[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



 
                   SUBCOMMITTEE HEARING ON THE ROLES

                 OF FEDERAL LABS IN SPURRING INNOVATION

                  AND ENTREPRENEURSHIP ACROSS THE U.S.

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


                                HEARING

                               before the


                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                           SEPTEMBER 24, 2009

                               __________

                               [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            Small Business Committee Document Number 111-047
Available via the GPO Website: http://www.access.gpo.gov/congress/house




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                   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)



                         STANDING SUBCOMMITTEE

                                 ______

               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                W. 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

Lee, Ms. Cynthia, Associate Director, Langley Research Center, 
  National Aeronautics and Space Administration..................     4
Underwood, Mr. Bruce, Technical Manager, Wallops Space Flight 
  Facility, National Aeronautics and Space Administration........     6
Sebesta, Mr. Paul G., Center Director, National Center for 
  Agricultural Utilization Research, USDA Agricultural Research 
  Service, Peoria, Illinois......................................     8
Seywald, Dr. Hans, President, Analytical Mechanics Associates, 
  Inc., Hampton, Virginia........................................    10
Suber, Mr. Chris, President, Construction Development Services, 
  Inc., Norfolk, Virginia........................................    12
Johnsen, Mr. Peter B., Chief Technology Officer, Biofuels 
  Manufacturers of Illinois, LLC, Peoria, Illinois...............    13

                                APPENDIX


Prepared Statements:
Nye, Hon. Glenn..................................................    22
Schock, Hon. Aaron...............................................    24
Lee, Ms. Cynthia, Associate Director, Langley Research Center, 
  National Aeronautics and Space Administration..................    27
Underwood, Mr. Bruce, Technical Manager, Wallops Space Flight 
  Facility, National Aeronautics and Space Administration........    27
Sebesta, Mr. Paul G., Center Director, National Center for 
  Agricultural Utilization Research, USDA Agricultural Research 
  Service, Peoria, Illinois......................................    31
Seywald, Dr. Hans, President, Analytical Mechanics Associates, 
  Inc., Hampton, Virginia........................................    38
Suber, Mr. Chris, President, Construction Development Services, 
  Inc., Norfolk, Virginia........................................    41
Johnsen, Mr. Peter B., Chief Technology Officer, Biofuels 
  Manufacturers of Illinois, LLC, Peoria, Illinois...............    43

                                  (v)




                    SUBCOMMITTEE ON CONTRACTING AND



                   TECHNOLOGY HEARING ON THE ROLES OF


                  FEDERAL LABS IN SPURRING INNOVATION



                  AND ENTREPRENEURSHIP ACROSS THE U.S.

                      Thursday, September 24, 2009

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 12:45 p.m., in 
Room 2360, Rayburn House Office Building, Hon. Glenn Nye 
[chairman of the Subcommittee] presiding.
    Present: Representatives Nye, Ellsworth, and Schock.
    Chairman Nye. Thank you all for being here. Our apologies 
for getting started a little bit late. We had a vote called 
right about at the beginning of the hearing time. The good news 
is that we only had one more vote today, and that was it, so we 
won't be interrupted again.
    What I would like to do is go ahead and call this hearing 
to order. And I am going to read an opening statement, and then 
I am going to provide an opportunity for the ranking member of 
the Committee to make any remarks he would like to make and 
then give you all an opportunity to make your statements. And, 
again, pleased to have you here today.
    Small businesses are the most innovative sector of our 
economy. Not only are they responsible for some of the most 
important technological breakthroughs of the past century, but 
they are also going to be responsible for 60 to 80 percent of 
the new jobs as they drive our economy to recovery.
    One of the most successful ways we have to help support the 
growth of innovative small businesses is through partnerships 
with Federal labs and research facilities. Last year, small 
businesses won 4,000 contracts through USDA Federal research 
facilities, amounting to over $100 million. Meanwhile, NASA 
awarded an additional 2,500 small business contracts, totaling 
$400 million. All told, fiscal year 2008 saw a $143 billion 
investment in research and development.
    At face value, these are significant investments, the kind 
that go a long way to spark innovation. But the benefits don't 
just stop at the laboratory door. Rather, they go on to support 
regional economies through job creation and product 
commercialization.
    In today's hearing, we will examine the role that Federal 
labs play in local markets and the support they provide 
entrepreneurs nationwide. We will also look for ways to ensure 
that procurement policies continue to work for small firms and 
that promising research makes its way from the laboratory to 
the marketplace.
    In local economies across the country, Federal labs have 
brought tremendous growth. In Hampton Roads and on Virginia's 
eastern shore, NASA labs sustain roughly 11,000 jobs and 
generate a billion dollars in economic output each year. At the 
national level, the impact of these facilities is also 
significant. Every year, the NASA Wallops Flight Facility and 
Langley NASA Research Center help create 25,000 jobs and $2.8 
billion in revenue, thanks in large part to the ingenuity of 
the small businesses with whom they work.
    Through R&D grant programs, Federal agencies work with 
entrepreneurs to develop critical innovations. As a result of 
these partnerships, small firms have successfully pioneered 
breakthroughs in sectors ranging from health care to defense. 
But while there is no shortage of entrepreneurial innovation, 
the best ideas don't always make it to market. The real 
economic benefit of R&D occurs when inventions get to the point 
where they can be sold to both Federal agencies and private-
sector clients.
    One of the businesses you will hear from today, Analytical 
Mechanics Associates from Hampton, Virginia, developed cutting-
edge computer simulation and modeling software to enable NASA 
to design the spacecraft of the future. That same software is 
now used by interior designers and architects to help plan new 
offices and homes.
    But, unfortunately, the overall rate of commercialization 
is not yet where it should be. We must do more to help good 
products get to market, and it is important that our Federal 
labs have an increased focus on enhancing the process. Not only 
will this bring new products and technologies to the market, 
but it will help create jobs and speed our economic recovery.
    For small firms already making marketable products, the 
Federal Government can be a critically important customer. Last 
year, the Federal marketplace grew by 9 percent, and today it 
is more important than ever that we ensure that the procurement 
process is fair for small businesses. Our entrepreneurs must 
have the tools they need to compete effectively and win Federal 
contracts.
    So, as Congress moves forward, we will be making 
procurement a priority. By reauthorizing and enhancing SBA's 
contracting programs, we can ensure every small firm has a part 
to play in the innovation economy.
    This past Monday, President Obama spoke about the 
importance of investing in research and development, not just 
to spur the growth of jobs today, but to maintain our position 
as the world leader in science, innovation, and breakthrough 
technologies.
    Across the country, small businesses are already leading 
the way, and Federal laboratories are playing an important role 
in supporting their progress. It is my hope that we can build 
on their momentum and harness it, not only to strengthen small 
firms but to fuel our economy and to power the future of 
American innovation.
    So, again, I would like to thank everyone for being here. 
And, at this point, I will yield to Mr. Schock, our ranking 
member, for any opening comments.
    [The statement of Mr. Nye is included in the appendix.]
    Mr. Schock. Good afternoon. Thank you, Mr. Chairman, for 
holding this hearing to study the impact that the roughly 1,000 
Federal labs across this country have in spurring economic 
growth and opportunity in the States and local communities in 
which they operate.
    I would also like to extend thanks to each of our 
witnesses, who have taken the time to provide this Committee 
with their testimony and have traveled here today in person.
    Each year, the Federal Government spends about $143 billion 
on research activities, of which less than half is spent by 
Federal employees. That means there is a significant 
opportunity for Federal laboratories to engage in collaborative 
research with business or institutions within their local 
communities, providing a boost to the surrounding economy.
    The importance these laboratories provide to the domestic 
marketplace through the exchange of ideas, inventions, 
research, and innovation cannot be understated. A number of 
inventive advancements developed in this country can be 
directly attributed to research done in conjunction with these 
Federal laboratories. In my hometown of Peoria, Illinois, the 
National Center for Agricultural Utilization Research, or Ag 
Lab, was one of the first to discover the uses, benefits, and 
power of the penicillin bacteria. The innovation these 
laboratories invoke is a vital component to keeping good-paying 
research-and-development-related jobs right here in the United 
States.
    The success of these laboratories show that there is, in 
fact, an appropriate level of government involvement in the 
field of scientific research. However, it is important that we 
find what is the right level of involvement. Should the 
government be the sole proprietor of the innovative research 
done in this country? Or should we promote policies that engage 
private research, protect inventive property rights, and 
incentivize an equal participation in research and development 
from the private sector? It is important that we develop 
policies that continue to ensure our domestic industries 
participate in these fields and are assisted, rather than 
impeded, by the Federal Government.
    Today, I anticipate that we will hear several different 
accounts of how the Federal research laboratories from 
different agencies are working to ensure that they have 
collaborative entrepreneurial partners in the communities in 
which they work, whether through the universities in their own 
backyard or with local businesses. And I look forward to 
hearing how each has made working with their local community a 
priority in their business model.
    Additionally, I look forward to gaining insight into how 
some of these laboratories have been able to have a significant 
impact on the local economy, encouraging research-related 
businesses to flourish in the immediate areas. Specifically, 
what steps have these laboratories taken that are different 
from others? How can they be replicated by others to ensure 
that these research facilities are serving the American public, 
including small businesses in the area, rather than simply 
conducting research of interest to the bureaucrats here in 
Washington?
    It is also equally important that we hear from the small 
businesses here today. It is the direct role of this Committee 
to ensure the integrity of the contract process so that small 
businesses receive their fair share of Federal research and 
procurement dollars.
    What adjustments could be made to the procurement or 
research award process with laboratories on some of these 
public-private ventures to ensure that small businesses can 
bring their innovative skills to assist the Federal Government 
and improve economic development in the area in which the labs 
are located? I look forward to the insights that they can 
provide regarding the ease or difficulty in which they are 
obtaining some of these contracts.
    Again, I thank all of the witnesses for traveling here 
today. At the end of this hearing, I hope we will gain a better 
understanding of what formulas or models work best for Federal 
laboratories to help promote economic growth and development 
with the local business community and in which they reside.
    With that, Mr. Chairman, I yield back.
    [The statement of Mr. Schock is included in the appendix.]
    Chairman Nye. Thank you, Mr. Schock.
    I would like to go ahead, and I am going to call on our 
witnesses to present their opening comments one by one.
    We have a 5-minute rule that we are going to try to ask you 
to stick by. I know sometimes that can be a challenge. But in 
order to help you with that, you will notice in front of you 
when you are speaking a lighting system. The green one indicate 
you have time left. When it gets to yellow, 1 minute. Red means 
your 5 minutes are up. So if you get to the red, I hope you 
will please try to go ahead and wrap up your comments.
    I would like to start by again thanking everyone for taking 
the effort to be with us and make the trip to be here today.
    And I would like to introduce, first, Ms. Cynthia Lee, who 
is the associate director of the Langley Research Center for 
NASA. Ms. Lee oversees the operations of the center and serves 
as senior adviser to the center's director. Langley was founded 
in 1917 and is the Nation's first civilian aeronautical 
research facility and NASA's oldest field center.
    Ms. Lee, thank you for being with us today, and we are 
looking forward to hearing your comments.

                    STATEMENT OF CYNTHIA LEE

    Ms. Lee. Good afternoon. I am Cindy Lee, the associate 
director at NASA Langley Research Center, located in Hampton, 
Virginia. Thank you for the opportunity to testify before the 
Subcommittee regarding the significant role of high-tech small 
businesses in the research being performed at NASA Langley.
    As you know, Langley is one of 10 NASA centers, and one of 
two facilities located in Virginia. NASA Langley provides a 
critical agency role through a diverse portfolio of work in 
aeronautics, exploration, science, space operations, and 
education. We are helping to transform the Nation's air 
transportation system to ensure safer, environmentally 
friendly, and efficient air travel. We are contributing to the 
science that will enable better understanding of our home 
planet, and we are helping develop the vehicles to support 
future human space activities.
    There are currently about 3,700 employees at Langley, 
approximately half of whom are private-sector contractors 
working on or near-site. Of these private-sector employees, 
over one-third are employed by small businesses. During 2008, 
NASA Langley made a total of nearly 900 awards to small 
businesses and obligated in excess of $150 million on both new 
and existing small business contracts for services ranging from 
commodities to research.
    Today, I am going to highlight three examples of small 
businesses providing high-tech, cutting-edge research to 
Langley.
    Science Systems and Applications, Incorporated, or SSAI, is 
a minority, woman-owned business of nearly 550 employees that 
is playing a critical role in science research and technology 
development. They contribute heavily to the Atmospheric Science 
Data Center that is located at Langley. This data center is one 
of the premier national repositories of atmospheric data 
important to understanding global climate change. Their efforts 
in data archiving and processing have resulted in major system 
performance improvements while significantly reducing costs.
    SSAI has continually shown a dedication to supporting the 
NASA mission, and has recognized the importance of attracting 
and retaining specialized expertise for Langley. In addition to 
their technical excellence, they provide outstanding services 
to the community and to their employees through training and 
their scholarship programs. SSAI was recently selected as 
Langley's 2009 Small Business Prime Contractor of the Year.
    Analytical Services and Materials, or AS&M, is a minority, 
woman-owned business of approximately 130 employees. For many 
years, they have provided analytical and experimental services 
that have contributed to NASA mission success across high-
visibility aeronautics and space exploration programs. AS&M 
employees are part of a formidable team that has delivered 
thousands of computational solutions to the Constellation 
Program. Acting upon recommendations of the Columbia Accident 
Investigation Board, AS&M employees provided key analyses 
leading to corrective actions for improved Shuttle safety.
    Responding to a 911 call from the National Transportation 
Safety Board, NASA brought AS&M experts in to help us analyze 
aircraft structural failures associated with airline accidents. 
Their work has been recognized with numerous awards, including 
the NASA Engineering and Safety Center Engineering Excellence 
Award and the 2006 Small Business Administration National Prime 
Contractor of the Year.
    Analytical Mechanics Associates, or AMA, is a small 
business of nearly 90 employees who deliver critical support to 
NASA's exploration, science, and aeronautics programs. Their 
high-caliber team has provided key support to NASA's 
Constellation Program, including analysis of human lunar 
architecture concepts; the Ares launch vehicles, and the Orion 
crew module landing system.
    AMA has provided critical support to NASA's science 
missions to Mars, including modeling and simulation for entry, 
descent, and landing. They also supported the recent Inflatable 
Reentry Vehicle Experiment flight demonstration at Wallops 
Island. AMA was nominated this year for NASA's prestigious 
George M. Low Award in the small business services category.
    Small businesses are important to Langley because they are 
innovative, cutting-edge, agile, responsive, and provide 
technical excellence. Because Langley realizes the value of 
this community, we are heavily engaged in outreach activities 
for small businesses. In 2009, we communicated with small 
businesses over 5,000 times. We also have a Small Business 
Administration Procurement Center Representative on site. NASA 
Langley has spent approximately one-third of our procurement 
budget on small businesses for the last 12 years, and we have 
exceeded our small business goals for the past 9 years.
    Again, I would like to thank you for the opportunity to 
appear before the Subcommittee today, and I look forward to 
addressing your questions.
    Chairman Nye. Thank you very much, Ms. Lee.
    I would like to now recognize Mr. Bruce Underwood, the 
technical manager of Wallops Space Flight Facility for NASA. 
Wallops Space Flight Facility was established in 1945 and is 
NASA's principal facility for management and implementation of 
sub-orbital research programs.
    Mr. Underwood, thank you for being with us.

                  STATEMENT OF BRUCE UNDERWOOD

    Mr. Underwood. Thank you, and good afternoon. My name is 
Bruce Underwood, and I am Chief of the Advanced Projects Office 
at NASA's Wallops Flight Facility. I am pleased to be here 
today to share with you the successes of small businesses at 
Wallops.
    NASA's Wallops Flight Facility, part of the Goddard Space 
Flight Center in Greenbelt, Maryland, is located in a remote 
area of Virginia's eastern shore and is NASA's principal 
facility for the management and implementation of suborbital 
research programs.
    Employing approximately 1,000 civil servants and contractor 
employees, Wallops is a major economic influence in the 
Maryland and Virginia regions, providing high-tech jobs in the 
areas of science and aeronautics. Wallops is one of the 
region's largest employers and is the largest technical 
employer within 100 miles.
    Because of the nature of the mission and the remoteness of 
our campus, Wallops relies heavily on small businesses for 
support services. Wallops has found that there are intrinsic 
benefits that come with working with small businesses, 
including better customer focus, less bureaucracy, and often 
lower overhead costs. Wallops takes pride in being small but 
innovative and has found that the small businesses we work with 
share this important characteristic.
    Wallops currently has six active construction contracts, 
all of which have small businesses as the prime contractors. 
One of these contractors, Construction Development Services, 
Incorporated, is based closely in Norfolk, Virginia. CDSI 
performed the renovation of the X-85 launch building at Wallops 
Island, a contract that was awarded on February 20, 2008, in 
the amount of $1.1 million through the Small Business 
Administration's 8(a) Program.
    Prior to the completion of the original period of 
performance, funding became available to award two options for 
the original contract. These two areas of work were for a fire 
sprinkler system for the building and for new fabric door 
systems. As a small business, CDSI was able to offer Wallops an 
exceptional price for sprinkler and door systems that resulted 
in a minimal cost increase to the contract. A new period of 
performance was established, and the work completed 
satisfactorily and ahead of schedule.
    CDSI was an exceptional contractor to work with on the 
renovation of X-85, the range's main meteorological station. 
Our launch range worked seamlessly during the construction 
period, which was a major concern. The supervision and 
coordination of this project was outstanding, as the contractor 
kept the project on schedule while balancing various 
subcontractors as well as several contract modifications during 
the life of the contract.
    In August and September, two new contracts were awarded to 
this 8(a) firm for work at Wallops. One is for a new fire 
detection system in all of Wallops's buildings, and the other 
is for a grouping of small projects at other various 
facilities.
    In fiscal year 2008, Wallops awarded 59 new contracts to 
small businesses, adding to the already existing 46 open 
contracts with small businesses. Fiscal year 2008 total 
obligations for new contracts to small businesses were $5.5 
million, with another $41.5 million in modifications to 
existing contracts obligated. These numbers reflect the value 
of small businesses to Wallops and their important role in 
NASA's work.
    Contract awards for Wallops are managed by the Goddard 
Space Flight Center, which works to ensure that small 
businesses continue to be a vital part of Wallops's operation. 
As part of this process, Goddard's Small Business Office 
reviews all procurement requests that are expected to exceed 
$100,000. Should there be qualified small businesses, the 
action is set aside for the small business community. In 
addition, all other actions that are not set aside and are 
above $550,000 are reviewed, and subcontracting goals are 
provided to be incorporated in the request for proposal and 
later into the contract of the successful offerer. Through 
these procedures, Goddard fosters opportunities for small 
businesses to provide their services in support of Wallops' 
mission.
    While Wallops depends on small businesses for the success 
of its operations, the surrounding community relies on the 
success of Wallops to sustain and grow the local economy. The 
partnership between Wallops and small businesses is integral to 
a thriving economy on Virginia's lower eastern shore. And we at 
NASA are committed to building upon the current successes of 
that partnership to the benefit of all those involved with and 
touched by it.
    Again, thank you for the opportunity to appear before the 
Subcommittee today, and I look forward to your questions.
    [The joint statement of Ms. Lee and Mr. Underwood is 
included in the appendix.]
    Chairman Nye. Thank you very much.
    I am going to yield to Mr. Schock to do the next 
introduction.
    Mr. Schock. Thank you, Mr. Chairman.
    Welcome, Mr. Sebesta.
    Director Sebesta has been with the agriculture lab in my 
hometown of Peoria since November of 2008. Under his 
leadership, the lab works to develop new industrial and food 
products from agricultural commodities, as well as develop 
techniques that are used to control agricultural pests that 
decrease crop yields, pose health hazards, and limit exports 
for American crops.
    Director Sebesta has a long history in scientific research 
at the university and Federal level. He has been published 
nearly 20 times and given numerous professional presentations 
around the country on various research and development topics 
relevant to the agricultural community.
    Welcome, and thank you for traveling to be with us.

                  STATEMENT OF PAUL G. SEBESTA

    Mr. Sebesta. Thank you, Congressman.
    Chairman Nye, Ranking Member Schock, members of the 
Subcommittee, it is an honor to be here today to testify before 
you, and I thank you for asking me to attend. My name is Paul 
Sebesta. I am the center director of the National Center for 
Agricultural Utilization Research at USDA Agricultural Research 
Service Laboratory in Peoria, Illinois.
    Nationwide, ARS operates over 100 laboratories and employs 
more than 8,100 people, with a budget of approximately $1.2 
billion. The center in Peoria currently employs over 245 people 
and has a budget of more than $35 million annually.
    ARS recognizes that small businesses are critical to our 
economic recovery and strength, to building America's future, 
and to helping the United States compete in today's global 
marketplace. The staff of the center also recognizes the fact 
that we are part of the local community and that the 
investments we make have significant impacts on the local 
economy. In fiscal year 2009, thus far we have made over 
$231,000 in purchases from 19 different small businesses in the 
central Illinois region.
    ARS strives to assist and protect the interests of small 
business concerns in order to preserve free, competitive 
enterprise, which will strengthen the overall economy of our 
Nation. ARS annually exceeds all Federal small business 
procurement preference program mandates, and its small business 
coordinators and procurement personnel are extremely 
conscientious in assisting Americans to create, build, and grow 
small businesses. Thus far in fiscal year 2009, ARS has awarded 
69 percent of its purchase contracts, or over $91 million, to 
small or disadvantaged businesses.
    In order to focus on the regional and local economic 
impacts of ARS's contracting, I would like to focus on the 
Midwest. A recent review of prime contracts through the third 
quarter showed that ARS's Midwest area, of which the Peoria 
center is a part, is on course to not only meet but, in most 
categories, to far exceed its fiscal year 2009 small business 
goals.
    The complete results of this survey, as well as the 
complete analysis of ARS's contracting nationwide, can be found 
in the appendix of my testimony.
    The data reveals that two-thirds of all Midwest-area 
contract dollars have been awarded to small businesses. It also 
shows that the area has nearly tripled the 3 percent mandatory 
Federal-wide goal of contract dollar amounts to be awarded to 
service-disabled, veteran-owned small businesses.
    Examples of ARS's Midwest area's commitment to finding 
local small businesses and forging strong business partnerships 
are three NCAUR small business contractors in central Illinois 
that have been providing supplies and services to the center 
for several years.
    Maurer-Stutz is an architect and engineering firm who has 
an indefinite-delivery, indefinite-quantity contract with the 
Midwest area office. Task orders issued to Mauer Stutz average 
$40,000 annually.
    Poly Generics Company has been providing Environmental 
Protection Agency-regulated hazardous waste pickup for over 5 
years to NCAUR. Orders placed with Poly Generics Company 
average $33,000 annually.
    Herr Petroleum has been providing diesel for supplemental 
heating for the NCAUR facility for over 2 years. Orders placed 
with Herr Petroleum total approximately $23,000.
    Additionally, a new 5-year operations and maintenance 
contract for NCAUR has just been awarded to AMERITAC, a small 
business located in Concord, California, in an amount in excess 
of $10 million. The contract staffs approximately 37 local 
employees, which has created job opportunities in Peoria. 
Materials used in direct support of the operation of the 
facility are also provided under this contract. A significant 
portion of those materials are purchased locally from small 
businesses.
    The center in Peoria was established by Congress in 1938 
and has occupied the same building since that time. In addition 
to being one of its oldest, the facility is also one of ARS's 
largest, at over 270,000 square feet. Currently, we are in the 
midst of a major multiphase modernization project. The 
contracts associated with this project also present 
opportunities for small businesses and are a boon to the local 
economy.
    The current modernization contractor is Hammer Logistics, 
located in Caseyville, Illinois. The majority of work performed 
on the modernization contracts is subcontracted to local 
contractors, and materials are purchased through local 
suppliers. From 2000 through 2009, $21.6 million in 
appropriated funds have been allocated to NCAUR for 
modernization. These construction projects create many jobs 
within central Illinois and stimulate the economy through 
material purchases.
    The American Recovery and Reinvestment Act will 
significantly advance this modernization project, as well as a 
large number of other ARS construction projects nationwide. The 
ARRA appropriated $176 million to ARS to conduct deferred 
maintenance projects on its facilities.
    Thirty-eight projects have been selected across the agency, 
of which Peoria is the largest. The total projected cost for 
the Peoria project is estimated to be $40 million, which ARS 
estimates will create approximately 435 jobs.
    As discussed earlier, ARS in the Midwest area have a strong 
history of awarding significant portions of contracted dollars 
to small businesses, and it is highly likely that this will 
continue as ARS works to obligate its ARRA funding.
    In conclusion, Mr. Chairman, ARS realizes that Federal 
procurement is associated directly with the economic well-being 
of firms, municipalities, and cities. The agency, in concert 
with its area offices, will continue to seek partnerships with 
small businesses and continue to not only meet but to far 
exceed Federal and departmental small business goals.
    Mr. Chairman and Ranking Member, thank you again for your 
invitation to testify today. I look forward to answering your 
questions.
    [The statement of Mr. Sebesta is included in the appendix.]
    Chairman Nye. Thank you very much.
    I would like to go on now and introduce Dr. Hans Seywald, 
who is the president of Analytical Mechanics Associates, 
Incorporated, headquartered in Hampton, Virginia. AMA is a 
small business specializing in aerospace engineering, 
information technology, business analytics, and visualization 
solutions.
    Doctor, thank you for being with us today.

                   STATEMENT OF HANS SEYWALD

    Mr. Seywald. Thank you, Congressman Nye, Congressman 
Schock, and distinguished members of the Small Business 
Subcommittee on Contracting and Technology.
    Thank you for the invitation and the opportunity to testify 
before the Committee. Specifically, we are here to discuss our 
experience in working with NASA, our role in generating 
innovative technology, and our success in stimulating local 
economic activity.
    We are sincere in our hope that small business continues to 
be the driver of America's innovation engine. We seek not only 
to support NASA's mission to lead the world in space, 
exploration, science, and aeronautics, but also to help ensure 
America continues to be an economic leader in the 21st century. 
Headquartered in Hampton, Virginia, home is where the heart is. 
Our passion is to help NASA Langley and Wallops Flight Facility 
in their honorable pursuits.
    Analytical Mechanics Associates, or AMA, is a small 
business celebrating almost 50 years of service to NASA and the 
industry. We specialize in engineering, information technology, 
visualization, and business analytics. Armed with this skill 
set and our passion to do excellent technical work, AMA has 
supported a broad range of past, present, and future NASA 
missions, including space shuttle, International Space Station, 
the Orion spacecraft and ARES launch vehicle developments for 
the Constellation Program, Mars missions, Earth science 
missions, and the Hyper-X flight experiment.
    AMA's current management, Dr. Renjith Kumar and myself, 
took over the company in 1997 after economics and health forced 
the previous owners to sell the business. With just five 
employees and limited cash flow, the company was barely viable 
and could have folded at any time, but it didn't.
    Our primary motivation in taking over the company had 
little to do with the ambition of running a business. Like so 
many small technical firms in their infancy, the primary 
objective was to do cutting-edge engineering research and 
development. Had the company gone out of business, an 
interesting small business innovative research grant that we 
were working on would have evaporated. We didn't want that to 
happen.
    So that is our story, how two engineers evolved into 
entrepreneurs. We believe we are not alone. We believe that 
this is the true spirit of business in America, small business 
in America.
    The company survived in part because we were able to enter 
the company into the SBA 8(a) program. We were actually 
surprised that we were still solvent at the end of the first 
year. Not only had we not lost our life savings, we were able 
to pay ourselves a meager salary and, at the end of the day, 
made a profit. This exceeded our expectations. So we made a 
$5,000 donation to a local high school in an economically 
disadvantaged area. The school later told us that it was the 
largest donation that they had ever received.
    Let's now fast-forward 12 years. Today, AMA has almost 100 
employees with some full-time consultants. We have experts in 
multiple aerospace engineering disciplines, information 
technology, business analytics, modeling and simulation, and 
visualization and multimedia.
    The majority of our business falls under government 
contracts for NASA, but we have also started doing some work in 
the commercial sector. Over the last few years, our commercial 
business has fluctuated between 10 percent and 30 percent, with 
an overall increasing trend.
    In a hyper-competitive global market, it is not easy for a 
small business to establish a presence in the high-tech 
industry, but we are making good process. Could we have done it 
without the relationship to NASA? Absolutely not.
    Before we could cross over into the commercial market, we 
needed to assemble a critical mass of talent. The contract work 
at NASA enabled us to grow and retain these critical skills. In 
addition, being able to refer to our NASA work helped build the 
trust of new commercial clients.
    Today, most of the solutions that we provide to our 
commercial customers are spinoffs or extensions of technologies 
that we developed for our customers at NASA. Also, our work at 
NASA provides a somewhat steady funding stream, helping bridge 
funding gaps that we face in the much more volatile commercial 
sector.
    I think I need to skip a bunch of things.
    Let me briefly touch on the role in education. We, as a 
company, place high importance on education and its role in the 
wellbeing of our community and country. We are privileged to 
help mold and educate future generations of aerospace and IT 
professionals through our internship programs, oftentimes in 
collaboration with NASA. There is nothing that captures the 
imagination of young minds more than space flight.
    In conclusion, I would like to reiterate our sincere thanks 
for the opportunity to share our thoughts and story with the 
distinguished Committee. We would like to thank NASA for the 
continued support for almost 50 years. We are committed to the 
NASA mission and hope our efforts continue to help America 
pursue her highest goals.
    Thank you.
    [The statement of Mr. Seywald is included in the appendix.]
    Chairman Nye. Thank you very much, Doctor.
    I would like to go ahead now and introduce Mr. Chris Suber, 
president of Construction Development Services, Incorporated, 
based in Norfolk, Virginia. Construction Development Services 
provides general contracting, project management, design build, 
and consulting services to their clients and is a certified 
8(a) small business established in 2000.
    Mr. Suber, thank you for being with us.

                    STATEMENT OF CHRIS SUBER

    Mr. Suber. Thank you, Congressman Nye, Mr. Schock. And I 
would like to also thank my partner here today with me, Joe 
Slavinsky.
    Construction Development Services, or CDSI, began servicing 
the Hampton Roads area in 2000, performing residential and 
light commercial projects. In May of 2006, CDSI became 
certified as a small disadvantaged business 8(a) general 
contractor.
    This certification has allowed us to diversify and perform 
different types of construction projects, such as residential, 
institutional, commercial, and infrastructure. Each project has 
varied in cost and complexity with various scopes of work, 
including roofing, masonry, site work, HVAC, electrical, fire 
protection systems, sewage lift stations, and utilities. We 
have completed each project successfully by partnering with the 
government and understanding their needs and requirements.
    My primary customer is the Federal Government at the 
military bases located in Hampton Roads and NASA Wallops 
Island. We currently service Norfolk Navy Base, NASA Wallops 
Island, Little Creek Amphibious Base, Portsmouth Naval Shipyard 
and Medical Center, and Langley Air Force Base.
    In the last 3 years, we have completed over 75 different 
projects, ranging from $500 to $4.5 million. We have also 
consistently employed 20 to 25 personnel and employed 
approximately 75 different small, service-disabled-veteran-
owned business, woman-owned businesses, and other 
subcontractors, vendors, and a multitude of tradespeople 
through this opportunity. These projects have been traditional 
design build and bid build, and they have all been awarded on a 
firm fixed price.
    CDSI strives to know government contracting. As a result, 
we are able to adapt and use our in-depth experience gained 
while working at other small businesses and my partner Joe's 
experience as a Civil Engineer Corps officer in the Navy 
Seabees. Our goal is to be the Federal Government's contractor 
of choice for any type of project, including renovations, 
design build, contingency operations, and emergencies.
    As Mr. Underwood testified, CDSI recently completed the 
renovation to launch project building X-85 at NASA Wallops 
Island. We demolished the existing facility down to its bare 
structural columns, concrete slab, and removed all exterior and 
interior walls and utility systems in total. We then renovated 
the facility, to include a new front entrance lobby area, which 
required pile-driving operations, new masonry/EIFS/storefront 
exterior, newly framed walls with interior walls, ceiling and 
floor finishes, along with a completely new electrical and HVAC 
system, men and women's restrooms, three 30-foot fabric-type 
roll-up doors, along with a new fire alarm and sprinkler 
systems. All work was in compliance with all the latest ADA 
requirements.
    The project involved 15 different subcontractors from both 
the eastern shore and Hampton Roads area. The project created a 
multitude of job opportunities, both for CDSI and all of our 
vendors and subcontractors, of which 90 percent were small 
businesses themselves, and employing approximately 85 different 
people during the various construction phases of the project.
    This project provided the scientists and technicians with 
far better working conditions, very modern finishes, amenities 
and utility systems which bettered the overall environment to 
conduct their research.
    We look forward to participating in similar type 
construction projects that improve the quality of life for 
researchers and, at the same time, help the economic climate of 
the local area.
    Thank you for this opportunity, and we look forward to 
answering any questions.
    [The statement of Mr. Suber is included in the appendix.]
    Chairman Nye. Thank you, Mr. Suber.
    Again, I am going to yield to our ranking member, Mr. 
Schock.
    Mr. Schock. Thank you, Mr. Chairman.
    It is my pleasure to welcome back to Washington, D.C., Dr. 
Peter Johnsen, who is the chief technology officer for Biofuels 
Manufacturers of Illinois, or BMI, which is also located in 
Peoria, Illinois.
    BMI is assisting with the operation and construction of a 
biodiesel plant to be located in Mapleton, Illinois. BMI is 
also active in the development and education of the pennycress 
crop as a renewable energy source.
    Dr. Johnsen has 30 years' experience at the university, 
government, and private-sector levels and the research and 
development field, helping to bring scientific innovations into 
the marketplace. Dr. Johnsen is also the former director of the 
agricultural lab in Peoria, and in 2004 he was named the 
Federal laboratory director of the year.
    Dr. Johnsen, appreciate you coming to D.C. And joining us 
here today, and I look forward to your testimony.

                 STATEMENT OF PETER B. JOHNSEN

    Mr. Johnsen. Mr. Chairman and Congressman Schock and 
members of the Committee, thank you for the invitation to 
testify before you today on the importance of small businesses 
working with Federal research facilities to promote innovation 
and entrepreneurship.
    I believe that I may have a unique perspective in that I 
have been both a director of a national laboratory and am also 
now involved in several small technology companies working with 
Federal research facilities. I spent 20 years with USDA 
Agricultural Research Service and 12 of those as the director 
of the National Center for Agricultural Utilization Research in 
Peoria, Illinois.
    And as a scientist and administrator, I was an early user 
and adopter of the National Technological Transfer Act, or the 
CRADA, Cooperative Research and Development Authority, to work 
with many companies to commercialize new discoveries. I have 
seen firsthand the benefit, and even the necessity, of Federal 
laboratories working with the private sector in creating 
economic value from basic science discoveries.
    Since leaving the government, I have been involved with 
several companies that have approached technology 
commercialization in very different ways. In one, we took 
fundamental knowledge discovered by a USDA laboratory and 
refined the concept to develop a commercial product and methods 
to manufacture an advanced biobased product.
    Absorbent Technologies, Incorporated, makes ZEBA, a starch-
based "hydrogel" which holds and releases water similar to a 
sponge below the soil. Each ZEBA granule holds 500 times its 
weight in water and reduces the amount of water and nutrients 
required to produce greater yields and higher-quality crops. 
This company made use of the CRADA process early on and quickly 
achieved results that gave it the ability to obtain venture 
capital funding to bring its products to the marketplace. 
Today, we are selling this innovative product for commercial 
agriculture and lawn and garden applications in more than 10 
countries worldwide.
    I also serve as the chief technology officer of Biofuels 
Manufacturers of Illinois, as Congressman Schock mentioned. Our 
plan is to build and operate a production facility for 
biodiesel in central Illinois. But what distinguishes our 
effort is that we have been working with the USDA ARS to 
develop a new energy crop called pennycress. Pennycress is a 
member of the mustard family that has seeds with 36 percent 
oil, or twice that of soybeans, that can be used to make high-
quality biodiesel fuel.
    The crop is planted in the fall after corn harvest, grows 
as a winter annual, and then is harvested in late spring before 
soybean planting. So farming pennycress uses traditional 
equipment and allows farmers to grow two crops in 1 year, 
earning additional income. And, as a nonfood crop that does not 
displace food crops from the land or marketplace, it avoids 
both the food-versus-fuel and the indirect land use 
controversies completely.
    The economic impact of this new crop is significant. A 
single biodiesel plant will purchase $100 million of pennycress 
seed each year. And Illinois alone has the capacity for 18 such 
operations, with the economic impact of pennycress as an energy 
crop across the Midwest corn belt being extraordinary.
    It was USDA research scientists who discovered the 
potential of pennycress as a remarkable new energy crop, but 
the only way for the Nation to benefit from this discovery was 
for the government to collaborate with the private sector. 
However, there are a number of issues that have made it very 
difficult for a small business like ours to work effectively 
with the government in completing this.
    We have made significant investments in sponsoring research 
at two Federal laboratories and the university through CRADA 
agreements to develop this crop. And, clearly, it takes 
significant financial upfront capital to create such an energy 
crop, develop its logistics infrastructure, and optimize 
processing technology.
    Because this energy crop meets the strategic objectives of 
both USDA and DOE in creating a sustainable energy source, we 
have competed for competitive grants to develop this crop. One 
of the requirements of these grant applications is that a 20 
percent financial match be made by the applicant, and for small 
businesses like ours this is a very difficult problem.
    It is ironic that BMI is funding USDA and university 
research rather than being able to obtain contracts from them 
to perform the important task of creating a new environmentally 
friendly and sustainable energy source. It would be helpful if 
the Committee were to examine the policies that require small 
businesses to provide significant financial matches in grant 
application processes. This is a very difficult process for the 
small companies and limits the scope and duration of the 
project proposals. We would propose that these be eliminated 
entirely or be scaled to the resources of the small technology 
company.
    In my many years as a university professor, director of a 
government laboratory, or in a private company, I have seen the 
evolution of laws and policies that enhance the ability of the 
Nation to benefit from public investment in science and 
technology. I hope that I have provided information today and 
in my written statement that this Committee will consider in 
its work to maximize the opportunities of small businesses to 
work with Federal research laboratories to promote 
entrepreneurship and innovation.
    Thank you for this opportunity, and I would be happy to 
answer questions at the appropriate time.
    [The statement of Mr. Johnsen is included in the appendix.]
    Chairman Nye. Great. Thank you.
    And, again, thank you to all of our panel members for being 
here and for your opening statements.
    I am going to ask a number of questions and then offer 
opportunities for the other members of the Committee to ask 
some questions.
    I want to just start with Ms. Lee. I want to follow up on 
something you mentioned in your opening statement. And you 
outlined some successful examples of small businesses with whom 
you are working through Langley, one of whom is here. And, in 
fact, you mentioned that Langley had exceeded its small 
business target, I think you said, over the last 9 years in a 
row, and I am impressed to hear that.
    And I was hoping you would maybe provide us with a little 
bit more detail on some, perhaps, some examples that we can use 
and apply to others and tell us, kind of, how you did that or 
if there are particular advantages at Langley or things that 
you have done that have helped you surpass that goal and what 
might we learn from your example.
    Ms. Lee. Thank you, Chairman. I would be happy to.
    So, for us, small business is a contact sport. And we have 
a small business office located at Langley that does 
significant marketing and outreach. They counsel small 
businesses. They provide things like an automatic e-mail system 
that is actually a NASA system, such that companies can provide 
their area of expertise or their core competency and 
automatically gets update from FedBizOpps on either government-
wide or NASA procurements.
    But we also do a host of other things. We do conferences, 
expos and market research to ensure we know what companies are 
out there and what they are providing. And then regionally, we 
do a lot of things.
    Overall in our procurement office, 63 percent of our 
procurements--this is not just small business--are for funds 
that are for work performed in Hampton Roads. And so, 
regionally we have a Hampton Roads Technology Council. We have 
an AeroSpace Day, where we match local businesses with NASA, 
and together we go up to the General Assembly and we talk about 
the aerospace community and what we bring to the Commonwealth. 
So we raise awareness in that way for our small businesses.
    We have texpos, where we invite industry in so that they 
can see the areas of work that NASA's interested in. And then 
we have open houses, as well.
    And then a couple of things that are a little bit unique to 
NASA Langley, we have things called tech fusion and tech 
infusion workshops. Now, tech fusion workshops are between our 
prime contractors and SBIR--or small business innovative 
research--proposal winners, such that those prime contractors 
can be made aware of those innovations. And then we target our 
prime contractors with additional goals beyond our own goals. 
So we ask them to meet some of them upwards of 30 percent 
goals. So, goals just like ours that they have to meet. And so 
it is incumbent upon them to understand what our small 
businesses are doing.
    And then, likewise, we have many of our researchers that 
may not be aware of the contribution small businesses can make. 
So we have what are called tech infusion workshops, where we 
bring NASA program folks together with the SBIR community so 
that they can share and learn about each other's needs and 
contributions that they can make.
    So, there are a host of things that we do. It is not any 
one answer that have made us successful, but it is continuing 
to get out there and understand the community and then set 
stretch goals for ourselves that has made us successful.
    Chairman Nye. Okay, great. Well, appreciate that.
    And I would like to follow that up by a question to Mr. 
Underwood. Wallops has been doing a lot of good work. And I 
wanted to note that, next year, a Taurus II rocket will launch 
to supply the International Space Station, noting also that 
there are additional commercial launch opportunities 
developing.
    Can you please just give me some thoughts on where you see 
that going and how that will affect the local small business 
community?
    Mr. Underwood. Yes, certainly.
    It is quite exciting, actually, for us. And we kind of view 
it as a major landscape changing, both figuratively as well as 
literally, in what is happening at Wallops, because over the 
next year and a half we have at least 40 and as much as perhaps 
90-some million dollars' worth of construction activities that 
we are going to have to undertake in order to create the 
infrastructure to accommodate the Orbital Sciences 
Corporation's needs. Some of that will be from Federal 
investments, and some will actually be through the Commonwealth 
of Virginia's investments in their infrastructure through our 
commercial space port. All of us in this exercise will be 
utilizing small businesses to one degree or another to help 
with those construction activities.
    And then, along with that are obviously, beyond the 
facilities, the brick-and-mortar aspects of accommodating the 
new vehicle and the growth in our launch activities. We are 
actually going to have Orbital Sciences Corporation bringing a 
large contingent of new employees to the area, of which they 
are going to be needing a lot of services, themselves, purely 
on the commercial side of what is going to happen. They are 
going to need workforce for engineers and laborers. They are 
also going to be needing component parts. All of these 
opportunities most easily or most effectively are provided by 
the local economy as opposed to having to bring them in from 
outside. So the first place that all of us tend to look is in 
our own backyards for these opportunities.
    So I think the combination of what the Federal Government 
is going to be doing on the NASA side, as well as what the 
State, THE Commonwealth of Virginia, as well as what Orbital 
Sciences themselves are going to be doing, are going to create 
an enormous amount of opportunities over the next year. It is 
quite exciting at Wallops.
    Chairman Nye. Have you found that finding small business 
local in the community has been a challenge in terms of your 
interest in local small business community makeup? Or is that 
something that has worked out well?
    Mr. Underwood. It is kind of a constant supply-and-demand 
juggle, which is, if there aren't the opportunities, then it 
takes a while for the companies to react when they do show up. 
So, in which cases, many of us at Wallops, both on the 
commercial side and the government side, are working with 
organizations such as the local community colleges and things 
like that to make sure that we are waking them up to the 
opportunities that are forthcoming. So then we hopefully have a 
workforce that is interested in the local folks coming out of 
the high schools, and go into area where we can keep them at 
home and actually employ them. So that is one particular aspect 
of what we are doing, working with the local community colleges 
and universities to be aware of the opportunities that are 
coming.
    But, yeah, in many cases, the growth happens faster than we 
can accommodate it, so we have to look elsewhere. But that is 
not our first means of searching.
    Chairman Nye. Okay. Thank you.
    I want to ask both Dr. Seywald and Mr. Suber, you mentioned 
that your businesses are 8(a) businesses. And I want to 
actually take the opportunity to ask you if you could comment 
on how the program has been helpful in terms of opening doors 
specifically for your companies, but also if there are any 
challenges that you have had with the program and if there are 
things that you would like us to know in terms of how we might 
make the programs work better or anything that you would change 
about it.
    And I will offer the opportunity to both of you to comment.
    Mr. Seywald. The program was absolutely essential for us in 
the beginning when we were, like, five people. It means, like, 
three income-generating people and two on overhead. SBA helped 
us tremendously in getting on the 8(a) program. And once we 
were on the 8(a) program, we were more attractive to the prime 
contractor as a teaming partner.
    Small businesses, microbusinesses, like less than 10 
people, have really no way of interacting directly with NASA or 
other Federal labs. It is typically as a subcontractor, and 
there it is more like throwing darts. It is very difficult 
making yourself attractive for a prime contractor, and it is 
hard to pick the right one if you have a choice.
    So, if the prime contractor loses--and the prime contractor 
usually loses not because of the sub not performing well or not 
having a great background; it is based on the qualification of 
the prime. So performance of the sub is not really a big issue 
there in the potential survival or demise of the small 
business.
    Yes, the SBA program was extremely helpful in the 
beginning. And, without it, we would probably not have 
survived.
    Mr. Suber. Like Dr. Seywald said, it also made us more 
attractive, as well. Some of the challenges that we faced were, 
I guess, not similar to the service side of it, but bonding was 
an issue. We know that anything over the 35 mark you need a 
payment bond, and anything over 100,000 requires a performance 
and a payment bond, which is directly tied back to the capital 
of the company.
    And so, many times, you know, if personally you, as the 
individual owner or group of owners, may not have all of the 
capital necessary to get the appropriate bonding, you can have 
all of the capabilities to service a contract but not be able 
to be awarded it because of the bonding.
    The other piece of the challenge, I would say, is getting 
to the right person that could help you find or get that 
contract at a base where you don't already have a relationship. 
For Langley, for NASA Wallops, for all of the bases that I 
mentioned, we had previous relationships, where we knew 
someone, where we could get past the gate, get in the door, 
talk to the right people. That seems to be a challenge.
    So if we had an opportunity--you can't always get to the 
right folks, like Ms. Lee said, at some forum or something like 
that. If there was another way that you can get to the right 
person, that would be helpful.
    But it was critical to our success, as well.
    Chairman Nye. Great.
    And I want to offer, actually, an opportunity generally for 
any of the three of you, the business owners here, to provide 
any more comments on the contracting process.
    And if there are other things that you think particularly 
work well or barriers that you have identified that make it 
difficult for you, I want to offer an opportunity for anyone to 
add additional comments on things that they think we ought to 
know.
    Mr. Johnsen. Well, one of the things that is a little bit 
different for the agricultural community from, say, NASA or 
Department of Energy is that there are not a lot of technology 
contracts that are awarded to do discovery or development work. 
The only funding that comes in that direction tends to be in 
the form of competitive grants, and those are very, very 
difficult.
    I mentioned one issue with the matching process, but there 
are other elements that make small businesses be disadvantaged 
in competing for those grant systems that relate to, for 
example, in the loan guarantee programs that require that you 
have a money center bank cosponsor your application with a loan 
guarantee program.
    Where we have been able to put together a consortium of 
community banks who are willing to help us with the project, 
the USDA requires that a large money center bank, with the 
experience of a similar-size project, be the lender of record. 
And that means that small community companies and banks can't 
build the capacity to go after the larger kinds of 
opportunities.
    So that is another problem for small businesses within the 
agricultural sector.
    Chairman Nye. Go ahead. I will yield to Mr. Schock.
    Mr. Schock. I am just curious, for the benefit of the 
Committee, if you can talk a little bit more about that. I 
heard you say that they not only require a specific bank but 
also that bank have a history on like projects.
    Mr. Johnsen. Exactly.
    Mr. Schock. Well, how does that spur innovation? If you are 
doing something new, how can a bank have history on this kind 
of specific project?
    Mr. Johnsen. That is the conundrum. It is sort of a catch-
22, in that the loan guarantee programs are typically designed 
around development of rural infrastructure. And so, these are 
sort of classic construction projects. But if you want to come 
forward to build a new technology, a new kind of operation, you 
sort of fall in the gap with the rules that surround both the 
expertise of the company and the expertise and the resources of 
the lending institution.
    And so it has just been very difficult to kind of move an 
innovative project forward with these traditional programs.
    Mr. Schock. And do you know, based on what you are being 
told, are those rules? I mean, in other words, are those 
regulations promulgated by rules? Are your Federal folks 
telling you--I won't call them what I was going to say--
    Mr. Johnsen. Well, I will tell you where the language 
resides. The language resides in the Federal Register, a 
description of the program. And so, when we get ready to 
respond to the requirements of the program, we have discovered 
that we can't qualify even to make the application, because we 
cannot get a money center bank to--because there are none in 
the central Illinois and the Midwest that are prepared to help 
us move a proposal like that forward.
    But, like I said, we have put together a consortium of 
community banks, who have very solid financial standing now, a 
lot of money to lend. But they cannot go before the--and this 
is the Rural Development Agency that we--and we can talk more 
offline about this specific program. It is a 9003. It goes on 
and on.
    Mr. Schock. Okay, great. Thank you.
    Chairman Nye. Well, I appreciate that. It sounds like you 
have highlighted a very practical challenge.
    Again, I offer the opportunity to anybody else on the 
business side that wanted to comment on other challenges, if 
you have any.
    Mr. Seywald. In our experience, the contract bundling made 
it very difficult. Small businesses, even if they have great 
capabilities, typically cannot go directly to NASA and get 
these micro contracts. They really depend on the prime 
contractors. And so, it is not often the capability of the 
small business, it is the relationship to the prime contractor 
that plays a major role.
    Chairman Nye. Okay. Yeah, and of course that is something 
that we have heard a number of times.
    Again, I also want to offer an opportunity to our agency 
representatives to make any comments about particular tools 
that they have found useful in attracting small businesses or 
helping achieve small business contracting goals or any 
obstacles that you find that you think we might be helpful in 
solving or that we at least ought to be aware of.
    Ms. Lee. I think one thing--you mentioned the Small 
Business Administration. And one of the things that we make 
sure in our small business office is to refer folks to the 
Small Business Administration Small Business Development 
Center, because we have 29 of those in Virginia, and it really 
does assist those small businesses in how to start up.
    We also send folks to the DOD Procurement Technical 
Assistance Centers, or PTACs. That helps a small business learn 
how to do business with the Federal agencies. And so we hear 
from our small businesses that that has been very effective in 
helping them learn how to work with Federal agencies.
    Now, on the other side, once we have a contract with a 
small business, we look at a little bit different approach in 
terms of what they have to do in the way of reporting. Often, 
with our prime contractors, we have very rigorous costing 
performance reporting requirements, earned value management and 
things like that, that would be required. For small companies 
we don't necessarily require that level of rigor, because we 
know that that is something a small company wouldn't be able to 
do for us. And so, while we do expect costing performance that 
is excellent, we still look at different ways to help them do 
that reporting for us.
    Chairman Nye. Okay. Thanks.
    I think I will yield now to Ranking Member Schock for any 
other questions that he might have.
    Mr. Schock. Thank you, Mr. Chairman. You have asked a lot 
of good questions, so I don't have as many left.
    But I would ask specifically for one of my guests, Dr. 
Sebesta, if there is anything that we can be doing here in 
Washington, either through policies or providing you dollars 
for infrastructure, that would better help you create, kind of, 
agricultural utilization clusters there in Peoria or allow for 
better synergies to take place.
    Mr. Sebesta. Thank you, Congressman.
    We are always looking for opportunities to partner with 
small business and with creative companies, such as BMI, in the 
development of technologies that come out of our research 
center. And perhaps we could have another dialogue later on how 
we might be able to do that and bring people together that we 
need to have that conversation.
    Our scientists are evaluated by the impact of their 
research, and that impact is measured by the amount of private-
sector partners we have on that research and how that research 
is bettering American lives. And so we need to look at how we 
can develop that further.
    Mr. Schock. Okay. Very good.
    Dr. Johnsen, I am interested in your reaction to the 2007 
energy bill. The Small Business Administration, as a result of 
the 2007 energy bill, was required to create some special types 
of venture capital that invest in small businesses involved in 
the development of renewable fuels.
    And I am wondering if you are aware of that and whether 
such a venture capital company would help your company, 
specifically BMI.
    Mr. Johnsen. We are aware of that. One of the challenges 
for most venture capital systems and programs is that they 
require that there be a large body of intellectual property 
protection--that is, a barrier to entry from other companies.
    When you are trying to do something similar to BMI, which 
is to create a whole national system of growing pennycress, 
where many other biodiesel companies would then take a crop 
that has so many economic and environmental and social 
advantages and make a renewable fuel, a company like ours, 
which is almost doing the public duty of the USDA in developing 
these kinds of activities, sort of falls short in the eyes of 
the venture capitalists. Because they are looking for, how can 
I invest in a company, make sure it makes the most money 
relative to anybody else that competes. And so, for a company 
like us that is trying to invent a system which is open, which 
serves the greatest national need, is a very difficult thing 
for venture capital.
    That being said, I think that those kinds of programs can 
enhance something that we have in Peoria called PeoriaNEXT, 
which is a partnership between, say, the Ag lab, Bradley 
University, Caterpillar research and development, the 
hospitals, where we are trying to actually create a business 
cluster around the research and development technologies.
    One of the things that PeoriaNEXT lacks is, sort of, 
operating funds to develop the relationships between the Ag 
lab, the scientists at Bradley University, the scientists that 
are at Caterpillar, where they can create businesses so that 
those businesses can then grow and compete for opportunities.
    So those kinds of, sort of, nurturing of that 
infrastructure to grow clusters is something that is a 
shortfall in our region and would be very helpful to growing 
small businesses that are particularly around science, 
technology, and agriculture.
    Mr. Schock. Very good.
    That is all I have.
    Chairman Nye. Great.
    Well, this is very helpful to us. And I want to thank, 
again, our panelists for taking the time to be here today and 
for the hard work that you are doing out in our communities to 
try to spur innovation. I appreciate your being here and 
sharing your thoughts and your expertise with us and wish you 
all a very safe trip back home. Thank you very much for being 
here.
    I am going to ask for unanimous consent that members have 5 
days to submit statements and supporting materials for the 
record.
    Without objection, so ordered.
    Chairman Nye. This hearing is now adjourned.
    [Whereupon, at 1:50 p.m., the Subcommittee was adjourned.]

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