[House Hearing, 110 Congress]
[From the U.S. Government Publishing 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/
house
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA M. VELAZQUEZ, New York, Chairwoman
HEATH SHULER, North Carolina STEVE CHABOT, Ohio, Ranking Member
CHARLIE GONZALEZ, Texas ROSCOE BARTLETT, Maryland
RICK LARSEN, Washington SAM GRAVES, Missouri
RAUL GRIJALVA, Arizona TODD AKIN, Missouri
MICHAEL MICHAUD, Maine BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois MARILYN MUSGRAVE, Colorado
HENRY CUELLAR, Texas STEVE KING, Iowa
DAN LIPINSKI, Illinois JEFF FORTENBERRY, Nebraska
GWEN MOORE, Wisconsin LYNN WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania LOUIE GOHMERT, Texas
BRUCE BRALEY, Iowa 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
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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?
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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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