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




 
    FEDERAL CONTRACTING: REMOVING HURDLES FOR MINORITY-OWNED SMALL 
                               BUSINESSES

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

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
                     ORGANIZATION, AND PROCUREMENT

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 26, 2007

                               __________

                           Serial No. 110-88

                               __________

Printed for the use of the Committee on Oversight and Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                     http://www.oversight.house.gov


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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 HENRY A. WAXMAN, California, Chairman
TOM LANTOS, California               TOM DAVIS, Virginia
EDOLPHUS TOWNS, New York             DAN BURTON, Indiana
PAUL E. KANJORSKI, Pennsylvania      CHRISTOPHER SHAYS, Connecticut
CAROLYN B. MALONEY, New York         JOHN M. McHUGH, New York
ELIJAH E. CUMMINGS, Maryland         JOHN L. MICA, Florida
DENNIS J. KUCINICH, Ohio             MARK E. SOUDER, Indiana
DANNY K. DAVIS, Illinois             TODD RUSSELL PLATTS, Pennsylvania
JOHN F. TIERNEY, Massachusetts       CHRIS CANNON, Utah
WM. LACY CLAY, Missouri              JOHN J. DUNCAN, Jr., Tennessee
DIANE E. WATSON, California          MICHAEL R. TURNER, Ohio
STEPHEN F. LYNCH, Massachusetts      DARRELL E. ISSA, California
BRIAN HIGGINS, New York              KENNY MARCHANT, Texas
JOHN A. YARMUTH, Kentucky            LYNN A. WESTMORELAND, Georgia
BRUCE L. BRALEY, Iowa                PATRICK T. McHENRY, North Carolina
ELEANOR HOLMES NORTON, District of   VIRGINIA FOXX, North Carolina
    Columbia                         BRIAN P. BILBRAY, California
BETTY McCOLLUM, Minnesota            BILL SALI, Idaho
JIM COOPER, Tennessee                JIM JORDAN, Ohio
CHRIS VAN HOLLEN, Maryland
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont

                     Phil Schiliro, Chief of Staff
                      Phil Barnett, Staff Director
                       Earley Green, Chief Clerk
                  David Marin, Minority Staff Director

  Subcommittee on Government Management, Organization, and Procurement

                   EDOLPHUS TOWNS, New York, Chairman
PAUL E. KANJORSKI, Pennsylvania      BRIAN P. BILBRAY, California
CHRISTOPHER S. MURPHY, Connecticut   TODD RUSSELL PLATTS, Pennsylvania,
PETER WELCH, Vermont                 JOHN J. DUNCAN, Jr., Tennessee
CAROLYN B. MALONEY, New York
                    Michael McCarthy, Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on September 26, 2007...............................     1
Statement of:
    Barrera, Michael L., president and CEO, U.S. Hispanic Chamber 
      of Commerce; Damon Kinebrew, treasurer, Association of 
      Minority Enterprises of New York; Allegra F. McCullough, 
      former SBA Associate Deputy Administrator, Government 
      Contracting and Business Development; and Anthony W. 
      Robinson, president, Minority Business Enterprise Legal 
      Defense and Education Fund.................................    62
        Barrera, Michael L.......................................    62
        Kinebrew, Damon..........................................    72
        McCullough, Allegra F....................................    75
        Robinson, Anthony W......................................    81
    Jenkins, Calvin, Deputy Associate Administrator, Office of 
      Government Contracting and Business Development, U.S. Small 
      Business Administration; Anthony Martoccia, Director, 
      Office of Small Business Programs, U.S. Department of 
      Defense; William B. Shear, Director, Financial Markets and 
      Community Investment, U.S. Government Accountability 
      Office; and Preston Jay Waite, Deputy Director, U.S. Census 
      Bureau.....................................................     6
        Jenkins, Calvin..........................................     6
        Martoccia, Anthony.......................................    13
        Shear, William B.........................................    25
        Waite, Preston Jay.......................................    45
Letters, statements, etc., submitted for the record by:
    Barrera, Michael L., president and CEO, U.S. Hispanic Chamber 
      of Commerce, prepared statement of.........................    65
    Jenkins, Calvin, Deputy Associate Administrator, Office of 
      Government Contracting and Business Development, U.S. Small 
      Business Administration, prepared statement of.............     9
    Kinebrew, Damon, treasurer, Association of Minority 
      Enterprises of New York, prepared statement of.............    74
    Martoccia, Anthony, Director, Office of Small Business 
      Programs, U.S. Department of Defense, prepared statement of    15
    McCullough, Allegra F., former SBA Associate Deputy 
      Administrator, Government Contracting and Business 
      Development, prepared statement of.........................    77
    Robinson, Anthony W., president, Minority Business Enterprise 
      Legal Defense and Education Fund, prepared statement of....    83
    Shear, William B., Director, Financial Markets and Community 
      Investment, U.S. Government Accountability Office, prepared 
      statement of...............................................    27
    Towns, Hon. Edolphus, a Representative in Congress from the 
      State of New York, prepared statement of...................     3
    Waite, Preston Jay, Deputy Director, U.S. Census Bureau, 
      prepared statement of......................................    47


    FEDERAL CONTRACTING: REMOVING HURDLES FOR MINORITY-OWNED SMALL 
                               BUSINESSES

                              ----------                              


                     WEDNESDAY, SEPTEMBER 26, 2007

                  House of Representatives,
            Subcommittee on Government Management, 
                     Organization, and Procurement,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:45 p.m., in 
room 2154, Rayburn House Office Building, Hon. Edolphus Towns 
(chairman of the subcommittee) presiding.
    Present: Representatives Towns and Bilbray.
    Also present: Representative Clay.
    Staff present: Michael McCarthy, staff director; Velvet 
Johnson, counsel; Cecelia Morton, clerk; Emile Monette, 
minority professional staff member; and Benjamin Chance, 
minority clerk.
    Mr. Towns. Let me begin by apologizing for our lateness. Of 
course, we had votes on the floor, and that was the problem. We 
thank you for your patience.
    The hearing will come to order. We are here to consider an 
issue that is important to the future growth and development of 
our Nation: How do we dismantle the barriers that restrict 
minority-owned small businesses from actively participating in 
the Federal marketplace?
    Vast spending on Federal procurement makes Government 
contracts a potentially important source of revenue for all 
businesses, whether large, small or owned by socially and 
economically disadvantaged individuals. Federal spending on 
contracting has hit a record level, and the Federal Government 
is now spending nearly 40 cents of every discretionary dollar 
on contracts with private companies.
    Although procurement provides the Federal Government with a 
potentially powerful tool for promoting opportunities and 
counteracting discrimination, there continues to be disparities 
in the allocation of Government contracts to minority firms.
    I have heard from a number of my constituents and from 
minority businesses all over the Nation about their difficulty 
getting contracts from the Government. Their claims are 
supported by research. According to a study performed by the 
Urban Institute, minority-owned businesses received only 57 
cents of each dollar they would be expected to receive based on 
their availability to carry Government contracts.
    These disparities are why we need Federal contracting 
programs like 8(a) and the Small Disadvantaged Business 
Program. These programs help minority and disadvantaged firms 
access Federal contracts and are needed to help bridge the gap 
for small minority firms attempting to break into the Federal 
marketplace.
    Minority-owned firms often turn to Federal contracting to 
offset some of the limitations imposed by the private market. 
However, barriers embedded in the contracting process itself 
can impede minority firms from winning Government contracts. 
One of the main issues arising today is that there is not a 
penalty for agencies' failure to meet their minority-owned 
business contracting goals.
    Another challenge is the inaccurate reporting of 
contracting data. Often, Federal agencies mis-code thousands of 
contracts to big companies as small business awards in an 
attempt to meet their contracting goals. These errors result in 
the diversion of billions of dollars in lost contracting 
opportunities to small businesses, particularly minority-owned 
firms.
    We have been talking about these issues now for a long, 
long time. It is time to do something about them. It is my hope 
that we can work together to come up with a better strategy to 
expand the participation of minority businesses in public 
contracting.
    [The prepared statement of Hon. Edolphus Towns follows:]

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    Mr. Towns. I now will pause and recognize the ranking 
member from California, Congressman Bilbray, for his opening 
statement.
    Mr. Bilbray. Thank you, Mr. Chairman. Mr. Chairman, I think 
your opening statement pretty well summarizes very 
appropriately.
    I would just like to remind us all that Government 
procurement and receiving a contract is not just a thing of 
dollars and cents. There is a lot of standing in it, and 
history has proven that it can make a difference. I think we 
sometimes forget that if it wasn't for receiving a Federal 
contract, we wouldn't know of names like Eli Whitney, Samuel 
Colt or the DuPont Family, and the list can go on and on.
    I will appreciate those who have come here to testify, to 
try to work out and improve the situation, and I appreciate the 
chairman for having the hearing.
    I yield back, Mr. Chairman.
    Mr. Towns. Thank you very much, Congressman Bilbray.
    I ask unanimous consent that the gentleman from Missouri, 
Mr. Clay, participate in today's hearing. My friend, Mr. Clay, 
is Chair of the Census Subcommittee and, of course, a member of 
the full committee.
    Congressman Clay.
    Mr. Clay. Thank you, Mr. Chairman. Let me thank you for 
inviting me to participate in today's hearing and for your 
leadership on this important issue.
    A recent report found that annual Federal procurement 
spending was over $400 billion in 2006. While taxpayer dollars 
continue being spent on contracting, minority-owned businesses 
are being left behind. For many minority-owned firms, the 
Federal procurement process is a series of large obstacles. In 
addition to lacking the financial capital to succeed, many do 
not have the experience to navigate the contracting maze.
    As chairman of the Information Policy, Census, and National 
Archives Subcommittee, I have heard this message loud and clear 
from minority-owned businesses, and the Census Bureau is 
expected to spend at least $11.6 billion on the 2010 decennial 
census. My subcommittee has held four hearings and has examined 
the Bureau's contracting plans, especially as they related to 
minority-owned businesses.
    I appreciate the Bureau's assurance that minority 
contractors will receive fair consideration in their 
procurement process, and it is my hope that today's testimony 
will help Congress gather the facts needed to devise statutory 
measures that will level the playing field for all minority 
businesses.
    Mr. Chairman, I again thank you for holding this hearing, 
and I yield back.
    Mr. Towns. Thank you very much, Congressman Clay.
    At this time, I would like to ask the panelists to stand. 
We swear in all of our witnesses.
    [Witnesses sworn.]
    Mr. Towns. Let the record reflect that the witnesses 
answered in the affirmative. You may be seated.
    Let me move forward with introduction of the panelists.
    Calvin Jenkins is the Deputy Associate Administrator of 
Government Contracting and Business Development with the U.S. 
Small Business Administration where he is responsible for 8(a) 
and small business contracting programs.
    Then we have Anthony Martoccia, who is the Director at the 
Department of Defense, Office of Small Business Programs and, 
of course, has served in a number of procurement management 
positions at the Small Business Administration and the 
Department of Defense, NASA and the Department of 
Transportation. Welcome.
    We also have Bill Shear who is the Director of Financial 
Markets and Community Investment at the U.S. Government 
Accountability Office. He has directed substantial bodies of 
work addressing the Small Business Administration and community 
and economic development programs. Welcome.
    Preston Jay Waite is Deputy Director of the Census Bureau. 
He is the Chief Operating Officer overseeing day to day 
operations and preparation for the 2010 census.
    Let me say to you, gentlemen, your entire statement will be 
placed in the record. So if you could summarize in 5 minutes 
which will allow the committee an opportunity to raise some 
questions with you, I think we will be able to cover a lot 
more.
    Why don't we begin with you, Mr. Jenkins, and just come 
right down the line?

 STATEMENTS OF CALVIN JENKINS, DEPUTY ASSOCIATE ADMINISTRATOR, 
OFFICE OF GOVERNMENT CONTRACTING AND BUSINESS DEVELOPMENT, U.S. 
  SMALL BUSINESS ADMINISTRATION; ANTHONY MARTOCCIA, DIRECTOR, 
OFFICE OF SMALL BUSINESS PROGRAMS, U.S. DEPARTMENT OF DEFENSE; 
  WILLIAM B. SHEAR, DIRECTOR, FINANCIAL MARKETS AND COMMUNITY 
INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; AND PRESTON 
         JAY WAITE, DEPUTY DIRECTOR, U.S. CENSUS BUREAU

                  STATEMENT OF CALVIN JENKINS

    Mr. Jenkins. Chairman Towns and Ranking Member Bilbray and 
members of the committee, thank you for inviting me here today 
to discuss the role the Small Business Administration plays in 
the Federal marketplace.
    I am Calvin Jenkins, the Deputy Associate Administrator for 
Government Contracts and Business Development. I will begin 
with a quick overview of SBA's 8(a) business development 
program.
    The 8(a) program began during the 1960's to assist eligible 
small disadvantaged business concerns to compete in the 
American economy through business development. All applicants 
must demonstrate social and economic disadvantage. In addition, 
all U.S. citizens who can demonstrate social and economic 
disadvantage as well as comply with other eligibility 
requirements are welcome to apply for participation in the 8(a) 
program.
    Today, there are approximately 9,000 certified firms in the 
8(a) program with contract dollars of $12.4 billion in fiscal 
year 2006. This is an increase of $6.1 billion in contract 
dollars since 2001.
    Additionally, in 2006, contract dollars overall to small 
disadvantaged businesses including 8(a) was $22.9 billion which 
represents 6.76 percent of contracting dollars, well above the 
5 percent goal.
    In 1988, a significant change was made to the 8(a) program 
when Congress enacted legislation that allows firms owned by 
Indian tribes including Alaskan Native Corporations and Native 
Hawaiian Organizations to participate in the 8(a) program. 
Subsequent to that change, Congress authorized firms owned by 
community development corporations to also participate in the 
8(a) program.
    Generally, 8(a) firms can receive sole-source contracts up 
to $5.5 million for manufacturing and $3.5 million for all 
other services. By statute, 8(a) firms owned and controlled by 
Indian tribes including ANCs, may receive sole-source 8(a) 
contracts above these thresholds.
    The difference between ANC-owned 8(a) firms and non-ANC-
owned in the 8(a) programs stems from the assumption that 
organization-owned firms, including ANCs, will utilize the 
program to provide economic development to their respective 
communities. All other 8(a) participant firms utilize the 
program to receive individual business development assistance 
as was initially the intent of Congress.
    As the law is currently written, the 8(a) program is 
designed to provide business development support to 
disadvantaged individuals while also providing regional and 
community economic development to organization-owned firms 
including Indian tribes and Alaskan Native Corporations.
    In April 2006, GAO published a report entitled Increased 
Use of Alaska Native Corporations Special 8(a) Provisions Call 
for Tailored Oversight, addressing some of the differences I 
have just mentioned.
    The report noted that Federal contract dollars obligated to 
firms owned by ANCs grew from $265 million in fiscal year 2001 
to $1.1 billion in fiscal year 2004. That report found that 
ANCs are increasingly utilizing the special advantages Congress 
has provided. The report also found that contracting officers 
often need more guidance on how to effectively use to ensure 
taxpayer dollars are spent wisely and SBA could make 
improvements in its overall oversight of the program.
    Significant increases in Federal contracting dollars have 
gone to other groups during the same period. In fiscal year 
2004, women-owned small business grew from $5.5 billion to $9.1 
billion. Service-disabled veteran-owned firms grew from $554 
million to $1.2 billion.
    HUBZone firms grew from $1.6 billion to $4.8 billion, and 
overall small businesses grew $50.1 billion to $69.2 billion. 
Today, that number is over $77 billion.
    The Federal Government has worked hard to achieve its goal 
of 23 percent of its prime contract dollars to businesses that 
qualify as small businesses. In fiscal year 2004, 8(a) firms 
were awarded $8.4 billion of the SDB achievement of $18.5 
billion.
    Finally, I would like to talk about oversight. The SBA 
takes its oversight responsibilities very seriously. Prior to 
release of the GAO report, the agency had taken a number of 
steps to improve the oversight of the 8(a) program including 
taking into consideration special provisions afforded to 8(a) 
concerns owned and controlled by ANCs, Native Hawaiian-owned 
Organizations and Indian tribes.
    SBA has also increased training to field staff responsible 
for working the 8(a) program. In addition, the agency is 
exploring possible regulatory changes that will strengthen the 
program and increase SBA's oversight capabilities.
    As we further our efforts to assist under-served markets, 
we continue to be concerned and cognizant of making sure we do 
not set as rivals one program against the other as they share 
the same common goal. To this regard, SBA's 2008 budget 
includes a request of $500,000 to examine how best to serve 
8(a) firms, HUBZones, small disadvantaged businesses as well as 
women-owned and service-disabled veteran-owned businesses while 
not restricting the success of one program.
    We recognize the agency can improve on the current progress 
in management as well as effectiveness in these important 
programs and will use the resources to determine how to best 
serve these communities. These resources will be used to 
analyze, among other things, training, the use of technology in 
order to determine how best to serve the businesses that use 
these products.
    SBA recognizes the need for improving our Government 
contracting programs and taking the lead, moving forward, along 
with the Office of Management and Budget's Office of Federal 
Procurement Policy to carry out a number of initiatives 
including working with agencies to ensure that small business 
contracting numbers reporting is accurate. A great example of 
the progress being made in this area is SBA current publication 
of the first of its biannual Small Business Procurement 
scorecard.
    Mr. Towns. Mr. Jenkins, can you summarize?
    Mr. Jenkins. OK. The scorecard is a method of ensuring that 
the Federal agencies provide the maximum possible opportunity 
for small business in the Federal marketplace.
    SBA is committed to continue to implement the laws 
governing the 8(a) program. We would also like to ensure that 
through our oversight and administration of the program, all 
8(a) participants receive the appropriate assistance.
    I will be more than happy to answer any questions the 
committee may have.
    [The prepared statement of Mr. Jenkins follows:]

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    Mr. Towns. Thank you very much.
    Mr. Martoccia.

                 STATEMENT OF ANTHONY MARTOCCIA

    Mr. Martoccia. Thank you. Chairman Towns, Ranking Member 
Bilbray and committee members, good afternoon.
    My name is Tony Martoccia, Director of the Department of 
Defense Office of Small Business Programs in the Office of the 
Under Secretary of Defense for Acquisition, Technology and 
Logistics. Thank you for inviting me to speak to you today 
concerning minority-owned small business contracting within the 
Department.
    Small minority-owned firms are vital to the job growth and 
the economic strength of this Nation. They also play an 
integral role in DOD's defense mission. This is why I am very 
proud of the fact that every fiscal year since fiscal year 2000 
the Department has met or exceeded the 5 percent Government-
wide statutory goal for small disadvantaged businesses. 
Preliminary analysis for 2007 data indicate that DOD will once 
again achieve this goal.
    My testimony today considers a number of these potential 
barriers. I have also highlighted some of the ongoing 
initiatives within the Department that will make it even more 
effective in reaching out to minority-owned small businesses.
    Contract consolidation and bundling is a barrier that we 
see for small businesses. Contract consolidation occurs when 
requirements previously performed by either large or small 
businesses under two or more separate, smaller contracts are 
combined into one contract, and contracting bundling occurs 
when requirements that were previously performed by small 
businesses are consolidated into a single procurement, 
resulting in an acquisition that is unsuitable for an award to 
a small business.
    Any acquisition strategy that uses bundling or 
consolidation must undergo a rigorous justification and 
approval process.
    Subcontracting: By the way, strictly speaking, 
subcontracting is not a barrier for minority-owned businesses. 
I mention it because it is important that DOD prime contractors 
are made aware of their responsibilities under the DOD small 
business programs. It is the responsibility of the Department 
of Defense contracting officers to ensure that prime 
contractors achieve their subcontracting goals.
    Competition: Competition saves taxpayers money, improves 
contractor performance, curbs fraud and abuse, and promotes 
accountability for results. Within DOD, competition is the 
preferred method for acquiring goods and services. The 
Department's preference for competition extends to small 
disadvantaged business and 8(a) procurements and in 
procurements involving ANC firms.
    Non-competitive acquisition strategies are the exception to 
the norm and the rationale for not using competitive techniques 
must be fully justified.
    Alaska Native Corporations: The Government Accountability 
Office noted that oversight in this area was vulnerable under 
ANC contracts. DOD has discussed GAO's findings in our small 
business training conference this year, and the military 
departments have also increased their training efforts with 
respect to oversight of ANC requirements.
    Now I would like to talk about some of our ongoing 
initiatives to increase opportunities for small disadvantaged 
business and minority contractors within the DOD acquisition 
structure.
    Minority Contractor Enhancement Program: The DOD Small 
Business Office has been provided funds by Congress in 2007 to 
develop a Minority Contractor Enhancement Program. The funds 
will be used to award a contract to a minority-owned 8(a) firm 
for the development and support of a DOD minority enhancement 
program. The contractor will provide assistance to small 
minority-owned businesses including 8(a) participants in order 
to help them become successful DOD contractors.
    The DOD innovative Small Business Innovative Research 
Program and the Small Business Technology Transfer Program: 
Historically, about 10 percent of both Phase I contract awards 
for technology feasibility and Phase II contracts for 
technology prototyping and demonstration have gone to minority-
owned firms.
    We continue to focus on training for acquisition work force 
as well as DOD small business community practice where we 
provide training online. We are looking at small business size 
standards to provide more opportunities for minority-owned 
businesses.
    Finally, being Director of the DOD Office of Small Business 
Programs means I am also a member of the senior management 
staff. This gives me an opportunity to meet with my fellow 
senior managers on a weekly basis and share DOD's small agenda 
with them. Through these interactions, I have obtained their 
leadership commitment to promote small business programs within 
their organizations.
    I appreciate the committee's continued interest in 
oversight of DOD's small business programs and look forward to 
answering any questions you might have. This concludes my 
testimony.
    [The prepared statement of Mr. Martoccia follows:]

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    Mr. Towns. Thank you very much.
    Mr. Shear.

                 STATEMENT OF WILLIAM B. SHEAR

    Mr. Shear. Mr. Chairman, Representative Bilbray and members 
of the committee, I am pleased to be here this afternoon to 
discuss our previous and ongoing work related to contracting 
opportunities for small businesses.
    I will discuss, first, results from our March 2007 report 
describing the extent to which small businesses participated in 
contracting opportunities related to Hurricane Katrina and the 
lack of required information on official procurement data 
systems and subcontracting plans; second, information from two 
previous GAO reports regarding the small business advocacy 
responsibilities of SBA and the Offices of Small and 
Disadvantaged Business Utilization [OSDBUs] that operate in 
Federal agencies that award contracts; and third, our ongoing 
work at your request, Mr. Chairman, on SBA's efforts to 
advocate for small disadvantaged businesses and the role of the 
OSDBUs in that process.
    In summary, small businesses received a total of 28 percent 
of the $11 billion that were directly awarded in response to 
Hurricane Katrina between August 2005 and June 2006. DHS 
awarded the highest amount to small businesses, and the General 
Services Administration awarded the highest percentage of its 
Katrina-related contracting dollars directly to small 
businesses.
    Small businesses in Alabama, Mississippi and Louisiana 
received 66 percent of the $1.9 billion awarded to businesses 
in these States.
    With respect to small business subcontracting 
opportunities, required information was not consistently 
available in official procurement data systems for these 
agencies. For example, the systems had no information on 
whether DHS or GSA required small business subcontracting plans 
for 70 percent or more of the contracting funds. In addition, 
the agencies often did not provide reasons for their 
determinations that plans were not required even though Federal 
rules require such documentation and such information should 
have been readily available.
    Because of the incomplete information about subcontracting, 
we were not able to determine the extent to which agencies 
complied with contracting rules and gave small business the 
maximum opportunities to win subcontracts. By requiring 
subcontracting plans, agencies commit price contractors to 
engage in good faith efforts to meet their small business 
subcontracting goals. In doing so, the agencies help ensure 
that small businesses have all of the practical opportunities 
to participate in Federal contracts as they are supposed to 
have.
    Therefore, we made recommendations to the agencies, one of 
which focused on needed guidance to more transparently disclose 
the extent to which subcontracting opportunities are available 
to small businesses. The agencies generally agreed with our 
recommendations and described various steps they are taking to 
implement them. To date, the General Services Administration is 
the one agency that has completed implementation of our 
recommendations.
    Now I will briefly discuss our prior work on the OSDBUs. 
These offices, in partnership with SBA, are tasked with 
functions to expand contracting opportunities for various 
categories of small businesses including small disadvantaged 
and 8(a) businesses.
    The Small Business Act requires that the OSDBU Director for 
each agency, with the exception of the Department of Defense, 
be responsible to and report only to agency heads or their 
deputies. In 2003, we reported that 11 or 24 agencies reviewed 
did not comply with this provision. As of our most recent 
followup with these agencies, nine are not in compliance. 
Because the OSDBU directors at these agencies do not have a 
direct reporting relationship with their agencies' heads or 
deputies, the reporting relationships potentially limit their 
role as effective advocates for small and disadvantaged 
businesses.
    Finally, I will mention our current evaluation at your 
request. This evaluation includes an assessment of the actions 
SBA and OSDBUs take to advocate that small disadvantaged 
business receive opportunities to participate in Federal 
contracts.
    Mr. Chairman, this concludes my prepared statement. I would 
be happy to answer any questions.
    [The prepared statement of Mr. Shear follows:]

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    Mr. Towns. Thank you so much, Mr. Shear.
    Mr. Waite.

                 STATEMENT OF PRESTON JAY WAITE

    Mr. Waite. Mr. Chairman, thank you for the opportunity to 
be here today to discuss removing hurdles from minority-owned 
small businesses.
    As you know, we are required by law to track minority-owned 
small businesses under the category, Small Disadvantaged 
Business. The categories of Small Disadvantaged Business 
include small business owned by African Americans, Hispanic 
Americans, Native Americans, Asian Pacific Americans, 
Subcontinent Asian Americans and another category, very small, 
called Other.
    The Census Bureau recognizes the importance of establishing 
strong goals that ensure the greatest number of subcontracts go 
to small or disadvantaged businesses. Since census 2000, in our 
contracting efforts, we have equaled or surpassed the small 
business goals established by the Department of Commerce. These 
goals themselves are actually greater than the statutory 
requirements.
    In fact, I am pleased to report that over the past 3 years 
the Census Bureau's small business achievements have averaged 
42 percent of the total of all contracts. In that time span, 
almost 20 percent of the dollars expended on all contracts were 
given to small disadvantaged businesses. This 20 percent 
represents approximately $130 million.
    I think it would be helpful to look at three of our major 
2010 contracts to highlight our commitment to small and small 
disadvantaged businesses.
    The ultimate goal of the re-engineered 2010 census is an 
accurate and complete count of very person living in the United 
States. We have incorporated a range of strategies and 
approaches to achieve that goal including the use of automation 
in the form of handheld devices for each census taker.
    Our automation efforts are centered on two major systems, 
the 2010 Decennial Response Integration System [DRIS] and the 
Field Data Collection Automation System [FDCA]. Both of these 
are large information technology contracts, totaling together 
over $1 billion.
    The DRIS contract was awarded in 2005 to the Lockheed 
Martin Corp. It receives and protects the census responses 
whether they are collected by paper form, handheld computer or 
telephone.
    With respect to small businesses, the DRIS request for 
proposal contained a mandatory requirement for a minimum of 30 
percent of the total contract value to small businesses. Minus 
prime program management and hardware, this represents 43 
percent of all the remaining work that is available for small 
businesses to provide value-added services on the contract.
    The Lockheed Martin DRIS team submitted a plan that 
establishes, maintains and adheres to subcontracts of a minimum 
of 30 percent of the total contract price to small businesses, 
minority businesses, women-owned businesses, veteran-owned 
businesses and HUBZone businesses combined.
    The Harris Corp., which holds the FDCA contract, will meet 
a mandatory requirement of a minimum of 20 percent of the total 
contract for small businesses.
    These goals must be met by the end of the closeout of the 
contract in 2011. The majority of the small business 
opportunities for these programs will occur in the latter years 
of the decennial contracts, 2009 and 2010, where the scope is 
broader and more favorable for small business participation. 
This includes training development, onsite IT technicians, 
office deployment and deinstallation.
    Another major contract, our communications contract, will 
be in the forefront of a multifaceted integration effort to 
increase the mail response rate, reduce the differential under-
count and encourage cooperation during the non-response 
followup operations. As part of the overall strategy, we intend 
to incorporate the lessons and successes of census 2000 when we 
were able to improve the mail response rate for reduce the 
differential under-count.
    Earlier this month, we announced the award of this contract 
to Draftfcb, a full servicing marketing communications agency 
that is part of the Interpublic Group of communications 
companies. Draftfcb's team includes partner agencies that 
specialize in reaching minority audiences. They are Global Hue 
for the Black and Hispanic audiences, IW Group for the Asian 
and Native Hawaiian and Pacific Islander audiences, G&G for the 
American Indian audiences and Allied Media for other emerging 
audiences.
    As part of the Census Bureau's RFP process, we required 
each potential contractor to establish a small business 
subcontracting plan which is based on the established 
Department of Commerce fiscal year 2007 small business goals of 
40 percent for small businesses and 17 percent for small 
disadvantaged businesses. As the winner, Draftfcb will be 
expected to maintain and adhere to that plan.
    We will monitor all the contracts closely to ensure they 
fulfill establishing subcontracting goals. The Census Bureau is 
fully committed to fulfilling these obligations because they 
reflect opportunity for small business. We also support them 
because they are consistent with the goals of the 2010 census.
    Each major contractor doing business with the Census Bureau 
establishes a small business outreach office to assist those 
seeking contracts. We also have such an office within the 
Census Bureau. This is central to our commitment to ensure that 
small businesses and small disadvantaged businesses have the 
information, guidance and support that they need. We work 
closely with these businesses in the application process, and 
we provide feedback to those who don't get the contracts.
    Our commitment stems from our belief that counting every 
person living in the United States is not merely a Government 
activity. Our success depends on the participation and 
cooperation of every household, and this is enhanced by 
ensuring that our contracts reflect the Nation's rich 
diversity.
    Mr. Chairman, I appreciate the opportunity to discuss these 
contracts and will be happy to answer questions.
    [The prepared statement of Mr. Waite follows:]

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    Mr. Towns. Thank you very much.
    Let me thank each of you for your testimony.
    The bells, of course, as you know, in this instance it 
means that there is a recess. That is good news for us, yes, 
and for you too. That is true. That is right. No doubt about 
it. [Laughter.]
    Mr. Jenkins, let me begin with you. The accelerated 
increase of contract awards and the special preferences awarded 
to ANCs, what does this do to disadvantaged groups and are they 
affected by this in any way?
    Mr. Jenkins. Right now, we do not see any negative impact. 
What we believe we need to do is concentrate on the 77 percent 
of those procurements that the Government has a 23 percent 
goal. We believe there are adequate opportunities for all of 
the groups within the 77, and so what SBA has to do is do a 
better job in working with the other Federal agencies to ensure 
that the other goals are being met, not just the 23 percent but 
all the goals across the board.
    Mr. Towns. Let me say that I am troubled by the fact that 
there are no penalties here, that if you meet your goal, fine, 
if you don't meet your goal, fine. What do you think needs to 
happen?
    You can say we are trying, and then next year again you say 
we try. Then 10 years from now, you are still trying. I am 
concerned about that. So what do you think needs to be done to 
bring about success and to eliminate the word, try.
    Mr. Jenkins. Well, I think SBA has taken a step forward in 
that area this fiscal year. We issued the first ever scorecard 
in which we rated all of the Federal agencies in terms of their 
status as well as their progress. What we want to do is 
identify those agencies that need to do additional work in 
meeting their goals, but at the same time we want them to see 
what the other agencies are doing in terms of meeting their 
goals and look at best practices.
    But we believe the scorecard and realigning our procurement 
center representatives. In the past, our procurement center 
representatives spent too much time away from doing their 
primary mission, working at those agencies and assisting them 
to look at procurement opportunities. We refocused those PCRs 
and have given our district offices more training in Government 
contracting so that they can deal more with the small business 
customers, and our PCRs deal primarily with the Federal 
agencies, looking for more opportunities.
    Mr. Towns. Do you want to say something about that, Mr. 
Shear?
    Mr. Shear. Yes. This gets to the heart of some of the 
issues we are looking at as part of the request that you have 
sent to us, and I will just raise now certain information that 
is from others including the report we refer to, our previous 
report dealing with the ANCs, dealing with certain reports from 
the SBA IG, certain efforts we have had just based on calls 
into GAO as fog line where we look into certain programs.
    Among our concerns here is that when SBA delegates 
authority to the OSDBUs through partnership agreements is to 
what degree is SBA not only giving authority to the OSDBUs but 
they lose sight of what might be happening at the individual 
agency level.
    So we don't have findings on this yet, but I would say 
concerns have been raised from the body of work that basically 
allows us to get started on this, dealing with the ANCs, 
dealing with certain IG concerns as far as the capacity of SBA 
to really keep a handle on what types of practices are going on 
at the agencies and, in particular, in managing the 8(a) 
program where SBA has certain responsibilities. Even when they 
delegate those responsibilities, they have to know what the 
other agencies are doing with those delegations.
    Mr. Towns. Thank you.
    Mr. Martoccia, I know you have been in this business for a 
long, long time. What do you think needs to be done to fix it 
based on your experience?
    Mr. Martoccia. Well, holding people accountable for 
improving opportunities; we have a great staff at DOD, and we 
have a number of small business specialists that work with SBA 
to support the small business opportunities at the Department.
    Working with the program managers, the small business 
specialists, the contracting officers to assure that if there 
are opportunities available, either breaking up bundled 
contracts, providing special opportunities for minority 
contractors, that they use those opportunities.
    My experience is that once a program manager works with a 
small business, a minority contractor, they are very pleased. 
They add value. They provide a responsive performance is 
usually very good, and the price is reasonable. So it is a 
matter of getting the word out and holding people accountable 
throughout the departments.
    Mr. Towns. Let me ask you this. Maybe I need to phrase it 
this way. Why are people complaining?
    Mr. Martoccia. Well, people are complaining because they 
feel that there are not enough opportunities given to small 
businesses when we are working with the decisionmakers to 
assure that there are opportunities for small business. It is 
difficult to do business with the Government. We have our PTCs, 
training centers, to help small businesses deal with the 
various procurement processes and procedures that small 
businesses have to work with.
    Companies complain because when they get subcontracts that 
in actual terms they don't receive those subcontracts from the 
prime contractors. So we are working with prime contractors to 
assure that we monitor and that they monitor how much money is 
actually given and how many contracts are actually afforded to 
those small businesses during the term of the contract.
    Mr. Towns. Yes, Mr. Waite.
    Mr. Waite. At the Census Bureau, we have made some attempts 
to try to enforce this process and not just try. Our 
contractors are required by contract to commit to a certain 
level of small business and small minority business. If they do 
not do that, their award fee, which is the total amount of 
their profit, is tied to that. So they don't get the award fee 
if they said they tried but were not successful in getting it.
    We expect them to meet those goals and, if they don't, they 
don't get as much profit. We take it right out of their profit 
for the contract. Also, at the Bureau, we have all the senior 
managers over the acquisition area and the contracting officers 
have written into their performance plans, not that they will 
try to meet those goals but they will meet them.
    I think if you want accountability, you have to have some. 
I agree with you. You have to have some kind of penalty of some 
sort if you don't succeed. We found that we are able to get 
very large prime contractors to agree to these goals and to 
meet them.
    Mr. Towns. Thank you.
    I yield to the ranking member, Congressman Bilbray.
    Mr. Bilbray. Thank you, Mr. Chairman.
    I think we need to admit up front that, by their nature, 
large bureaucracies tend to destroy small business, not build 
them. I don't care if it is one bureaucracy to the other. It is 
just hard for a large bureaucracy or a large administration at 
any time to respond and be sensitive to the little guy down the 
line.
    It is not just in Government. Business is the same way. Big 
businesses interrelating with small businesses always have a 
problem being responsive.
    I spent 32 years, Mr. Chairman, in politics, and I have 
seen small businesses being driven out of existence by big 
government, and then we wonder where they are when we need 
them. Oil companies are a good example. I don't even know if 
there is a small oil company left in America today.
    But I think that the one thing that we need to understand 
here, Mr. Jenkins, is a lot of people may not know that DuPont 
was actually founded to produce gun powder for the U.S. 
Government in the Revolutionary War. Their Government contracts 
now are probably just minuscule compared to their private 
activities.
    Is it the real goal of the 8(a) program to assist the small 
guy to not only be competitive in the Government contracting 
field but in the general bigger world of the private sector 
too?
    Isn't the real goal here to basically help in that step and 
use this contracting system as a step toward becoming the 
DuPonts of the future?
    Mr. Jenkins. Well, yes. The 8(a) program is a business 
development program, and I think there has been a lot of 
confusion whether or not it is a contracting program. It is a 
business development program. Contracts to 8(a) firms is just 
one of the many tools that we use to develop the businesses.
    In years 5 through 9, we have what we call a competitive 
business mix requirement where we kind of wean firms off of the 
dependency of 8(a) sole-source contracts with the idea that at 
some point after graduation they are more competitive in the 
general market. So, yes, the idea is business development to 
help them exceed outside of the 8(a) program.
    Mr. Bilbray. I appreciate that.
    Mr. Chairman, I would say it is a reflection of where the 
system needs to remember its successes and failures. The 
development of the four wheel drive for World War II, the Jeep, 
the big guys didn't want to be involved. The little guy 
actually developed the prototype, developed it out. Then when 
the little guy couldn't do the production, the big guy stepped 
in, but the little guy still ended up having a piece of the pie 
and wasn't buried in the game.
    I think that is a future that we hopefully will have for a 
lot of other guys down the line too.
    I yield back, Mr. Chairman. I appreciate the chance.
    Mr. Towns. Thank you very much, Congressman Bilbray.
    Congressman Clay from Missouri.
    Mr. Clay. Thank you, Mr. Chairman.
    Let me start with Mr. Waite. Today, in the New York Times 
editorial page, there was a mention about the continuing 
resolution and the Census Bureau and how important it is to not 
fund the Census Bureau at 2007 levels but, in order to ramp up 
for the 2010 census, there needed to be an exception in this 
budget by OMB as well as the Commerce Secretary.
    Please tell this committee what impact a CR will have on 
the operations of the 2010 census and has the Bureau 
communicated this information to the White House because I am 
sure it will affect your contract as far as the handheld 
contracts and all other matters. Would you give us a snapshot 
of what might happen?
    Mr. Waite. Yes, sir, I can. Thank you.
    The decision to have a continuing resolution without an 
anomaly for the census is very disappointing. It will have a 
very substantial and significant impact on the quality and the 
success of the 2010 census.
    I understand that the continuing resolution was passed 
today for 6 weeks. Six weeks delay in the spending, first, you 
have to realize that the spending for 2008 in the President's 
budget during those 6 weeks would have been about double what 
the CR is offering.
    To delay for 6 weeks, it is certain almost that we will 
have to do some fairly serious replanning of our census plan. 
The most tested and proven census plan we have had up until now 
will be need to be changed. At a minimum, I think if the 
continuing resolution goes to full term and there is no budget, 
at a minimum, we will need to delay and downscope our dress 
rehearsal.
    We will probably want to focus our attention on the dress 
rehearsal on the handheld computers and on the DRIS system 
because that is the heart of the processing system. They have 
to be tested before the census or we really have very serious 
trouble. But what it will mean is other things that we might 
have tested in the dress rehearsal will either not be tested at 
all or will be tested much less, and the risk of them working 
not perfectly will certainly have gone up.
    If the CR goes beyond the existing one and we move on into 
December, we do not now have a plan. We have been thinking and 
trying to work on it, but it is clear that if we go that far 
into the year without any budget or without a budget comparable 
to what we need in this ramp-up that we will have very, very 
serious problems. Probably, we will lose the window that we 
have now to test the automation.
    Mr. Clay. Does that mean you will have to withdraw the 
contracts?
    Mr. Waite. Well, I am saying we don't know what we will 
have to do, but it is clear that if we can't test the 
machinery, we don't want to go into the census.
    Mr. Clay. Let me ask you about the Draftfcb.
    Mr. Waite. Yes.
    Mr. Clay. On September 9, 2007, the Bureau awarded a $200 
million contract. In announcing the award, the Bureau stated: 
Draftfcb includes agencies with extensive experience in social 
marketing as well as in reaching racial and ethnic groups. The 
contract includes aggressive goals to ensure that small 
businesses are fully involved in the campaign.
    What assurance does the Bureau have that the subcontractors 
have the expertise necessary to reach minority communities that 
have traditionally been under-counted?
    Mr. Waite. Well, our assurances, to some extent, are many 
of the subcontractors have had previous experience. We worked 
with them in 2000. They were very effective combined with a 
partnership program in, for the first time, reducing the 
differential under-count and increasing the overall response 
rate.
    The main focus of that contract is to get people aware of 
the census, to get people to be willing to fill out the census 
and, for those that don't, to get them to be receptive to our 
non-response followup interviewers. That is why we wanted to 
make sure that the winning contract, actually all the bidders, 
had components that worked closely with minority communities.
    As you know, Mr. Chairman, we have different communities 
are more difficult to count. It is critical to the Census 
Bureau that we count everyone. We have to be able to get our 
advertising and our communication into communities that might 
be more difficult to count so that we encourage them to come 
out and be counted. We want to count everyone.
    Mr. Clay. You are confident that Draftfcb will reach its 40 
percent small business goals.
    Mr. Waite. Yes, I am.
    Mr. Clay. Thank you, Mr. Chairman.
    Thank you, Mr. Waite.
    Mr. Towns. Thank you. Thank you very much.
    What is DOD doing to better enforce the subcontracting 
requirements that are already in law? What are you really 
doing?
    Mr. Martoccia. Well, one of the biggest initiatives we have 
is an electronic reporting subcontracting system which will 
mandate that the prime contractors report their small business 
actuals. They will negotiate the plans up front for every 
contract over $500,000, a plan as to how they are going to 
utilize small businesses, and they will be required to submit 
how they are actually doing on a monthly basis, so the 
contracting officer and the program manager and the small 
business specialist will know, will be able to monitor the 
efforts that the prime contractor is making to achieve their 
small business plan.
    You could use incentives like they do at census to assure 
that their small business goals are being met.
    So we are training our acquisition work force with that 
regard. We are going to have better monitoring. We are going to 
encourage some kind of incentive program, if possible, to 
assure that once these teams are set up at the outset that they 
are monitored and that they are achieved.
    Mr. Towns. What percentage of the Department's 8(a) 
contracts go to ANCs? Would you know?
    Mr. Martoccia. We looked at that. I think it is around 20 
percent, but that is preliminary data.
    Mr. Towns. I guess the question is that does this interfere 
with your ability to monitor to make certain that you are 
meeting your goal otherwise in terms of contracts in general?
    Mr. Martoccia. Well, the ANCs are listed as 8(a) 
accomplishments and SDB accomplishments.
    Mr. Towns. Right.
    Mr. Martoccia. So they do help meet the goal, and we want 
to assure that these big contracts, because they have unlimited 
sole-source authority, that there is a good reason as to why 
they are not competing in those requirements.
    So for contracts awarded for over $5 or $10 million on a 
sole-source basis to anybody, including an ANC, it must be 
justified as to why we can't get a better deal for the taxpayer 
if we compete it.
    Mr. Towns. Right. Now how about if an ANC wins a contract 
and then they partner with a large company, do you see a lot of 
that?
    Mr. Martoccia. Yes. Yes, we do because that satisfies the 
program manager who is interested, obviously, in the 
performance of the contracts. So if he has a responsible large 
contractor, that is going to assure that the prime ANC will 
deliver the product or service that they need. So they don't 
have any limitation on subcontracting, so they can hire these 
very large companies to provide a good portion of the work.
    Mr. Towns. Now I am hearing several things coming from the 
table, that the system needs to be overhauled or needs to be 
repaired. It needs to be fixed, I am hearing. Then I am hearing 
that the system is somewhat sick.
    Why don't I just go down the line and you tell me based on 
what you think needs to be done to make it run effectively and 
efficiently?
    Just right down the line, I will start with you, Mr. 
Jenkins. I heard your statement and I know you seem to be very 
optimistic, but the statistics don't quite confirm your 
optimism.
    So let's go right down the line in terms of responding to 
what do you think really needs to be done or even what Congress 
needs to do to make this work because I think you agree. It is 
not quite working. I think you agree on that. Of course, some 
have said that it is really, really broken.
    Let's just go down the line and give us what you think 
needs to happen.
    Mr. Jenkins. Sure.
    Mr. Towns. We want to work with you.
    Mr. Jenkins. Sure. I understand.
    First of all, I think we, SBA has to do a better job, and 
we are attempting to do that in terms of our oversight 
responsibilities as well as the business development programs 
that we offer to 8(a) firms. We also will begin to do a better 
job in terms of working with the Federal agencies. As I 
mentioned earlier, one of the first steps was our scorecard.
    Another step was getting clean data. We worked with the 
Office of Federal Procurement Policy and the Federal agencies 
to go back and scrub the 2005 and 2006 procurement data that 
resulted in reducing the overall small business participation 
from $79 billion to $75 billion. It was a $4.6 reduction in the 
achievement. I think we have to continue to do that.
    We also issued new regulations that went into effect June 
30th of this year which require firms to be recertified on long 
term contracts. That means contracting officers, if the firm is 
no longer small, they can no longer count those as small 
businesses, and that will give some greater opportunity for 
contracting officers to seek out new and other firms, small 
business firms to participate.
    So I think there are a number of things that we are doing. 
As I mentioned, we also have some regulations. We are looking 
specifically to the 8(a) program to make sure we have the 
necessary oversight resources in place.
    Mr. Martoccia. I think the one thing we can do better is to 
do better market searches to make sure that the decisionmakers 
that are doing at the buying activities understand what is 
available in the market with regard to small businesses and 
that they do sources sought and evaluate the capabilities 
better of those small companies that have the ingenuity and the 
resources to do a great job for DOD. So that is one area we 
need to work on.
    We need to have some accountability in the subcontracting 
issues with the prime contractors. We need to have the program 
managers, the contracting officers accountable for how hard 
they are looking to small businesses to provide the work they 
need done at the different buying activities within DOD.
    We need to do a better job of training within DOD and help 
train the small businesses through our procurement training 
centers and use SBA's business development centers to help 
companies that need to do business with the Government and want 
to do business with the Government.
    So those are a few areas I think we can improve on.
    Mr. Shear. Based on our work looking at the aftermath of 
Hurricane Katrina, what stands out, all value judgments, there 
are certain value judgments in terms of what the goals should 
be and how aggressively should be pursued.
    But the Federal procurement data system does give a 
mechanism for agencies to report on subcontracting requirements 
and it gives a mechanism to try to enforce those, to enforce 
contractors to give accomplishment reports on those and to have 
certain sanctions that can be made available.
    So from that work, I would say that there just even within 
the current technology, there has to be a better system of 
accountability for the agencies to followup on subcontracting 
plans and for the contractors to meet those plans and to submit 
the required accomplishment information.
    Based on our work on the OSDBUs, I will use the expression, 
second class citizens. They are supposed to be looking out to 
be advocates for the small business community, in particular, 
minority businesses, and it just seems like they are not 
meeting the way we interpret the intent and the letter of the 
law in the Small Business Act for what level that they are 
supposed to report to.
    In terms of our ongoing work, I will say certain things we 
are looking at closely where there are certain flags that are 
out there from our work, that I will represent as opportunities 
for improvement.
    Mr. Jenkins referred to the business development product 
and the use of technology.
    There is a lot of business re-engineering efforts going on 
at SBA under the leadership of Administrator Preston, and we 
applaud many of them, whether it has to do with these programs 
or disaster loans or the many programs that we happened to look 
at. The questions that come up many times is the capacity of 
SBA in terms of expertise and just the number of people in the 
field offices out in the region who are really running these 
programs, who are really providing the oversight in the 8(a) 
program.
    So we hope that the business re-engineering and the intent 
that is there to improve oversight of this program is kind of 
matched by the resources that are necessary to really 
effectively carry that out.
    Mr. Waite. Mr. Chairman, I think that one of the biggest 
things that we can do to make this program work better, in my 
opinion, is to make people accountable. We have some rules.
    I am hearing today that, well, we have these goals, but 
sometimes people don't keep track of the goals. In what other 
kind of business would we say here is your goal for production, 
but if you don't bother to write down what you did, we are not 
going to be too serious about it?
    I think, you need to have goals. They need to be tracked. 
People need to be held accountable for tracking them. At the 
Census Bureau, we hold our prime contractors accountable with 
money. We hold our senior managers accountable.
    When you have people held accountable, they start, by 
themselves, looking for ways to help train small business so 
that they can do a better job, helping, giving them feedback if 
they are not necessarily competing at the right level or 
providing the right information because it becomes in the 
interest of the prime contractor.
    In the case of the Census Bureau, in the interest of our 
acquisition senior managers, they need to find ways to meet 
those goals and then rather than drive them, they are going out 
themselves and trying to find out what happened. At census, we 
have a lot of goals and a lot of numbers. We are a numbers 
place, but I have found if I set a goal for performance and I 
don't pay attention to whether anybody actually measures it, 
the performance doesn't often follow.
    Mr. Towns. Thank you very much.
    Congressman Bilbray.
    Mr. Bilbray. Mr. Chairman, I just would like to echo the 
fact that the lack of accountability is a direct result of a 
problem we have in Government across the board. We had the 
hearing over in Veterans about the IT system. When management 
cannot be even disciplined, let alone terminated, there is not 
a business in America that could operate without being able to 
terminate immediately.
    We try to function at that Government level, and I just 
think all of us have to understand that sensitizing of 
bureaucracy should be a goal of all of us, not because we are 
anti-public employee. I have been a public employee ever since 
the year I got out of high school. The fact, though, is the 
public employee should have as much vested in success or 
failure as the public themselves.
    I appreciate the chance, Mr. Chairman, and I yield back.
    Mr. Towns. Congressman Clay.
    Mr. Clay. Thank you, Mr. Towns.
    Mr. Shear, in your testimony, you stated that the lack of 
transparency in the subcontracting process may lead to 
unwarranted perceptions about the procurement system. During 
its investigation, did GAO find information that the lack of 
transparency in the process discourages small businesses, 
particularly minority contractors, from participating in the 
contracting process?
    Mr. Shear. The answer is no, but it isn't because that we 
know that there is frustration. We are aware of concerns or 
frustration in a community with respect to subcontracting and 
some of the issues that the OSDBUs get involved with as far as 
making sure subcontractors get paid.
    We are aware of those concerns, but our focus in our work 
on Katrina contracting is basically we were going out to see to 
what degree can you document how different businesses, 
including small businesses and different categories of small 
businesses, are participating in Federal contracts. At the 
prime contract level, there is data issues, but we could 
address that.
    At the subcontract level, it gets to the accountability 
issue to a large degree. If you don't have data being put into 
the system as far as what those responsibilities are, that it 
is just going to be difficult to demonstrate and there is going 
to be lack of transparency as far as what that participation 
is. Just knowing the condition, as far as what is that 
participation, is very important to be able to assess. How 
effective are the efforts made by the various agencies in 
providing opportunities for small businesses, for small 
disadvantaged businesses, women-owned businesses, etc?
    Mr. Clay. Although those documentation issues could be 
addressed if you follow the example of the Census Bureau and 
write them into the contracts of the prime and the subs, 
correct?
    Mr. Shear. Yes, it would be writing it into the contracts 
and having the mechanism through internal mechanisms the 
agencies have, the Federal procurement data system and then the 
system that the contractors use to report to make sure that you 
are holding them accountable for what they are responsible to 
do.
    Mr. Clay. So to hold them accountable would be through 
incentives. Through payment incentives, I suspect.
    Mr. Shear. It can be through payment incentives are among 
the types of actions that contracting agencies can take when 
prime contractors do not perform, including not performing on 
commitments in subcontracting requirements.
    Mr. Clay. I see. Thank you, Mr. Shear.
    Mr. Jenkins, you cited the Small Business Procurement 
scorecard as a tool that is used to measure a Federal agency 
that was to provide opportunities to small businesses in the 
Federal marketplace. Can you tell the subcommittee how the 
following agencies scored on the most recent scorecard? There 
are three of them: Department of Commerce, GSA and GPO.
    Mr. Jenkins. I don't have those actually with me. I believe 
we can get that information to you.
    We have actually listed all 24 of the CFO agencies and 
given two scores, one as the progress based on their 
achievement against the actual goal, the numeric goal. Then we 
required each of the agencies to submit a plan as to how they 
were going to improve, and then we rated that, those particular 
plans. So I can get that to the committee.
    Mr. Clay. OK. I would appreciate it if you could.
    One last question for Mr. Martoccia. DCMA has completed 94 
compliance reviews. What has the review revealed so far about 
the difficulties that minority-owned businesses encounter as 
subcontractors under DOD?
    Mr. Martoccia. Well, one of the issues is assuring that our 
large prime contractors provide those opportunities to the 
small and the minority small businesses. So looking at the 
statistics, there needs to be some work done with regard to 
assuring that the opportunities in the contracts improve over 
the course of the next year or two.
    Mr. Clay. Would it be helpful to follow the example of the 
census and write in specifics into prime contractors' and 
subcontractors' contracts.
    Mr. Martoccia. Well, we have a comprehensive subcontracting 
plan for our major subcontracts, but for the individual 
contracts that over $500,000, the contracting activity can 
negotiate whatever provision they would like to. If the 
customer considers meeting the small business goals important, 
the contractor is going to deliver. So it is a matter of 
communicating the expectations of the prime contractor with 
regard to the small business participation.
    Mr. Clay. But it also indicates that you need to have a 
stick too in order to enforce it.
    Mr. Martoccia. You can negotiate an incentive. Yes, you can 
do that.
    Mr. Clay. All right. Thank you.
    Mr. Chairman, I yield back.
    Mr. Towns. Thank you.
    Let me just say that the SBA Inspector General reported 
that in fiscal year 2005, 50 percent of the dollars obligated 
against 8(a) contracts went to 1.7 percent of 8(a) firms and 
over 70 percent of the eligible firms received no contracts and 
no benefits at all.
    When they go through this long certification process, they 
spend their money going through all of this, and then at the 
end there is nothing? That is a very frustrating thing. I think 
somewhere along the line, this has to be fixed.
    This is a country where we can put a man and a woman on the 
moon, and we can't even fix a program to be able to give people 
contracts at the end after they go through the whole process, 
and that can be an expensive process for them. That costs 
money.
    I really want you to think about this and let's see if we 
can't come up with a way. We are willing to participate in that 
process. I know you don't want us to get our noses under the 
tent--I understand that--Members of Congress. I know that.
    I understand that, but I am going to say to you we are not 
going to go away. There are just too many people complaining 
about the fact that this is not working, and we need to fix it. 
We look to you to provide that leadership and to fix it, 
really, because there are just too many people out there being 
hurt and being frustrated, and it just should not happen.
    Any other further questions?
    Let me thank all of you for your testimony. I think we 
agree on the fact there is a problem and that the problem must 
be fixed. Thank you so much for your testimony.
    I call the second panel to come forward. As the first 
panel, we swear our witnesses in.
    [Witnesses sworn.]
    Mr. Towns. Let me just briefly introduce our witnesses.
    Michael Barrera is president and CEO of the U.S. Hispanic 
Chamber of Commerce where he is responsible for increasing 
business opportunities for Hispanic entrepreneurs. He was 
formerly the National Ombudsman for the Small Business 
Administration. Welcome.
    Damon Kinebrew is the Treasurer of the Association of 
Minority Enterprises of New York [AMENY], where he is dedicated 
to increasing public contracting opportunities for minority and 
women-owned businesses. It is good to have you.
    Allegra McCullough is the former Associate Deputy 
Administrator for Government Contracting and Business 
Development at the Small Business Administration and is now a 
consultant on economic and business development. Welcome.
    We have Mr. Anthony W. Robinson who has served as president 
of the Minority Business Enterprise Legal Defense and Education 
Fund for the past 23 years. Mr. Robinson has engaged in 
activities on behalf of minority business enterprises that have 
been comprehensive in nature including litigation, testimony 
before legislative bodies, legal guidance and technical 
assistance for local, State and Federal agencies.
    Let me say that your entire statement will be placed in the 
record. If you just could summarize within 5 minutes which will 
allow us the opportunity to raise some questions with you, we 
would appreciate it.
    There is a clock there. Just in case you might not be 
familiar with it, it starts out green and then it turns to 
yellow which is saying sum up. Then it turns red and that says 
shut up. [Laughter.]
    Mr. Barrera, we will start with you and come down the line.

   STATEMENTS OF MICHAEL L. BARRERA, PRESIDENT AND CEO, U.S. 
   HISPANIC CHAMBER OF COMMERCE; DAMON KINEBREW, TREASURER, 
  ASSOCIATION OF MINORITY ENTERPRISES OF NEW YORK; ALLEGRA F. 
    MCCULLOUGH, FORMER SBA ASSOCIATE DEPUTY ADMINISTRATOR, 
GOVERNMENT CONTRACTING AND BUSINESS DEVELOPMENT; AND ANTHONY W. 
ROBINSON, PRESIDENT, MINORITY BUSINESS ENTERPRISE LEGAL DEFENSE 
                       AND EDUCATION FUND

                STATEMENT OF MICHAEL L. BARRERA

    Mr. Barrera. Chairman Towns, Ranking Member Bilbray, 
members of the committee, distinguished panelists and staff, my 
name is Michael Barrera, and I am the president and CEO of the 
U.S. Hispanic Chamber of Commerce. I am proud to join you today 
to offer testimony on SBA's 8(a) business development program 
and other contracting programs designed to assist small and 
disadvantaged business owners in accessing the Federal 
marketplace.
    Only 18 percent of businesses in this country are owned by 
minorities. This number stands in sharp contrast to the 32 
percent of the population that minorities represent.
    Even more revealing is the vast disconnect between gross 
sales and receipts of minority and non-minority businesses. The 
average gross receipts of non-minority firms is $448,000. 
Minority companies earn $162,000 per firm.
    Clearly, Government agencies must bring the minority 
business community into full participation in the national 
economic system. Unfortunately, the efforts to streamline the 
SBA in recent years through budget cuts and personnel 
reductions has caused SBA to be less effective than it could be 
in serving small businesses.
    While there is no shortage of potential improvements to 
existing small and disadvantaged businesses, I will briefly 
describe three critical improvements that can be made. Please 
refer to my written testimony for more recommendations.
    First, USHCC recommends that contract bundling be 
restructured so that Federal agencies only use it when 
absolutely necessary as in the case of national emergencies 
such as 9/11 and Katrina. Also the definition of bundling 
should be revised to ensure that small contracts that were 
previously performed by small businesses not become part of 
bundled contracts.
    Bundled contracts by their very nature are too large for 
small businesses to compete for, therefore, stripping small and 
minority business of the opportunity to serve as prime. It is 
also well established that Federal agencies bundle contracts 
mostly for administrative convenience and not necessarily for 
cost savings. In fact, cost savings achieved through bundling 
have not been satisfactorily demonstrated by the Federal 
agencies.
    Second, it is essential that significant improvements be 
made in how primes treat subcontractors on Federal contracts. 
Large Federal contractors often do not comply with the legal 
requirement to include small and minority businesses in their 
subcontracting programs.
    Federal contractors often engage in bait and switch 
tactics. The prime secures a quote from a minority contractor 
and incorporates that price into its prime contract. Later, 
after winning the prime contract, the prime rebids the 
subcontract to give the work to other companies rather than the 
minority subcontractor included in the original bid. Clearly, 
these types of practices need to be eliminated.
    Additionally, new approaches need to be utilized to induce 
prime contractors to utilize small and minority businesses in 
their subcontracting. The USHCC recommends a combination of 
negative and positive inducements as those described by the 
census.
    For example, primes that fail to achieve their 
subcontracting goals should be penalized in their award fee. 
However, primes that do accomplish their goals could receive 
extra award fees. In any event, there needs to be far more 
oversight on this particular subject.
    Last but not least, there is a need to reform Alaska Native 
Corporations [ANCs]. In recent years, the participation by ANCs 
in the SBA 8(a) program has become troubling.
    ANCs were created in 1971 by Federal law as part of the 
Alaskan Native Claims Settlement Act. Contrary to popular 
belief, ANCs are not necessarily small, economically 
disadvantaged tribal businesses. Most ANCs are very large 
businesses with multiple divisions and subsidiaries, billions 
of dollars in revenues, thousands of employees and offices all 
over Alaska, the United States and, in some cases, all over the 
world.
    Through special amendments to the original 8(a) 
legislation, ANCs have been given a host of special procurement 
privileges. Those special privileges led GAO to conclude that 
Federal agencies are favoring ANCs over other 8(a) minority and 
small businesses.
    GAO also reports that Federal agencies favor ANCs because 
they can more readily meet their small business contracting 
goals through large ANC contracts. Just the numbers we saw 
today from 2001 to 2006, ANC contracts went from 4 percent of 
8(a) contracts to 8 percent and their actual contracting 
dollars more than quadrupled.
    The USHCC believes that these ANC special privileges go far 
beyond the intent of the program and have limited competition 
while undermining the SDB contracting goals developed by 
Congress. We believe that there should be a level playing field 
among all firms participating in the 8(a) program. To that end, 
we recommend that Congress make legislative changes to the 8(a) 
program so that ANCs are treated just like the rest of the 
firms participating in the 8(a) program.
    Chairman Towns and members of the subcommittee, there is 
great need for improvement in our Nation's procurement 
regulations in order to improve access to small and minority 
firms. The USHCC stands ready to lend any assistance Congress 
may need toward implementation of these recommendations 
contained in this testimony.
    Again, thank you for the opportunity to share our views 
with you today, and I look forward to any questions.
    [The prepared statement of Mr. Barrera follows:]

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    Mr. Towns. Thank you very much.
    Mr. Kinebrew.

                  STATEMENT OF DAMON KINEBREW

    Mr. Kinebrew. Mr. Chairman and fellow members of this 
distinguished committee, good afternoon.
    I am Damon Kinebrew. I reside in Brooklyn, NY. I am here as 
the director of programs for the Association of Minority 
Enterprises of New York.
    Mr. James Hayliger, II was unable to be here today. 
Therefore, I received the mission. It is an honor and a 
privilege to appear before you today to share some of my views 
and the views of the Association of Minority Enterprises of New 
York in the area of procurement.
    The hurdles facing most small and minority enterprises are 
the lack of working capital, the lack of contracting 
opportunities and the lack of strong management skills.
    Now let us examine the lack of working capital and offer 
some possible solutions.
    By the way, I am keeping my eye on this clock, sir.
    The small business should have some 60 to 90 days of liquid 
resources available to finance any major project for that 
period of time and a proper documentation and the methods of 
generating all change orders and the methods and time of 
payment. The effect of a default on a project and the aftermath 
of liquidated damages results in a negative impact on the small 
business resources.
    For example, in 2003, a small contractor in the New York 
area received a contract to finish a project for about $5 
million. It was one of the largest contracts they had ever been 
awarded, and the contract was running approximately 4 weeks 
behind schedule. It was a construction-related contract.
    The GC suggested to this small business concern that they 
needed a change order to get back on schedule. They thought 
they were working well. They accepted terms and conditions 
verbally of the change order and got to work.
    Well, the change order wound up being about $600,000 worth 
of work, and the small business concern attempted to collect 
their money for the change order. The prime contractor said, 
well, you have to prove that you spent this much money and all 
these conditions and agreed to pay $100,000 of the $600,000 
change order worth of work.
    Well, that wasn't forthcoming, the prime contractor 
suggested to the minority business, well, why don't you just 
take me into court?
    Well, we can't afford to go into court and wait a year or 2 
years to collect a half million dollars. That impacts greatly 
our cash-flow and our working capital on our jobs.
    Therefore, this small business concern went from 42 
employees down to 2. This happened within the last few months.
    Now let's look at the contracting opportunity that are 
available to the small and minority business. Numerous projects 
and contracting awards are done on a sole-source basis. No 
solicitation would be given or issued for this type of an 
opportunity.
    Here, again, this type excludes and is a deterrent to the 
small business enterprise and lacks the consideration. This 
process is wrong and should be denounced whenever and wherever 
detected.
    There was another company who got a chance, who thought 
they saw an opportunity to bid on the AirTrain in the New York 
area when we were building the AirTrain. The company felt that 
it was a minority firm. They had the ability to build the 
AirTrain cars, store them and deploy when the Port of Authority 
in New York and New Jersey called for them to be deployed.
    The firm was denied the opportunity and most certainly 
complained about the denial of the opportunity. When we 
complained to the officials of the State of New York, the 
government officials of the State of New York, their response 
was, well, didn't you bid on it? The minority firm's response 
was, no, we did not bid on it.
    The minority was sort of reprimanded by the State officials 
of New York, who said, well, in order to win that kind of 
business, you have to bid on it.
    Well, the response of the minority firm was that there was 
no solicitation. It was a sole-source contract to a firm from 
our neighboring country, out of Canada, who had no 
requirements. Mind you, the small business or the minority 
business concern was within 11 miles of the airport, who had 
the capability of doing the job but was denied the opportunity.
    Now let's move on. The small business enterprise should 
seek opportunities to develop strong management skills for 
their companies to make sure that each staff member is provided 
with training time in their areas and responsibility of the 
senior management to ensure that the continuing education is 
available and the upgrades to sharpen their skills.
    It is the view of most small business advocate 
organizations that the 8(a) program should be expanded to 
include larger numbers of small and minority businesses 
participating.
    The phase-out of the 8(a) program should emphasize with 
some degree of regularity once or twice a month by the project 
administrator. In addition, graduation from 8(a) program should 
be maintained. However, early on in the life cycle of the 
program, the company should be informed that there will be a 
graduation, that the time will be running out.
    Programs of the Small Business Administration, the MBDA 
type programs offer management services and technical 
assistance through contracts. This was some time ago, but it 
was quite effective.
    Mr. Towns. Mr. Kinebrew, can you sum up?
    Mr. Kinebrew. Yes, sir.
    We will move rapidly to the summation. We think that if the 
country decides that they are going to make a full emphasis on 
minority business participation, they should enforce some of 
the recommendations they have heard here today.
    My complete written testimony is here, and I am prepared to 
answer any of your questions that you may ask. Thank you very 
much.
    [The prepared statement of Mr. Kinebrew follows:]

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    Mr. Towns. Let me add that your entire statement will be 
included in the record.
    Ms. McCullough.

                STATEMENT OF ALLEGRA MCCULLOUGH

    Ms. McCullough. Chairman Towns, Ranking Member Bilbray, 
thank you so much for providing me with an opportunity to speak 
to you today.
    I will be as brief as possible. I am going to skip some of 
this for the sake of time.
    In spite of the various contracting and business 
development programs offered by the Federal Government for the 
purpose of assisting small and minority businesses, much is 
required in order to truly attain the level of procurement 
awards that the Federal Government is capable of awarding.
    Program language, outdated and inappropriate for the 21st 
century, that limits growth, sets difficult employment 
requirements and restructures the mission of a program by 
creating special groups within it cripple the ability of 
minority businesses to progressively compete.
    These structural weaknesses, combined with the lack of 
enforcement of some policies such as subcontracting and 
secretarial appeals, increasing contract size, costly and 
lengthy protest processes, a lack of commitment on the part of 
some senior agency representatives to creating a diverse 
supplier base and inadequate guidance being provided to prepare 
minority businesses to compete worldwide, exacerbate the 
problem of equal access.
    On the issue of increasing contract size, contracts are 
indeed getting larger and larger, requiring minority-owned 
businesses to create larger teams in order to compete. While 
detrimental to small businesses in general, it is particularly 
detrimental to minority businesses as creating teams and joint 
ventures can be costly.
    Much of contract bundling and increased size of contracts, 
however, is a direct result of the dwindling senior procurement 
work force that is not being replaced in a timely manner. 
Expediency rules over the development of thoughtful strategic 
sourcing plans that could benefit more small businesses. Many 
procurement opportunities must be delayed for years because of 
a scarce, often ill-trained, procurement work force.
    A scarcity in a procurement work force also means a high 
probability that inadequate market research will be conducted 
to discern the capabilities of minority vendors, lessening the 
chances of opportunities being set aside for them. There is 
also evidence of departments within agencies that refuse to 
believe that small businesses, particularly minority 
businesses, can perform certain capabilities and, of course, 
there is very little evidence to justify this.
    On the 8(a) business development program, it is well over 
30 years old and in desperate need of examination of language, 
restrictions and overall program oversight.
    For instance, the statement of being able to demonstrate 
the ability to succeed before you even become part of the 
program, I am not aware of any other Federal program that 
requires individuals seeking its assistance to demonstrate that 
they can succeed before they are accepted in it. The language 
in itself is discriminatory particularly in the case of rural 
applicants whose communities may not provide access to business 
development, financial counseling or training.
    On the issue of social and economic disadvantage, while 
participants in the 8(a) program are required to demonstrate 
the ability to succeed, they are also subjected very often to 
harsh scrutiny in demonstrating just how disadvantaged they 
really are by the Offices of General Counsel and Inspector 
General. The scrutiny usually questions what school they 
attended, how they paid for college or the value of the house 
in which the applicants' parent currently resides.
    In the case of minority retirees, retirement funds, trust 
funds for grandchildren could automatically remove them from 
the social and economic disadvantaged status without regard for 
the many barriers the applicants faced to reach their current 
status. The historic level or type of discrimination is rarely 
weighed if the answers given to the above questions are not 
satisfactory to the Offices of General Counsel and Inspector 
General.
    I find it interesting that the history of discrimination 
carries less weight in admission to the 8(a) program for some 
groups than it does for others. The 8(a) program was created to 
level the playing field in Federal procurement. However, the 
additional perks afforded Alaska Native Corporations and Native 
American tribes recreates an unlevel field of opportunity and 
skews the minority procurement award statistics.
    It is not a question as to whether either group deserves to 
participate in the program. It is a matter of the fact that the 
8(a) program was created to address and remedy discrimination 
in contracting, and this creates a new dimension of 
discrimination.
    The question of oversight is there is need for more SBA 
procurement center representatives for the number of existing 
and growing portfolios, particularly in California and 
Washington, DC, districts.
    I am running out of time here, but what I do want you to 
know is that these PCRs go through as many procurement 
opportunities as they possibly can to break them out to see 
what can be actually pulled out for small businesses. When they 
are not reaching agreement with the contract officers, they 
issue what is called a secretarial appeal which stops the 
procurement from going any further while mediation goes on 
between the PCR, and technically it is supposed to go on 
between the SBA Administrator and the agency head.
    However, I can assure you that rarely, if ever, are those 
secretarial appeals even seen by the head of the agency, and 
they are not recorded, and they are not tracked anywhere.
    On other program, the HUBZone program, which was created to 
create jobs, requires 33 percent of the base of those employees 
to come from those HUBZone areas. Because they are located in 
areas that typically have disadvantaged individuals who may or 
may not have, in most cases, do not have a good work ethic, if 
that employment number falls below that 33 percent and that 
particular company is holding a contract, that contract can 
technically be snatched without giving that company an 
opportunity to recruit in order to make up for that employment 
base.
    [The prepared statement of Ms. McCullough follows:]

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    Mr. Towns. We have to cut there, OK.
    All right, Mr. Robinson.

                STATEMENT OF ANTHONY W. ROBINSON

    Mr. Robinson. Thank you very much. Mr. Chairman, Mr. 
Bilbray, Mr. Clay, thank you for this opportunity to speak with 
you all very briefly.
    I too will submit my testimony that is in much greater 
length than what I want to address here, but I feel like Sunday 
morning, coming behind the line of good preachers, and I am 
last in line. Much of the other preachers before me have 
already taken much of what I wanted to say.
    I specifically want to agree with Ms. McCullough, that the 
problem is a structural problem.
    Public Law 95507 speaks to, as a goal, that the firms are 
to become competitively valuable, and that is why they made the 
8(a) program a business development program. But over the years 
what they have done for many different reasons, those business 
development tools have been eliminated.
    Thus, the tools that were envisioned when Public Law 95507 
was passed by the Congress in 1980, much of that infrastructure 
no longer exists within SBA, and it essentially has become just 
a procurement program. And so, you have some real structure 
programs there.
    In addition, and this is what my testimony will speak to, 
is the issue of discrimination that is still a problem in the 
Federal marketplace. One study called it deep and pervasive.
    The Congress has an obligation, I believe, to begin to 
build the record on this issue of discrimination because, as 
you know, the Supreme Court has applied a new standard by which 
these programs will be tested as to their constitutionality. If 
the Congress has not laid the appropriate predicate to justify 
the need for those programs, it makes the programs vulnerable 
to attack.
    Based on what we have already heard coming out of the U.S. 
Civil Rights Commission, you can see that the groundwork is 
being laid to attack the programs, and so I would urge the 
Congress to begin to look at this issue of discrimination in 
the Federal marketplace and begin to develop that record in 
that regard.
    Again, the program, there are some structural issues here. 
If you talk, there has been discussion here about the ANC. 
Despite the representations of SBA, that is having an adverse 
impact on the other participants in the 8(a) program.
    But you cannot examine or address the 8(a) program without 
also addressing the impact of the FARA and FASA that Congress 
passed in the mid-1990's to streamline the procurement process. 
What that set in motion was a process by which contracts will 
have to be bundled. When you remove personnel and you remove 
the process by which contracts are examined, then it leaves 
contracting officers with no other real option but to bundle 
the contracts and make the contracts larger.
    You talk about small businesses availing themselves of 
that. It is impossible to do. And so, when we talk about the 
ANCs and you have to talk about and Ms. McCullough has already 
addressed the issue of PCRs and the lack of enough PCRs in 
order to address the enormity of Federal procurement itself.
    You have a couple of other barrier problems. Size 
standards, size standards are antiquated in today's industries. 
Personal net worth, you have caps particularly on minority 
firms as to their ability to compete in larger and larger 
contracts when they are artificially capped insofar as what 
their net worth can be.
    You have spoken to the issue of subcontracting, again, 
another structural problem. We try to address the 
subcontracting plans, as I say, after the horse is out of the 
barn.
    I would suggest that if we require subcontracting plans to 
be submitted at the time that they submit their proposals and, 
as Mr. Clay suggested, as a part of the contract, then we would 
be in a much better position to address the subcontracting 
problem than what we are now because now there is no real 
oversight on subcontracting plans. Nobody really is examining 
what is or is not happening with those subcontracting plans, 
and it leaves minority firms out there to be abused. That is, 
in fact, what is happening.
    Finally, capital and access to capital, I would suggest to 
you that particularly access to equity capital and equity 
capital through the SBA can only really take place for minority 
firms when you have minority SSBICs that are out there that are 
in contact with these companies and can avail themselves of 
that equity capital. As of today, SBA is not certifying 
minority-owned SSBICs.
    The SDB program is a problem. Procurement authority that 
Congress authorized expired almost 5 years ago, and has not 
been reauthorized.
    Finally, 10 U.S.C. 2323, that sets a 5 percent goal on 
research and development dollars that should be going to 
historically black colleges and universities and minority 
institutions is not being enforced.
    If these firms are going to participate in a technology-
driven industry and we are not involved in the technology 
development and commercialization of that technology, then they 
will be marginal. They will continue to be marginalized even in 
the Federal budget.
    Thank you.
    [The prepared statement of Mr. Robinson follows:]

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    Mr. Towns. Thank you.
    Let me thank all of you for your testimony.
    Let me begin by asking, how can we hold agencies 
accountable for their failure to meet their goals? What can we 
do?
    Ms. McCullough. If I might address that, the best way to do 
that is to hit them where it hurts them. That is always in the 
wallet.
    They have to go through a series of evaluations during the 
year. At the end of the year, supposedly if they have reached 
their goals, they get, they can receive some type of bonuses. I 
strongly suggest that some type of cap or elimination of a 
bonus be placed on those employees who do not reach those 
goals.
    Mr. Barrera. I think another thing that works, when I was 
the ombudsman, we had hearings across the County with those 
agencies that were not treating businesses right and regulatory 
enforcement actions. They don't like to be embarrassed either. 
Those offices don't like to be embarrassed. So, actually, maybe 
holding hearings in different spots.
    We actually used to have Congressmen and Senators go to 
these hearings with, and that had a big effect. I still report 
to Congress every year on how Federal agencies do. We did a 
scorecard on them, on how Federal agencies did. So sometimes 
that also helps also.
    Mr. Kinebrew. Mr. Chairman, I would suggest that the 
employees' evaluations, their meeting the goals should be 
reflected in their personal evaluation.
    Mr. Towns. You are actually saying there should be 
penalties?
    Ms. McCullough. Absolutely.
    Mr. Robinson. Absolutely, I would agree with that as well.
    The only problem, there have been sanctions. We have had 
sanctions out here for a few years but, for example, I note the 
earlier panel talked about that they could withhold bonuses 
relative to subcontracting plans and things of that nature.
    I am unaware, and I would bet you that there probably have 
not been five agencies or personnel in Government in which 
those sanctions have been imposed. So you have a real problem 
of compliance and enforcement, and so you do have penalties. 
You do have carrots and sticks out here, but we have no one 
willing to execute on them.
    Mr. Barrera. You can't just go after the employees. You 
have to go up to the primes. There are penalties for primes. 
From what we understand, there is not that punitive penalty. 
From what we understand, we don't know if it has actually been 
enforced. So you go to the primes.
    It is actually a combination of three things--the agencies, 
the employees and the primes themselves--that should be held 
responsible.
    Mr. Towns. Do you want to be specific on penalties?
    Mr. Barrera. We do know that there are penalties like, for 
instance, not paying what they should be paid if they don't 
meet their subcontract. I think the Census Bureau explained 
some of the things they are doing, and I think that is a good 
start. That seems like a good model to me, to hold them 
accountable.
    What is the old saying? You can't get results unless you 
measure them. The numbers don't lie. Whether they are reached 
or not, the numbers don't lie.
    Mr. Towns. I yield to the ranking member, Mr. Bilbray.
    Mr. Bilbray. Thank you, Mr. Chairman.
    I have tell you it brings back memories when I was chairman 
of San Diego County and we had our struggle over the city of 
San Diego had its affirmative action program and we had ours. 
Someone once asked me why we weren't adopting San Diego's, and 
I said because I want it to stand up in a court of law. San 
Diego's got thrown out.
    Mr. Robinson, my concern, and you really hit on it, is I 
would love to have that standard being a minimum and 
enforceable. As soon as we do that, though, we fall back on 
this issue of constitutionality and equal protection.
    You brought up the issue that we need to really take the 
time to document the system's discrimination of the past or it 
is not going to hold up under the 14th amendment. You have to 
make sure that the institution itself has been indicted to be 
able to pass the constitutionality of the 14th amendment. Do 
you want to elaborate on that?
    Mr. Robinson. Under the strict scrutiny standard that the 
Supreme Court has now imposed, in order to have remedial 
measures, you have to have established a predicate, and the 
court has held that discrimination represents an appropriate 
predicate. In my testimony, I have cited five examples, and I 
am prepared to give many more in order to establish that 
predicate so that this Congress can adequately address that 
issue in the way in which it structures or restructures these 
programs.
    Mr. Bilbray. Thank you.
    I apologize. I wasn't here to hear your testimony.
    In fact, I have been working most of my political life, 
working on a problem that we have had with border pollution in 
Mexico, and it happens to be that the one contractor who was 
willing to take on the problem happened to be a Latino 
contractor. Those of us along the border, we don't think about 
those things, but I just realized that the way he has been 
treated by the bureaucracy has just been appalling. I mean to 
the point where the San Diego Union did an editorial on that.
    The difference we have with the different communities is 
different types of barriers, not all the same. Is there any 
recommendations you can give us?
    I apologize. You probably have done it, but it will give me 
personally and the chairman personally as we get into this, 
that here in Washington we may have a perception of what the 
challenges are, but in the Latino community we definitely have 
different challenges. Is there any specific differences that 
you could articulate to me as one member?
    Mr. Barrera. I have been involved. When I was at the SBA, 
we had hearings all over the country. I have dealt with African 
American companies, Latino companies, all companies.
    I think a lot of it is a couple things. One is that the 
bureaucracy is very, very difficult, and it is hard for 
anybody, whether you are Latino or non-Latino, to get through 
that bureaucracy. Actually, the bureaucracy is not necessarily 
nice. There are nice bureaucracies and not so nice 
bureaucracies. In the Federal contracting rules, it is not that 
nice, but you are dealing with different bureaucracies. You are 
dealing with the Government bureaucracy. You are dealing with 
the prime bureaucracy.
    Here in his example, I heard this a lot not just with 
Latino companies but a lot of companies. You get involved with 
a prime, and they dare you to take them on because they know 
you can't. I think that is one. There is that fear factor of 
taking on that Government procurement buying officer or taking 
on that prime. They may not get that contract. Again, you get 
labeled as a troublemaker, and that is the last thing that you 
want. So there needs to be some more protections for those 
companies that actually do complain, that actually do want to 
go after these things, not just for themselves but for small 
businesses nationwide.
    Mr. Bilbray. Thank you.
    I yield back, Mr. Chairman.
    Mr. Towns. Thank you very much.
    Mr. Clay.
    Mr. Clay. Thank you, Mr. Chairman.
    Mr. Barrera, the Hispanic Chamber of Commerce recommended 
eliminating the net worth limitations for entry and 
continuation in the program. You strongly believe that net 
worth should not be used as the barometer for continuation in 
the program.
    What measure does the Chamber believe would be a more 
reliable measure?
    Mr. Barrera. I think what we testified today. The program 
has not been really looked at in 30 years, and right now 250 is 
really a small number. That is a miniature business for the 
most part, and there are still a lot of businesses that can 
take advantage of that. But you need to make it higher, so 
larger businesses that are still small businesses.
    A $500,000 business is still a small business for the most 
part. A million dollar business, again based on whatever type 
of industry you are in, can still be a real small business. So 
I think we need to raise those levels so more businesses have 
the opportunity to actually participated. Those small 
businesses have the capacity to participate is very, very 
important.
    We would kind of like to eliminate that, but we are willing 
to talk to Congress about at least raising that limit because 
it hasn't been changed in a while and it needs to be addressed.
    Mr. Clay. Those levels vary across the board like cities 
and States may have a difference measurement.
    Mr. Barrera. Correct, and by industry also.
    Mr. Clay. I think some of them are 750,000. So it is all 
across the board then, isn't it?
    Mr. Barrera. Correct.
    Mr. Clay. Thank you for that.
    Mr. Robinson, you mentioned the Croson and Adarand cases in 
your testimony. There is some misunderstanding about the legal 
parameters of these case and their impact on the Federal 
regulatory process. Some in Government believe the decisions go 
so far as to even prohibit agencies from setting goals for 
minority contracting or keeping record on contracts awarded to 
minority-owned businesses.
    In your professional opinion, what exactly are the 
parameters set by the two cases and do they prohibit Federal 
agencies such as the Census Bureau from compiling data about 
whether a minority-owned firm that has won a contract fair and 
square is African American-owned or Latino or Asian-owned?
    Mr. Robinson. Mr. Clay, I would suggest that the decision, 
in fact, compels the collection of data.
    The court, in very clear terms, said that in order to have 
race as a factor, you have to have justification for it, and it 
said very specifically that the identification of 
discrimination represents an appropriate predicate for the 
Congress to act, and that when you act, you must act. The court 
called it narrowly tailoring. You must narrowly tailor your 
remedy to the discrimination that you found.
    Well, I suggest to you, sir, that the discrimination deals 
with issues of market and money specifically, procurement and 
capital and other places, access to technology. That is why I 
noted the 10 U.S.C. 2323 relative to research and development 
money.
    When you identify that discrimination, then you tailor your 
remedy to fit the discrimination. That is what the court held.
    Mr. Clay. Has this Congress and previous Congresses 
compiled a record in order for us to be able to act on or is 
the record already in existence?
    Mr. Robinson. Well, the last time this was under Mr. 
Clinton's mend it but don't end it. This was the mid-1990's 
right after the Adarand decision. At that time, the Justice 
Department collected the data that represented the appropriate 
predicate, but that has been almost 10 years ago now.
    I was working with the Senate. A couple of months ago, it 
began developing the record on that side. I am suggesting and 
encouraging the House to also begin that process as well.
    Mr. Barrera. Excuse me, Mr. Chairman. I am going to have to 
catch a flight. I have to catch a flight here at 5. So I need 
to go, and I apologize. But any questions you have, we will be 
happy to answer them in writing to you.
    Mr. Towns. Right. Do you have any questions for him just as 
he leaves?
    Mr. Clay. No. I yield back.
    Mr. Towns. OK, fine.
    Mr. Barrera. Thank you so much for the opportunity.
    Mr. Towns. Thank you. Have a safe flight.
    Let me just ask this question. What are some of the 
challenges that the small business person encounters?
    You mentioned some like capital. What are some of the other 
things? I am trying to figure out why we can't do better.
    Mr. Kinebrew. Well, it depends on the part of the country 
that a lot of these small businesses exist. For example, in 
some parts of the country, bonding is really an impediment. 
Bonding and the entire bonding concept is used sometimes as a 
tool against small or minority businesses. I think we should 
review or the Congress should review or the SBA, someone should 
review the way bonding is established, and those agencies that 
can wave bonding or increase the amount of the contract that is 
not subject to bonding. So bonding is one issue.
    Another issue is, again as Mr. Robinson said, access to 
capital. The process by which one gets capital that we need, 
whether it is equity or debt, sometimes that process takes such 
a long time to get there.
    I worked on a situation where a small business wanted 
$100,000 loan. It took them 14 months to get $100,000 loan. By 
the time they got it, they were out of business practically.
    So we need to look at bonding, insurance and the 
availability of capital.
    Mr. Towns. Any other comments?
    Ms. McCullough. Some of that has to do with the fact that 
many agencies do not conduct proper market research such that 
they will be able to really develop a supplier base that is 
diverse and whether or not they understand of the development 
of that diverse supplier base on those communities in which 
those companies actually reside. It could very well be part of 
the problem, but inadequate market research certainly does 
cause many, many problems because the capabilities of minority 
firms rarely come to the attention of those individuals who can 
make decisions.
    Mr. Towns. Thank you very much.
    Historically, Government purchasing programs have said the 
trends in minority business development, that recently these 
initiatives have been squeezed by budget deficits and cuts. 
More importantly, they have been the subject of legal cases 
examining racial preferences in procurement and contracting.
    What has been the impact of these changes on State and 
local governments? Will you answer that for me?
    Ms. McCullough. One of the things that I would like to draw 
your attention to in my testimony is the fact that a law that 
you passed in 2005, which was the Section 155, participation in 
federally funded projects of the Consolidated Appropriations 
Act of 2005, that provided guidelines for the States and the 
localities receiving Federal funding. It mandated that they 
should not demand or require that minority-owned companies 
holding 8(a) certification to have to recertify in those 
localities.
    The SBA Office of General Counsel and the DOT Office of 
General Counsel have refused to develop the guidelines for the 
offices, the field offices to actually enforce that, and so 
there are numerous States--I would probably say all but maybe 
one--that have no knowledge of this law at all because SBA has 
done nothing to promulgate that law so that their field offices 
enforce it.
    Mr. Robinson. I am in total agreement with that. There is 
just a complete lack of oversight that takes place, and it 
impacts at the State and local levels of government. The impact 
of the decisions themselves has been monumental.
    Before the decisions that Mr. Clay made reference to, 
Adarand and Croson, we had been able to document that there 
were some 260 odd State and local government programs. Within a 
year after that decision, less than 20 percent of those 
programs were still in existence. So it just completely wiped 
out State and local government programs.
    Now State and local government programs have to go through 
what is called a disparity study in order to reauthorize those 
programs. Those can be expensive, and it can be very 
politically volatile for State and local governments to 
reauthorize the programs.
    There is a role for the Congress to help State and local 
governments in the reauthorization of these programs, and that 
is something we can get into at some point as to how you can be 
of assistance.
    But the impact of the decisions and the failure of the 
Federal bureaucracy, in this instance, the SBA, to not only 
deal with the certification issue but the personal net worth 
and the size standard issue, if those are addressed, could also 
be of assistance to State and local governments, many of whom 
mimic what takes place at the Federal level.
    Mr. Towns. Thank you very, very much.
    Mr. Clay. I have two quick questions, one for Mr. Kinebrew. 
What steps do you believe the SBA should take to improve its 
oversight of the subcontracting process? Do you have any 
thoughts on that?
    Mr. Kinebrew. Yes, sir. If I understand the question, I 
think the SBA should develop a stronger monitoring and 
enforcement process in order to comply with the directives that 
the Congress has at issue. Short of strong enforcement and 
oversight, they tend to say that here is not enough funds to do 
the kinds of things that need to be done and then minimize the 
number of people working on projects.
    So I think stronger oversight and enforcement and to 
develop the staff, the size of the staff to accomplish those 
kinds of missions.
    Mr. Clay. Thank you. Thank you for that.
    Ms. McCullough, of the many problems that minority 
businesses face in the procurement process, which do you 
believe are the most acute?
    Ms. McCullough. There are so many, but I would truly say 
this.
    Mr. Clay. Overwhelmed?
    Ms. McCullough. Yes, it is overwhelming, but I would 
certainly say the issue of the disparity in the way that the 
8(a) program is aligned with non-ANCs and ANCs. In other words, 
because those number are so badly skewed in terms of I believe 
the 25 largest minority contracts in 2005-2006 went to ANCs. 
This whole issue of a disparity that has been built within the 
8(a) program, that was created to level the playing field, has 
created a new form of discrimination and is pitting one 
community against the other.
    Mr. Clay. Thank you for that response.
    Let me thank the chairman again for such a timely committee 
meeting during the kickoff of the 37th Annual ALC Weekend. This 
panel and the previous panel have certainly brought some issues 
to light that ought to be addressed by this Congress. Again, I 
thank you for inviting me today.
    Mr. Towns. Thank you very much.
    Let me thank all the witnesses, and let me thank all the 
Members that are attending. It is very clear that there are 
some problems and that we have to continue to work together to 
see what we can do to bring about a solution.
    On that note, the committee is adjourned.
    [Whereupon, at 4:45 p.m., the subcommittee was adjourned.]

                                 
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