[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
SUBCOMMITTEE ON
CONTRACTING AND TECHNOLOGY
HEARING ON ENSURING STIMULUS
CONTRACTS FOR SMALL AND VETERAN OWNED SMALL BUSINESSES
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
MARCH 12, 2009
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 111-010
Available via the GPO Website: http://www.access.gpo.gov/congress/house
----------
U.S. GOVERNMENT PRINTING OFFICE
47-798 PDF WASHINGTON : 2009
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001
HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA M. VELAZQUEZ, New York, Chairwoman
DENNIS MOORE, Kansas
HEATH SHULER, North Carolina
KATHY DAHLKEMPER, Pennsylvania
KURT SCHRADER, Oregon
ANN KIRKPATRICK, Arizona
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine
MELISSA BEAN, Illinois
DAN LIPINSKI, Illinois
JASON ALTMIRE, Pennsylvania
YVETTE CLARKE, New York
BRAD ELLSWORTH, Indiana
JOE SESTAK, Pennsylvania
BOBBY BRIGHT, Alabama
PARKER GRIFFITH, Alabama
DEBORAH HALVORSON, Illinois
SAM GRAVES, Missouri, Ranking Member
ROSCOE G. BARTLETT, Maryland
W. TODD AKIN, Missouri
STEVE KING, Iowa
LYNN A. WESTMORELAND, Georgia
LOUIE GOHMERT, Texas
MARY FALLIN, Oklahoma
VERN BUCHANAN, Florida
BLAINE LUETKEMEYER, Missouri
AARON SCHOCK, Illinois
GLENN THOMPSON, Pennsylvania
MIKE COFFMAN, Colorado
Michael Day, Majority Staff Director
Adam Minehardt, Deputy Staff Director
Tim Slattery, Chief Counsel
Karen Haas, Minority Staff Director
.........................................................
(ii)
Subcommittee on Contracting and Technology
GLENN NYE, Virginia, Chairman
YVETTE CLARKE, New York AARON SCHOCK, Illinois, Ranking
BRAD ELLSWORTH, Indiana ROSCOE BARTLETT, Maryland
KURT SCHRADER, Oregon TODD AKIN, Missouri
DEBORAH HALVORSON, Illinois MARY FALLIN, Oklahoma
MELISSA BEAN, Illinois GLENN THOMPSON, Pennsylvania
JOE SESTAK, Pennsylvania
PARKER GRIFFITH, Alabama
______
(iii)
C O N T E N T S
----------
OPENING STATEMENTS
Page
Nye, Hon. Glenn.................................................. 1
Schock, Hon. Aaron............................................... 2
WITNESSES
Jenkins, Mr. Calvin, Acting Associate Administrator, Government
Contracting and Business Development, Small Business
Administration................................................. 6
Szabat, Mr. Joel, Assistant Secretary for Transportation Policy,
Department of Transportation................................... 8
Wegner, Ms. Gail, Acting Director, Office of Small and
Disadvantaged Business Utilization, Department of Veterans
Affairs........................................................ 10
DeGraffenreid, Ms. Brenda Office of Small and Disadvantaged
Business Utilization, Department of Energy..................... 11
Oliver, Ms. Linda, Acting Director, Office of Small Business
Programs, Department of Defense................................ 13
Klett, Mr. Mark, Klett Consulting Group, Inc., Virginia Beach, VA 25
Hart, Mr. Jim, Arriba Corporation, Norfolk, VA................... 27
Schmidt, Mr. James, President, Hohulin Fence Company; Goodfield,
IL............................................................. 28
Cavolt, Ms. Janice, JBC Corporation; Virginia Beach, VA.......... 30
Brown, Mr. Justin, Legislative Associate, Veterans of Foreign
Wars........................................................... 32
Sharpe, Mr. Joseph, Deputy Director, Economic Commission, The
American Legion................................................ 34
APPENDIX
Prepared Statements:
Jenkins, Mr. Calvin, Acting Associate Administrator, Government
Contracting and Business Development, Small Business
Administration................................................. 45
Szabat, Mr. Joel, Assistant Secretary for Transportation Policy,
Department of Transportation................................... 49
Wegner, Ms. Gail, Acting Director, Office of Small and
Disadvantaged Business Utilization, Department of Veterans
Affairs........................................................ 53
DeGraffenreid, Ms. Brenda Office of Small and Disadvantaged
Business Utilization, Department of Energy..................... 61
Oliver, Ms. Linda, Acting Director, Office of Small Business
Programs, Department of Defense................................ 68
Klett, Mr. Mark, Klett Consulting Group, Inc., Virginia Beach, VA 76
Hart, Mr. Jim, Arriba Corporation, Norfolk, VA................... 86
Schmidt, Mr. James, President, Hohulin Fence Company; Goodfield,
IL............................................................. 104
Cavolt, Ms. Janice, JBC Corporation; Virginia Beach, VA.......... 106
Brown, Mr. Justin, Legislative Associate, Veterans of Foreign
Wars........................................................... 110
Sharpe, Mr. Joseph, Deputy Director, Economic Commission, The
American Legion................................................ 114
Statements for the Record:
The United States Association of Veterans in Business............ 119
(v)
SUBCOMMITTEE ON
CONTRACTING AND TECHNOLOGY
HEARING ON ENSURING STIMULUS
CONTRACTS FOR SMALL
AND VETERAN OWNED BUSINESSES
----------
Thursday, March 12, 2009
U.S. House of Representatives,
Committee on Small Business,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2360, Rayburn House Office Building, Hon. Glenn Nye
[chairman of the Subcommittee] presiding.
Present: Representatives Nye, Clarke, Halvorson, Schock and
Thompson.
Chairman Nye. Good morning. I would like to call the
Subcommittee to order.
I am going to make a brief opening statement. First o fall,
thank you all for being here today, and it is a very important
topic that we are going to discuss, and I appreciate you coming
over.
I also want to say I really appreciate our other panelists.
The second panel are members of our small business community
and our veteran-owned small business committee, for joining us
today.
I am going to make a brief opening statement, and then I am
going to turn it over to our Ranking Member Mr. Schock to do
the same, and we will proceed to hear your testimony.
As our nation digs its way out of the current economic
downturn, small businesses will be vital to our efforts. In
every previous recession, small firms have acted as job
creating catalysts, putting our nation back on the path to
recovery and helping to revitalize our economy.
Even today small businesses create 60 to 80 percent of new
jobs. The recently passed Economic Recovery and Reinvestment
Act will provide entrepreneurs with important tools to help
them again lead the nation back to prosperity.
During today's hearing, we will evaluate the plans of some
of the key agencies charged with administering projects under
the Recovery Act. In particular, we will look at how they
intend to engage veteran-owned businesses and insure that this
sector receives its fair share of opportunities.
In recent years, veterans have played an increasingly
prominent role in the small business community. After
reentering civilian life, many former service members decided
to go into business for themselves. Veteran entrepreneurs often
have the skills that make them a natural fit for the federal
marketplace, and given their knowledge of the federal
government, they frequently have a unique understanding of what
procurement offices are looking for and need.
The Recovery Act is expected to create work in many sectors
that are veteran dominated, like engineering, telecoms, project
management, and construction. And given these realities, it
would be logical to conclude that veteran-owned small
businesses will see a significant growth as a result of the
Economic Recovery Act.
However, if history is any guide, there is reason to be
concerned. The federal government has not once in the last
eight years reached its small business contracting goals, and
even more shameful, the government has not met its modest goal
of providing three percent of contracts to service disabled
members.
Now, given this track record, it's easy to understand why
veteran entrepreneurs fear they may be overlooked now, and that
would be unacceptable. Those who have sacrificed for our nation
deserve a fair chance to compete for this new business. I think
everyone acknowledges the importance of paying tribute to
veterans, especially at times like these. However, when it
comes to honoring those who have served, I would suggest that
veteran entrepreneurs are looking for and, indeed, deserve more
than just lip service. They want the opportunity to work and
contribute to our nation's economic recovery.
If veteran entrepreneurs are going to get a fair shake,
then the agencies before us need to be engaged. That means
outreach to the veterans community, informing veterans of the
available contracts and insuring that there are resources
dedicated to helping veterans navigate the procurement process.
There is no time to lose. The Recovery Act calls for 70
percent of recovery funds to be obligated in the next 18
months, and a substantial number of these contracts will be
ready to go in 180 days. Agencies need to make preparations now
if they are going to do right by small businesses and our
veteran entrepreneurs.
Today, this Committee is putting government agencies on
notice. We will not accept the tired excuse that the need to
move hastily and sheer volume of contracts resulted in an
inadvertent oversight of veteran owned businesses. If that
happens, veterans will not be the only ones losing. U.S.
taxpayers will, too.
In many cases veteran entrepreneurs provide the best value
for the taxpayer dollar. When veterans perform federal
contracting work, it is a win-win. We create opportunity for
those who have served our nation and ultimately the government
receives high quality products and services at more competitive
prices.
Now, before I yield to Mr. Schock, our Ranking Member, for
an opening statement, I just want to again thank all of our
witnesses for being here. In particular, I want to thank the
veteran-owned businesses who traveled from far and wide,
including a number from the Virginia Second Congressional
District, who waited an extra three hours yesterday in traffic
to get up here. So thank you for taking the time to make it to
be here with us, to share with us your stories today.
And with that I want to yield to Mr. Schock, our Ranking
Member, for his opening statement.
Thank you.
Mr. Schock. Thank you, Chairman Nye.
I want to thank the Chairman for calling this meeting
today, which will increase the oversight of our efforts to
insure our nation's small business are fairly represented in
the recently enacted American Recovery and Reinvestment Act.
I also want to thank our panel of witnesses here today who
have taken the time to travel, as was mentioned, some from far
distances to help address this issue.
I am hopeful that they will speak on behalf of previous
experiences and also future plans for the potential usage and
protection of small businesses and the specific funds
associated with this legislation.
As we all know, small businesses represent the single most
important sector of the American economy. They represent our
nation's greatest ingenuity, economic drive, and are the direct
result of the American entrepreneurial spirit. Small business
provide a domestic resource for homemade goods and products,
the craftsmanship which is rarely matched anywhere in the
world.
Of further significance are those small businesses run by
our nation's veterans. This group of business men and women
represent some of the most capable and qualified anywhere in
our country. The dedication and honor that many of these
individuals took day to day with them during their active
service to this country is in very much the same manner in
which they operate their small business.
That said, our small businesses are suffering. they are
being pinched from the credit markets, the labor markets, and
overreaching regulations, all while they are trying to stay
profitable during the worst economic downturn since the Great
Depression.
When I first heard the idea of some sort of stimulus aimed
at small businesses to help bolster our economy, I was
optimistic for the potential opportunity and growth for those
who create the most jobs in our economy, our small businesses.
As I have said many times, there is not a member of this House
that does not want to vote for a stimulus package.
However, as the details emerged of the legislation that was
passed, my optimism changed to skepticism and then ultimately
pessimism. The more I heard about the American Recovery and
Reinvestment Act, the less that I liked: less than six percent
for infrastructure and less than one percent for American small
businesses. With such a low amount of this bill directed
towards truly stimulus related projects, there are even fewer
protections for American small businesses to convince myself,
along with a number of my colleagues, that the job creating
small business sector will receive the number of federal
contracts that it truly deserves.
It was this lack of guarantee for aid to small businesses
or the potential for such which led to my opposition to the so-
called stimulus, something that could truly not be stimulative
if it offers no real aid to the sector of our economy which can
have the most direct impact on the American workforce, our
small businesses.
That said, today we are here to identify how we can insure
that the funding in the American Recovery and Reinvestment Act
specifically designated for our nation's small businesses will
actually reach its intend recipients. During the debate of
House Resolution 1, I offered a bipartisan amendment with my
colleague Adam Smith of Washington, which would have insured
the government's ability to trade stimulus dollars from the
federal government to the state level, to specific towns and
finally for what projects.
The purpose for this amendment would have required the
citation of the awarded contractor and in some instances the
subcontractor in charge of carrying out each project. At the
same time, this amendment would have required the full
announcement and disclosure of all stimulus related bids be
posted on the recovery.gov Website, fully visible to any and
all small businesses within a given region.
Unfortunately, such an amendment was not adopted. However,
I urge this Committee to consider a similar approach. The
burden of this type of disclosure in reporting should be on the
federal government to clearly indicate the intended spending of
taxpayer dollars, not on small businesses to comb classifieds
to look for project announcements.
My ultimate fear remains that because of the time sensitive
nature of this stimulus funding, it will be distributed in
large quantities rashly, without appropriate deliberation or
traceability with the reporting on recovery.gov being a shadow
of what was promised.
I also worry that we will be revisiting this issue again in
two years or four years or several months once we learn again
that the proper portion of small business contracts was not
reached and we hold hearings to try and find out what went
wrong.
As our nation has seen from previous experiences, the
federal government is not always the best steward of taxpayer
dollars. Each year federal agencies at all levels fall short of
their promised contracting levels for small businesses. Today I
ask all of you: how can we avoid these shortcomings of the
past, and what assurances can the agencies before us here today
provide that these mistakes won't happen again.
I am hopeful here today we can find some answers to these
questions and others as we consider how to effectively insure
one of the largest distribution of taxpayer dollars is directed
into those economic sectors which can do the most good, our
nation's small businesses.
Thank you for you being here, and I yield back to you, Mr.
Chairman.
Chairman Nye. Thank you, Mr. Schock.
I now want to provide an opportunity to any other members
present to make any opening statements or comments if they
wish.
I would yield to Ms. Clarke.
Ms. Clarke. Thank you very much, Chairman Nye and Ranking
Member Schock, for holding this very important hearing.
I would like to start off by thanking our witnesses for
attending today. I think this is a very important microcosm of
our nation's small business sector. For me it is critical that
we make sure that the veterans of our nation get their fair
share of opportunity and of growth and development. Actually it
speaks to who we are as a nation, and the best way for us to
thank our service women and men is to create viable pathways to
successful job creation.
To encourage and support our veteran-owned businesses and
entrepreneurs is an honor for us, something that we must do and
are obliged to do. And so as I listen to my colleagues and put
it in the context of the Recovery and Reinvestment Act, I know
that provision has been made in the act for small business. It
becomes our obligation to make sure that it gets to veteran-
owned businesses, to make sure that we monitor and make sure
that your businesses grow, that your entrepreneurial spirit
flourishes.
And I am more optimistic that with our strident oversight
and accountability that we can make it work. In the words of a
very popular culture song, I say to you today don't worry; be
happy.
Thank you very much, Mr. Chairman.
Chairman Nye. Thank you, Ms. Clarke.
I would offer to yield to Mr. Thompson.
Mr. Thompson. Thank you, Chairman.
I just want to say I want to thank the Chairman and Ranking
Member for this opportunity for this hearing. As a member of a
military family, this is a topic that is near and dear to my
heart.
As our country looks at challenging economic times, you
know, we have a lot of things to be concerned about, but
certainly one of the things that gives me the greatest hope are
our sons and daughters that have served and are serving right
now and either are back or will be coming back to this country
with that sense of service that they have exercised in doing
their duty for the country, and the opportunities we are
talking about today will be good for them, but frankly, they
are good for our country as well in terms of the
entrepreneurship.
So I want to thank the panel for coming in. I am looking
forward to spending most of my time in interchange with you
folks after we hear your testimony.
So thank you very much.
Chairman Nye. Okay. Thank you, Mr. Thompson.
I am proud to note that you are going to be giving your
testimony today to a bipartisan group up here. We are really
focused on practically how we are going to move forward and do
better in the future, and I think that is what we want to focus
on today. We want to recognize where we have had problems. We
want to recognize where we have had successes, learn lessons
and move forward.
I have asked some of the panelists who are going to be on
the second panel to listen to your testimony and then give us
some commentary when they are invited to sit with us and let us
know practically what are they seeing, and are we doing the
best we can, and if not, and I think we are going to hear that
we are not right now, how can we practically moving forward do
better.
There is money available under this stimulus package under
the Recovery Act. We want to make sure that it is used
efficiently and that it creates as many jobs as possible,
obviously targeting small businesses and the veterans
community.
I am going to go ahead and invite our first panelists to
give their testimony, noting that we may be called for votes,
and if we are, I will warn you and let you know, and then we
will adjourn and pick back up where we left off, and
recognizing that members may need to come and go as they have
other hearings that are going on. But thank you all for being
here.
I am going to start by introducing Mr. Jenkins. Mr. Cal
Jenkins is the Acting Associate Administrator of the Government
Contracting and Business Development Office of the Small
Business Administration. This office works to develop policies
and regulations to enhance the effectiveness of small business
programs.
So, Mr. Jenkins, thank you for being here, and we would
like to hear your opening statement.
STATEMENT OF CALVIN JENKINS
Mr. Jenkins. Mr. Chairman and other distinguished members
of this Committee, I want to thank you for inviting the Small
Business Administration to discuss its small business
procurement programs, and to relate it to the American Recovery
and Reinvestment Act.
As mentioned, I am Calvin Jenkins, the Deputy Associate
Administrator for SBA's Office of Government Contracting and
Business Development, and we appreciate the opportunity to
insure that small businesses receive a fair opportunity to
participate in the federal procurement arena, especially in
this time of historical economic challenge.
The Small Business Administration provides policy direction
and guidance to federal procuring agencies and works with them
to develop acquisition strategies that will help to increase
opportunities for small business in federal procurement. SBA
facilitates this working relationship with these agencies by
serving as an active member of the Chief Acquisition Officers
Council and chair of the Small Business Working Group.
The SBA also chairs the committee of the Directors of Small
and Disadvantaged Business Programs.
From Fiscal Year 2000 through Fiscal Year 2007, total
federal procurement increased from approximately $200 billion
to more than $378 billion. During this time, the small
businesses share almost doubled, increasing from $44.7 billion
to $83.3 billion. Subcontracting dollars going to small
businesses in Fiscal Year 2007 totaled $64 billion. We estimate
that for each $140,600 spent supports one small business job.
Thus, for 2007, prime contract dollars supported 592,000 jobs
within the small business community and subcontracting
supported over 450,000 jobs.
For the same period that I mentioned, awards to small,
disadvantaged businesses increased from $7.3 billion to $24.9
billion. Women-owned small businesses increased from $4.6 to
$12.9 billion, and firms certified under our Historic
Underutilized Business Zone Program went from $663 million to
$8.5 billion. Contracts, awards to service disabled veteran-
owned small businesses increased from $554 million to $3.8
billion.
Although these are significant increases in contract awards
for small businesses, federal procurement agencies have met
only one of five goals consistently from the period of 2001 to
2007. So clearly, more is needed in this particular area.
Chairman Nye, you asked specifically that we discuss
strategies that SBA is using to assist veteran and service
disabled veteran-owned small businesses to obtain government
contracts. The SBA through its government contracting function
is responsible for assisting small businesses in attaining a
fair share of government contracts through a variety of
programs and services.
A key tool in this effort is SBA's statutory mandate to
establish small business procurement goals in each agency prior
to the beginning of the fiscal year and insuring the agencies
meet this government-wide goal. The government-wide goal for
prime contracts includes 23 percent for small business, five
percent for small disadvantaged businesses, five percent for
women-owned small businesses, three percent for service
disabled veteran-owned small businesses, and three percent for
HUBZone certified businesses.
SBA is also required to report on agencies' achievements in
meeting their goals and plans to achieve goals not met. SBA has
established a Small Business Procurement Scorecard to do this
and it is publicly available on SBA's Website.
Although there is no government-wide goal for veteran-owned
small businesses, federal agencies in Fiscal Year 2007 awarded
more than $10.8 billion in contracts, or 2.9 percent, to
veteran- owned small businesses.
As part of SBA's Small Business Procurement Scorecard
initiative, SBA featured two agencies, the Department of
Veterans Affairs and the Department of Homeland Security, as
best practices for strategies to increase federal procurement
opportunities for service disabled veteran-owned small
businesses. SBA posted these best practices as a way to assist
other agencies in meeting their service disabled veteran goals.
As I mentioned, there is a three percent service disabled
veteran-owned small business federal prime goal and
subcontracting goal established, and in meeting these goals,
federal agencies are given two primary tools. One of those
tools is a competitive set-aside authority, as well as a sole
source authority, where there is one firm that can provide the
product, a service disabled veteran that can provide the
product that the government is looking for.
In response to your specific request for information about
strategies the SBA will deploy to help small business obtain
contracts resulting from the Recovery Act, I would like to
report that the SBA has appointed a stimulus bill coordinator
to insure that all of the agency's programs, lending,
procurement, business development, are moving aggressively to
assist small businesses.
As it relates to contracting, we have begun a campaign to
reach out to small businesses informing them of procurement
opportunities available at the federal level and advising them
how to get involved in state and local government
infrastructure procurement actions that are likely to result
from the Recovery Act.
We are also posting and updating procurement information on
our Website to make it easier for small businesses to locate
these agencies and the products and services to support the
stimulus effort.
In addition, we are working to insure that small business
procurement data in support of this effort is accurately
reported through our field offices, which is another key tool
in our delivery of small business--
Chairman Nye. Mr. Jenkins, I am going to apologize because
I did not warn you about the time limit today, and so I have
let you go a little bit over, but just to let everybody know,
what we are going to try to do because we want to keep this to
two hours if we can is to ask everybody to try to keep their
opening statement to five minutes.
I did not give you the warning. So I will give you an
opportunity go ahead and complete, but thank you.
Mr. Jenkins. Okay, sure. Thank you, Mr. Chairman.
I just want to point out that SBA primarily engaged federal
agencies through our field activities, and that includes our
procurement center representatives that monitor the federal
agencies, their station at major buying activities, as well as
our commercial marketing representatives that monitor the
performance of large business prime contracts to insure that
they provide opportunity for small business at the prime level.
We also have industrial specialists, as well as natural
resource and sales specialists that look at the natural
resources and insure small businesses get a fair opportunity.
That concludes my verbal testimony, and I will be happy to
answer any questions that the Committee may have.
Thank you.[The prepared statement of Mr. Jenkins is
included in the appendix at page 45.]
Chairman Nye. Thank you very much.
I am going to introduce all of the panelists one by one,
and then we will go to questions after that. Just FYI, you
should be able to see lights in front of you, green, yellow,
red. Yellow will indicate when you have one minute left. So I
would appreciate it if we could try to keep the remarks within
the five minutes. Then everybody has a chance to speak.
I am now going to introduce Mr. Joel Szabat, the Deputy
Assistant Secretary for Transportation Policy at the U.S.
Department of Transportation. Mr. Szabat oversees the
formulation of national transportation policy and promotes
intermodal transportation.
Mr. Szabat, I want to invite you to go ahead and give us
some opening remarks. Thank you.
STATEMENT OF JOEL SZABAT
Mr. Szabat. Thank you, Mr. Chairman, Ranking Member Schock,
and members of the Committee.
First, on behalf of the Department of Transportation, my
apologies to those veterans from the Virginia Second
Congressional District who were stuck in traffic on their up
here. We will see what we can do to fix the ride back when they
go home.
[Laughter.]
Mr. Szabat. I am Joel Szabat, Deputy Assistant Secretary
for Policy in the Department of Transportation. Secretary
LaHood has named me co-lead of our Tiger Team, which is in
charge of overseeing the department's role in the Recovery Act,
in implementing the Recovery Act.
Overall, the Department of Transportation gives twice as
much of its business to small businesses compared to a typical
government agency. Over half of DOT's direct contracting work,
nearly 800 million out of 1.5 billion, went to women-owned or
to small businesses compared to a government-wide average of 22
percent. Preliminary data for Fiscal Year 2008 indicate that we
have maintained that level.
The Federal Aviation Administration is exempt from Federal
Acquisition Regulations and, therefore, not included in DOT's
reports. However, FAA is an important part of our outreach to
small businesses. FAA's direct contracting dollars are twice
the size of the rest of DOT combined and 40 percent of FAA's
contracts go to small or to women-owned businesses.
In every small business category, DOT and FAA far exceed
the government-wide averages. DOT contracted 2.3 percent of its
work to service disabled veteran-owned small businesses, for
example, more than double the government average. Service
disabled veterans, the most recently established category, is
the only category for which DOT has not yet exceeded its
target.
Of even more significance to the small business community
are the formula funds, especially for highway and transit
programs, that we distribute to state and local transportation
authorities. Over $35 billion in funds are distributed this way
each year, generating $30 billion in contracting opportunities.
Under the law that DOT has to operate under which governs
these programs, disadvantaged business enterprises are the only
small businesses for which DOT can set goals. Veteran-owned
businesses must separately qualify as DBEs in order to
participate in this program.
Through our work with our state and local partners, over
$3.5 billion in contracts are steered annually to DBEs through
our formula program.
Now, in addition to our normal formulas, the Recovery Act
will provide $48.1 billion, and as the Chairman indicated, with
the bulk of this money to be obligated within the next 18
months. I am sorry. For us the bulk to be obligated within the
next 12 months, and all of it to be obligated within 12 months,
the bulk to be spent within 18.
Most of this money will be distributed through formulas and
the existing laws that govern DOT programs apply. We can work
to set targets for DBEs, but no other category of small
businesses. We estimate that the formula fund programs in the
Recovery Act will create at least another $3 billion in
contracting opportunities for DBEs over the next 18 months.
Bonding is an important challenge for DBEs in qualifying
for government contracts. The Recovery Act establishes a small,
$20 million bonding assistance program within DOT. DOT's Office
of Small and Disadvantaged Business Utilization has been
working with SBA to craft a program that will minimize the cost
and administrative overhead for DBE participants and maximize
the number of companies that can benefit from their support.
There are also future year opportunities for service
disabled veterans and other small businesses. The Recovery Act
dedicates $8 billion for high speed and inner city passenger
rail and a few other smaller discretionary programs where the
department will have to craft business qualification criteria.
President Obama has proposed an additional $1 billion a
year annually for high speed rail and $5 billion for an
infrastructure bank focused primarily, if not solely, on
transportation.
We look forward to working with Congress to shape the laws
that will govern small business participation in these
programs. Most importantly, both the surface transportation
program and aviation programs were last reauthorized over five
years ago, before federal standards for service disabled
veterans were set. This year both of these programs are up for
reauthorization with, again, the promise of more than $30
billion a year in annual contracting opportunities.
And, again, we look forward to working with Congress to
shape the laws that will govern small business participation in
these program.
Thank you, Mr. Chairman, Ranking Member, and members of the
Committee.[The prepared statement of Mr. Szabat is included in
the appendix at page 49.]
Chairman Nye. Okay. Thank you very much.
I would now like to recognize Ms. Gail Wegner, Acting
Director of the Office of Small and Disadvantaged Business
Utilization in the Department of Veterans Affairs, which
provides patient care and federal benefits to veterans and
their dependents. The OSDBU identifies prime and subcontracting
opportunities for small businesses and provides them with
guidance on procurement matters.
Ms. Wegner, I invite you to please make your opening
statement.
Thank you.
STATEMENT OF GAIL WEGNER
Ms. Wegner. Mr. Chairman, members of the Committee, thank
you for convening this hearing. I request that my written
statement be submitted for the record.
Veterans Affairs has a long tradition of outstanding
support for small businesses, with special emphasis on veteran-
owned small businesses. The Recovery Act presents a valuable
opportunity for us to maintain that tradition. I am honored to
represent Secretary Shinseki, our employees, and the veterans
who do business with VA here today.
I am also delighted to inform you that VA received a Green
Small Business Scorecard performance from the SBA in Fiscal
Year 2007. Summary data is contained in my written statement,
and it also appears on SBA's Website
Of note, VA led the federal government in transactions with
service disabled veteran-owned small businesses and with
veteran-owned small businesses. Given this history, I believe
that Recovery Act requirements will be carefully reviewed for
participation by small businesses in VA.
Our success is largely attributable to three principal
factors. First, supporting veterans is our primary mission.
This includes creating procurement opportunities for veterans.
Second, our leadership is committed to small businesses.
They meet monthly and review progress toward all small business
goal achievements.
Third, VA delivers services to veterans in the communities
in which they live. We understand directly the impact that
small businesses have on the local economy.
VA has unique legislation which enables us to contract more
easily with veteran-owned small businesses. We also award many
smaller dollar value contracts. In challenging economic times,
small purchases can make a big difference in the sustainability
of a small business.
Additionally, we formally review proposed acquisition
strategies for buys over $500,000, and for purchases over five
million, a small business analyst participates in acquisition
planning meetings. As VA's Recovery Act requirements are more
fully developed, they will be subject to these same proven
strategies.
Staff in VA's Office of Small Business Programs and in the
Center for Veterans Enterprise provide quality, individualized
attention to small business owners. We work closely with a
number of partners. VA enjoys an especially strong
collaboration with the Association of Procurement Technical
Assistance Centers, who educate businesses new to the federal
marketplace. We believe that PTAC support will be vitally
important in Recovery Act contracts and the ability of small
businesses to win them.
Our achievements would not be possible without the
fundamental work performed by SBA's professionals, their
grantee organizations, and the support of Congress. These
resources and processes apply when VA contracts under ordinary
circumstances.
The Recovery Act, however, represents an extraordinary
response to extraordinary circumstances. VA is assessing
whether the additional volume of contracting will require us to
enter agreements with other federal agencies.
And in closing, I hope that you will agree, given our past
performance, that VA is committed to supporting small
businesses and most especially veterans in business across our
spectrum of procurement opportunities.
Mr. Chairman, thank you again for convening today's
hearing. I welcome your interest, and I am prepared to answer
any questions that you or the members may have.[The prepared
statement of Ms. Wegner is included in the appendix at page
53.]
Chairman Nye. Okay. Thank you very much.
I would now like to introduce Ms. Brenda DeGraffenreid,
procurement analyst for the Office of Small and Disadvantaged
Business Utilization at the Department of Energy. Energy is the
largest civilian buying agency in the federal government,
procuring over $22 billion in goods and services annually, and
Ms. DeGraffenreid, welcome and we would be happy to hear your
opening statement.
Thank you.
STATEMENT OF BRENDA DeGRAFFENREID
Ms. DeGraffenreid. Thank you, Mr. Chairman and members of
the Subcommittee.
I am the supervisory acquisition manager overseeing the
Office of Small and Disadvantaged Business Utilization. I
appreciate the opportunity to address the Subcommittee on the
Department of Energy's plans and strategies that will insure
that small businesses, including the veterans and service
disabled veterans can participate in government contracting
opportunities resulting from the Recovery Act to the maximum
extent.
Small businesses are critical to the health of the U.S.,
and according to the Small Business Administration, 99 percent
of all employers in the U.S. employ approximately one-half of
all private sector employees and have generated 60 to 80
percent of all the net new jobs. So it is understandable that
this Congress wants to insure that small businesses play a
significant role in the recovery of the nation's economy.
DOE has always been a strong advocate for the participation
of small businesses, including small disadvantaged businesses,
HUBZone, women- owned, veteran-owned and service disabled
veterans, in its procurement process at both the prime and
subcontracting levels, and we look to continue that trend in
implementing the Recovery Act.
At the prime contract level, DOE has increased its impact
in the small business community over the past eight years by
increasing prime awards to small businesses from $500.2 million
in Fiscal Year 2000 to $1.4 billion in Fiscal Year 2008.
Before discussing DOE's unique business and procurement
model in order to place these achievements and recovery
opportunities in context, DOE is different from many other
agencies. We have two types of contracts: one, facilities
management contracts, which we term FMCs, and non-FMCs. The
FMCs represent the primary procurement model utilized at DOE
for the operations of its network of government owned,
contractor operated laboratories and other facilities.
FMCs include management and operating, which are M&O
contracts, management integration and environmental restoration
contracts. These are generally awarded to large businesses,
educational institutions, and nonprofit organizations. Through
the FMC contracting model, DOE directs its mission related
areas and the overall performance objectives that it wants to
accomplish.
FMCs range from the hundred millions to billions of
dollars. They are complex and generally contain periods of
performance of five years or more.
Historically FMCs have represented from 85 to 90 percent of
DOE's procurement dollars. So in FY 2008, for example, FMC
contracts represented 84.3 percent of the department's
procurement base. The remaining no-FMC dollars, or 15.7 percent
of the procurement base, were used to fund a wide range of
prime contracts of both small and large businesses.
Now to the Recovery Act opportunities. As for the
strategies that will insure that small businesses can
participate in government contracting opportunities resulting
from the Recovery Act, the department is in the process of
developing guidance and an implementation plan to execute the
requirements of the Recovery Act. Therefore, we cannot yet
provide detailed acquisition methods that we will use to
implement each program or sub-program designated in the act.
However, we will attempt to provide the Subcommittee with a
general overview of the types of acquisition methods we
anticipate and a few examples of the specific work that we will
be performing with recovery funds.
As you stated in your letter, DOE will receive
approximately 39 billion, 38.7 to be exact, in appropriated
funds under the Recovery Act. These funds primarily have been
directed to the following program offices: Office of
Electricity Delivery and Energy Reliability, Office of Energy
Efficiency and Renewable Energy, Office of Environmental
Management, Office of Fossil Energy, Office of the Inspector
General, and Office of Science.
The funds appropriated in the Recovery Act will be awarded
principally through several methods: financial assistance
agreements, ongoing contract vehicles held by both small and
large businesses, and through DOE's established network of FMCs
which I mentioned earlier.
The department has already provided information and tools
to assist the acquisition work force in insuring that the
requirements of the Recovery Act provide maximum opportunities
for small businesses to participate in the recovery. A
significant portion of the recovery funds will be obligated on
financial assistance agreements and statutorily required that
some of these monies be used for block grants.
DOE's Small Business Innovation Research Program will
receive funds under the Recovery Act. As you probably are
aware, the SBIR program was established to provide funding to
stimulate technological innovation.
Small businesses will be able to compete for research and
development funds within the Recovery Act as they always have
within the small business investment research and small
business technology transfer funding. A portion of the recovery
funds will be obligated on current procurement awards, such as
contracts with task orders pursuant to the federal regulations.
These awards are held by both large and small companies.
As I see that I have the yellow light and my time is almost
up, I will conclude by saying that Department of Energy
encourages small business, including service disabled veterans,
to come to DOE not just for the Recovery Act, but for all of
our projects because we all look for service disabled veterans
to help us make our goals.
So thank you for the opportunity to appear before this
Subcommittee. That concludes my prepared remarks, and I will be
pleased to answer any questions.[The prepared statement of Ms.
DeGraffenreid is included in the appendix at page 61.]
Chairman Nye. Okay. Thank you very much.
I would now like to recognize our final panelist for this
panel, Ms. Linda Oliver, the Acting Director of the Office of
Small Business Programs for the Department of Defense. In this
role Ms. Oliver is responsible for establishing Department of
Defense policies that insure the inclusion of small firms in
defense related procurement actions, an area of great interest
to my district particularly, coming from southeast Virginia.
Thank you for being with us, and Ms. Oliver, we would be
happy to hear your opening remarks.
STATEMENT OF LINDA OLIVER
Ms. Oliver. Thank you, Chairman Nye, Ranking Member Schock,
distinguished members of the panel.
I ask that my written remarks be included in the record,
and I will summarize these remarks because five minutes is less
than any of us ever realize it is going to be.
The Department of Defense is poised, posed to help support
small businesses in their participation in the American
Recovery and Reinvestment Act. We look forward to this
opportunity and appreciate the fact that the Committee is
interested in what we are doing.
I will summarize my written statement in three areas
basically. I will talk a little bit about the Recovery Act at
least from the Department of Defense perspective. I will touch
on our record with service disabled veteran-owned small
businesses particularly, and then I will talk quickly on a few
of the things that we do to encourage small businesses and
service disabled small businesses.
The Department of Defense will receive approximately $7.4
billion from the Recovery Act. That money will be distributed
primarily through contracts. In order to manage all of the
Recovery Act issues and money, there is a very senior committee
formed which oversees the plans for money and oversees the
writing of the required reports.
We, my office, is involved with the committee. We will
continue to stay involved with the committee. We are hoping
that by staying involved in the committee we will do what we
want to, which is make maximum practicable opportunities
available for small businesses, including service disabled
small businesses.
Turning to our special relationship with service disabled
veteran-owned small businesses, in my written remarks is a
chart that shows a graph of our interaction with service
disabled veteran-owned small businesses since the service
disabled veteran-owned small businesses became a goal. Our
progress was quite slow until 2003, which is exactly the time
that the use of set-asides for service disabled veteran-owned
small businesses became available to us.
You will see that both in terms of dollars and in terms of
percentages once we have the tool that you have given us and
which we appreciate, we were able to move forward much more
rapidly. Now, we have work to do, but we are hoping that we
have found the key and will continue to move forward at the
same rate.
Some of the things that my office does in order to help us
stay in touch and contract with all small businesses, including
service disabled veteran small businesses, are that we do a lot
of training. We are just in the process of completing revision
of an electronic course available to everyone, but aimed at
contracting officers about service disabled veteran-owned small
business contracting.
We have two other courses that we are in the process of
putting together, all of this with Defense Acquisition
University.
We have done many Webcasts. We do annual awards for all
sorts of small business activities, but particularly service
disabled veteran-owned small businesses. We support a National
Veterans Conference. We do training, a great deal of training
of our small business specialists so that we stay on the
cutting edge of procurement, and particularly as it relates to
small business.
In summary, we intend to and we expect to be involved in
the plans for the Recovery Act funds. We have a track record
which tells us if we try hard, we can maximize opportunities
for small businesses, and therefore, I am happy to tell you
that we think we can succeed in doing what you have asked us to
do.
Thanks.[The prepared statement of Ms. Oliver is included in
the appendix at page 68.]
Chairman Nye. Thank you very much.
I want to go ahead and get into questions now, and I want
to try to reserve some time for the other members to ask
questions they would like to ask, and noting the time, of
course, we want to have significant time for our second panel
so that we can hear from the business owners about their
experience.
But I do have a couple of questions I would like to ask,
and basically I think the bottom line that I want to get at
here is we know that we can do better, that we need to do
better. We know we have failed to meet our government set
targets, and we are trying to focus on ways to get there. And I
am going to start with a question for Mr. Jenkins.
You represent the Small Business Administration and have a
position that gives you the opportunity to see what the other
agencies of the federal government are doing and to work with
them on specifically establishing the benchmarks, but then they
work to help us meet our overall target.
Basically, can you just give us, you know, just candidly
why are we not making the target and what do we need to do to
fix that?
And then can you talk about how the SBA will work to
perhaps revise the target goals given the fact that we now know
the dollars that we are going to get under the Recovery Act?
Mr. Jenkins. Sure. One of the challenges that the agencies
have is insuring that businesses are at a level that can
support the contracting that they are doing both in terms of
firms being in those specific industries that they are buying
and selling. One of the things that the SBA is trying to do in
terms of its outreach is to match agencies with businesses,
including service disabled veteran-owned businesses. We are
really pushing in terms of saying this is what this particular
agency buys and, therefore, we are reaching out to those
specific industries, those communities, and then making that
information available. We are making sure that the small
businesses understand how the agencies are buying, making sure
they are registered in terms of the central contracting
registrant, providing them with business development
assistance, and certainly from an SBA standpoint, providing
them with the financial support in terms of loans to assist
them.
We believe with the scorecard that we introduced about a
year and a half ago that it heightened the visibility of all of
these goals, including the goals for service disabled veterans,
and working with the agencies to develop strategies and plans.
We think that is critical that there is now an increased focus
in this particular area.
Chairman Nye. Thank you.
I agree that it is critical with the increased focus.
You mentioned that you have established a stimulus bill
coordinator position, and I won't ask you to comment on that
anymore at the moment, but I will be interested to follow up
and hear about the plans that that coordinator has for
increasing the share that particularly our veteran owned small
business are getting in terms of that government contracting.
I want to move on and ask a question of Mr. Szabat. Can you
please comment from your perspective on how you are going to
coordinate with the states to insure that the money that is
coming from DOT through the states for transportation
infrastructure then goes on and we insure that essentially our
veteran owned and our small businesses have the best shot at
getting access to that contracting?
Mr. Szabat. Yes, sir, although if I may, first I will echo
Cal's comments and reinforce his answer that I think absolutely
one of the reasons that you have seen an uptick recently in
government agency performance is the fact that more people are
paying attention and there is more of a spotlight.
I was the Chief of Staff at the Small Business
Administration when the scorecard came out, and the Deputy
Administrator at the time and myself split the duty of fielding
the angry calls from our fellow government agencies of people
who were ranked red in various categories. But one call, in
particular, justified in my mind the reason we had the program
where the Chief of Staff of another federal agency, which we
may not name, called me to say, ``I have to confess that until
you had the scorecard I did not know that our agency had a goal
for service disabled veteran-owned small businesses, and now
that we have that goal or now that we are aware of that, we can
guarantee you that the front office of the agency will pay
attention to that.''
But to your question in particular, sir, as I mentioned in
both our written prepared testimony and in my verbal testimony,
the Department of Transportation is covered by a separate law,
and that law restricts our ability to set targets to the states
to only disadvantaged business enterprises, which also we do
not have the latitude of how we can determine who was eligible.
Those are presumptively women, Latino, African American, and
Asian owned business owners with a net worth not to exceed
$750,000 in contracts not to excess $21 million.
Within those categories, veteran-owned and service disabled
veteran-owned businesses may apply for qualification, but they
will only qualify if they are identified as being both
economically and socially disadvantaged, which we recognize can
be high hurdles to accomplish.
So we are letting, in the workshops and our outreach to the
veteran-owned community, we are letting them know that these
opportunities exist, but we are also aware that unfortunately,
we do not have the ability to simply inform the states, tell
the states that they must include veterans within these
programs.
So we are offering the veterans information and training
opportunities. Most of the work that we have right now with
service disabled veteran- owned small businesses is information
technology related, not construction related. We want to get
them more into the higher dollar value construction fields, but
under current law we do not have the ability to actually
require the states to fold them into the over a 30 to $35
billion that we will be giving them through Recovery Act
formula funds.
Chairman Nye. Thank you.
And I certainly do not mean to imply that you need to force
some kind of goal on top of the states. However, there are
still opportunities to be helpful with the states in working
with them and insuring that our businesses get a fair crack at
these opportunities, even absent a specific target sent to the
states.
But thank you for your comments, and this actually leads me
into something I wanted to ask Ms. Wegner regarding the VA, and
I wanted to ask you if you can comment, please, on your work
with state VAs. Again, it's a similar question.
We have federal level bureaucracy here in the state level.
It would be a shame if we are not well coordinated. I know the
VA has had some positive experience in this area, and I am
wondering if you can just give us some comments on how you have
worked together. You mentioned during your testimony working
together with other federal agencies to help veterans get
access to those contracts. You mentioned something about your
work with the state offices and any plans that you have to ramp
that up or take lessons learned specifically to help one way of
targeting our Recovery Act funds.
Ms. Wegner. Well, heck, I would rather talk about what we
are doing with the other federal agencies because it is a
better success story, but thank you very much for that hard
question.
In the Center for Veterans Enterprise, our outreach program
manager has developed as part of our Web page a state programs
site in which a veteran from any state in the nation can go and
look at their particular state to see what legislation has been
introduced in the past, if there is currently a program, what
the status is, and anyone can review live programs from the
other states.
So when you look at the map of the nation, you can
immediately see which states have veterans' supplier inclusion
programs already in place and which have proposed them and
sometimes which have voted them down.
The purpose of that is to help advocates at the state level
find legislation in other states that they can use to introduce
comparable programs relatively easily within their state. The
push from our perspective in the Department of Veterans Affairs
is we have the federal model in place, and you have heard the
people testify this morning that we are making good progress
and that you have the attention of the agencies. Now in our
opinion in VA, the next place to take this program is to the
states so that we can insure that veterans and service-
connected veterans have opportunities at the state level.
So we are trying to make it as easy as we can.
Chairman Nye. Thank you also for mentioning how the
spotlight that we put on the issue is apparently tremendously
helpful in moving the ball forward in this area, and I think
you can expect from us to continue to be in communication with
you about how we are effectively moving forward here.
Thank you for your comments.
And I just had one more question for Ms. Oliver. You
mentioned the success that Department of Defense has had over
the past five, six years in dealing with service disabled
veterans, and indeed, there has been a dramatic increase in the
number of contracts and dollar amount awarded. Yet we are still
only about halfway there.
So can you tell us what do we really need to do to get to
that target? What do we need to fix?
Ms. Oliver. I do not think it is "fix"; I think it is just
"keep it on". There is a pattern with all of these goals. The
government and parts of the government do not begin by making
the goals. If we can get the rate of increase, then it seems to
continue on with that sort of increase. That is my hope with
service disabled veteran- owned small businesses.
I told you that the tool was really very helpful, and to be
honest with you, in the same way that the committees have
helped us focus, in the way Joel talked about, for example, the
veterans themselves and the service disabled veterans and their
organizations have been tremendously helpful to us. They have
helped us understand why we are hard, the ways that we are hard
to do business with, and why we cannot change some of those.
Some of those are controlled by statute.
We have, I think, had insights about how to some degree
compensate for it. I think there are many more insights for us
to find and inasmuch as we are not even half there toward our
goal. I think the veterans and the service disabled veterans,
individuals and their organizations will continue to help us.
Chairman Nye. All right. Thank you.
Again, I want to mention a number of you have mentioned
today you have established oversight officers or committees to
oversee how we are going to do better and do exactly what we
are talking about today, and I am going to just put you on
notice that we will be following up with you to hear about
exactly how that work is progressing and how we are getting
closer to that goal.
Now, I want to reserve some time for other members. I just
want to thank Ms. Halvorson for joining us and being here.
Thank you.
Now I am going to yield time to our Ranking Member, Mr.
Schock.
Mr. Schock. Thank you, Mr. Chairman. I think you did a nice
job of asking each one of our excellent panel members a
question.
I am not going to do the same. We recognize there is a
problem, and we all realize that we need to shine the spotlight
as part one, and then obviously exerting effort and having a
plan of action on how we are going to get there is job number
two.
I want to kind of ask Mr. Jenkins from SBA if you could
explain to me your process within the agency to determine what
is an appropriate percentage for each one of these departments
to have for veterans, small business owners and small business
owners' in general contracts. In other words, how do you
determine, how do you negotiate with these agencies based on
the agency, based on the type of work they do to come up with
that percentage.
Mr. Jenkins. It is actually a two-pronged strategy. We have
the agencies participate on a particular subgroup, and goaling
subgroup. We look at what they historically have done in the
past in terms of their procurement numbers.
We also look at the other part of the law which talks about
the maximum practical opportunity; what can they do, what can
be made available to small businesses, and then the individual
categories.
With that we also have to look at how we establish the
nationwide goal. So, for example, the Department of Defense
represents almost 70 percent of total federal procurement. If
they do not make their goal, it is very difficult for the
entire country to make the government- wide goal.
So we kind of balance that out to get back there. So it is
through a formula that we use and through this committee that
we analyze the data and put it all together nationwide.
Mr. Schock. How is it that the department allows, for
example--and I am not going to pick on you personally; I know
you are the messenger--but, for example, the Department of
Energy, how is it that we allow the Department of Energy to
have a negotiated rate or percentage lower than that as
specified in the statute?
Mr. Jenkins. Yes, once again, the statute applies to the
government-wide and not the individual agencies. Where the
individual agencies really play is at the maximum practical
opportunity, but then we have to pull that to get up to the
government- wide number.
We recognize how the Department of Energy operates. They
operate through the various facilities that were mentioned
earlier. With that, we look at what is available after you pull
those centers out or those facilities out, and they do
everything from landscaping to high earning scientists and
running national laboratories.
Then we look at what is left. What is left that they
themselves through their contracting activity can actually
procure? And that is where we set the goals based on that
maximum practical opportunity.
They would be significantly lower, and we have to, for
example, if we set a five percent small business goal, it is
very difficult to set also a five percent women-owned goal
because that would mean all of the small business dollars would
have to go to women, and so we look at the actual percentage of
performance over the last three years, and we certainly do not
want them to slide backwards. So we set the goal at whatever is
higher, either the average over the previous three years or
what they received in the last year and pick whichever is the
highest number.
Mr. Schock. I was going to ask Mr. Szabat at the Department
of Transportation. You know, you reported that you have
exceeded your goal by 20 percent. I mean, what kind of
practices have you put in place there at the department that
you know of that have kind of helped you reach that goal?
Mr. Szabat. Well, to clarify, we have doubled the
government average. The government average is 22 percent. We
are over 50 percent or just below 50 percent if you factor in
FAA. But our goal is, for example, for one category of small
businesses it would be 36 percent. We are at 38 percent. So we
are exceeding our goal, but as Cal mentioned, they are
calibrated for each of the different agencies because we have
identified more opportunities that, for example, energy in the
Department of Transportation where we can legitimately go out
and seek the work of small businesses to do our work, we are
able to set and achieve higher goals.
And we are constantly looking for opportunities to raise
those. I think, you know, I will echo Linda's comments. There
is no magic to this or a particular formula. A lot of it is
just elbow grease and hard work.
We have been blessed with having a very, very competent
OSDBU office, and again, the attention and support of senior
management. The Transportation, as you are aware, has several
different modes to distribute most of the money: federal
highways, federal transit, Federal Aviation Administration, and
they each have their own officials that are dedicated to
working with communities to getting the word out.
So it is not just Department of Transportation OSDBU having
these meetings with, conferences with service disabled
veterans, but each of the individual modes doing it and doing
it in coordination, and you do this over enough time and you
establish a culture within the agency that supports that, and
Transportation has that culture so that when we are in a
situation as we are now where out of, and I do not know the
number, 25 to 30 presidential appointees would be our normal
leadership contingent. We have one on board right now, in fact,
the Ranking Member's predecessor, former Congressman LaHood,
now our Secretary.
So we do not have a leadership team to be driving this
through the department to make sure that this happens, but we
have a career team that is aware of these goals and has been
working it for so long that this is second nature to us. So I
think more so than any one thing I can talk about, it is the
fact that we have just had people who had support for
management in the past who are now able on auto pilot to
continue to do this.
Mr. Schock. Okay. Well, it is obvious to me at least by the
panelists that are here that there is an interest on your parts
to increase the percentage, and based on Mr. Jenkins'
testimony, it is a matter of justifying how much of your work
can actually be designated to a small business percentage or a
veterans percentage or a women's percentage without
jeopardizing what it is you are trying to do, your core
business.
What do you do at SBA or what should we be doing maybe that
we are not then to help educate the small business owners?
Obviously we are not here to talk about women business owners,
veterans but all of these different subgroups that we go after,
to help make them aware of the contracts that are out there so
that they can benefit and also these agencies can then better
meet their goals and we can raise those percentages years down
the road.
Mr. Jenkins. Oh, sure. A number of agencies have good
strategies that they have put out. One of the things that is
very important for agencies to put out is their procurement
forecast so that they can let the public know what it is that
they are intending to buy in the coming fiscal year.
Mr. Schock. I do not mean to interrupt, but does SBA do
anything collectively? I mean, obviously, I think it is more
difficult for DOT, the DOE, Veterans, you know, all of these
different agencies to do it independently as opposed to the SBA
or one central warehouse for businesses to check as opposed to
having it, you know.
Mr. Jenkins. Well, the best place I would suspect would be
the federal procurement data system. It is a place where anyone
can go and look at some past history, and what the agencies
actually have purchased in the previous year.
The benefit that SBA can bring to the table is our
procurement center representatives. We have individuals
assigned to the various agencies, and we look at procurements
that they do not want to put out for small business. We
question those. We ask for market research to establish their
reasoning behind not wanting to go small business, and we also
question if they have met one particular goal, are they able to
put some contracts in for service disabled veteran or are they
just loading up in one particular area?
A good example that would be the small disadvantaged
business program. That area has exceeded the goal consistently
over the period we talked about, but the others have not. So we
would like the agencies to use the tools that they have, the
set-asides, to put more contracts in the service disabled
veteran area, and that is where our PCRs can really play a
vital role by looking at what the agencies are doing,
questioning them, and actually, in certain cases, appeal their
decisions not to set aside in particular areas.
Mr. Schock. Okay. Thank you.
Chairman Nye. Okay. I am going to ask our other members to
ask any questions they wish. I am going to suggest that we try
to stick to five minutes if we can, just noting the time and we
want to have sufficient time for the second panel. So I would
like to recognize first Ms. Clarke.
Ms. Clarke. Thank you very much, Mr. Chairman.
Chairman Nye and Member Schock, I am kind of encouraged by
this hearing, quite frankly. What I recognize is at the end of
the day this is about leadership and accountability, and from
what I have heard today, there is an indication that we have
the tools in place and we are poised to maximize on
inclusiveness and meeting our goal across contracting agencies.
So I am really, really excited about that.
My first question is for Ms. Wegner, and I want to commend
your agency for initiating a partnership program with the
HUBZone program to promote applications for veterans for
certified HUBZone status. I have a particular interest in the
well-being of women and minority-owned business within the body
of veteran and service disabled veterans' businesses, and I
understand that this is an effort that you plan to continue.
However, the GAO found that in the past the program was
continually subject to fraud and mismanagement, and though I'm
an optimistic, the American public demands accountability and
so does this Committee.
I want to know two things. Do you have data that shows how
many minority veterans have taken advantage of this partnership
and a monitoring mechanism to do so?
And two, what do you and the HUBZone program intend to do
to mitigate any future fraud, waste or abuse?
Ms. Wegner. Just as you have heard that when the SBA posts
the procurement scorecards everybody pays attention, when the
GAO issues a report identifying vulnerabilities, everybody pays
attention. Those reports came out the middle of last summer. We
began our partnership with the SBA's HUBZone office around
August of last year after those reports came out. So we knew at
that point in time that the Small Business Administration's
leadership had already taken measures to bolster the program
and to make sure that it had the resources it needed to put it
back on the right track.
Traditionally, the resources had been very minimal. So with
SBA paying attention to the HUBZone program to make sure it is
on track, the Department of Veterans Affairs said, ``We need to
get veterans into the HUBZone program." Have we established
measures yet?
The only measures that we have established so far have been
the number of veterans that we touched and informed about the
HUBZone program and the contracting opportunities that arise
from that and how you apply and the number who actually
applied. So we are waiting to see how many of those received
their certification.
I will absolutely tell you that in the Department of
Veterans Affairs we believe in the HUBZone program. We believe
that veterans are the best set of owners to go into
Historically Underutilized Business zone areas and to return
those areas to prosperity and to lead the nation as role models
for how we get this job done and how we return to economic
stability.
So I am happy that we are going to continue that and we
will put effectiveness measures in place as soon as we get the
first set of the applications certified.
Ms. Clarke. Thank you very much, Ms. Wegner. I am
encouraged by your response and look forward to seeing all of
that come to fruition.
My final question because my time is winding down is to
both you, Ms. Wegner, and Ms. DeGraffenreid. The OSBDUs could
have significant impact on small and disadvantaged businesses
from the authorities given in P.L. 95-507 and the Office of
Federal Procurement Policy, Letter No. 79-1, and the Clinton
Executive Order of Number 129-28. However, I understand that
not every SDBU office operates with the same level of
authority. By law the SBDUs are expected to report directly to
the head of the agency, but some do not and are far removed
from the agency leadership.
Also, the authority seems to lie at the discretion of the
contracting officers rather than the SBDUs. Can you describe
the impact of the SBDUs that report directly to the heads of
agencies and those that do not?
And what challenges do you face trying to promote the
maximum practicable use of all designated categories within the
federal acquisitions process?
And what can be done to strengthen the effectiveness?
Ms. DeGraffenreid. Yes. I cannot tell you the ones that do
not, but I can tell you about the ones that do. At the
Department of Energy, our Office of Small and Disadvantaged
Business is headed by--right now the position is vacant. It is
a political position, but it is headed by a Senate confirmed
person who reports to the Secretary, and that is really
important because you attend the Secretary's staff meetings,
and you get support from the top. I think it is really
important for all agencies to have their OSDBU operating at
that level because you can put the importance of each program
within your agency in setting aside for small business, and
that is what we are doing in our agency.
I can say that the OSDBU and our Office of Economic Impact
and Diversity have already met with our Secretary Chu, who is
extremely supportive of the small business program and has
given us rein to do what we can to be sure that small
businesses get a part of the Recovery Act, as well as other
procurements in the department.
So I think it is pretty important for each department to
have an OSDBU. That is at that level, at that ranking level.
Insofar as Department of Energy is concerned, I would like
to add this. This is not part of your question, but I would
like to say that insofar as the Recovery Act is concerned, we
have spent much time with the committees and the persons who
are working on the Recovery Act as to what portions are going
to be given to small business, and in this agency in
particular, the main portion that will be contracting has to do
with environmental management, and we look forward to giving a
significant portion of those awards to small businesses.
In fact, environmental management has been one of our
strongest programs, last year awarding 1.3 billion to small
business alone. So we look forward to service disabled veterans
becoming a part of that, and hopefully we have veterans who are
in both the environmental remediation and the waste areas, and
we look forward to them becoming some of Department of Energy's
contractors both at the price and subprime contracting level
because as I said earlier, we are unique and that most of our
opportunities are at the subcontracting level.
Ms. Clarke. Thank you very much, Mr. Chairman, and thank
you to all the witnesses. This is a great hearing.
Thank you.
Chairman Nye. I would like to recognize Mr. Thompson.
Mr. Thompson. Well, thank you.
Actually my first question is for Ms. Oliver with DoD.
Could you describe the practices in place through your office
to insure prompt payment of services for contractors and
subcontractors?
Ms. Oliver. There used to be something called the paid cost
roll, which required that--this concerns subcontractors--which
required that prime contractors could not be paid, could not
put it in the claim until they were paid. To get the money they
had to pay out the money to the subcontractor before they could
claim the money basically.
That was a very helpful tool and that tool is gone. It does
not exist anymore. The mechanism for making sure that small
businesses are dealt with fairly, paid promptly by the prime
contractors is mostly a matter of persuasion. There are not
actually existing tools. Probably the most useful tool for
prompt payment when it is the government, the Department of
Defense, that's paying is the list that the payer's DFAS goes
on if they do not pay promptly.
I mean, some person gets dinged because their name is on a
list for work that has not been processed. Finally it comes
down to individual people even in organizations as big as the
Department of Defense.
There is the interest payment, but every small business
will tell you they would rather have prompt payment than an
interest payment because the interest payment usually does not
cover the cost of their borrowing.
Mr. Thompson. Does not cover the cash flow to keep the
doors open as a small business.
Ms. Oliver. Exactly, exactly.
Mr. Thompson. Any idea of what the typical for the DoD to,
say, the contractor, the amount of average time for payment?
Ms. Oliver. I probably can find that out. I surely can find
out more accurately than I could guess.
Mr. Thompson. Okay. I would sooner have accuracy than
guesses.
Ms. Oliver. Okay.
Mr. Thompson. That would be great.
And just one more, and I guess I would open this up to the
entire panel then. Any recommendations on just a better way to
streamline that process in terms of prompt payment to
contractors?
Ms. Oliver. In fairness to my colleagues who do payment, it
has gotten much, much better. I probably can find those figures
for you, too. Computers have really helped.
Some pressure, which is improved staffing, has really
helped. That is for Department of Defense anyway.
Mr. Szabat. Sir, for the Department of Transportation, you
know, the vast bulk of our money, of course, does not go out
directly to contractors, but goes out to states, transit
agencies, and metropolitan plane organizations. The Federal
Highway Administration has taken the lead for us among our
surface transportation modes in automating that process where
we're in the position now; they are in the position now that
they can actually do overnight repayment.
So a bill comes in from the state for a project that has
been approved and the money has been obligated, and they can
actually outlay that money overnight from the time that they
get the bill, but we are a long way away from meeting a process
like that that is automated to deal directly with all of our
contractors, but I think that is the direction that in some
cases quickly, in some cases slowly that all of us are moving
toward.
Mr. Thompson. Very good. Thank you, Mr. Chairman.
Chairman Nye. Thank you. Thank you very much.
And I want to go ahead and proceed on to the second panel
so that we have got sufficient time.
I want to thank again our witnesses on the first panel for
testifying.
I would like to actually suggest there would be some value
here in having the members of the first panel remain if they
wish to hear the ideas and testimony from those who are out in
the field here, and I would like to ask if you would not mind,
please, if the first panelists for the record could just let us
know if you intend to stay or if you have someone else here you
could identify who is a representative of your agency, if you
would let us know who that is.
Mr. Jenkins.
Mr. Jenkins. Yes, we can stay for a while.
Chairman Nye. Okay. Mr. Szabat.
Mr. Szabat. I regret I have to go to a meeting at the White
House with the Recovery Act czars from the states immediately
following here, but Ferguise Mayronne from our OSDBU Office
will be here to represent the department.
Chairman Nye. Thank you.
Ms. Wegner.
Ms. Wegner. I am delighted to stay. Thank you.
Chairman Nye. Okay. Ms. DeGraffenreid.
Ms. DeGraffenreid. I can stay as well.
Chairman Nye. Okay. Ms. Oliver?
Ms. Oliver. And I will stay.
Chairman Nye. Terrific. Thank you very much. the first
panel is now excused.
And I would like to invite the members of the second panel
to take their seats.
All right. I would like to go ahead and get started, moving
on to the second panel now, and again, thank you all. I know
some of you traveled significant distances to be here today,
and I really appreciate you taking the time to join us.
As we did for the first panel, I am going to introduce each
panelist one by one and give you an opportunity to give opening
remarks, and we are going to ask if you could please try to
target five minutes or less for your opening statement, and
then we will have some more time to converse during the Q&A.
I am going to start with introducing Mr. Mark Klett, owner
and CEO of Klett Consulting Group in Virginia Beach.
Established in 2002 as a service disabled veteran-owned small
business, Klett Consulting Group provides innovative
operational systems engineering services and professional
consulting.
Thank you for joining us, Mr. Klett. I would like to invite
you make any opening remarks.
STATEMENT OF MARK KLETT
Mr. Klett. Thank you, Congressman Nye, Congressman Schock,
distinguished members of the Committee. It is an honor for me
to speak here on behalf of veteran business owners about doing
business with the federal government to insure small and
veteran owned businesses secure contracts awarded under the
American Recovery Act.
I have been in business as a business owner for over six
and a half years. We have been fortunate to be able to grow at
a rate of almost 80 percent a year; have 35 employees
currently, and we continue to grow in this tough economic
environment.
I served my country for over 20 years, and I am currently a
disabled veteran as well. But I am not an anomaly. There are
over 10,000 companies like mine registered in the central
contracting registration. We are out there. We are able to do
the work, and we look forward to helping this country move
forward in this economic situation.
If you get contracts to us in this stimulus package,
companies like us, we will hire people today or tomorrow. We
typically when we get a contract awarded to us, we are hiring
people that day.
I have had situations where we have won a contract. From
awareness to win was three days, and when money was assigned to
us we hired 15 people within a week and had them on the ground
working.
Recently we had a situation where there was training that
was required for the Marine Corps out in Hawaii. A contract was
established within 48 hours, and we had boots on the ground in
Hawaii training on a Sunday four days after the contract was
awarded.
The procurement system and the way it is set up right now
can support these types of things and these requirements, and
we can do it. I am just showing you the agility that small
companies have. You give dollars to a small company; our
overhead is really small. I currently have about eight
different jobs which includes cleaning bathrooms in our
corporate office. Okay? So we do a lot of different things.
If you get money to us through a large company, which I am
on 11 different contracts through large companies, the trickle
down effect as you go through the government pass-throughs, the
large company's pass-throughs, which are all ethical and legal,
you do not get that big of a return on the dollar.
With us you get 100 percent return on the dollar, and you
get people working, moving right away. So what can you do right
now? What are some of the solutions, as I heard all of the
people out there who talked earlier in this hearing? How can
Congress help the country right now to get things going?
For proven and performing small and veteran businesses,
leverage existing contracts that are in place right now. Allow
the ceiling and the dollar amount to be raised on existing
contracts, and permit the adjustment of the contract periods of
performance. Just extend those periods of performance and the
scope of work, just those existing contracts and the existing
scope of work.
Those things can be done in a matter of weeks, and people
can be hired, dollars can be put on those contract. These
changes are the fastest means to deliver funds to small
business. This is the small business job creation engines,
creating new procurement vehicles while a longer term solution
will not result in economic stimulus needed today.
Typically an RFP, request for proposal, can take 18 months
to allocate 25 million to $50 million or larger, but to get to
those small businesses it's going to take a while.
Here is your other problem. The federal procurement process
will not be able to execute the volume of the stimulus funding
without assistance. The government acquisition process needs to
be streamlined to insure that stimulus funding delivers
positive economic impact.
The federal acquisition work force must be expanded
immediately with experienced procurement contracting officers
to implement the small business objectives and procurement
demands of this 18-month stimulus package. You have got to get
a bigger acquisition workforce. Again, there is an opportunity
to contract some of that out.
So in conclusion here, I greatly appreciate the opportunity
to speak to this Subcommittee. There are a lot of us out there,
small businesses, service disabled veteran-owned small
businesses. We can do the job. We can hire. We can get people
out there working within the next 30 to 60 days easily. Just
get the funding to us.
Thank you.[The prepared statement of Mr. Klett is included
in the appendix at page 76.]
Chairman Nye. Thank you very much, Mr. Klett, for being
here.
I would like to introduce now Mr. Jim Hart, President and
CEO of ARRIBA Corporation. Mr. Hart was a Navy shipbuilder for
22 years when he retired and began to explore the field of
construction and security installations. ARRIBA was established
in 1998 in Norfolk, Virginia, certified as an 8(a) and a
service disabled veteran-owned business.
Thank you for being with us, Mr. Hart, and I would like to
invite you to make any opening comments.
STATEMENT OF JIM HART
Mr. Hart. Thank you, Mr. Chairman and members of Congress.
It is really a pleasure and a privilege to be here with you
today. As the Chairman said, we do construction, and we do
heavy construction and we do renovation. Right now we are
working on the Pentagon, for example, because there is no work
down in the Tidewater area, and I will get into that in a
second.
This company of mine works primarily for the federal
government. We do not really work for anybody else. We work on
bases. We work for FEMA. We work for the Coast Guard, the Army
Corps of Engineers, NAVFAC, Veterans Affairs. You name it, but
it is primarily for the federal government.
We understand how to do business with the federal
government. We like the structure, and we stay there.
Service disabled veteran businesses in my belief can
actually implement the President's stimulus package and
actually get work into the field, get paychecks to the
unskilled, semi-skilled people quicker than anything else. What
I want to speak to today, well, I have two points. How did the
marketplace for construction for the service disabled vet get
where it is today, the history of it?
And number two, what actions can be taken to take advantage
of the service disabled vets?
How did we get there today in construction? BRAC is the
problem. What happened was the edict was given on October 1st,
2011. Unfortunately the program was not funded, but the end
dates stayed. Up front planning and funding came out of hide
for NAVFAC and the Army Corps. This was done using regular
appropriated funds from the operating budgets and, therefore,
maintenance and renovations were deferred. This includes
building renovations, HVAC upgrades, road maintenance, roof
repairs, et cetera.
In addition, in order to accomplish the monumental task
dictated the services bundled large projects together so they
could manage them without adding personnel resources and
contracting inspections. Without the funds for either advanced
planning or the added manpower, the services had no choice but
to bundle these contracts to mega projects which cut out the
small business.
In 2006, seven and eight, the maintenance budgets for most,
if not all, of the bases in Tidewater were zeroed out, and the
result is we are completely dried up. Only the most critical
work is being done. In 2008, the contracting officer who has
just recently retired told me that in NAS Oceana, Fighter Town
USA, he could spend five to $10 million just on the roads, not
to include any of the hundred-plus packages that were already
designed and budgets developed for, but due to lack of funding
were not done.
Other bases like Dam Neck, Little Creek, Fort Story, Fort
Eustis are in the same situation. All types of work are
required, but no funds are available to do the projects, and
these are bases only in Tidewater.
Now, we do have the largest number of bases around in the
country. So you are talking about a large concentration, but it
is the same all over Tidewater.
Here is where the service disabled veteran companies depend
on work for growth. Projects of the $250,000 variety to the $3
million size is what will grow service disabled veteran
companies.
To sum up where the problem is, BRAC bundled the projects
to the size that the service disabled contractors could not
compete. A service disabled veteran contractor, in general, is
not going to go after a ten million to $25 million contract,
and many of them, for example, are 40 or 50 and $100 million.
Right now, today, there are over 200 job openings for
qualifies inspectors and contract specialists in NAVFAC MIDLANT
alone. These people need help. What I am telling you is the
system is stretched too tight. You put money in there, and it
is not going to do you any good.
What can be done? Provide funding to the services and the
VA and other federal agencies to get their maintenance backlog
done. You don't have to do any engineering. Your engineering is
finished. So your up front time is already expended.
The VA has language and they did not really go into it very
deeply, but the VA has language in their procurement authority
that says they can go sole source to a service disabled veteran
company to get work done. I would recommend that the President
sign an executive order authorizing all federal agencies to
have that tool.
As part of the funding, include additional funds to
outsource the inspections and the contract specialists. By
using these work packages that are already there, the sole
source tool, you are going to be able to put funds in the hands
of unskilled, semi-skilled, and tradesmen all over the country
working all of the federal agencies that have a backlog.
Thank you, sir.[The prepared statement of Mr. Hart is
included in the appendix at page 86.]
Chairman Nye. Thank you very much, Mr. Hart.
I am going to yield to Mr. Schock now.
Mr. Schock. Thank you, Mr. Chairman. I wish to introduce
Mr. Jim Schmidt from my district in Illinois. Mr. Schmidt is a
Vietnam veteran and currently President of Hohulin Fence
Company located in Goodfield, Illinois.
Hohulin Fence was founded over 100 years ago and is
credited as being the first to commercially manufacture chain
link fence fabric here in the United States.
Mr. Schmidt, thanks for traveling all the way here, and you
are welcome to make some statements.
STATEMENT OF JAMES SCHMIDT
Mr. Schmidt. Good morning, Mr. Chairman and distinguished
members of the Committee.
I am James Schmidt, President of Hohulin Fence Company.
Thank you for the opportunity to present the views of Hohulin
Fence and our experience as a small, veteran owned business
trying to survive in a down economy with limited funding.
Hohulin Fence Company was established in 1897, some 112
years ago, as a family owned company in Goodfield, Illinois, a
small farming community in central Illinois. Hohulin Fence was
the first company in the United States to weave chain link
fence commercial. That first contract was for 396 feet of 48
inch high chain link fence with one gate for the grand sum of
$26.90 installed. Today that would not pay for the gate
hardware.
The Hohulin brothers were an inventive group who took the
first hand operated machine and engineered and designed an
automatic weave machine which increased production immensely.
The Hohulins went on to increase their business, including
selling weaving machines to Cyclone Fence Company of Waukegan,
Illinois, for a World War I base security. Through the years
the company survived both World Wars and the Great Depression.
Although a conservative family, the Hohulins were always
able to provide for the family and those of their employees.
Today Hohulin Fence is still family owned. In fact, I married
the youngest daughter of one of the third generation brothers.
I have two Hohulin fifth generation employees. We are a union
company which services approximately a 100 mile radius selling
and installing commercial industrial fences to universities,
schools, sports facilities, government facilities, private
companies, parks, utilities and pipeline companies.
As everyone in this room knows, the current economic
climate has been extremely difficult for small contractors and
the customers we serve. Our larger manufacturing customers
continue to reduce staffing and cut back production. All
municipalities are struggling with declining sales tax
revenues, and at the same time residents have reduced their
discretionary spending.
Every market we serve has been impacted. This has had a
direct impact on our business. In 2007 we posted revenues of
approximately $4 million. In 2008 our revenues were reduced by
15 percent, and would have been off by 33 percent had steel
pricing not increased so dramatically. Steel is another topic
for another day.
We reduced staffing by 20 percent to adjust for the
reduction in sales. We have watched smaller competitors close
their doors because they could no longer get financing to
operate their businesses. As a veteran owned small business I
see no advantage for us. If I were a disabled veteran, there
may be a few more opportunities, but not many.
I believe if a veteran owned business would receive the
same benefits as a WBE or DBE, we would have more work
available for us to bid. Typically, most federally funded
projects require a certain percentage of minority
participation. We are not able to bid many of these projects
because we are not considered a minority enterprise.
I know that many of our larger construction contractors
struggle to fulfill the minority participation on large
projects because there just are not many WBE and DBE firms in
the area.
Many times companies are brought in from outside the state
to fill this requirement. I do not think it is fair to a local
contractor not to be able to bid projects in their own
backyard. Also, the WBE and DBE are able to place a higher bid
and receive the contract. With a level playing field, I am
confident Hohulin Fence can compete in the marketplace, and as
a commercial business remaining competitive is our
responsibility.
What we need from Congress are the right policy actions to
insure the playing field remains level. Congress and the
administration must insure that the funds available through the
American Recovery and Reinvestment Act are made accessible by
small business through equitable contract administration.
Currently our country seems to be paralyzed by the fear of
the unknown, whether they will have a job or not tomorrow,
whether they will lose their home or not, whether they can
provide for their families or not. We are all looking to
Washington for an answer.
Mr. Chairman, I applaud the efforts of you and your
colleagues on the Committee to bring the voice of small
business into this important debate. I look forward to working
with you and your colleagues in support of small business in
the current economic climate.
Thank you.[The prepared statement of Mr. Schmidt is
included in the appendix at page 104.]
Chairman Nye. Thank you very much, Mr. Schmidt.
I would like to now introduce Ms. Janice Cavolt, a minority
owner of JBC Corp. in Virginia Beach, Virginia. She established
the firm together with her husband, Mr. Brian Cavolt, who is
though unable to attend today a service disabled veteran. She
established the company in 2006.
Thank you very much for being with us today, and I would
like to invite you to make any opening remarks you would like
to do.
STATEMENT OF JANICE CAVOLT
Ms. Cavolt. Good morning, Mr. Chairman, Ranking Member
Schock, and members of this Subcommittee. Thank you for
inviting our company to testify before your Subcommittee and
discuss insuring stimulus contracts for small and veteran owned
businesses.
My name is Janice Cavolt, and I am representing JBC Corp.
and presenting testimony for Brian Cavolt, my husband and
business partner.
My husband is Brian Cavolt and is a 100 percent rated
service disabled veteran. He retired as a master chief after 29
years of active duty in the U.S. Navy. Since 2006, he has owned
and operated JBC Corp., a service disabled veteran-owned small
business.
JBC Corp. is a provider of medical trauma kits for the
military. Our kits are custom designed and packed to order as
specified by the government. Our company is located and we
reside in the city of Virginia Beach, Virginia.
My military service and experience as an operator and
hospital corpsman with Special Forces inspired and enabled me
to continue to serve the active duty war fighter by providing
medical kits designed specifically for administering trauma
combat casualty care under fire.
As a business owner and veteran, I have regular and
continuing contact with other veteran owned small businesses.
As small business owners, we face many of the same challenges
and share the same concerns. Currently the economy is our
greatest concern. We are aware that the economic climate could
have a tremendous effect on our businesses. We recognize that
it is important that we position ourselves and not be
vulnerable to the unfair practice of not being able to bid on
contracts that are automatically assigned to prime vendors.
The government has a variety of ways to purchase the items
required for its many agencies and departments to conduct
business. Although the requirements and methods vary, it seems
the common objective for the government is to obtain quality
products at reasonable prices with reliable availability while
providing an opportunity for U.S. businesses to progress and
become an integral component in the economy.
One method of procurement the government employs is the
prime vendor contractor. The prime vendor was created to enable
the government to purchase products for manufacturers who do
not have contracts of their own with the government. Prime
vendors are frequently used to obtain and deliver the best
equipment to our troops at war in an expeditious manner. Prime
vendors can be used to bypass contracting personnel to expedite
orders and eliminate the requirement of justification for
purchasing a superior, reliable product over a less expensive,
inferior model with unknown reliability.
While the reasons stated here seemingly justify the use of
prime vendors, it is my belief that the very system created to
improve the procurement of products for our military does not
work in a way that promotes or insures economic growth and
stability for small businesses.
Further, the system does not protect the government from
excess wasteful spending and in many cases does not adequately
serve the end users of those purchased products. the prime
vendor is a giant in the government procurement system. As
such, they exercise great power over the small business who is
trying for the opportunity to get their product to market.
Sometimes that power becomes abusive. A small business may take
years to develop a product, show it to an interested party, and
then find that their only recourse to sell in any large volume
requires a prime vendor be involved.
Refusal to accept the terms of business from a prime vendor
is a no win option as to do so puts your product at risk as it
is not uncommon for the prime vendor to take your product and
actively pursue manufacturers that will produce it for them.
The tactics used by many prime vendors to take advantage of the
small business are coercive and frequently test the ethical
standards of business.
We were invited to do business with different prime vendors
on two separate occasions when our product was being sought for
purchase. In both instances we were pressured to get an
agreement in place quickly so that orders could be received.
The main issues addressed in both agreements were the price,
payment terms, and consequences for default. Both PVs wanted a
preferred price going so far as to say they needed room to get
additional points in their markup.
As manufacturers, we calculate our sell price by taking the
actual cost of the item, adding our labor, other overhead
costs, and factoring a conservative markup. We have found that
in most cases the prime vendor's markup often matches our
profit. The idea that both entities make the same profit when
the work for each is considerably different does not seem fair
or equitable.
It is the attitude of the prime vendors we have done
business with that makes us reluctant to keep doing business
through such a vehicle.
And in the interest of time I am going to jump ahead here
just to what our suggestions are or what we have observed.
It is suggested that government procurement regulations be
reviewed, modernized, and streamlined to give equal opportunity
to multiple American businesses.
In addition, it is an opportunity to renovate a system that
has become inefficient and that places cost containment and the
ability to provide items in a timely manner secondary to
finding the easiest way to push an order through.
There are procurement methods in place and available that
with modification could significantly elevate the opportunity
for small businesses to compete. Those would include being able
to raise the limits that credit cards can be used. Sole source
contracts should go directly to the manufacturer of the
product.
And I am out of time, but I thank you for the time to be
able to present. This is my oral testimony, but my statement is
in its full edition, and I would appreciate if you would take
the time to read it.
Thank you.[The prepared statement of Ms. Cavolt is included
in the appendix at page 106.]
Chairman Nye. Thank you very much, and yes, we did get a
written statement from you which we will submit as part of the
official record. So thank you very much.
I would like to recognize now Mr. Justin Brown, a
Legislative Associate for the Veterans of Foreign Wars. Mr.
Brown himself is a veteran of the U.S. Navy, having
participated in Operation Southern Watch and Operation Iraqi
Freedom.
The VFW is the nation's oldest major veteran group with
more than 1.7 million veterans who have served our nation
overseas.
And thank you, Mr. Brown. I appreciate you being here with
us, and we would be happy to hear your opening remarks.
STATEMENT OF JUSTIN BROWN
Mr. Brown. Thank you, Chairman Nye and Ranking Member
Schock, counsel.
On behalf of the 2.2 million member of the Veterans of
Foreign Wars of the United States and our auxiliaries, I would
like to thank this Committee for the opportunity to testify and
for its rigor in pursuing contracting issues on behalf of
veterans. The issues under consideration today are timely and
of great importance to our members and the entire veteran
population.
During this economic recession, the number of unemployed
veterans has increased to nearly one million as of February.
That is an increase of more than 400,000 since last November
and an increase of more than half of one million since last
April. There are twice as many unemployed veterans as there
were one year ago, and there are as many unemployed Iraq and
Afghanistan veterans as there are men and women currently
serving in Iraq.
Make no mistake. Our service members are leaving Iraq,
coming home, and fighting another war against unemployment,
homelessness, bankruptcy, and a host of medical conditions.
With a lack of opportunity, many service members are likely
considering self-employment. Unfortunately, the economic
stimulus was stripped of the language that would facilitate a
stimulus for veterans in both business and employment.
Furthermore, a large amount of the stimulus will be spent
in the form of state grants bypassing federal laws in regards
to contracting. In order for veterans to succeed in small
business we need training; we need capital; we need parity; and
we need compliance.
Veterans' access to capital needs to be increased and
diversified. For many veterans, the Patriot Loan Program is not
an option because their loans are being denied by lenders even
with the guarantee. The VFW suggests creating a direct loan
program via the SBA. This would allow SBA to have an array of
financial tools available to veteran start-ups and veterans in
business.
Also, there is an extraordinarily small amount of resources
being diverted towards educational programs for veterans'
entrepreneurship. In Fiscal Year 2008, SBA's operational budget
was $888,000. This funded SBA's five business centers and
various forms of outreach. The VFW would like to see these
programs greatly expanded to include various locations
throughout the country.
In fact, not one member of this entire Committee has a
veterans small business center located in their congressional
district.
Furthermore, veterans should not be taking the back seat to
any other government contracting program, including HUBZone.
Because HUBZone's language in the Federal Acquisition
Regulation includes ``shall`` instead of ``may,`` GAO ruled
that HUBZone has priority over veterans' contracting. The
Veterans of Foreign Wars objects to this determination and
urges Congress to return parity to the aforementioned programs.
If the VFW were to sum up the current state of veterans'
business and procurement in one word, it would be complacency.
There are extremely limited options in regards to veterans'
access to capital, few options for education, and a host of
federal agencies that after nearly a decade continually and
willfully fail to abide by their public mandates.
Their failure to abide by these mandates for such an
extended period of time challenges the very authority of this
body by woefully ignoring the laws that it passes. If the past
is any indicator, we will be back next year looking at slightly
better numbers, but hearing the same old song from the agencies
in question.
The VFW demands, in compliance with the laws our veterans
so proudly defended, that three percent of the economic
stimulus contracts go to small disabled veteran-owned
businesses.
To help alleviate our one million unemployed veterans, the
VFW also calls on the veteran businesses that receive these
contracts to publicly establish a veteran employment
preference.
As America's largest group representing combat veterans, we
thank you for allowing the Veterans of Foreign Wars to present
its opinion on federal contracting in regards to the economic
stimulus. Veteran entrepreneurship, if expanded, is a win-win
for everyone, including the government and America's taxpayers.
Mr. Chairman, this concludes my testimony, and I will be
pleased to respond to any questions you or the members of this
Subcommittee may have.
Thank you.[The prepared statement of Mr. Brown is included
in the appendix at page 110.]
Chairman Nye. Okay. Thank you, again, for being with us.
And I would finally like to recognize Mr. Joseph Sharpe
from the American Legion. Mr. Sharpe is the Deputy Director for
Economics for the American Legion. He entered the U.S. military
and was deployed twice overseas in Operation Joint Force in
Bosnia- Herzegovina, and recently for the Global War on
Terrorism in Iraq for which he received the Bronze Star.
The American Legion was chartered by Congress in 1919 as a
veterans organization which now numbers nearly three million
members.
Thank you, Mr. Sharpe for being with us, and we would be
happy to hear your opening comments.
STATEMENT OF JOSEPH SHARPE
Mr. Sharpe. Chairman Nye, Ranking Member Schock, thank you
for the opportunity to present the American Legion's view on
federal contracting opportunities for small business in
relation to veterans.
The American Legion views small business as the backbone of
the American economy. It is the mobilizing force behind
America's past economic growth and will continue to be a major
factor as we move well into he 21st Century. Reports show that
businesses with fewer than 20 employees account for 90 percent
of all U.S. firms and are responsible for more than 97 percent
of all new jobs, generating $993 billion in income in 2006 and
employs 58.6 million people. There are 27 million small
businesses in the United States and 89.7 percent of all firms
are small businesses.
In Fiscal Year 2007, the Small Business Administration's
Office of Government Contracting reported that more than 378.5
billion in federal contracts identified as small business
eligible. Small businesses only received a total of 83 billion
in prime contract awards and about 64 billion in subcontracts.
Service disabled veteran-owned businesses were recipients
of 3.81 billion, or about 1.01 percent, of all those available
contract dollars. America has benefited immeasurably from the
service of its 26 million living veterans who have made great
sacrifices in the defense of freedom, preservation of the
democracy, and protection of the free enterprise system. Due to
the experience veterans gain in the military, the success rate
of veteran owned businesses is higher than other non-veteran
owned businesses.
The current War on Terror has had a devastating impact on
our Armed Forces and has contributed to exaggerating the
country's veteran unemployment problem, especially within the
guard and reserve components of our military. According to the
Department of Labor, the present unemployment rate for recently
discharged veterans is an alarming 20 percent, and one out of
every four veterans who do find employment earn less than
25,000 per year.
Unfortunately, many of the thousands of service members who
are currently leaving the service are from combat arms and non-
skilled professions that are not readily transferable to the
civilian labor market.
One way of combating unemployment is through the creation
of new jobs. Small business creates an estimated 60 percent to
80 percent of all net new jobs, therefore providing an
essential element for a strong economic growth. Government
should insist in the creation of new jobs by encouraging
qualified entrepreneurs to start expanding their small
businesses, and no group is better qualified or deserving of
this type of assistance than our veterans.
The American Legion believes that the majority of funding
allocated veteran military projects through this as well as
future spending bills should be spent exclusively with veteran
owned firms. It was the veteran who volunteered to defend this
nation, the veteran who continues to keep our democracy intact,
and the veteran who deserves the right to participate in
rebuilding America's infrastructure and other necessary
projects.
In this capacity, the veteran will continue to serve the
people of the United States by building and growing strong,
reliable, dependable businesses.
The mission of the American Legion's national economic
mission is to take action that affects the economic well-being
of veterans, including issues relating to veterans' employment,
home loans, vocational rehabilitation, homelessness and small
business.
Small business continues to be a primary job generator and
a major trainer for American employees. The small business firm
work force includes more young and entry level workers than
colleges and large businesses combined. It is vital that
veteran-owned and service disabled veteran-owned businesses
receive a fair proportion of the amount of federal contracts,
are paid promptly for services rendered so these veterans can
build and maintain successful businesses while they contribute
to this down economy.
The American Legion reiterates the Small Business
Administration Office of the Veterans Business Development
should be the lead agency to insure that veterans returning
from Iraq and Afghanistan are provided with entrepreneur
development assistance.
We look forward to continuing work with this Committee to
enhance entrepreneurship among American veterans. Thank you,
Chairman Nye and Ranking Member Schock, for allowing the
American Legion to present our views on this very important
issue.[The prepared statement of Mr. Sharpe is included in the
appendix at page 114.]
Chairman Nye. Thank you very much, Mr. Sharpe. You and the
other members of the panel have quite rightly recognized today
the important role of veterans in our society and recognizing
their service to our country, and I appreciate you helping us
echo that sentiment.
I want to say, first and foremost, thank you to all of you
who have served and are veterans yourselves, and please extend
our thanks to those members of your organizations and your
companies that have served our country. We appreciate their
service. That's why we wanted to hold this hearing, to make
sure that we recognize the role of veterans in our community
and in our economy, and in trying to do everything we can to
help them get access to contracts and jobs.
I also would like to expand that comment a little bit to
thank members of our military families, and I want to note that
we have voted in the last few days actually here in the House
to designate this year as the Year of the Military Family. We
very much recognize that military families work just as hard
and serve and struggle as much as our veterans do, and we
appreciate your role there.
So thank you very much for that.
I think this has been a very productive hearing in the
sense that we have gotten to hear from you who represent
businesses and veterans organizations, and I want to thank you
all for being very frank and very forthcoming with specific
ideas of things that we can change to hopefully move things
forward. We recognize the great challenge here being that we
have got funds coming for recovery. We would like those funds
to create jobs. That is what they are designed to do.
We obviously need to have a system in place that works. We
have problems with the system as it is now. We want to fix
those so that going forward we don't look back in a year or two
and say, well, we wish we had thought ahead a little bit and
planned a little bit better. We want o look back and say we are
really glad that we took the time to think ahead to how to
tackle these challenges and make this work better.
I want to start by asking our business owners here if you
could just comment about Veterans Affairs has a list of veteran
owned and service disabled businesses, and I wanted to ask you
are you on that list and can you give us any comments on your
interaction with the VA in terms of that list? Is it helpful?
You know, what can we do to make it better?
And then I'm going to ask you to just comment please on
training opportunities that VA programs offer for veterans in
terms of approaching the procurement process.
But let's start just by asking you if you wouldn't mind
commenting on the list that the Veterans Affairs keeps of
veterans and whether or not you are on there and if you think
that works.
Mr. Klett. I am Mark Klett. I am personally on the list
with the Veterans Affairs and also a number of other lists
within the government, and we do get a lot of spam of wonderful
opportunities within the government. You have to be able to
filter through all of that.
As small businesses, it is very difficult to try to focus
in on just the right opportunity to stay within your
capabilities and what you're really good at. So you have to
filter through all of those things.
To make one other comment about the great training
programs, as you're a new and an entrepreneur starting out,
those are very good. In my particular case, 20 years of
service, six years doing procurement with the military, six
years of working with the large defense companies as a program
manager before I started my business, I was pretty well trained
and a ready up round, but starting the business, it was pretty
good to go through some of these training programs, and I do
refreshers and send some of our people to some of those
programs.
So it is good. It is helpful. It is needed, and that is
what you need to have to go to that baseline.
Mr. Hart. ARRIBA is also on the list, and in order to be
certified as a service disabled veteran, you really ought to be
in that list for the VA and the rest of the organizations, it
is my belief.
After doing 22 years in the Navy, I went into ship repair
for 18, and then I became an entrepreneur, if you will, and
started my own business in construction. That shows I am not
really that smart, but what happened was I as well came with a
background of working with the federal government with
contracting. I did not really understand how to market.
And the statement about PTACs, they are absolutely
wonderful. The actual training that the SBA provides, the free
training they provide, I go to it all the time. I always pick
up a little something or I will meet somebody, and so that is
something that needs to be expanded, in my belief.
Mr. Schmidt. I really have not had any experience with the
veterans. Obviously I am listed because Bradley University in
Peoria administers the economic development, and I was
receiving bid opportunities from them prior to the FedBidOpps.
There was Commerce Business Daily, which was very, very
difficult to use.
Unfortunately, the classifications that I fit into are so
limited, but the classifications are so broad that I was
receiving numerous opportunities for things like helicopter
parts and stuff that did not even apply to me.
The other problem was that, again, the classification of a
small business included, you know, such a range that if it was
a bid for chain link fence, let's say, or for a razor ribbon,
which I do not manufacture, I would have to purchase and resell
it. I was actually bidding against my manufacture. So there was
really no opportunity there for us at all, and actually I was
getting so much that did not apply that I asked them to quit
sending them. It just didn't apply.
Ms. Cavolt. Hi. We are on the VA list. Generally we receive
notices from FedBizOpps, and also being in one of the largest
military communities and our product serves the military
specifically, we frequently have the different commands coming
to us asking us for our product because we do work with them to
basically custom and specialize it for what their needs are.
As far as the training we have received, Small Business has
really helped us with the programs that they have. The American
Legion in conjunction with Small Business has really been very
helpful, and I look forward to seeing what I can find out from
the VFW as well. But that would be it.
Thank you.
Chairman Nye. Thanks.
Well, we do not want to put you on the spot, Mr. Brown, but
I do want to give you and Mr. Sharpe a chance to comment on
this question about the training programs if you have anything
you would like to add about your experience from your
membership.
Mr. Brown. Sure. My experience with the training programs,
and thank you for the question, Mr. Chairman, is that they are
very good. The problem is there is not enough of them, and they
are located in very limited geographic regions. There is only
eight across the country. I think there is only one on the West
Coast, which is California.
So our experience at the VFW is just plain out there there
is not enough of the centers, and there is not enough funding
for SBA to expand the centers.
Also TVC was running three of the centers, and now that
they are no longer receiving funding, those three centers are
also in danger of going under, if you will. So we are hoping to
see their funding rediverted under SBA, and we would like to
see the whole program be expanded.
Thank you.
Mr. Sharpe. Because there is a real lack of training, that
is one reason why the American Legion formed its own business
task force, and with those task force members we have started
conducting our own training for veterans. Currently the SBA has
five centers. They are under funded. TVC had three centers.
They are also under funded, and it looks like they may possibly
close if we do not get funding to them right away.
I understand there is over 100 women's business centers,
but with only eight centers that are all under funded, we do
not consider there being much of a training program.
We just had our Washington conference last year. We did a
one day training class. It was standing room only, and it
appears that seems to be the situation across the country.
There is a dire need for training, and it is not there.
Chairman Nye. Thanks.
You know, that is something I hear actually from a large
number of veterans constantly, is that they would take
advantage of programs more often if they actually were informed
better about what is out there already. So we need to take a
look at that as well.
Let me just ask, and just in the interest of time I do want
to give Mr. Schock an opportunity to ask whatever questions he
has, too. I want to just ask the business owners if you could
tell me just very briefly how do you find out about your
contracts. I mean, where do you get the information for the
contracts that you get?
And if there is one, the principal thing that you could
change about the federal procurement system, what would be on
the top of your list?
Mr. Klett. Most of the contracts that we win, and we have a
very high win percentage, I find out directly from my
customers. If you see it on a public announcement, it is too
late. So it is direct marketing, directly to your end
customers, and that is basically how you do it or we get
references or people that call us. I mean that's how it is
because we have been in the business quite a while. That is how
it is.
Mr. Hart. Congressman, we do it two ways. Direct marketing
is one, and of course, we are an 8(a) company. We do have the
ability to get sole source contracts, and that is the way you
have to do the individual marketing to get that.
But in our general contracting, we will do a couple of
things. One, FedBizOpps is a good tool, but we will go to the
various agencies and look at what their forecasts are, and many
times you can find out who the project manager is in that
agency for that forecasted project that you find interesting,
and then you go talk to that individual so that they will know
who you are when you submit your proposal.
Now, your proposals are going to cost you anywhere from
60,000 to $125,000 in construction. So you don't do too many of
those and lose.
Mr. Schmidt. Since we do not deal directly with the federal
government, our projects are basically federally funded, being
an airport, and I subscribe to a private information service
that I get notifications of bids coming up in our area, and
also through our general contractors mainly.
Unfortunately even on an airport job where there may be a
lot of fence, it does not go to the fence contractor. It goes
to a general contractor, and therein is a problem because if it
was separated out, you know, I think we are capable of handling
that project on our own, but we do not get that opportunity.
Then, again, if there is a minority participation involved,
I mean, there was one recently that we could not even bid it
because, you know, we were not minority at all. So it is
unfortunate, but we take what we can get.
Ms. Cavolt. I think I actually mentioned before that we use
FedBizOpps quite a bit, and also looking up our codes on DLA
because any contracting we do basically comes through DSCP.
I think that the greatest thing that the government could
do to help stimulus is, well, I am going to say two things. One
is accountability. Make sure that what we have in place is
working, that the quotas are being met for what should be set-
asides, and also empowering those people who actually have
training within the government to buy. Currently buyers are
limited to a $3,000 purchase on a credit card, when, you know,
we are in a product business. Three thousand dollars does not
buy a whole lot, and those limits could be raised, again, with
accountability.
There is always the concern for fraud, I think, in any
business or any arm of the government, but accountability and
empowering the people who are already there.
Thank you.
Chairman Nye. I want to make sure I reserve as much time as
Mr. Schock would like. So I am going to recognize him for as
much time as he would like to use.
Mr. Schock. Well, I think we have until what, three
o'clock? Is that when votes start?
[Laughter.]
Mr. Schock. You know, I would like to take a different
approach. You know, you all were in the audience when the
government agencies presented their testimony. You all
submitted the testimony you just gave days in advance of
hearing that testimony. So I want to give each one of you the
opportunity to kind of respond to those agencies who were here
today, their testimony, and I want to hear your reaction to it
and any comments you would like to have us, as your members of
Congress and your representatives here to know.
So let's just go down the line here, and I want to give you
the opportunity to take a couple of minutes to respond. Mr.
Klett.
Mr. Klett. Yes, sir. And I know for the Department of
Defense I do all of my contracting with the Department of
Defense. I will make a few comments on that.
Their current strategic plan for 2009 is to continue on
that slope at the same rate, to hit a goal. It is Public Law
106-50, which says three percent of all federal contracts will
be for service disabled veterans, a minimum of three percent,
and that is law.
And they should be going for that goal, and there are ways
of doing it for both subcontractors and prime contracts. I
personally am on 11 different contracts for large companies
doing defense work, and I typically am getting about one
percent of that contract each year, exactly the goal, and we do
really neat, big stuff on aircraft carrier architecture design
and integrating systems, strategic support for the Pacific
missile range, a lot of big programs that have people with 22
inch foreheads are working on. Okay?
But we are only getting that piece that is being in the
strategic plan. We can do a lot more than that, and it is
unfortunate that the goal is there.
In the VA they have set a seven percent goal, and guess
what they are hitting: eight percent. So if the leadership sets
it and attacks it and goes for it aggressively, it will be
done. I guarantee it. There is no hammer within the Department
of Defense to really try to attain some of those goals
unfortunately, and I would like them to try to hit a three
percent goal. It can be done, and qualified, good people are
out there to really do it.
We have a $30 million prime contract that we were awarded
six months ago, the second largest one in the Navy seaport,
contract for over five years, and we have only been funded at
about $100,000 so far, doing things to get critical equipment
and critical capabilities to the forward war fighters in the
Global War on Terrorism.
So the vehicles are there. There is funding out there to do
these things. It is just not getting to the service disabled
veterans because the leadership within the Department of
Defense does not have its arms around it. And I hope we get
more work now.
Chairman Nye. Thank you.
Mr. Klett. Thank you very much for that question.
Mr. Hart. To go down the table, the SBA is doing a great
job. They are woefully under funded. They need help.
The Department of Transportation, they do things that I do
not do. We do security systems, but they do not want to do a
security system for a small region. They want to do the State
of Virginia. Well, unfortunately we do large security systems,
several million dollar security systems, but I could not do the
surveillance system for all of the roads in the State of
Virginia. You know, they are not interested in breaking things
up, which is fine with me. That is not a problem.
The VA has got the teeth that everybody needs, and they
have the authority to do sole source contracting. A case in
point. they needed security upgrades to their VA medical
centers in VISN 6, which is out of Hampton. We received a sole
source contract for right at $2 million to go do that, and we
are in the process of doing that for them, and we are doing the
design and installation all at the same time. So you get two
things. You save time and you save a lot of money.
To follow on with that, their competitive procurements are
service disabled. That is their prime focus, and that is not an
after the fact with them. That is up front with them. We have
won competitively a $1.3 million mass announcing system. It is
part of your anti- terrorism package for a large hospital. That
is what the VA is doing. The VA is out front. This is what the
rest of the federal agencies need. they need the same language
that the VA has.
As far as DoD, as far as constructions are concerned, they
are not even setting aside one-half of one percent. They are
bundling contracts. They are using mass contracts for the large
players, and the latest wrinkle is for the large contractor to
go out and find another large contractor to subcontract to and
then say, well, now, look. You go find a service disabled
veteran contractor, and we are going to sign two combined
contracts, and what is going to happen is we will just work
with you in the service disabled veteran contract and we will
not even have to bond it, and we will just do a pass-through
and just add another $100,000 onto your bid and bring them in
as a shell game.
And I have one of those contracts for you if you would like
to have it, and, Congressman, I have provided it to your
office. This is the latest wrinkle, and this thing actually is
a two-part contract which allows the prime to cancel the
contract with VA service disabled member, keep the contract
with the second tier sub, and pocket the difference's profit.
That is pretty good. Now, that is your trickle down using
big businesses to work the service disabled veterans. That is
the biggest hooey I have ever heard in my life, and I refuse to
do it.
Mr. Schmidt. I had minority ownership in Hohulin since
1994. In 2007, I had an opportunity to buy out some non-active,
non-participating partners that held the majority of the stock.
Our local bank, it is a very small, private owned bank. I had
approached them obviously because we had been doing all of our
business with them. All of our lending, all of our everything
had been with the local bank. Because of a weak balance sheet,
they preferred to run a loan basically, what I needed to borrow
to buy the rest of the company through the SBA.
That started in March of 2007, and it took approximately
almost four months to get to the point where I received some
sort of approval, and the problem was that literally every two
to three weeks I would get another road block, a request for
more paper work, more paper work, more documentation, and it
was really getting ridiculous.
I would have to call and say, ``Where are we at with
this?'' and the bank would go, ``I do not know. Let me call and
find out.''
It just dragged on and on, and interesting enough, I
approached another bank. I was wanting to stay the course. I
was wanting to get this finished so that we could complete the
purchase, and I went to another local bank, another private
owned but larger bank, and the owner came out literally the
next day, and within an hour and a half we had a verbal
approval. Within two weeks it was done, and we did not have to
put up the collateral that was required for the SBA.
So, again, you know, if there was that risk, the other bank
did not see that and went on what we showed them, which was the
same documentation we showed the SBA.
Again, I do not deal with the DoD. I do not deal directly
with the large government agencies directly because we are in a
very small area, but as far as the Department of
Transportation, our state really does not have much funding at
all. I mean, coming into our area is very little money.
So you know, business opportunities really are not there at
this time. One thing, I was encouraged when the Recovery Act
was proposed was there was going to be a Buy American clause in
there. You know, we are an American company. I am an American
and proudly an American. You know, America is the strongest
country in the world, and our company is proud to sell American
made products.
But I see the proliferation of foreign products in our
industry specifically, and that is disheartening because it
does not give me any advantage at all because if I am trying to
compete with a foreign made product with an American made
product, it is not level at all. It is not fair. You know,
there may be a specification come out; in fact, it just
happened recently for, you know, a six foot tall fence with
barbed wire and certain sized posts and that, but that was the
end of it. It did not say, you know, to be American made
products.
I know that the school system is saying that now. I am glad
to see that, use American made products, but it is just not
fair to let foreign made products come into the marketplace. It
puts us at another disadvantage.
Ms. Cavolt. First I would like to say that I did appreciate
everything the first panel had to say in response to your
question. I think it is probably the largest gathering of
government officials that I have heard acknowledge that there
are goals that are not being reached, and it was very nice to
hear that they realize we have a ways to go, and I sincerely
hope that having heard what we are saying that they can
understand and recognize what our problems are and go forward
and take care of some of those with the assistance, of course,
of Congress.
I think, you know, Ms. Oliver addressed the issue of
payment, of prompt payment, and it is a problem particularly
with the small business. Sometimes, as Mr. Schmidt will say,
taking time to get bank loans can be extremely--first of all,
it is very time consuming and you do not always know what you
are going to get in the end.
I find for ourselves as a small, emerging business, that
because of the size of the contracts that we do manage, and we
are going through the prime vendor, one of the greatest
problems we are having is there is no way that we can put
grievance if we are not being treated fairly.
Right now I am having payment withheld by a subcontractor,
and I have nobody to talk to to help me with it, and if I do
not rectify it, there is a good chance that my business could
go under just because of the amount of money.
But, again, my comment about accountability, that is why it
becomes so important, and just one other comment I would like
to make about that is when prime vendors are renewed, they go
to the customer and say, ``Well, how was it? Did it work for
you?'' And yet the subcontractor is never asked did it work for
you. Were you able to work with this company? Because you do
not know. A prime vendor may be showing great success, but they
are jumping from business to business, and there are some very
good prime vendors. So please understand I am not on a mission
to try to get rid of that system because it is a very valuable
system and it works, but it just needs oversight and
accountability so that smaller businesses that are using prime
vendors can be assured that they will get paid and that they
have the opportunity to grow.
Thank you.
Mr. Brown. Congressman Schock, thank you for the question.
In regards to the agencies' testimony before this, I mean,
it has been ten years since we passed this law. We cannot even
say we are halfway there. The preliminary numbers are showing
1.4 percent of these contracts are going to small, disabled
veteran-owned businesses. I would not be half shocked if I
started raffling through the old testimony and it did not look
nearly similar to what was submitted today. So that is kind of
where we are at.
We are ready to see some action and tired to talk.
Thank you.
Mr. Schock. thank you.
Mr. Sharpe. The American Legion perspective on this is that
there is just not enough buy-in from the various federal
agencies from the top. You know, the individuals who spoke
today are not those who make the decisions on whether or not to
help the veterans or not. For the last few years we have worked
pretty closely with both House committees, small business House
committees, and I mean the Senate and the House, and I have to
say both committees were very active as far as especially
working with SBA and really pushing the federal agencies to do
what should be done.
And, frankly, many of them just refuse to do it. It takes a
lot of work to get a bill passed and then get it implemented
and then get it funded. But if the head of the SBA or DoD just
refused to implement what has already been passed, it tells the
veteran that we really do not see you as a viable partner, and
it is really a missed opportunity.
Those of us who have been overseas, we come back with a lot
of expertise and we still have that same belief in completing
the mission, and we probably are the best partners to try and
get anything done that the country needs completed. And when
these agencies do not recognize that, they would rather do
business as usual with the large contractors, not really paying
attention to where the money is going and how it is used or how
effective it is, that is disheartening for a lot of these
business owners who are veterans, and that is the problem.
If you pass the bill and the Administrator of SBA refused
to implement it, you can see there would be a lot more shock.
He has had a budget of $750,000 for the last three or four
years. What can he do with that? He has to run five business
centers. They have to try and monitor all compliance from the
various federal agencies with a staff of next to nothing, and
then you have DoD who has one of the largest budgets and they
still have not been able to make a three percent goal.
That tells people that we really do not want to do business
with you, and it comes from the top.
Mr. Schock. Thank you for your candid responses, and I
sincerely appreciate it. It has been very helpful to me.
So thank you, Mr. Chairman. I hand it back to you.
Chairman Nye. I just want to thank members of both of our
panels again for being here today, and again, I think the theme
here is that we have got some work to do. I was surprised to
hear, but actually I want to give some credit to the agency
representatives here for being frank about the fact that they
have not done what they need to do. In some areas we are making
some progress, but what we want to avoid here is exactly what
Mr. Brown described. We do not want to look back again in the
future and say after the testimony we heard today and find that
it is very similar to testimony given many years ago and have
the same testimony given two years from now.
We would like to see progress made in this area that we can
measure, and again, I want to thank all of those who traveled
from quite some distance to be with us, to share with us your
stories. I am a firm believer in the notion that in order for
us to improve, we have got to hear ideas coming from outside
Washington. So we really appreciate you taking the time to be
with us here today and share your anecdotes with us.
And as I mentioned before, we will be continuing to keep up
with our agencies and very interested to see and track the
progress, particularly with those who have established special
agencies or special committees or a special oversight body to
track this, and we will be keeping up with the progress we are
making on that.
Again, thank you all very much for being here today. I want
to ask unanimous consent that members have five days to submit
statements and supporting materials for the record, and without
objection, so ordered.
Thank you very much, again, all for being here. This
hearing is now adjourned.
[Whereupon, at 12:37 p.m., the Subcommittee meeting was
adjourned.]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]