-wide on small business 
issues. Many of these actions have been taken in close 
partnership with SBA Administrator Steve Preston.
    In 2007, SBA and OFPP launched the small business 
procurement score card to hold agency leadership accountable 
for improving success in meeting small business goals. Our 
offices also worked together to increase the number of SBA's 
Procurement Center Representatives and ensure agencies have 
access to the assistance they need to create and develop small 
business opportunities.
    At my request, the FAR Council established the small 
business regulatory team to improve communications between SBA 
and the drafters of the Federal Acquisition Regulation during 
the development of rules that have a bearing on the small 
business community. We are making sure our workforce is 
proficient in small business contracting.
    Last year agencies evaluated their competencies in small 
business contracting as part of the first ever acquisition 
workforce skills assessment survey conducted by the Federal 
Acquisition Institute in collaboration with OPM and my office.
    Based on the results of this survey, FAI is developing new 
online training courses to further increase awareness of small 
business program requirements and improve acquisition planning 
to promote small business participation.
    In terms of emerging trends, OFPP has paid especially close 
attention to task and delivery order contracting, which has 
increased dramatically since 1990. Our goal is to make sure 
task and delivery order contracting is used effectively and in 
an open and fair manner that facilitates small business 
participation. We are strengthening competition rules for 
orders placed under multiple award contracts by requiring both 
a clear explanation for the basis for evaluating offers and 
public notice of sole source orders.
    Agencies continue to provide significant opportunities for 
small businesses on the government's most popular interagency 
task and delivery order contracts, the Multiple Award Schedules 
and the GWACs. I am pleased, for example, that GSA continues to 
manage a variety of GWACs set-aside exclusively for small 
businesses, including GWACs that are devoted to 8(a) 
contractors and veterans.
    We are making sure that efforts to leverage our purchasing 
power are pursued in coordination with our commitment to small 
businesses. In 2006, small businesses received more than $1.5 
billion from contracts that DoD set up under the 
Administration's strategic sourcing initiative. This represents 
more than 41 percent of the dollars awarded by DoD under the 
strategic sourcing initiative that year.
    More recently, GSA awarded 13 blanket purchase agreements 
to facilitate strategic sourcing for office supplies. Eleven of 
the BPAs were awarded to small businesses, including 8(a) small 
businesses and women-owned and veteran-owned small businesses.
    Finally, we are recognizing exceptional achievements in our 
workforce, including efforts to facilitate access to small 
businesses. Last year Ms. Jean Todd of the Army Corps of 
Engineers was recognized under the SHINE Initiative for her 
best in class contracting to support Hurricane Katrina and Rita 
reconstruction efforts, which included nearly a billion dollars 
in subcontracts to small disadvantaged businesses and local 
small businesses.
    In short, the administration is working to ensure that the 
federal contracting environment allows small businesses to 
flourish and apply their talents to the many pressing demands 
facing our government. We look forward to working with this 
Committee in our continued pursuit of these efforts.
    This concludes my prepared remarks. I will be happy to 
answer any questions.
    [The prepared statement of Mr. Denett may be found in the 
Appendix on page 37.]

    Chairwoman Velazquez. Thank you, Mr. Denett.
    Our next witness is Mr. James Williams. He is the 
Commissioner of the Federal Acquisition Service. This 
organization has responsibility for the GSA Schedules Program.
    Welcome.

  STATEMENT OF JAMES WILLIAMS, COMMISSIONER, GENERAL SERVICES 
          ADMINISTRATION, FEDERAL ACQUISITION SERVICES

    Mr. Williams. Good morning, Chairman Velazquez, Ranking 
Member Chabot, and members of the Committee. Thank you for 
inviting me here today to discuss how GSA's Federal Acquisition 
Service and its electronic systems support small business.
    GSA has been and will continue to be a good friend to the 
small business community. I am pleased to report on GSA's 
procurement methods and their positive impact on small 
business. My testimony will focus on how electronic, or e-
systems, our processes, contract vehicles, and solutions have 
helped GSA strengthen the relationship with this community.
    Since 1995, GSA has been offering e-systems to help small 
businesses participate in GSA acquisition programs. E-systems 
increase accessibility and transparency and minimize cost to 
small businesses wanting to sell to the government. Simply put, 
GSA's e-systems help small business do business with the 
federal government and facilitate the connections between 
agency customers and small businesses.
    The GSA Advantage! online shopping and ordering system 
provides access to thousands of contractors and millions of 
products and services and allows customers to tailor their 
searches specifically for products and services provided by 
small business. The total amount of sales that went to small 
business contractors using this system has steadily increased 
from 49.5 percent in fiscal year 2001 to 76.5 percent in fiscal 
year 2007.
    GSA's e-Buy is an electronic RFQ/RFP system for the 
millions of services and products offered through GSA Schedules 
and GWACs. Customers can request quotations specifically from 
disadvantaged, veteran, service-disabled veteran, women-owned, 
and other small businesses.
    E-offer is a tool to submit online contract offers and 
contract modification requests to GSA, and over the last five 
fiscal years, small businesses have accounted for about 95 
percent of all electronically submitted offers.
    The Schedule Input Program, or SIP, assists small companies 
in loading their products electronically onto GSA systems such 
as Advantage! and e-Buy. It is free, and it requires only basic 
computing equipment to use.
    When small businesses are transacting with federal 
applications, they can avoid multiple identity credentials by 
using the E-Authentication system, which GSA operates as an e-
Gov initiative. This system offers greater accessibility for 
small businesses by allowing the use of a single online 
security identity credential, which enables millions of safe 
online transactions while reducing their online identity 
management burden.
    Perhaps one of the most advantageous programs that the 
government manages that provides access for small business 
owners has been the GSA Multiple Award Schedule, or "Schedules" 
Program, which accounts for about $36 billion annually in 
sales. Eighty percent of the 17,000-plus scheduled contractors 
are small businesses, and they receive about 37 percent of the 
total dollars under the Schedules Program, well above the 
government goal of 23 percent.
    The Schedules Program is advantageous for small business 
because it provides them with training and access to the entire 
government marketplace, which has led to recent annual small 
business sales of over $13 billion a year.
    Given that the Schedules Program is how most small 
companies get their start in the federal marketplace, it allows 
them to have a single market access point to sell efficiently 
to all federal customers and to partner with large businesses. 
The Schedules Program has been the best friend of small 
businesses.
    GSA also offers greater accessibility for small businesses 
to sell to an expanded marketplace, reaching state and local 
customers at no additional cost under certain allowable 
regulations based in law. These federal, state and local 
customers also have access to all of our e-systems, which 
allows them greater efficiencies, market access to, and 
tailored searches for small businesses and their procurements.
    In addition to electronic tools, GSA provides customers 
with a wide range of governmentwide acquisition vehicles, some 
specifically designed to provide opportunities to the small 
business community, including the 8(a) STARS contract vehicle, 
the Alliant Small Business GWAC and the VETS GWAC.
    In closing, we are very proud of the great results small 
businesses have achieved using the GSA systems and processes 
that maximize their opportunities and minimize their costs. 
However, we will continue to aggressively seek ways to build 
upon this successful foundation.
    Again, thank you for inviting me here today, and I will be 
glad to answer any questions you may have.
    [The prepared statement of Mr. Williams may be found in the 
Appendix on page 48.]

    Chairwoman Velazquez. Thank you, Mr. Williams.
    Our next witness is Major General Ronald L. Johnson. Major 
General Johnson is the Deputy Commanding General of the U.S. 
Army Corps of Engineers. He directs the management of 181 Army 
installations and a budget exceeding $8 billion.
    Welcome.

      STATEMENT OF MAJOR GENERAL RONALD L. JOHNSON, DEPUTY 
        COMMANDING GENERAL, U.S. ARMY CORPS OF ENGINEERS

    General Johnson. Madam Chairwoman and members of the 
Committee, thank you for the opportunity to testify before you 
concerning the impact of the emerging procurement methods on 
small business contractors.
    Your staff has asked that you would like me to address one 
particular emerging procurement method that falls under the 
genre of e-systems, and I am going to talk about that one 
particular method, reverse auction.
    In 2004, the Army Corps of Engineers completed a pilot 
study on a specific procurement method called reverse auction. 
In 2002 in the Defense Appropriations Act, Congress provided 
$1.4 million to FreeMarkets, Incorporated, an e-sourcing 
contractor to explore reverse auctions.
    In conjunction with this appropriation and direction, the 
Corps of Engineers received the funds from the Department of 
Defense to analyze online markets, and we did four particular 
things.
    We conducted the pilot study to test online e-sourcing, 
specifically full service reverse auctioning for use by the 
Corps and its industry partners.
    We encouraged activities within the Corps to explore the 
potential of online reverse auctioning.
    We conducted training in the use of the new and emerging 
acquisition tool.
    And finally, we determined the appropriateness of 
augmenting our acquisition strategies and processes with 
reverse auctioning to improve efficiency of the acquisition 
process.
    So in 2003, we conducted the pilot program to evaluate the 
use of e-sourcing and see how it would apply in the complex 
mission of the Corps. The Corps contracted with FreeMarkets to 
provide reverse auction software technology and training to 
eight separate Corps districts, to provide two different forms 
of reverse auction technology training and to provide their 
expertise, assistance, and advice to the reverse auction 
process.
    FreeMarkets introduced a concept of reverse auctioning to 
the Corps and its reverse auction software tool to our pilot 
sites. Four contracting officers used the reverse auction 
process on nine individual projects, the majority of which were 
construction projects.
    We received protests on two of these projects, and one of 
the protests was sustained due to a problem with the reverse 
auction software. Through the pilot study, we found no basis 
for the claim that reverse auctioning provided any significant 
or marginal savings over the traditional contracting process 
for construction or construction services.
    Reverse auctioning has a chance to provide benefit when the 
commodities or manufactured goods procured possess a controlled 
and consistent nature with little or no variability. 
Construction and construction services are, by their nature, 
variable. Therefore, the reverse auction functionality that 
allows a comparison of past projects does not provide usable 
results for contracting officers of our construction projects.
    Our study also found that there is considerably more time 
involved in the preparation and execution of reverse auctions 
which increases the level of labor and project costs associated 
with the procurement. Labor costs are an important aspect of 
our project cost, and we strive to insure that they're 
controlled to the extent possible and appropriate.
    In summary, the Corps was not able to support the potential 
benefits of reverse auction for our construction program. While 
this tool may be appropriate and beneficial in more repetitive 
types of acquisition, we did not find it to be a useful tool 
for our construction program and do not utilize it today.
    I would like to briefly mention one other program where the 
Corps is utilizing lessons learned from recent experience and 
specifically targeting small businesses to meet our needs. The 
Corps under the National Response Plan Emergency Support 
Function number three for public works and engineering, is 
responsible for providing power and temporary roofing, debris 
removal and reduction. We have some set-aside contracts that 
are awarded in advance to support potential responses to future 
natural or manmade disasters.
    We recently awarded 12 contracts for temporary roofing. Of 
these 12 contracts, seven were awarded to 8(a) small, 
disadvantaged businesses, one to a HUBZone business, and one to 
a service disabled veteran-owned small business.
    If and when the services are required, we have nine small 
businesses to whom we can immediately turn for assistance. We 
are looking forward to awarding similar contracts to other 
small businesses.
    Before closing, let me update you on the Corps' Small 
Business Program for the last two fiscal years. The Corps has 
long considered the small business community an important 
partner in the success of its mission. Historically, the Corps 
has been, and continues to be, one of Department of the Army's 
strongest small business supporters.
    However, we know that we must always strive to improve, and 
as such, as an agency, we have a very aggressive small business 
goal, including the overall small business goal which is almost 
twice the statutory goal.
    Our continued commitment to successful small business 
partnerships will help to insure that a vibrant and robust 
cadre of small businesses is available and utilized in 
performing our mission.
    That concludes my opening statement. I will be happy to 
answer any questions you or members of your Committee have 
today.
    [The prepared statement of Major General Johnson may be 
found in the Appendix on page 55.]

    Chairwoman Velazquez. Thank you, sir.
    Mr. Denett, I would like to address my first question to 
you. In 2003 during Small Business Week, President Bush, in 
announcing his commitment to the small business agenda, said, 
and I quote, ``Wherever possible, we are going to break down 
large federal contracts so that small business owners get a 
fair shot at serving the needs of the nation.'' That was in 
2003.
    In 2005, OMB sent a memo to all the federal agencies asking 
them to implement strategic sourcing. My question to you is: if 
the President said that we are supposed to break up large 
contracts, isn't strategic sourcing counter to that directive?
    Mr. Denett. I do not believe so. In fact, the thing we put 
out on strategic sourcing, we have as one of the criteria that 
people look at when they pursue strategic sourcing is to see 
the impact on small business. In fact, we want them to look at 
what portion of the dollars currently go to small business, and 
then when they do a strategic sourcing initiative, that the 
percentage will stay the same or improve, not go down.
    Thus far we have been very successful in strategic 
sourcing. The ones that we have initially done, in fact, have 
increased small business. So as long as we keep reminding 
people of the importance of that and that strategic sourcing is 
not to hurt small business, the early data that I am getting 
from different departments is, in fact, the small business 
numbers have gone up.
    So we are just going to have to keep reminding them of 
that.
    Chairwoman Velazquez. I am sorry. Who is telling you that 
the small business contracts--
    Mr. Denett. On strategic sourcing?
    Chairwoman Velazquez. Yes.
    Mr. Denett. Well, you know, for example we did office 
supply strategic sourcing.
    Chairwoman Velazquez. Okay. So you are telling me that 
strategic sourcing does not prevent more small businesses 
getting a higher number of federal contracts, and that is why 
every year, including last fiscal year when we release our 
score card regarding federal procurement practices, it shows 
that the federal government has not accomplished small business 
contracting goals of 23 percent.
    So you are telling me that the fact that the federal 
government has not reached the contracting goal of 23 percent 
has nothing to do with strategic sourcing.
    Mr. Denett. I am saying strategic sourcing in most 
instances has helped small business.
    Chairwoman Velazquez. Are you telling me the number of 
contracts awarded to small businesses is not going down while 
the amount of money spent in federal contracting dollars is 
going up?
    Mr. Denett. In the strategic sourcing area, we can say 
that. Overall, I mean, Administrator Preston I know is working 
real hard to try to increase the number of dollars that are 
going to small business. He is utilizing a score card system 
which is holding agencies more accountable, to put more 
pressure on them to find more opportunities for small 
businesses.
    Chairwoman Velazquez. This is after the Inspector General 
of the SBA came out with a report that showed that $12 billion 
that were intending to go to small businesses went to large 
firms, what we call miscoded. Were you aware of that?
    Mr. Denett. I am aware that there was a coding problem and 
that Administrator Preston worked very aggressively with the 
departments to have them cull through their data, correct any 
errors that they made, so that we could have correct numbers.
    Chairwoman Velazquez. Okay. Thank you.
    In your testimony, you mentioned that you worked with the 
SBA Administrator to increase the number of SBA Procurement 
Center Representatives, PCRs.
    The SBA budget imposed a cap of 60 PCRs. In 1993 when the 
federal marketplace was half the size it is now, there were 68.
    Is the SBA ignoring the recommendations of OFPP?
    Mr. Denett. No, they are not. I asked them to increase, and 
that was this past year. They were going down as you have 
already stated, and I was concerned by that. So I pressed them 
to increase the number, and I am told that they, in fact, have 
increased the number.
    It is still not as large as the reference year that you 
were using, but they did increase it by three or four after I 
urged them to do so.
    Chairwoman Velazquez. Can you tell us if you recommended a 
figure, a number?
    Mr. Denett. I did not. I just said that it seemed to me 
that using the logic that you had just described, the dollars 
had gone up. They serve a very useful purpose. Can we not have 
more of them?
    And I am told we, in fact, do now have more of them.
    Chairwoman Velazquez. So you are telling me that the cap 
that they imposed of 60 is no longer in place; that they are 
going to increase that number?
    Mr. Denett. No, I am not saying that. I am saying that they 
increased the number over what they had the previous year, in 
part, from my urging.
    Chairwoman Velazquez. I want to see that.
    In your testimony you also mentioned that you launched the 
small business procurement score card in partnership with the 
SBA and formed a small business team within the FAR Council.
    Three of the agencies on the FAR Council small business 
team received red small business scores on the procurement 
score card, the lowest score, which can be interpreted as a 
failing grade.
    Do you find it ironic that the team that is supposed to 
help small business is not receiving a passing grade?
    Mr. Denett. Do you mean members of that team?
    Chairwoman Velazquez. Yes. The agency, that part of--
    Mr. Denett. I would hope that they are just more motivated, 
having gotten a failing grade. Working with us on regulations, 
they can help come out with regulations that will foster an 
atmosphere to assist small business quicker.
    Chairwoman Velazquez. Sir, it is not for you to come here 
and say that you hope that they are doing, that they will do 
much better.
    Mr. Denett. Well, they will do better, but the fact that--
    Chairwoman Velazquez. Because there are small businesses 
that are suffering due to the fact that the federal government 
is failing them at a time when the economy is in bad shape. We 
have to get the federal agencies to do better.
    So to issue press releases saying we are going to assemble 
a federal agency team to increase contracting opportunities and 
help small businesses, and then when I ask you about how the 
team that is charged with accomplishing this is composed, all 
of those federal agencies are getting a red score. We need some 
oversight from the federal government.
    Mr. Denett. I will give it oversight. I am looking at what 
the team's results are, I am told that we are now moving things 
that help small business faster as a result of this team. 
Certainly, some of the members are going to come from 
departments that have not had good scores, but the whole 
aggregate of the team, they have been given clear orders to do 
what they can to help small business, and that is what they are 
going to do.
    Chairwoman Velazquez. Thank you for that. Thank you.
    Mr. Williams, GSA claims that e-Travel help small 
businesses because more small firms are eligible for contracts. 
In 2004, before e-Travel, only 13 small businesses were 
eligible, and that has now increased to 34.
    However, an increase in the potential bidders has not 
correlated to an increase in business, which is the true 
measure of whether or not this works for small firms.
    In 2006, small travel agents received less than one percent 
of the dollar awarded on the e-Travel TSS schedule. So can you 
tell me how this demonstrates fair opportunity?
    Mr. Williams. Yes, Madam Chairwoman. In 2004, those 13 
firms that received the travel agency contracts received sales 
of about $26 million. That was in 2004.
    In 2006, the 16 companies that now receive dollars under 
travel agency business get about $80 million. It is true what 
you said under the travel services schedule, the TSS, that 
those companies are not getting a lot of business. It is as you 
said.
    However, the $80 million that they are getting is under our 
e-Travel initiative. They are getting that in a subcontract 
role primarily. So they are getting dollars. We would like to 
see small businesses get more direct prime contracts from the 
federal government, and that is why we have the TSS schedule.
    Chairwoman Velazquez. So in conclusion, and I am going to 
recognize Mr Chabot, you are telling me that you are proud of 
the fact that 98.9 of the dollars went to six large 
corporation.
    Mr. Williams. No, we are not.
    Chairwoman Velazquez. Okay. Thank you.
    Mr. Williams. You are welcome.
    Chairwoman Velazquez. Thank you.
    Mr. Chabot.
    Mr. Chabot. Thank you, Madam Chair.
    Maybe I will start at this end, Major General, if that is 
okay.
    How does reverse auctioning affect small business concerns' 
opportunities to do business with the federal government?
    General Johnson. I think it does based upon my dialogue 
with small business owners and working with them over time; I 
think the way it impacts them is, you know, reverse auctioning, 
you think of eBay. It is the opposite of eBay. With reverse 
auctioning, no construction contractor is going to give the 
government the best price the first time. It requires an 
immediate response. You have to be there, right there at the 
screen. Small businesses really cannot afford to do that, nor 
do they have the wherewithal to allocate resources for someone 
to sit at a screen, make an immediate assessment whether it is 
affordable for them to make this or go into this business 
decision as a big business could.
    I do not think big businesses could do this either.
    Mr. Chabot. Thank you very much.
    Mr. Williams, GSA sent a letter to VA dated January 4, 
2008, that addressed the possibility of VA implementing 
corrective action to a VA Office of Inspector General report 
that would prohibit the eligibility of a category of large and 
small business dealers from being placed on the VA schedule.
    The letter stated that the terms of delegation of authority 
from GSA to VA to operate the schedule program indicate that 
the method of supply would be governed by criteria established 
under GSA regulations. It further states that the issuance of 
procurement policies and methods necessary to implement the VA 
delegation are understood to be under GSA control.
    Is this still GSA's position? And if you know, what is the 
current status and when do you think that it will be resolved?
    Mr. Williams. Congressman, I just became familiar with this 
issue. The letter was sent by our Chief Acquisition Officer to 
the VA, telling the VA that under the delegation that we gave 
to the VA to do certain Schedules, the authority to set policy 
resides with GSA. What their IG, as I understand it, was 
recommending to the VA Acquisition Office was that when they 
enter into contracts with resellers, they could ask the 
reseller for information from the manufacturer in order to 
establish a fair and reasonable price.
    However, once you enter into that contract, trying to track 
those sales by requiring information from the manufacturer, we 
actually do not have privity of contract with that 
manufacturer, and we are afraid, first of all, that if we 
required that to happen, frankly, it would violate the way we 
should be doing business with the private sector.
    But more so, it would take small businesses who would not 
have access to that information and take them out of the 
reseller marketplace. So we will continue to work with the VA 
and with the VA IG on that. We are trying to help small 
business, but also to make sure as we delegate the authority 
for VA to do those Schedules that they do not do anything that 
we think violates sound Schedules policy.
    Mr. Chabot. Thank you.
    And, Mr. Denett, please explain how the strategic sourcing 
established by your office in 2005 insures small business 
participation.
    Mr. Denett. One of the criteria that we gave to everybody 
is their culling through all of the money that they spend and 
trying to see where it might make sense to save money for 
taxpayers if we buy things strategically, is they give full 
consideration to the impact on small business. In other words, 
we do not want them doing it if the net effect is negative on 
small business.
    So they do market research. They see how many companies are 
out there, if there is an adequate number of small businesses 
that can participate, and like I said, the early results are 
quite favorable. You know, on the GSA area, 11 of 13 office 
supply companies were, in fact, small businesses. Some of the 
early data we are getting that is some of the Defense ones that 
they did had 41 percent small businesses.
    So I am encouraged, and we have it as one of the five 
criteria that they have to look at before they make a decision 
to use strategic sourcing.
    Mr. Chabot. And, finally, how does technology enable 
agencies to increase small business concerns' opportunities to 
do business with the federal government?
    Mr. Denett. Well, electronically they can check all of the 
opportunities that are listed. I think it saves them the 
trouble of having to go and visit every procurement office. 
They can get access to things online. Big companies can afford 
to have hundreds of sales forces going around and beat the 
bushes and knock on doors. A lot of small businesses cannot. 
Most of them can get access to a computer, and through 
Schedules and a variety of other means, it opens up doors for 
them in a way that is not as labor intensive. So I think that 
is a plus for them.
    Mr. Chabot. Thank you very much.
    I yield back the balance of my time, Madam Chair.
    Chairwoman Velazquez. Mr. Cuellar. How much time?
    Mr. Cuellar. I think we have about eight short minutes.
    Let me just ask one short question, a general question. 
And, first of all, we appreciate what you all are doing. I know 
it is a difficult task, but one of the things I have seen is 
when I talk to the small business in, let's say, the border 
community, south Texas, there seems to be a disconnect. In 
other words, we get testimony up here saying it is working, but 
then when you talk to the small businesses we get a very 
different picture saying that it is still very different for 
them to do business with you all, and it is just a very 
different picture.
    Why do you think here is such a stark difference in what 
you all tell us and what we actually hear in our districts?
    Mr. Williams. I would be glad to start. I think sometimes 
there are misperceptions and a lack of understanding about how 
to do business with the federal government, and as I said 
before, the Schedules Program is usually the first entry place 
into the federal marketplace.
    What we provide to small businesses is training, free 
training. We call it Pathways to Success, not only how to get 
on the GSA schedule, which then really gives you a license to 
sell anywhere in the federal government, and in some cases 
selling to state and local governments, too.
    And in providing that training, we not only tell them how 
to get onto the schedule, how to fill out the application form 
and the process we go through, we also try to tell them how to 
market to the federal government so that once they get that 
license to sell, they can be a success.
    I think the federal government can be somewhat of a hard 
market to understand if you have never dealt with it, and we 
try to ease and mitigate that burden by providing this free 
training and doing numerous, as everybody does, numerous 
outreach events to small business.
    We love having a very broad and diverse industrial base in 
GSA. We consider it is part of our mission to make sure that 
agencies, on one hand, trying to do business with the private 
sector can do business in an efficient way, but can have access 
to small business, women-owned, HUBZone, service-disabled 
veterans, veteran-owned businesses, and we provide that entry 
point and provide it in a low cost way to small business and 
also train them on how to get in that door.
    Mr. Denett. I think expectations are high when they get 
Schedules. They think, ``Oh, boy, I am going to get government 
business.'' That just gives them the license. They have not 
actually won any business yet.
    The same across the board, not limited to Schedules. Small 
businesses see all of the money the federal government is 
spending. They want in on the activity. We want them in on the 
activity because they are the backbone of our country. They get 
all excited. They put in proposals.
    Well, you know, for every one that wins one, there are two 
or three that do not. Those are the ones that I would suspect 
you hear from with some regularity, the disappointment, all of 
the effort they put into it and not getting some immediate 
government business.
    On job fairs, we heard that loud and clear, that a lot of 
small businesses would come. They would participate. They would 
be all excited, and then they would come away with contacts and 
cards, but not any actual business. So we encourage agencies 
now to bring live requirements with them to give opportunities. 
In some instances, small businesses actually leave the market 
fairs with orders, which had never been done before.
    So we need to push more of that.
    General Johnson. I think one of the things we could do 
better is establish relationships and develop some trust. I 
think small businesses generally do not trust the federal 
government. They perceive that we are too bureaucratic, and we 
are. We have laws to follow. Unfortunately, perceptions are 
always true.
    So we have to work at that each and every day. I think you 
will hear some examples from some of our partners that will 
testify in a panel after we do and hopefully they will 
substantiate that we have tried to do the best we can in 
bringing in small businesses. The best small business example 
there is in the world is something that used to be called the 
Army Air Corps, now called the United States Army, not the 
United States Air Force. So they should still be a small 
business.
    I think if you look at our--
    Chairwoman Velazquez. I am sorry, but I need to interrupt 
things. We have to go to the floor to vote.
    The Committee will stand in recess for about 20 minutes.
    [Recess.]
    Chairwoman Velazquez. The Committee is called back to 
order.
    Mr. Denett, the SARA panel recommended that OFPP develop 
best practices and strategies to unbundle contracts. That is 
consistent with what the General Accounting Office recommended 
as well. Unfortunately, this has been under review for over a 
year, while 34 of 51 recommendations to OFPP have already been 
implemented or are in the process of being implemented.
    Why is this one still under review?
    Mr. Denett. Well, we had 60 of the 89 recommendations from 
the SARA panel that were directed to us. So there are a lot of 
them. We have a staff of about 12 people. We were fortunate 
that we hired Laura Auletta, who was one of the managing people 
supporting Marcia Madsen on the SARA panel, who headed up the 
SARA panel. She is working very diligently.
    Chairwoman Velazquez. I understand that. My issue with the 
question is that the most critical, important issue for small 
businesses is precisely this one, and so my question is: why is 
it when we heard President Bush in 2003, who spoke about it, 
you are still dragging your feet on this issue?
    Mr. Denett. Well, we have good people working on it. It is 
a complex issue. We want to make sure we get the right results. 
We want input from industry and all of the government agencies.
    Chairwoman Velazquez. When do you think it is going to be 
implemented?
    Mr. Denett. I hope to have a recommendation to me within 
the next 60 days.
    Chairwoman Velazquez. And you will be submitting it to the 
Committee in writing?
    Mr. Denett. We will be glad to share with you the results.
    Chairwoman Velazquez. Thank you.
    Mr. Denett, the SARA panel recommended that bid protests be 
allowed for task and delivered orders in excess of $5 million. 
The GAO reports that OFPP disagreed with this recommendation 
and felt that the bid protest threshold should be higher. Why 
is this?
    Mr. Denett. On task and delivery orders, we--
    Chairwoman Velazquez. In excess of five million.
    Mr. Denett. In excess of five million, yes. Well, we think 
that task and delivery orders have already gone through 
competition earlier when they are setting up the original 
contracts. When they place individual orders afterwards, we 
don't want to slow the process down. We want to keep it quick. 
We think when people have objections they should place them in 
the beginning when contracts are initially being awarded, not 
on individual task and delivery orders.
    Chairwoman Velazquez. Sir, aren't the legal fees that the 
small business will have to pay and the 20 percent success rate 
enough to discourage frivolous protests so that they do not 
slow down the process?
    Mr. Denett. It certainly would be a factor you would hope 
that would cause people not to. Unfortunately, some people 
still when they do not win a particular piece of business feel 
that in order to protect themselves that they want to file 
protests and go through a long, rigorous process that slows 
everything down and usually does not help anybody.
    Chairwoman Velazquez. If ID/IQ contracts are increasing and 
small businesses continue to receive small contracts, shouldn't 
they have an opportunity for a fair chance?
    Mr. Denett. Of course, small businesses should be given an 
opportunity.
    Chairwoman Velazquez. Major General Johnson, in a study of 
reverse auctions, what did the Corps find in terms of 
acquisition workforce issues? And will reverse auctions save on 
manpower?
    General Johnson. Madam Chairwoman, in a word, no, it will 
not. What we found was you need to have some contracting 
officer readily available to kind of, if you would, watch the 
screen, as well as the guy providing the service on the other 
side because this goes pretty quick.
    One of the other issues we found was the standardization of 
the timing of the reverse auction. The one protest we had had 
to do with whether the auction had ended or not. The clock on 
the computer at that end said it had not. The provider of the 
software said it had, and that is why that protest was 
substantiated.
    Chairwoman Velazquez. Mr. Denett, do you have any comments 
on the finding of Major General Johnson's study?
    Mr. Denett. I think it has a lot of merit, that there are 
certain commodities where reverse auctions probably will not 
be--
    Chairwoman Velazquez. Make money?
    Mr. Denett. --they will not be beneficial and save money. 
Again, we have a work group working on that. I have told them 
to make sure that they keep in mind not to harm small business. 
I am looking forward to the results of that work group.
    Chairwoman Velazquez. Can you give us some examples?
    Mr. Denett. Well, the one that he already gave of 
construction, I think, is a--
    Chairwoman Velazquez. But do you have one that is different 
than the one that he has given us?
    Mr. Denett. Anywhere where the requirement is not well 
defined. I mean, if you are buying something, you know, a pen 
or a supply that is well defined, we all know what it is. That 
is a commodity that people can reverse auction on, one would 
think. Anything where there is uncertainty so that there is not 
a level playing field, people are not bidding the same thing, 
that is likely to be more problematic.
    But, again, I am going to wait and see what the experts 
say. We have gathered a group of people that have been using 
reverse auctions, that have a lot of knowledge of it. Some are 
proponents of it; some do not like it, and they are working 
together to make a recommendation on what is the best way to 
implement reverse auctioning.
    Chairwoman Velazquez. Mr. Denett, the Brooks Act requires 
that more than just the price is considered when procuring 
architectural and engineering services. Will OFPP specifically 
reference the Brooks Act when it releases its findings on 
reverse auctions?
    Mr. Denett. I do not know that. I am going to wait and see 
what is recommended, but certainly price is just one factor, 
especially when you are doing things such as architect and 
engineering. That is a longstanding principle that we adhere 
to.
    Chairwoman Velazquez. I will recognize Mr. Chabot.
    Mr. Chabot. Madam Chair, I have no additional questions. I 
would be happy to get to the next panel.
    Chairwoman Velazquez. Okay. Thank you very much. This panel 
is dismissed.
    Mr. Denett. Thank you.
    Mr. Williams. Thank you.
    General Johnson. Thank you.
    Mr. Chabot. Thank you.
    Chairwoman Velazquez. Do we still have any staff from OMB? 
Right here, good. And GSA? And our Army Corps is here.
    Thank you for staying here. I just forgot to ask them to 
provide the names of the staff that will be staying with us.
    I welcome the second panel, and our first witness is Mr. 
John Palatiello. John Palatiello is the Administrator of the 
Council of Federal Procurement of Architectural and Engineering 
Services. The council represents companies in the 
architectural, engineering, and mapping industries.
    Welcome, sir, and you will have five minutes to make your 
presentation.

    STATEMENT OF JOHN PALATIELLO, ADMINISTRATOR, COUNCIL ON 
 FEDERAL PROCUREMENT OF ARCHITECTURAL AND ENGINEERING SERVICES

    Mr. Palatiello. Thank you, Madam Chairman. Thank you for 
the invitation. I congratulate you on the very correct 
pronunciation of my name. It is not often that people do that. 
It took me four years to learn how to pronounce it. So I 
congratulate you.
    COFPAES is made up of the American Congress on Surveying 
and Mapping, the American Institute of Architects, the American 
Society of Civil Engineers, MAPPS, and the National Society of 
Professional Engineers. We have been the organization that has 
strongly supported the Brooks Act, which you mentioned in a 
question to the earlier panel, which provides for a 
qualifications based selection, or QBS, process for the 
selection of architect-engineer services.
    A&E services amount to about one-tenth of one percent of 
the life cycle costs of a project or a program, but the quality 
of the A&E service determines the price and the efficiency of 
the other 99.9 percent of what government does. That is why 
Congress enacted the Brooks Act in 1972, to promote competition 
and quality in contracting of A&E services.
    The Brooks Act predated the introduction of concepts that 
Mr. Chabot mentioned in his statement of best value and past 
performance in a lot of the procurement legislation that was 
passed in the '80s and '90s, and we like to say that we were 
for best value and past performance before it was cool to be 
for those things.
    QBS is simple. Agencies publicly announce their 
requirements for A&E services. Firms submit their 
qualifications, resumes of personnel, and their past projects 
that demonstrate their competence and qualifications for a 
project.
    The agency reviews and evaluates and interviews the firms, 
and then selects the firm it deems most qualified, and there is 
then a negotiation of a price that is fair and reasonable to 
the government. And as the law says, the price must be fair and 
reasonable to the government.
    And if agreement cannot be reached, the agency then moves 
on to a negotiation with the next ranked firm.
    In your letter of invitation, you asked that we comment on 
whether new procurement methods are beneficial to small 
business contractors. I believe in the old adage that if it 
ain't broke, don't fix it. The QBS process has stood the test 
of time. It has not only been federal law for 35 years, but it 
is in the American Bar Association model procurement code for 
state and local government, and over 35 states have enacted 
mini-Brooks Acts. It has enjoyed bipartisan support in Congress 
for decades.
    So if it ain't broke, why are agencies trying to fix it? In 
my written statement I have detailed several administrative 
threats to the Brooks Act that we believe have been not 
advantageous to architects, engineers, surveyors, and mapping 
professionals, and particularly small business. Let me 
highlight those concerns.
    First is the Office of Federal Procurement Policy and the 
FAR Council has for more than ten years failed to write 
regulations that accurately reflect the intent of Congress and 
the legislative history, and the body of state law which 
governs architecture, engineering, surveying and mapping.
    We actually went to federal district court to finally try 
to force proper rulemaking, but we were unfortunately denied 
based on standing.
    Secondly, the GSA supply schedules program for services has 
been a disaster for small A&E firms. I would remind you that 
GSA implemented its schedule contracts for A&E services without 
any consultation with our community. They did this 
unilaterally. We believe the schedules are in direct violation 
with the Brooks Act.
    As I outlined before, the Brooks Act is a qualification 
based selection process. The schedules process is a price based 
schedule. They are inherently incompatible, but for reasons I 
do not know, GSA will not modify the schedules based on about 
ten years of us asking them to do so.
    Madam Chairman, I have been around this community long 
enough to have worked with Congressman Jack Brooks on these 
issues. One of the overriding reasons why he wrote the Brooks 
Act was that he believed in competition. He believed that 
federal A&E contracts should not go to the biggest firms with 
the slickest brochures and the most effective lobbyists.
    Rather, there should be competition, particularly by small 
business. The GSA Schedule has gone back to exactly what Mr. 
Brooks feared: the biggest firms get on the Schedule, and as 
Mr. Williams said, it is then a license to sell.
    I would use a little different word as to what it is a 
license to do, but it is a license that very much disadvantages 
small business.
    Third, it has been ten years now since Congress enacted 
legislation authorizing the design-build process for federal 
construction projects. That is a project delivery method by 
which an agency can contract with one entity to perform both 
the A&E services and the construction services.
    Design-build was never intended to supplant the Brooks Act. 
We supported the legislation. It was intended to work with the 
Brooks Act. We believe now that there is a ten-year history it 
is time for Congress to evaluate whether design-build, in fact, 
has been a success. Is it permitting the independent oversight 
on the part of the designer? Is it saving time, money, and 
upholding quality? And is it having a negative impact on small 
businesses not only as prime contractors, but for specialty 
subcontractors, such as geotechnical engineers, land surveyors, 
topographic mapping firms or landscape architects who are 
relegated down to third or fourth tier subcontractors.
    Chairwoman Velazquez. Mr. Palatiello, how are you doing on 
time?
    Mr. Palatiello. Okay. I am sorry. Let me take 30 seconds if 
I may and just say that you hit the nail on the head in your 
opening statement, Madam Chairman. These are all symptoms of a 
larger problem, and that is the declining acquisition 
workforce, particularly in the A&E field. As you said, you have 
got more and more work going out with fewer and fewer 
contracting officers, and so they are being forced to try to 
implement these other methods, but we do not think the result 
has been good for the taxpayer.
    Thank you very much.
    [The prepared statement of Mr. Palatiello may be found in 
the Appendix on page 59.]

    Chairwoman Velazquez. Thank you very much, Mr. Palatiello.
    Our next witness is Mr. Anthony Zelenka. He is the 
President of Bertucci Contracting Corporation in New Orleans. 
Bertucci works on flood control and coastal restoration 
projects along the Gulf Coast. He is testifying on behalf of 
the Associated General Contractors. AGC is the largest and 
oldest national construction trade association.
    Welcome.

 STATEMENT OF ANTHONY ZELENKA, PRESIDENT, BERTUCCI CONTRACTING 
    CORPORATION, ON BEHALF OF ASSOCIATED GENERAL CONTRACTORS

    Mr. Zelenka. Thank you, Chairwoman Velazquez, Ranking 
Member Chabot, and the distinguished members of the Committee 
for this opportunity to testify on AGC's documented concerns 
and experience with the procurement method known as reverse 
auctions.
    AGC strongly supports full and open competition for the 
many contracts necessary to construct improvements to real 
property. As the Committee considers the changing federal 
procurement landscape, AGC offers the following points for 
consideration during your evaluation of reverse auctions.
    Reverse auctions do not provide substantial benefits for 
procuring construction services. Vendors promoting reverse 
auctions have yet to present persuasive evidence that reverse 
auctions will generate savings in the procurement of 
construction services or will provide benefits of best value 
comparable to currently recognized selection procedures for 
construction contractors.
    Manufactured goods are subject to little or no variability 
or change in manufacture or application. Construction projects, 
on the other hand, are inherently variable and present 
immeasurable risk to contractors. We do not manufacture 
buildings, highways or other facilities. In fact, the 
construction process is fundamentally different from the 
manufacturing process and cannot be compared with the purchase 
of commodities.
    Reverse auctions do not guarantee lowest price. In the 
context of construction, AGC believes that most of the claims 
of savings are unproven, and that reverse auction processes may 
not lower the ultimate cost. A bidder has little incentive to 
offer his best price and subsequently may never offer his best 
price.
    Reverse auctions may encourage imprudent bidding. Reverse 
auctions create an environment in which bid discipline is 
critical, yet difficult to maintain. If competitors act rashly 
and bid imprudently, the results may be detrimental to 
everyone, including the owner, in this case the federal 
government.
    Consequently, imprudent bidding may lead to performance and 
financial problems for owners and successful bidders, which may 
have the effect of increasing the ultimate cost of 
construction, as well as the cost of operating and maintaining 
the structure.
    Negotiated procurements allow thorough evaluations of 
value. Over the past few years, owners, particular in the 
federal government, have recognized the value and quality of 
project relationships and other factors that promote greater 
collaboration among the owner and project team members.
    Reverse auctions, on the other hand, do no promote 
collaboration, much less communication between the owners and 
bidders. Rather, they have a negative effect on the 
relationship between buyer and seller.
    Sealed bidding assures that the successful bidder is 
responsive and responsible. Where prices is the sole 
determinate, the sealed bid procurement process was established 
to insure integrity in the award of construction contracts.
    Reverse auctions ignore the protections of the sealed bid 
procurement laws, regulations and user precedent that address 
these critical factors and insure the integrity of the process.
    Reverse auctions may contravene federal procurement laws. 
The Federal Acquisition Regulation and current procurement 
statutes reflect a clear policy of not disclosing contractor 
price information. Given these restrictions on contractor price 
disclosure in the U.S. Code and the FAR, it is unclear that any 
authority truly exists for the federal government to conduct 
reverse auction on fixed price type contracts or that current 
law can be interpreted to permit the practice of reverse 
auctions.
    AGC strongly recommends that the Committee encourage OMB, 
OFPP, and the FAR Council to closely examine the finding of the 
congressionally mandated reverse auction pilot program the Army 
Corps of Engineers issued in 2004, as was discussed earlier. 
The findings of the report clearly state that reverse auctions 
are an inappropriate tool to procure construction and 
construction related services.
    To sum up, AGC believes that where reverse auctions for 
construction have been studied, they have failed to provide 
savings. They are an unproven method for selection of 
construction contractors, specialty contractors, 
subcontractors, and suppliers.
    At best, reverse auctions raise significant issues for 
owners and construction team members for the following reasons. 
They do not guarantee the lowest price. They may encourage 
imprudent bidding. Negotiated procurements allow a more 
thorough evaluation of best value. Sealed bidding assures that 
the successful bidder is responsive and responsible, and 
reverse auctions may contravene federal procurement laws.
    Additionally, AGC is supportive SBA's regulatory 
recommendations to address the impact of reverse auctions on 
small business and to offer retainage relief for small A&E 
firms.
    Thank you for this opportunity to comment. I look forward 
to working with the Committee, and I will be happy to answer 
any questions.
    [The prepared statement of Mr. Zelenka may be found in the 
Appendix on page 79.]

    Chairwoman Velazquez. Thank you, Mr. Zelenka.
    And how I recognize Mr. Johnson for the purpose of 
introducing our next witness.
    Mr. Johnson of Georgia. Thank you, Madam Chair.
    I am proud to introduce today a fellow Georgian, Mr. Arthur 
Salus. Mr. Salus founded Duluth Travel, a service disabled, 
veteran-owned business, in 1993, and in the last 15 years, 
Duluth Travel has become a leading travel management company. 
In 2005 and 2006, it was named the travel agency of the year in 
government travel.
    In addition to being a successful business owner, Mr. Salus 
has been a strong advocate for expanded veterans opportunities 
in federal procurement. He is a member of the National Veteran-
owned Business Association and is a small subcommittee chairman 
of the Society of Government Travel Professionals.
    Mr. Salus is also a member of Operation One Voice, which 
supports special operation forces by providing transportation 
and funding of wounded veterans and their families to and from 
rehabilitation facilities. He has testified on the Hill for 
veterans rights before the Veterans Affairs and Small Business 
Committees, and he is known in the local and national media as 
the Travelmaster, and I am pleased that he is here to share his 
expertise on federal procurement with the Small Business 
Committee today.
    Thank you.
    Chairwoman Velazquez. Welcome, sir.

 STATEMENT OF ARTHUR SALUS, PRESIDENT, DULUTH TRAVEL, ON BEHALF 
       OF THE SOCIETY OF GOVERNMENT TRAVEL PROFESSIONALS

    Mr. Salus. Thank you, Congressman, and hooray for 
Georgians, right?
    Good morning, Madam Chairwoman, Ranking Member Chabot, and 
the Committee. My name is Arthur Salus, and I am pleased to 
talk about the impact of emerging procurement methods and small 
business.
    I am president of Duluth Travel, a small, service disabled, 
veteran-owned travel agency. My company is located in Atlanta, 
Georgia, and we have 26 employees. We have been providing 
travel services to state and local government agencies, 
corporations, and leisure travelers since 1993.
    I am an active member of the American Society of Travel 
Agents, the Society of Government Travel Professionals, and the 
National Veteran-owned Business Association.
    I have been competing for federal contracts since 2003 when 
I was approved by GSA, and I believe I am well qualified to 
testify on how government procurement methods affect small 
business travel agencies.
    The federal government has been competitively procuring 
travel services from the private sector since 1989. On the 
civilian side, federal agencies may procure travel services 
directly by their own efforts or use contracting vehicles 
designed by the General Services Administration.
    At one time GSA did design set-aside opportunities 
exclusively for small businesses. These opportunities were 
either federal agencies with relatively small travel budgets or 
were or were discrete geographical areas around the country 
where federal agencies had offices. Any small business who 
qualified for these opportunities received a copy of any travel 
request. There were multiple travel opportunities and multiple 
small businesses being awarded travel contracts around the 
country.
    This changes in 2003 when GSA implemented two new travel 
programs, one, the e-Travel Government, and one is the Travel 
Services Solutions Schedule.
    The e-Travel Services contract was awarded to three large 
corporations, ETS, Northrup Grumman, and Carlson Wagonlit 
Travel, to provide end-to-end travel systems to the federal 
agencies other than DoD. These three large corporations no only 
provide the technology, but provide the end-to-end services, 
but also can provide one stop shopping to include all services 
used in travel agencies and subcontractors.
    These three large corporations use both large and small 
travel agencies and subcontractors, known as imbedded travel. I 
receive business through a subcontractor relationship with ETS 
to date, but have not received any business from the other two 
ETS vendors.
    That means despite my track record of excellent past 
performance, I am locked out of over 66 percent of the civilian 
travel government business. In fact, I am here to tell you that 
I am unhappy to report that one of the ETS vendors refuses to 
answer any of my calls or e-mails.
    The GSA has stated that more small business are eligible to 
federal business contracting before ETS and TSS that includes 
53 travel agencies of which 30 are small businesses. I first 
want to commend Tim Burke and his staff at e-Travel, GSA, for 
their continued efforts to bring e-Travel to the 21st Century.
    However, according to the information on GSA's own Web 
site, only ten of these small agencies reported any sales. This 
is less than one percent of the total sales, as, Madam 
Chairwoman, you quoted, going to small business travel 
agencies. I am probably that one percent.
    I believe GSA has a special role to insure small business a 
meaningful opportunity to compete for travel contracts. 
Although I am listed with two on the TSS schedule, I have not 
received any business from it. I was awarded a contract 
directly by the Department of Veterans Affairs and it is a 
competitive set-aside for small, service disabled veterans.
    The fact is that most small business travel agencies have 
received less business than they did before the two programs 
were created. Why has this occurred? Unlike prior GSO programs, 
the TSS schedule itself does not include any small business 
set-asides. The TSS schedule is merely a listing of travel 
agencies that has been pre-qualified by GSA much like the 
Yellow Pages.
    While many small businesses are listed, few are chosen as 
there is no requirement from a federal agency to offer each of 
the vendors an opportunity to bid. Without discrete set-aside 
opportunities, small businesses receive less consideration and 
less business.
    GSA is urged to include set-asides in the schedules for 
travel services. We are only asking that we have direct and 
meaningful opportunities to compete.
    To sum up my testimony, I would like to recommend the 
following: that GSA implement acquisition alternatives for 
small business set-asides; and, number two, create a voluntary, 
independent, my suggestion, panel made up of persons from each 
of the following agencies: GSA, GAO, SBA and OMB, a staff 
member from this Committee, and members of the small business 
sector.
    This panel could also look outside the federal government 
at those large corporations who have government contracts who 
do not use small business in their work.
    Please let me go back and spread the word from the 
Committee saying that you understand the plight of small 
businesses.
    I appreciate your time this morning, and I will be glad to 
answer any questions.
    [The prepared statement of Mr. Salus may be found in the 
Appendix on page 84.]

    Chairwoman Velazquez. Thank you, Mr. Salus.
    Our next witness is Mr. Mark Leazer. He is the President of 
Forms & Supply, Inc., based in Charlotte, North Carolina. He is 
testifying on behalf of the National Office Products Alliance.
    The National Office Products Alliance represents companies 
in the office products industry.
    Welcome.

  STATEMENT OF MARK LEAZER, FORMS & SUPPLY, INC., ON BEHALF OF 
             THE NATIONAL OFFICE PRODUCTS ALLIANCE

    Mr. Leazer. Thank you, Madam Chairwoman and Ranking Member 
Chabot and members of the Committee.
    My name is Mark Leazer. I am the Director of Sales 
Technology for Forms & Supply, Incorporated, an independent, 
woman-owned small business, office products, and furniture 
dealer located in Charlotte, North Carolina. I would like to 
thank you all for the opportunity to testify today.
    Testifying today on behalf of NOPA, the National Office 
Products Alliance, a not-for-profit trade association 
established in 1904, NOPA represents and serves more than 700 
small independent dealers nationwide, along with their key 
suppliers.
    NOPA appreciates the opportunity to speak to the committee 
about a serious growing problem facing small office products 
dealers who have government business small business fronts, 
also known as pass-throughs.
    What are small business fronts? Today I would like to 
concentrate on the small business pass-through problem which we 
feel requires focused legislative and regulatory remedies to be 
addressed effectively.
    Just what are these pass-throughs or small business fronts? 
In the simplest terms, these are situations in which a large 
national company approaches a small business and proposes to 
create a partnership for the sole purpose of gaining improper 
access to contracts set aside for small business. It is, in 
effect, a small business being able to sell their socioeconomic 
status.
    Let me emphasize that these fronts are not the same thing 
as legitimate small business mentoring program relationships. 
In that case, the small firm plays a commercially useful and 
much larger subcontracting role. NOPA is fully in support of 
legitimate small business mentoring relationships.
    The abuses highlighted in Appendix 1 to my prepared remarks 
which lead to small business fronts usually occur when, number 
one, the small business has little or no prior experience as a 
reseller of office products, particularly to government 
customers and little or no ability to itself support such 
business.
    Two, the large company performs most or all of the selling, 
order management, customer service, product delivery and 
invoice and payments processing behind the scenes on behalf of 
the pass-through dealer partner.
    Three, the small business performs few, if any, 
commercially useful functions once the contract award is made 
beyond providing an entry point through its Web site to the 
full operating infrastructure of the large corporation.
     And, fourth, the small business typically receives a 
commission for its willingness to serve as the front for this 
business, which is passed through to the large corporation.
     Let's now look at the negative impact of fronts on small 
business and government. The known direct loss of federal 
business experienced by legitimate small, independent dealers 
already totals tens of millions of dollars annually, and these 
losses are growing. Conservatively, these losses have reached 
more than $100 million per year on a national basis, including 
federal and state government contracts.
    Government also is harmed as competition declines when 
independent dealers are excluded and large national chains and 
their small business fronts are awarded the business under 
false pretenses.
    GSA and many federal agencies are working to help 
legitimate small businesses expand business with them, and we 
heard that from the testimony earlier today from Panel 1. The 
inclusion of small dealers in the Army blanket purchase 
agreement for office products in a recent 19-agency strategic 
sourcing contract award that includes small businesses are 
positive signals, and we appreciate that.
    But even those contract awards appear to include some 
potential small business pass-throughs as well as legitimate 
independent small businesses. We encourage the Committee to 
review recent state contracting developments as outlined in our 
prepared statement. They are enlightening to many of the 
harmful practices that are occurring.
    What do we as NOPA feel should be done to address this 
situation? We feel that federal legislation is essential to end 
small business fronts. NOPA and its members greatly appreciate 
the exceptional efforts of this Committee to assist small 
businesses in our industry and others, but more focused 
legislation is needed to address the small business fronts 
problem.
    Specifically NOPA asks this Committee to work with us to 
develop legislation to, number one, establish stricter bid 
evaluation criteria to insure that federal contracts set aside 
for small businesses are not awarded to companies that play 
only minimal roles in servicing such contracts.
    Two, require federal agencies to insure that all bidders on 
small business set-aside contracts fully disclose and certify 
the functional roles they will play in contract fulfillment.
    Three, require each federal agency to report annually to 
the appropriate Committees of jurisdiction in the House and 
Senate regarding their implementation of these provisions to 
end the use of small business fronts in federal contracting.
    Four, establish meaningful penalties for companies found in 
violation of the proposed new legislative and FAR provisions 
aimed at elimination of fronts.
    On behalf of NOPA, I thank you for the opportunity to 
testify before this Committee today about one of the most 
damaging and unfair contracting practices that often prevents 
independent office products small dealers from competing on a 
level playing field for federal government business.
    I will be happy to answer any questions that the Committee 
may have.
    [The prepared statement of Mr. Leazer may be found in the 
Appendix on page 91.]

    Chairwoman Velazquez. Thank you very much, Mr. Leazer.
    Our next witness is Mr. John Spotila. He is the Chief 
Executive Officer and President of R3i Solutions, LLC, a 
management consulting firm in Fairfax, Virginia. He also serves 
as Administrator of the Office of Information and Regulatory 
Affairs within the Office of Management and Budget.
    Welcome.

    STATEMENT OF JOHN SPOTILA, CHIEF EXECUTIVE OFFICER, R3i 
                           SOLUTIONS

    Mr. Spotila. Thank you.
    Chairwoman Velazquez and Ranking Member Chabot and members 
of the Committee, for all of us who know that small business is 
the engine that drives our economy, getting federal procurement 
to help small business deserves attention. I understand the 
good intentions and logic of those who helped create 
procurement reform. Unfortunately, that reform has not been 
sensitive enough to small business needs. Nor has the 
government done enough to make its procurement system efficient 
and transparent.
    For many small business owners, federal procurement is a 
very difficult environment. Reform led to staff reductions that 
have left offices with too few people to do the work. Much of 
that staff is inexperienced and poorly trained. Procedures are 
complex and not well understood. Decisions take too long and 
are communicated in documents filled with boilerplate and 
legalese. The small business owner feels like an inconvenience 
at best.
    With reduced staffing, most procurement offices focus on 
fighting off alligators, not draining the swamp. Too often they 
do not fix their processes, and they do not try to communicate 
clearly. Large firms that assign people to work with the 
procurement offices full time navigate the maze better than 
small firms that cannot afford such full-time help.
    So the lack of streamlining and clear communication becomes 
a competitive advantage for larger firms. There are other 
problems as well. Agencies combine a wide range of minimally 
related tasks into larger contracts to get more dollars out the 
door with a single action. This makes it harder for small firms 
to demonstrate broad enough capability to qualify as primes for 
the large awards. They do not have the diverse capability that 
only a large firm would have.
    I understand why procurement offices do what they do in 
this regard. I am just concerned about the unintended 
consequences. I doubt very much that we can reverse this trend 
towards aggregated contracts. It is worth trying, but any 
victories will probably be on the margins.
    We can do something else positive, however. We can turn 
procurement offices into centers of process improvement and 
plain language communication. If we streamline the way 
procurement offices operate and get them to communicate 
clearly, small firms will benefit tremendously. Plain language 
communication is the place to start. It is cost effective, 
achievable, and of real value to small contractors.
    In the procurement area, legalese and obscure language are 
dead weights that drag small firms down. They cannot afford 
expensive advisors to reinterpret confusing government 
communication. They need to be able to understand things the 
first time they read them.
     Congressman Braley from this Committee has introduced a 
bill, H.R. 3548, the Plain Language in Government 
Communications Act, that would require federal agencies to use 
plain language in any new or revised documents relating to 
benefits or services.
    If it becomes law, it will make the procurement world much 
more understandable to small contractors. Procurement forms 
will become less obscure, procurement procedures more 
transparent. This will not fix all that is wrong with our 
procurement system, but it is not a bad place to start, and I 
commend Congressman Braley for his vision in introducing this 
bill.
    Plain language is language the intended reader can 
understand and use on one reading. It is audience focused. The 
most important rule in plain language, indeed, perhaps the only 
rule, is to be clear to your intended reader.
    You did not mention, but when I was General Counsel at the 
SBA in the mid-'90s, I led a ten month effort in which career 
employees rewrote all of SBA's regulations in plain language. 
It was a tremendous success.
    In the White House, I helped implement President Clinton's 
executive memorandum on plain language, making OMB review part 
of the solution rather than part of the problem.
    Plain language works whenever and wherever we try it, and 
with Congressman Braley's bill, perhaps the government will try 
it in more places.
    Process improvement is the second step we should take. 
Streamlining how procurement offices operate would pay large 
dividends for small business. When the government cut back on 
its procurement staff, it failed to reexamine how procurement 
offices should run their operations. Instead of applying best 
practices in process transformation and project management, 
agencies largely left their procurement offices to flounder.
    Now they struggle with cumbersome processes, useless 
complexity, poor training, inefficient use of resources, and 
understandably poor morale. No wonder decisions take forever 
and small businesses fall victim.
    It does not have to be this way. Our career government 
employees are a terrific resource. They just need leadership 
and support. We know how to fix sad sack offices. There are a 
host of examples where the government has improved its 
processes and delivered better results for less money. If we do 
the same with procurement, the effort will more than pay for 
itself and both small contractors and the American taxpayer 
will benefit tremendously from the result.
    Madam Chairwoman and Ranking Member Chabot, I commend you 
and the Committee for shining a light on this topic. You are 
absolutely right that government can do a better job in this 
area. It just needs a Congressional push now and then to get 
back on track.
    Thank you, and I would be happy to answer any questions you 
may have.
    [The prepared statement of Mr. Spotila may be found in the 
Appendix on page 126.]

    Chairwoman Velazquez. Thank you very much, Mr. Spotila.
    Mr. Zelenka, I would like to address my first question to 
you. I understand that the Army Corps has been increasing its 
use of indefinite delivery, indefinite quality, or ID/IQ, 
contracts rather than traditional sealed bids for construction 
work. How does this affect the construction industry, 
particularly small companies?
    Mr. Zelenka. The biggest problem that I face with an ID/IQ 
contract is you just do not know how much work you are 
ultimately going to get. So as a small business, you have a 
very set amount of resources, and you have to set them aside so 
in case you get the call to start performing, and it makes it 
difficult to go out and procure other contracts during that 
duration.
    The second big problem is the bonding. You post a bond, and 
sometimes they want the bond for the full amount, and most 
small businesses have limited bonding ability. So it ties up 
your capacity that way, both equipment that you have to have at 
the ready and bonding that gets tied up for work that you may 
never do.
    Chairwoman Velazquez. Thank you.
    Mr. Salus, GSA says that small businesses can participate 
in e-Travel by being listed on the TSS Schedule. What is the 
process for getting onto the Schedule, and do small businesses 
have the resources?
    Mr. Salus. Madam Chairwoman, yes, the resources are there. 
Small business can do the business, can do the e-Travel work. 
However, in our case, we only have two ways of doing travel for 
the government. One is either using one of the three large 
corporations, and if you remember my testimony I said that I am 
doing work with one of them. So therefore, 66 percent of my 
business is not there. I am losing that business.
    And remember when I am talking about myself, I am talking 
about other small travel agencies, too.
    But to be on the TSS Schedule, it is a listing to be on the 
TSS Schedule. The GSA schedule is a little bit more involved. 
You have to be approved by GSA, but even though you are 
approved by GSA does not guarantee you any work.
    And I just want to mention something else to add to that. 
The federal agencies, when I said I went directly with the VA, 
and VA has been really gracious in working with a small service 
company, and we actually took it away from a large business, 
but I have in my hand here 40 letters that I wrote to the 
federal agencies, and out of the 40 agency letters that I sent, 
only four replies, and that is shameful, and I believe that the 
contracting officers of these agencies, there is not enough 
teeth. There is not responsibility. There are no consequences 
in their actions.
    Chairwoman Velazquez. Thank you.
    Mr. Spotila, you said in your testimony that it is unlikely 
that we can stop contract bundling, but that we can try to 
restructure procurement offices. How would this help address 
the same problems as the unbundling of contracts?
    Mr. Spotila. I think in part the reason that contracts are 
being bundled and aggregated is that procurement offices are 
left with a work load that they cannot handle, and they are 
afraid that they will not get the contracting dollars out the 
door, and they will be criticized for that.
    If we improve their processes so that procurement offices 
are more productive, then less bundling would happen. It takes 
some of the pressure off of procurement officers who may, in 
fact, have good intentions. Then when they are pushed to try to 
create more small business opportunities, they will have some 
capability of doing so.
    Now, additional staffing would help as well. Better 
training would help. Anything that improves productivity would 
help, because I think the reason that it is so difficult to 
stop bundling is that in these offices where people make the 
actual specific decisions, they are just overwhelmed, and they 
are just trying to survive.
    Chairwoman Velazquez. So given the fact that the Small 
Business Administration budget has been consistently cut and 
the fact that they impose a cap of 60 contracting officers, 
procurement officers, does not help.
    Mr. Spotila. Well, those are negative steps clearly, and I 
think that we have to make certain that our actions align with 
our words. It is not enough to say "we believe," "the SBA 
believes," "government believes" that small business 
procurement needs should be addressed. We actually have to do 
something about that, and I think that there has been a 
disconnect at times.
    Chairwoman Velazquez. Mr. Leazer, the office products 
industries are having a problem with small business pass-
throughs as you mentioned in your testimony, and so I would 
like to ask you are there any current cases where these types 
of relationships have been investigated?
    Mr. Leazer. Yes, Madam Chair, there are. There is one 
particular case that we have documented in our Appendix 2, a 
company headquartered in Colorado called Faison that was judged 
by an SBA ruling out in California to be other than small. So 
that case is documented.
    Chairwoman Velazquez. I will recognize now Mr. Chabot, and 
I will come back and ask some more questions.
    Mr. Chabot. Thank you.
    Mr. Palatiello, how can the federal government improve its 
process for the acquisition of architectural and engineering 
services? What suggestions would you specifically make?
    Mr. Palatiello. We actually find the ID/IQ process to be 
very advantageous, and a number of agencies have very 
successfully implemented ID/IQs. The A&E community operates 
very differently than our construction friends. We are 
generally held to professional liability requirements and not a 
performance bond requirement, and it is not as capital 
intensive as some of the construction activities. So the 
problems that Mr. Zelenka identified are not the same in our 
community.
    ID/IQ has actually worked very well, and it is an 
opportunity for an agency, particularly when their requirement 
over a year or over a period of years are not well defined, 
they can basically do a competitive procurement and put firms 
on retainer and then call on them on an as needed basis.
    We are very glad that, for example, the USGS has done that 
in a memorandum of understanding with FEMA so that now in an 
emergency response, when you need aerial photography or mapping 
after a hurricane, they just activate a task order, but the 
contract is prepositioned. So it is a very effective way of 
using the service when you need it, but then not having to pay 
for it or pay for a procurement when you do not need it.
    Mr. Chabot. Thank you.
    Mr. Zelenka, how can bidder behavior be improved when 
reverse auctioning is used?
    Mr. Zelenka. You know, it is very difficult to police. You 
know, you have some inherent problems, especially when you look 
at it from a small business and a large business standpoint.
    Large business is just in much better position to sustain 
bigger losses that are inherent with the variables that you are 
dealing with in construction than small business. So it is very 
easy for them to look at it and cut a small business number, 
and if that job goes south, they can absorb the loss. So it is 
hard to control that behavior.
    Small business, on the other hand, you know, is faced with 
a whole different set of problems. In construction if a job 
goes south, you know, it is not like manufacturing where when 
you are doing a reverse auction, you are just cutting away at 
maybe potential profits and all of your costs are controlled. 
You can have a job go bad in our industry, in civil works in 
south Louisiana. A hurricane could come through. You could have 
some bad weather sustained over long periods and actually lose 
money, not profits, not overhead, but you go through that and 
into, you know, getting upside down on your production costs.
    So as you sit there, those are real risks that a small 
business has to weigh a lot heavier than a large business, and 
you know, some people will take that risk, you know, because 
we're driven by, you know, survival as opposed to just 
increasing our profits. When you are out of business and you 
are out of work and you are looking for business, you can be 
tempted to cut below what is reasonable given those weather 
factors, and it puts a small business at a problem, and I do 
not know how to control that.
    You know, we are kind of fighting an uphill battle at that 
point that a large business does not even have to consider. 
They could absorb those losses and move right on to the next 
project.
    Mr. Chabot. Thank you.
    Mr. Salus, what acquisition alternatives would you 
recommend to GSA that they pursue that would give small 
business concerns a greater opportunity to do business with the 
federal government for travel services?
    Mr. Salus. I think the simple answer is that GSA, if they 
will agree to implement just set-asides in their contracts; if 
they put set-asides in their contracts for small businesses in 
the e-Travel side, I think that the TMCs, as were noted, will 
get more business, and I believe that GSA is going to be open 
to this, but we have to wait and see.
    Mr. Chabot. Thank you.
    Mr. Leazer, when National Office Products Alliance or any 
of its members suspect the existence of a "pass-through" or 
"fronts," do they notify the Small Business Administration or 
the agency that is sponsoring the monitoring program, or what 
should they do?
    Mr. Leazer. Typically what a dealer would do or a GSA 
schedule holder in our industry would do is notify NOPA, the 
National Office Products Alliance, and typically what happens 
is our staff counsel will work with SBA to try to address that 
issue, and that has happened a number of times in the past.
    This case with Faison that I mentioned was one brought by a 
dealer in California. The dealer did protest through the proper 
channels, and through SBA's actual ruling on the matter, was 
able to determine that Faison was truly a front and did have 
financial ties to a large competitor, and that the relationship 
was solely for the purpose of gaining access to a contract that 
was set aside for small business.
    So the process is typically as follows: work through our 
national organization, NOPA, work through SBA, and see what can 
be done about it, and go through the typical protest processes 
that are in place.
    Mr. Chabot. Thank you.
    And then finally, Mr. Spotila, you had mentioned about the 
plain language communication that our colleague, Mr. Braley, 
has been initiating and pushing, and could you again discuss 
why that is such an important piece of legislation or that 
concept is one that we ought to pursue?
    Mr. Spotila. Well, I think, again, it has a very practical 
effect on small businesses. Much of the procurement world 
language, whether it be in the FAR, whether it be in contract 
documents, whether it be in statements of work and 
solicitations, is very difficult for small businesses to 
interpret without expensive professional advisors. So all of 
this builds up additional costs and additional impediments. It 
makes it more difficult for a small business to compete 
effectively, and there is no excuse for it because these things 
can all be fixed.
    If decisions are faster and communicated clearly, if 
expectations are communicated clearly, including statements of 
work, then a small business can be much more cost conscious, 
can control the costs of going after these contracts much more 
effectively, and can make fewer mistakes.
    And I think all of these things would help considerably.
    Mr. Chabot. Thank you very much, Madam Chairman.
    I want to thank the panel for their testimony here this 
morning and this afternoon now.
    Chairwoman Velazquez. Thank you.
    Mr. Zelenka, if a company makes a rash decision to try to 
underbid a competitor in a reverse auction and wins with an 
unrealistically low figure, how will this affect the government 
and taxpayers?
    Mr. Zelenka. It puts the completion of the project at risk. 
As a prime contractor, I will not take a subcontractor's price 
if I believe it is marginal. Performance is everything for my 
business. You know, you only get one chance to screw the jobs 
up. So I think the government gets in the same spot.
    If they take a price that they know is marginal, you know, 
it puts the completion of the project at risk, which then a 
project has inherent costs, and if you get too far below them, 
you know, you are going to end up with not being able to finish 
the job, and somebody else having to come back in, and that 
gets very expensive and delays the project or completion.
    Chairwoman Velazquez. Thank you.
    Mr. Palatiello, the Brooks Act requires agencies to use 
qualification based selection of QBS. This requires factors 
besides just price that are used when evaluating firms for the 
provision of architectural and engineering services. If any 
agency fails to do this, what enforcement mechanisms are in 
place to compel a corporation?
    Mr. Palatiello. They are actually rather limited, Madam 
Chairwoman. As Mr. Leazer indicated, we provide the same 
service to our members. If a firm sees a procurement that is 
not in full compliance with the Brooks Act, the firm will 
contact us, and we will try to be in touch with the agency, 
point out what the requirements are under the laws and 
regulations, but that is very voluntary on the part of the 
agency as to whether they want to try to work with us and make 
it right.
    The only other alternative is for the firm itself then to 
file a protest. We would like to see a provision. We do not 
have standing for protests. We are not under the definition of 
an interested party on behalf of our members. We think that 
ought to be changed and associations ought to have the right to 
protest, not the award, the associations do not want to get in 
the middle of does Company A or Company B win the contract, but 
in order to help make sure that the Brooks Act is properly 
enforced, we would like to have protest standing to do that on 
behalf of our member or our members so that their name is kept 
out of it.
    Chairwoman Velazquez. Thank you.
    Mr. Zelenka, the Office of Federal Procurement Policy 
conducted an online survey late last year on reverse auctions. 
Do you think that this was a useful method for gathering input 
on reverse auctions?
    Mr. Zelenka. I am not too familiar with the survey that 
they did. It would just all depend on who the target was of the 
survey. You know, certainly there are industries like the 
manufacturing industry where you are making paper clips or 
supplies, you know, that would give you some positive feedback 
on it, and there are other industries, you know, the complex 
service industry or a construction industry I think you had 
noted. So I am not sure who the target was on it.
    Chairwoman Velazquez. Okay. Well, do you have any other 
questions?
    I want to thank the witnesses for spending time with us 
this morning and providing some insightful information as to 
the dynamics that are going on with federal procurement 
practices.
    With that I ask unanimous consent that members will have 
five days to submit a statement and supporting materials for 
the record. Without objection, so ordered.
    This hearing is now adjourned.
    [Whereupon, at 12:18 p.m., the Committee meeting was 
adjourned.]

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