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




 
                    SUBCOMMITTEE ON CONTRACTING AND
                    TECHNOLOGY HEARING ON IMPROVING
                     CONTRACTING OPPORTUNITIES AND
                 PREVENTING FRAUD FOR SERVICE-DISABLED
                     VETERAN-OWNED SMALL BUSINESSES

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

                                HEARING

                               before the


                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             JULY 15, 2010

                               __________

                               [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            Small Business Committee Document Number 111-073
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

                        MARK CRITZ, Pennsylvania

                         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

                      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
MARK CRITZ, Pennsylvania

                                 (iii)

  
?



                            C O N T E N T S

                               __________

                           OPENING STATEMENTS

                                                                   Page

Nye, Hon. Glenn..................................................     1
Bartlett, Hon. Roscoe............................................     3
Ellsworth, Hon. Brad.............................................     3
Halvorson, Hon. Deborah..........................................     4
Critz, Hon. Mark.................................................     4

                               WITNESSES

Oliver, Ms. Linda, Acting Director, Office of Small Business 
  Programs, U.S. Department of Defense...........................     5
Foreman, Mr. Tim, Executive Director, Office of Small and 
  Disadvantaged Business, U.S. Department of Veteran Affairs.....     6
Martoccia, Mr. Anthony, Chief Contracting Office, Director of 
  Acquisitions Operations Division, Office of the Chief 
  Procurement Officer, Mission Support Bureau, U.S. Federal 
  Emergency Management Agency....................................     8
Brown, Ms. Jeanette, Director, Office of Small Business Programs, 
  U.S. Environmental Protection Agency...........................     9
Jordan, Mr. Jordan, Associate Administrator, Government 
  Contracting and Business Development, U.S. Small Business 
  Administration.................................................    11
Kobelski, Mr. J.H., President & CEO, Andromeda Systems 
  Incorporated, Virginia Beach, Virginia.........................    29
Sharpe, Mr. Joseph, Director, National Economic Commission, The 
  American Legion................................................    32
Hope, Mr. Stephen, President, CIAN Inc., Peoria, Illinois........    34

                                APPENDIX


Prepared Statements:
Schock, Hon. Aaron...............................................    41
Oliver, Ms. Linda, Acting Director, Office of Small Business 
  Programs, U.S. Department of Defense...........................    43
Foreman, Mr. Tim, Executive Director, Office of Small and 
  Disadvantaged Business, U.S. Department of Veteran Affairs.....    52
Martoccia, Mr. Anthony, Chief Contracting Office, Director of 
  Acquisitions Operations Division, Office of the Chief 
  Procurement Officer, Mission Support Bureau, U.S. Federal 
  Emergency Management Agency....................................    56
Brown, Ms. Jeanette, Director, Office of Small Business Programs, 
  U.S. Environmental Protection Agency...........................    64
Jordan, Mr. Jordan, Associate Administrator, Government 
  Contracting and Business Development, U.S. Small Business 
  Administration.................................................    73
Kobelski, Mr. J.H., President & CEO, Andromeda Systems 
  Incorporated, Virginia Beach, Virginia.........................    76
Sharpe, Mr. Joseph, Director, National Economic Commission, The 
  American Legion................................................    86
Hope, Mr. Stephen, President, CIAN Inc., Peoria, Illinois........    98

                                  (v)

  


                    SUBCOMMITTEE ON CONTRACTING AND
                    TECHNOLOGY HEARING ON IMPROVING
                     CONTRACTING OPPORTUNITIES AND
                 PREVENTING FRAUD FOR SERVICE-DISABLED
                     VETERAN-OWNED SMALL BUSINESSES

                              ----------                              


                        Thursday, July 15, 2010

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:10 a.m., in 
Room 2360, Rayburn House Office Building, Hon. Glenn Nye 
[chairman of the Subcommittee] presiding.
    Present: Representatives Nye, Critz, Ellsworth, Halvorson, 
Bartlett and Schock.
    Chairman Nye. Good morning. I would like to go ahead and 
call this hearing to order. I am going to present an opening 
statement, and then I will offer the opportunity for other 
members of the Subcommittee to present opening statements, if 
they wish; then I will invite the panelists to give their 
opening remarks, and then we will start with the questions.
    There are currently 26 million veterans living today in 
America. Nearly 100,000 of these veterans live in my district. 
And after years of service in Afghanistan, Iraq, Vietnam, Korea 
and across the globe, they have returned home to Hampton Roads, 
Virginia, and all across our country, ready to continue 
contributing to our community and to our country.
    These brave men and women deserve not only our enduring 
gratitude, but the opportunities and tools to build a new life. 
One of the most important tools we have to accomplish this 
mission is the Service-Disabled Veteran-Owned Small Business 
Procurement Program.
    During the last fiscal year, the initiative awarded $10 
billion in contracts to service-disabled veteran small firms; 
however, in 2008, the last year the SBA released its 
contracting goal report, these awards accounted for only about 
1.5 percent of all Federal contracts, half of the 3 percent 
statutory goal established in 1999.
    Fortunately, we have recently seen an uptick in contracts 
with the enactment of the American Recovery and Reinvestment 
Act. The Recovery Act provides veterans with new avenues and 
opportunities to contract with the government. Service-disabled 
veteran small firms have reportedly received $1.4 billion in 
Recovery Act contracts. This totals over 4 percent of all 
Recovery Act funds. And, of all the agencies testifying today, 
with the exception of FEMA, all have awarded more than 3 
percent of their Recovery Act contracts to service-disabled 
veteran businesses.
    While I am pleased with this increase in contracts, I 
remain skeptical. The sad truth of the matter is that it 
appears many agencies have been saying one thing, but actually 
doing another. Last October, the GAO released a report finding 
contracts are being diverted away from legitimate service-
disabled veteran businesses to nonveteran businesses, including 
large corporations.
    In May, I held a hearing in Hampton Roads to get a update 
from GAO on the actions taken against these firms. There was a 
bit of positive action. A janitorial service falsely 
identifying as an SDVOSB in a contract with the U.S. Forest 
Service did not have their option exercised, and their services 
were not renewed, and their contract was terminated after the 
initial performance period ended. Unfortunately, this action 
was more the exception rather than the rule. The GAO found 
that, since November 2009, that 10 fraudulent businesses 
received over $5 million in new service-disabled veteran 
business sole-source and set-aside contracts and over $10 
million in other Federal contracts. The GAO also found that 
over half of these firms remained in the Federal Central 
Contractor Registration database, or the CCR.
    This report is a frustrating indication of the deplorable 
state of Federal contracting programs. It is clear that there 
are no adequate controls nor consequences in place to deter 
fraudulent actions. We must take action now to ensure these 
abuses stop immediately. It is long past due to address the 
breakdowns in the veteran contracting program system. Over 11 
percent of all Iraq and Afghanistan veterans are currently 
unemployed. Eleven percent. This number is unacceptable. It is 
essential that all veterans' resources are significantly better 
managed and better overseen.
    As veterans are more likely to hire other veterans, 
programs like this one being discussed today are critical to 
reducing the unemployment rate in our veteran community. I 
think I speak for all the Committee members here today in 
saying that we will do whatever it takes to support our 
service-disabled veterans and ensure that they have the tools 
they need to succeed in today's economy.
    I am committed to the goal of eradicating fraud in the 
Federal contracting system, and I have taken the first steps to 
fix this problem. Last November, I introduced the Service-
Disabled Veteran-Owned Small Business Procurement Reform Act. 
This act will put in place control measures to ward against 
abuses in the system; and, once law, it will finally enact 
punitive consequences for those who attempt to circumvent the 
law at the expense of our veterans. It will also establish a 
team of representatives responsible for supporting veteran 
entrepreneurship on a local level, actually working in the 
field visiting these businesses and doing what we said we would 
do.
    Today we are honored to have a panel of service-disabled 
veteran firms and advocates here to testify about their 
personal experiences navigating what appears to be a rigged 
system. I want to thank those witnesses and the witnesses on 
both panels for appearing before our Committee this morning.
    [The information is included in the appendix.]
    Chairman Nye. I would like to yield now to other Members 
who would like to make opening statements.
    Mr. Bartlett.
    Mr. Bartlett. Thank you very much.
    I am now pleased to be the longest-serving Republican on 
both the Small Business Committee and the Armed Services 
Committee. I am honored to have been able to represent 
Americans for the last 18 years in Armed Services and last 16 
years on the Small Business Committee.
    In a former life I was a small businessperson, and so I 
know the problems that small businesspeople have. I worked for 
the government, and I wrote RFPs, and then I moved out into the 
private sector where I responded to RFPs. So I bought both 
sides of that street.
    More than half of all the employees in our country are 
employees of small businesses, and way more than half of all 
the creativity and innovation comes from small business because 
that is a better environment for that kind of activity. Most of 
our contracting is with large business, but we know in the 
government that we desperately need more small businesses 
because that is the source of most new creativity and 
innovation. But there are huge impediments for small business 
getting involved with the government. Lots of red tape.
    I am very pleased with the success that we have had with 
these large number of special set-aside programs encouraging 
the government contractors to reach out to small businesses. It 
is particularly important to reach out to our ex-service 
people. Most, by the way, of our contracting is Department of 
the Armed Services. It is half of all of our discretionary 
spending, and way, way more than half of all of our contracting 
in all of the government is in the defense area. And so these 
veterans bring two things. One, they are small business people, 
but they are also veterans, and they understand that 
environment. And so we really need to reach out more to them. 
So I am pleased to be here today.
    By the way, where there is fraud, that doesn't mean that 
the taxpayer didn't get something for his dollar. It just went 
to the wrong person. And every dollar that goes to a business 
which is not service-disabled is a dollar that didn't go to 
these people who really deserve it and who earned it.
    So I am pleased to be here. Thank you for holding this 
meeting, and I look forward to the testimony.
    Chairman Nye. Thank you.
    Chairman Nye. I would like to recognize Mr. Ellsworth.
    Mr. Ellsworth. Thank you, Mr. Chairman.
    I think it was a year ago when we were here, at least last 
year, maybe not a full year ago, that GAO and Administrator 
Mills testified that this multibillion-dollar program designed 
to help small businesses owned by service-disabled veterans was 
being undermined by rampant fraud. I guess what was the most 
shocking to us was that there were very few, if any, safeguards 
built into this contracting, that they just didn't exist. And I 
am proud to work with you on legislation that you introduced to 
stop this type of fraud before it is ever awarded.
    I know the GAO has recently released some strong proposals 
for stopping fraud before the contract is awarded, monitoring 
contracts to ensure continued compliance with the program 
rules, and aggressively investigating and prosecuting potential 
for fraud. I am hopeful we can implement these fraud 
protections, but I must say that I am concerned about the lack 
of progress. And, as we have seen on a lot of different fronts 
here, it seems like progress is very slow, especially in these 
areas. Some of our Federal agencies seem to have made an issue 
since the last hearing.
    I think the worst part of this failure by our government 
agencies is that real service to our disabled veterans who have 
struggled to start and maintain a small business have literally 
been stolen from them by criminals trying to make a quick buck. 
And it is despicable this fraud has gone on this long, and I 
look forward to hearing real solutions from the panel today.
    I would like to yield back, Mr. Chairman, but thank you.
    Chairman Nye. I would now like to recognize Mrs. Halvorson.
    Mrs. Halvorson. Thank you, Mr. Chairman.
    First of all, I would like to say that I am strongly 
supportive of the service-disabled veteran-owned small business 
program. And like so many of my colleagues on this Committee, I 
am proud to say that I also serve on the Veterans' Affairs 
Committee. And with unemployment for Iraq and Afghanistan 
veterans well above the national average, we need to support 
programs to support people like this who have served our 
country.
    I am also very concerned that there is this fraud; and once 
fraud is found, there is no requirement for termination, 
suspension, disbarment, or prosecution, and there seems to be 
no parity.
    Under current law, when Federal contracting officers award 
small business contracts, they usually and generally can choose 
between the SBA's different contracting programs, including a 
HUBZone and SDVOSB. But in a recent ruling, however, a Federal 
Court of Claims ruled that Federal contracting officers must 
favor HUBZone over other programs, including the SDVOSB. And if 
this ruling is applied throughout the Federal Government, there 
is going to be a significant reduction in awarding of the 
SDVOSB contracts. So I think with this problem, we are also 
working on legislation, which is H.R. 3729, that will clarify 
this parity problem. So I continue to work together to address 
fraud, to address parity, and to continue to work to make sure 
we address all of these issues.
    So I commend all of us coming together, and I commend the 
chairman for bringing us together on this issue.
    Chairman Nye. Thank you very much.
    Chairman Nye. I would now like to recognize Mr. Critz.
    Mr. Critz. Thank you, Mr. Chairman.
    Just a couple of quick comments are that, you know, the 
obligation that our country owes to our veterans is something 
that we take very seriously. And to have a situation where not 
only they are being veterans, but service-disabled veterans, 
and they are almost being--what you could say is that they are 
being overlooked, or they are being given a path that is 
impossible or tough to drive. And I think it is disappointing 
that we are sitting here talking about this, but the reason we 
are here, though, is that we can't change what has happened, 
but what we can do is look forward and look for solutions. And 
I am anxious to hear what the solutions are to solve this 
dilemma and how you are going to put teeth into enforcement 
when we are talking about fraud.
    And I yield back. Thank you.
    Chairman Nye. As Mr. Ellsworth mentioned, it has been 
approximately 9 months since the GAO report first came out that 
uncovered a significant amount of fraud within the service-
disabled veteran-owned small business contracting program. What 
we want to get to the bottom of today is what have you as 
agencies been doing to fix the problem since we have discovered 
those numbers back in November?
    Our first panelist I would like to introduce is Ms. Linda 
Oliver. Ms. Oliver is Acting Director of the Office of Small 
Business Programs for the Department of Defense. In this role 
she is responsible for establishing Department of Defense 
policies that ensure the inclusion of small firms in defense-
related procurement actions.
    Ms. Oliver, I would like to recognize you for your opening 
statement.

                   STATEMENT OF LINDA OLIVER

    Ms. Oliver. Thank you. It is a pleasure to be here, 
Chairman Nye and panel members, to talk about service-disabled 
veteran small businesses.
    In the Department of Defense, as I know you know, the 
service-disabled veteran-owned small business owners frequently 
have been our colleagues either in uniform or out of uniform 
before becoming small business members. So we are particularly 
concerned and sympathetic with our service-disabled veteran-
owned small businesses.
    This morning I will summarize the testimony--really 
summarize the testimony, because there is no point in going 
through with you what we have already written down.
    The four areas I will quickly talk about is the Department 
of Defense performance over the past 7 years, what we have done 
and are doing to improve performance, what we have found about 
service-disabled veteran-owned small businesses that might help 
us do better. And then I will touch on the GAO study, two of 
the cases in the GAO study concerning the Department of 
Defense.
    As in my testimony, over the past 7 years, the Department 
of Defense has had a fourteenfold increase in dollars that go 
to service-disabled veteran-owned small business contracts. We 
have had a sevenfold increase in percentages. We have had a 
fourfold increase in the number of service-disabled veteran-
owned small businesses with which we contract. And because 
Chairman Nye told me he would do this when I last saw him in 
October, I want to mention that the Department of Defense, as 
Chairman Nye has said, has done very well with our Recovery Act 
dollars to service-disabled veteran-owned small businesses to 
the tune of $157 million, which is a lot of work. But we 
understand we have a long way to go, and we are working to 
improve our performance.
    We had an effort several years ago to get more service-
disabled veteran-owned small businesses in CCR. We have done a 
great deal of outreach. We have tried to put in place special 
emphasis within our contracting officers on certain contracting 
with service-disabled veteran-owned small businesses. We did 
work with our Mentor-Protege Program. We probably, to be honest 
with you, have picked the low-hanging fruit, and so now we have 
turned to as much detail analysis as we can in order to 
understand better the service-disabled veteran-owned small 
business world so that we can take better advantage of it.
    We were interested to find that the service-disabled 
veteran-owned small businesses tend to cluster around three 
areas of contracting. The biggest are the category which is 
general, but is services; professional, scientific, and 
technical services. Forty-two percent of the dollars that the 
Department of Defense sees go to service-disabled veteran-owned 
small businesses are in this area. Twenty-four percent of all 
of our contracts with service-disabled veteran-owned small 
businesses, 24 percent of the dollars, are for construction, 
and 11 percent are for administration, which means--
administration meaning the sort of clerical people, for 
example.
    With 77 percent of our contracts with service-disabled 
veteran-owned small businesses clustered in three areas, it 
means that we reach a saturation point, and what we must do is 
start focusing on the other areas. We are performing further 
analysis right now so that we can do a better job.
    We have been concerned about the Government Accountability 
Office report. We have taken steps to deal with it. We don't 
like fraud either, and our inspector general is doing a report 
which we expect to have concluded in December. I have spoken 
with the suspension and debarment people. They think it is a 
good idea to have us pass the word better, and they are 
interested in coming in to help. Additionally, we believe that 
we need a sort of a "just in time" training for the limitations 
on joint ventures, because there seems to be--the problems seem 
to cluster there.
    My time is up. Thank you so much for holding this hearing.
    [The statement of Ms. Oliver is included in the appendix.]
    Chairman Nye. I would now like to recognize our second 
panelist, Mr. Tim Foreman, the Small and Disadvantaged Business 
Department in the Department of Veterans Affairs. The office 
provides outreach and liaison support to businesses concerning 
acquisition-related issues, and also monitors the VA's 
implementation of procurement programs.
    And I didn't mention this at the outset, but everybody is 
going to be on a 5-minute clock. If you have a couple more key 
points to make at the end of the 5 minutes, I will be a little 
bit lenient, but we have a lot of folks today, so we are going 
to try to ask you to use that as a guideline.
    Mr. Foreman.

                  STATEMENT OF TIMOTHY FOREMAN

    Mr. Foreman. Good morning, Chairman Nye and distinguished 
members of the Subcommittee. It is a pleasure to be here to 
represent the Secretary of the VA, Secretary Shinseki. I feel 
compelled to tell you, after being there for just 6 months--and 
this is my 6-month anniversary at the organization--that the 
Secretary runs a very tight meeting. He is a terrific leader. I 
have been around the government for 38-plus years. I have never 
met a more interested individual, especially in veterans, 
veterans of all types, to include business issues. And he 
continually raises things he wants to do more to ensure that 
businesses stay in business when the vets come out, and he is 
concerned about even people in the Armed Forces making 
decisions, or not making decisions and just leaving the 
military, without having a strategy. What are they going to do 
when they get out? He is concerned about education, concerned 
about health and welfare. And we think we are the win-win 
solution.
    Our first name is "Veterans," so it is only natural that we 
have veterans to work for us in filling our requirements for 
products and services. One of the issues that we talk about, I 
want to thank Congress for the passage of 109-461. It has given 
us the ability to jump, increase our dollars and percentages. 
And I will give you just a quick example.
    Back in 2005, we were at 1.3 percent to service-disabled 
veterans. As of this year to date, we are at 18.4 percent to 
service-disabled veterans, over 1 billion, 700 million. We 
suspect we are going to break last year's record on dollars, 
which was 2.3 billion.
    Just another little hint of success. In the ARRA money, we 
are at about 82 percent spend rate right now, of which small 
business is 83 percent, and our veteran-owned small business 
are 80.6 percent, and service-disabled veterans at 79.5, or, if 
you will, 700-plus million of the 882 million. I think 
significant efforts have gone.
    Let me get into, if you will, some of the issues we face 
over in the VA. We do have this unique legislative authority, 
which I again thank you. As a veteran myself, I enjoy working 
with the veterans and the veterans groups. We do look at 
verification. We have a system, a database, that we use. It is 
a VIP, vender information page, that we use to identify 
veterans, service-disabled and regular. We have two types of 
folks that appear on that database: self-certified, they come 
in, they say they are, we accept them and put them on the 
database; and the verified firms, those that have a special 
seal. We actually go through the verification process.
    When I came on board, there were some problems. I think 
even in the GAO report, one of the verified firms that was 
challenged and found not to be a service-disabled veteran was, 
in fact, verified within our database. But we weren't calling 
for complete data. So the first thing I did is I said, wait a 
second, we have got to stop this. We have got to ask for all 
the data we need. And it is going to slow down the process, but 
in the interim it is going to be good. It is going to be good 
for the government. So that is one of the things that we did.
    We are actually moving the backlog around a little bit. We 
are working it down. We have taken action by taking away from 
CVE ancillary programs right now until we take that hill, and 
we want to reduce it down to zero.
    I am currently the person who makes decisions on all 
protests right now. I am the adjudication official and the 
final authority within the VA, and I do that. When I do it, it 
has to go through general counsel.
    Another issue that we want to talk about is we are standing 
up a debarment committee. I volunteered to be part of that 
debarment committee. I figure, since I am the top-level person 
in the VA for this program, I want to make sure that nobody 
steals valor from our true veteran heroes. So I am going to be 
that. And not only that, they turned around and said, would you 
be interested in being the chairman? We think you are the right 
person. And I said yes. And the Secretary thought that was a 
great idea.
    I have got 30 seconds to go. I have got so many things I 
want to say. But I think we have done a good job. I think we 
have got a good system. Is it perfect? No. We are going to work 
until we get it right. But remember, one thing we always want 
to remember, I try to keep the barriers to entry low because 
you don't want to keep out valid service-disabled veterans 
because you raised it too high. But you have to raise it up a 
little bit to keep out those that are going to steal valor, and 
we want to keep it just high enough.
    So, with that, thank you very much. I look forward to your 
questions.
    Chairman Nye. Thank you, Mr. Foreman. I will give you an 
opportunity during the questions and answers to elaborate on 
that committee. I would like to hear more about that.
    [The statement of Mr. Foreman is included in the appendix.]
    Chairman Nye. Let us go on to our next panelist. Mr. 
Anthony Martoccia is the Director of Contract Operations for 
the Federal Emergency Management Agency. Mr. Martoccia is 
responsible for awarding and administering $2 billion in 
contracts to support FEMA. He is also responsible for providing 
acquisition support for all FEMA programs.
    Thank you for being with us.

                 STATEMENT OF ANTHONY MARTOCCIA

    Mr. Martoccia. Good morning, Chairman Nye and members of 
the Subcommittee on Contracting and Technology for the House 
Committee on Small Business. I am Tony Martoccia, chief of the 
contracting office at FEMA. I appreciate the opportunity to 
appear before you today to discuss FEMA's engagement with the 
private sector, in particular with service-disabled veteran-
owned small businesses, and to specifically address FEMA 
contracts cited by the GAO as part of its case study on 
service-disabled veteran-owned small businesses in October 
2009.
    Today I will provide an overview of SDVOSB program data 
outlining how FEMA engages small businesses owned by service-
disabled veterans, and how we worked to meet the 3 percent goal 
and the award of FEMA acquisition set-asides for competition 
among those companies and researching those that are not 
SDVOSBs.
    The SDVOSB program is intended to honor the extraordinary 
service rendered to the United States by veterans with 
disabilities incurred during active service with the Armed 
Forces. The Veterans Benefit Act of 2003 established the SDVOSB 
program to provide Federal contracting assistance to those 
concerns. Contracting officers may set aside acquisitions to 
any small business concern controlled and owned by one or more 
disabled veterans. Executive Order 13360 requires Federal 
procurement officials and prime contractors to provide 
opportunities for these firms to increase their Federal prime 
and subcontracting to those firms owned by service-disabled 
veterans.
    In order to advance FEMA's efforts with SDVOSBs, the Agency 
has designated a full-time small business specialist whose 
primary responsibility is to increase contract opportunities to 
small businesses. We are working hard to meet the 3 percent 
annual goal with SDVOSB businesses, and I am pleased to report 
FEMA is currently at 2.65 percent of prime contracts awarded to 
those companies. We have more work to do, but FEMA is making 
strides and working with that community.
    I have reviewed the October 2009 GAO report which was 
undertaken by GAO to review the SDVOSB procurement program to 
determine whether cases of fraud and abuse exist within the 
program, and whether the program has effective fraud-prevention 
controls in place. The report cites two cases in which FEMA 
contracts were reviewed. FEMA takes the findings from the 
report very seriously, and, as a result, FEMA is considering 
many initiatives that would prevent future incidents of fraud, 
including awareness training for contracting officers, contract 
specialists, use of FedBiz to assist in the verification 
process, and the requirement for submission of VA certification 
by the successful offeror before final award.
    I thank the Subcommittee for your consideration of my 
opening statement, and I look forward to answering questions.
    Chairman Nye. Thank you. Thank you for joining us. When we 
get to the Q and A, I am going to ask you to elaborate on your 
awareness training for contracting officers, because I would 
like to hear about how you do that.
    [The statement of Mr. Martoccia is included in the 
appendix.]
    Chairman Nye. Let us go ahead on to our next panelist, Ms. 
Jeanette Brown, the Director of the Office of Small Business 
Programs in the Environmental Protection Agency. The Office of 
Small Business Programs advocates for small businesses, 
socioeconomically disadvantaged businesses, and minority 
academic institutions.
    Ms. Brown, thank you for being here.

                 STATEMENT OF JEANETTE L. BROWN

    Ms. Brown. Thank you.
    Chairman Nye, members of the Subcommittee, thank you for 
providing me the opportunity to appear before you today to 
discuss the Environmental Protection Agency's performance with 
service-disabled veteran-owned small businesses.
    At EPA, the mission of the Small Business Program, OSBP, is 
to support the protection of human health and the environment 
by advocating and advancing the business, regulatory and 
environmental compliance concerns of small and 
socioeconomically disadvantaged businesses and minority 
academic institutions, including efforts to ensure that the 
Agency meets its goals with respect to service-disabled 
veteran-owned small businesses.
    The Agency's commitment to service-disabled veteran-owned 
small businesses is strong, very strong. The Agency's 
progression towards meeting and exceeding the 3 percent 
service-disabled veteran-owned small business goal has been 
steady since 2003, with increases each year thereafter. The 
Agency has exceeded the 3 percent service-disabled veteran-
owned small business goal for the last 3 years and is on target 
to continue this pattern of success for fiscal year 2010.
    In January 2006, the EPA Office of Small Business Programs 
implemented a plan to manage and measure efforts to improve our 
performance and meeting our small business goals in all 
socioeconomic categories, including service-disabled veteran-
owned small businesses. The plan includes the following 
elements: a clear communication from the head of the Agency 
reinforcing the importance of meeting our small business goals; 
internal small business performance measures; consistent 
dissemination of data from the Office of Acquisition Management 
tracking regional and program offices' progress on a quarterly 
basis; internal and external outreach and training by the small 
business program on the utilization of small businesses; and an 
internal recognition program which provides visible recognition 
for those offices and regions meeting their small business 
performance measures.
    Our strategy has made a tremendous difference in increasing 
the Agency's performance in striving to meet all of our 
socioeconomic goals. Our most significant achievements are in 
the area of service-disabled veteran-owned small businesses. 
EPA has been recognized by the Veteran Administration's Center 
for Veteran Enterprise for its commitment and service to 
service-disabled veteran-owned small businesses, and EPA has a 
proven track record for awarding multimillion-dollar contracts 
to service-disabled veteran-owned small businesses.
    In October 2008, we awarded a $100 million contract to 
Vision Technologies, a service-disabled veteran-owned small 
business in Glen Burnie, Maryland. That contract supports and 
manages several Agency network services' voice and data 
networks and information technology security. In February 2010, 
we awarded a $20 million remedial action contract to Los Alamos 
Technical Associates, Inc., a service-disabled veteran-owned 
small business located in Ohio. Under this contract, it 
provides for environmental and engineering support services in 
EPA's remedial planning and oversight activities in New York, 
New Jersey, Puerto Rico and the Virgin Islands.
    EPA's Office of Small Business Programs follows procedures 
set forth by the FAR, Federal Acquisition Regulations, to 
review procurement requests to ensure that small business 
concerns are fairly considered in the procurement process. 
Contracting officers within EPA's Office of Acquisition 
Management are responsible for verifying the status of vendors 
and follow FAR procedures as well regarding the vendors' 
representations and certifications.
    A preaward review. The acquisition community relies heavily 
on the Central Contract Registration, CCR, and the online 
representation and search application, ORCA, to verify the 
status of contractors prior to making the award. The 
information in ORCA is updated as necessary, but at least 
annually, to ensure that they are kept current, accurate, and 
complete. Any business working with the Federal Government 
under the FAR are required federally to be registered in CCR 
before doing work or getting a contract.
    At time of award, an award notice is posted on EPA's Web 
site to inform vendors and the public about the award. At this 
time interested parties may come forward to protest the size 
claimed by the potential awardee. These cases are then turned 
over to SBA to review and make a determination.
    EPA does not utilize an Agency database that identifies 
service-disabled veteran-owned small businesses; however, we do 
use CCR and ORCA.
    EPA follows the FAR with respect to misrepresentations 
involving contractor code of ethics, ORCA certification, and 
small business certification. If the contracting officer is 
aware of a violation, they are to engage the Office of 
Inspector General--EPA Office of Inspector General to report 
the incident and coordinate with SBA.
    EPA is proud of its support for service-disabled veteran-
owned small businesses, and we thank you very much for allowing 
us to be here and look forward to answering your questions. 
Thank you.
    Chairman Nye. Thank you very much, Ms. Brown.
    [The statement of Ms. Brown is included in the appendix.]
    Chairman Nye. I would like to introduce now the final 
panelist for the first panel, Mr. Joseph Jordan, the Associate 
Administrator for Government Contracting and Business 
Development at the Small Business Administration. In this role 
Mr. Jordan and his team are responsible for implementing the 
contracting programs contained in the Small Business Act.
    Mr. Jordan, thanks for being with us.

                 STATEMENT OF JOSEPH G. JORDAN

    Mr. Jordan. Thank you. Chairman Nye, distinguished members 
of the Subcommittee, it is an honor to testify before you today 
on the SBA's deep commitment to veteran entrepreneurs and small 
business owners. This past year our administrators made 
veterans a priority in each of the SBA's core mission areas, 
the three Cs of capital, counseling, and contracting.
    With regards to access to capital, the SBA hit a milestone 
on July 4, with nearly half a billion dollars in SBA's Patriot 
Express loans over just 3 years going to veterans, reservists, 
servicemembers, and their spouses.
    Within our counseling programs, the SBA has doubled the 
number of veterans business outreach centers to 16. In fiscal 
year 2009, we provided training to 290 contracting officials of 
5 major agencies, as well as 2,000 service-disabled veteran-
owned small businesses.
    Today I have been asked to focus on the steps we have taken 
to help veteran and service-disabled veteran-owned small 
businesses access contracting opportunities.
    As you know, the SBA works with Federal agencies to 
increase contracting opportunities for small businesses. Our 
goal is to ensure that not less than 23 percent of all eligible 
prime contracting dollars go to small businesses. Within that, 
the Federal Government has a number of additional subgoals, 
including a 3 percent goal for service-disabled veteran-owned 
small businesses.
    Agencies have made great strides in recent years. In fiscal 
year 2007, 1 percent of prime contracting dollars went to 
service-disabled vets. That rose to 1.5 percent, or $6.5 
billion, in 2008, and we expect that, based on preliminary data 
for fiscal year 2009, there will be yet another significant 
increase in both dollars and percentage.
    Still, we know we have work to do and are committed to 
ensuring that the Federal Government hits its goals for all 
small business groups, including service-disabled veteran-owned 
small businesses.
    One of the reasons we know that we can improve further is 
due to our efforts with respect to Recovery Act contracting. 
This time last year, the Vice President, Commerce Secretary 
Locke, and our Administrator made a strong interagency push to 
ensure that Recovery Act contracts were going to veterans, 
minorities, women, and other groups. We have been tracking this 
data, and I am very pleased to say that the Federal Government 
has awarded 5 percent of Recovery Act contracts to service-
disabled veteran-owned small businesses, and I want to thank 
the other agencies represented here today for their 
contributions to that accomplishment.
    Building on our success in the Recovery Act, we are 
examining which of our actions were most effective. Ultimately 
we want to identify best practices and integrate them into our 
regular day-to-day fiscal year contracting efforts. More 
recently this commitment to veteran-owned small businesses has 
been renewed by the President himself. In April, he ordered the 
creation of two task forces, one on small business contracting, 
and another on veterans business development. Today's 
discussion lies at the intersection of those two efforts, and 
Administrator Mills and I, as well as others throughout the 
administration, are working to create formal recommendations 
that should be delivered to the President in the coming weeks.
    Overall we have made progress over the past year, but, as 
the GAO reminded us last fall, there is more we can do. Our 
goal-related improvements must be accompanied by policies and 
procedures that root out fraud, waste, and abuse in this 
important program. That is why we have developed a 
comprehensive approach to rooting out fraud, waste, and abuse. 
We are collectively focused on all three stages of the 
contracting oversight continuum: certification, ongoing 
surveillance and monitoring, and enforcement. We have already 
made improvements in all three areas even when, like in the 
case of the service-disabled veteran-owned small business 
program, it operates via a self-certifying process.
    We are handling more protests than ever before, and the 
protest process is working. While the number of protests is 
increasing, the percentage of firms determined as ineligible 
through protests is declining. We are also working more closely 
than ever with the Veterans Administration, our general 
counsel's office, our suspension and debarment official, our 
inspector general, the Department of Justice, and many other 
key stakeholders.
    I should also note that the President's fiscal year 2011 
budget submission asks for $2 million that will help us with 
eligibility and certification efforts across our contracting 
programs. My commitment to you today is that we will continue 
to move forward with diligence and speed in strengthening our 
efforts to eliminate fraud, waste, and abuse.
    Finally, we share the concerns of many service-disabled 
veteran-owned small business contractors on the issue of 
parity, which is perhaps the most pressing issue facing this 
community. A recent court decision attempts to place the 
HUBZone set-aside program above SBA's other small business 
contracting programs, including the service-disabled vets 
program. If this decision were applied throughout our 
contracting programs, it could essentially redirect billions of 
dollars away from service-disabled veteran-owned small 
businesses as well as 8(a) and women-owned small firms. 
Moreover, it could create confusion within the contracting 
community, which could result in all small businesses losing 
opportunities for Federal contracts.
    That is not fair, and it wasn't the intent of Congress. 
That is why the administration supports a legislative effort 
currently under way to make the relatively simple clarification 
in statutory language replacing "shall" with "may" in HUBZone's 
language. We urge Congress to act on this issue as soon as 
possible, especially given that a large portion of contracting 
dollars are obligated in the final quarter of the fiscal year, 
and missing out on just 1 percent of contracting opportunities 
means $5 billion in lost revenues to small businesses.
    Thank you very much for your time, Mr. Chairman, and I look 
forward to your questions.
    Chairman Nye. Thank you for your testimony.
    [The statement of Mr. Jordan is included in the appendix.]
    Chairman Nye. Clearly we have got a problem here, and I am 
incensed at the fraud against our veteran business owners that 
was uncovered by this GAO report. This report was available to 
all of us 9 months ago.
    It is my assessment that agencies tend to be focused on 
target numbers and on processes. Our veteran business owners, I 
can tell you with great certainty, are concerned with outcomes, 
as am I. We owe it to the taxpayers who fund these programs to 
be able to say to them that we are sure that the money we have 
allocated to go to small business owners who are service-
disabled veterans is actually going to them in fact. The GAO 
report showed that that is not the case.
    I want to drill down on exactly what you have done since 9 
months ago when we discovered this fraud in the system. And 
everyone here represents an agency who has contracts that were 
let out who were determined to be problematic.
    I want to ask a couple of relatively simple questions, and 
I will ask each person on the panel to respond to these. And 
the first question I have is specifically what have you done in 
terms of practicing better oversight over your contracting 
officers? We know that some of the instances of fraud that were 
uncovered involved contracting officers who were very well 
aware of the problem. We know there are cases where service-
disabled veteran business owners have pointed out problems 
either through the SBA or directly to the contracting officers 
involved at the agencies, and essentially there has been no 
follow-up action taken against those companies.
    So what I would like to ask, and I will start with you Mr. 
Jordan, what specifically can you say from the SBA's point of 
view--and I am going to ask all the agency representatives--has 
been done in terms of overseeing contracting officers and how 
they work and providing training that they need to do a better 
job?
    Mr. Jordan. Absolutely. And let me first say that I 
wholeheartedly share your and the community's focus on 
outcomes. I think policies and procedures are very important, 
but they have to be aligned with the outcomes, and that is 
where the focus needs to be.
    In regards to the 10 firms that were highlighted in the 
GAO's report, all 10 were referred to 1 inspector general. One 
of the 10 was referred from the inspector general to our 
suspension debarment official. They issued a show cause letter 
to that firm, and through a series of steps determined not to 
suspend or debar that firm. The remaining nine firms are under 
inspector general investigation, a combination of our inspector 
general and inspectors general from the agencies where these 
contracts were let out, and I am not allowed to elaborate 
further on those particular instances.
    But now, moving to what are we doing about this as a 
symptomatic issue beyond just these 10 firms. Well, first there 
is outreach. So we set up an on-line training course, free, for 
how veterans and service-disabled veteran entrepreneurs could 
access these opportunities, and we are also in our outreach 
activities promoting the protest process. Like I said, if you 
look at the number of protests year over year, they are going 
up every year, which would indicate the awareness gap is 
closing, that service-disabled veteran-owned small businesses 
know the procedure when they think somebody is not 
appropriately identifying themselves. As we process those, the 
percent that we actually determine are, in fact, ineligible is 
going down. So the awareness is going up, but the actual 
unscrupulous actors you see as a percent are going down.
    On the upfront certification, we are working closely with 
VA to utilize better data and technology tools. So despite the 
fact that this is a self-certification program, we dissuade any 
bad actor from thinking that they can get in or thinking that 
it is a good idea to try.
    Then on ongoing surveillance and monitoring, one of the 
things that came after that GAO report was we identified a 
potential gap. And once we did determine a firm to be 
ineligible, they have to decertify themselves in the Central 
Contractor Registry. That is not something SBA can do. We have 
now amended our policies to say that they have 30 days to do 
so; otherwise, we refer that action to the inspector general as 
well.
    And just to give you a little context when I talked about 
the protests, we conducted 136 service-disabled veteran bid 
protests through mid-June of this year already, and that 
compares to 94 of all last year. And if you look the year 
before, it is about a 33 to 50 percent increase year over year 
again. And then it goes to rigorous enforcement.
    So I talked about the 10 firms. But we are beyond that, 
really looking at how we can work collaboratively with all law 
enforcement departments and mechanisms to ensure that when we 
do catch these bad actors, they are appropriately punished.
    Chairman Nye. One quick follow-up for you. I talk to 
service-disabled veteran-owned small businesses in my district, 
and they say that when they want to protest an award, they get 
referred by SBA back to the original contracting officer from 
the Agency, who then tells them go back to the SBA and make 
your complaint there, and they get stuck. How are you working 
to solve that problem?
    Mr. Jordan. So the typical path is that the contracting 
officer who is the point of contract for that contract is who 
they would protest with. The contracting officer would then fax 
to SBA that protest, and it would go from there. In the event 
that there is confusion--and I have heard this anecdotally. The 
problem is when I press for details, I have not gotten the 
specific instances that we can then reverse-engineer what 
happened and, in those cases, what went wrong. In the case that 
you find those, please give them to me personally, and I will 
follow up on them, because that absolutely should not be 
happening. We do not want them caught in that cycle.
    Chairman Nye. We will. We will provide them to you.
    Ms. Brown, can you please comment on oversight on 
contracting officers?
    Ms. Brown. Yes. Thank you.
    Within the office--and I am in the Small Business office, 
and we work separately and distinct from the contracts office, 
but also collaboratively together in this process of the 
procurement process. The Agency does not have a detection and 
monitoring program for firms receiving service-disabled 
veteran-owned small business contracts, but we do follow the 
FAR. We do look at the preaward process. We put and post awards 
on the Internet for dissemination so that the public will see 
it. We have found that the small business community is a strong 
advocate and watchdog, and so they do call. EPA verifies the 
status of contractors using CCR and ORCA.
    In addition to that, we work within the Office of Small 
Business Programs reviewing the acquisition packages; looking 
at the statements of work, the recommendations; making 
recommendations back to the contracting office in terms of what 
we think separate and distinct; and also working with SBA-PCR 
at the local level.
    Chairman Nye. I am sorry to interrupt you. There seems to 
be a cell phone that is going off. This would be an appropriate 
opportunity for people to check and make sure their cell phones 
are on silent, please.
    Okay. Ms. Brown, please go ahead.
    Ms. Brown. And for the contracts that are in question, the 
one that was cited in the report for EPA, that has been 
referred to the EPA IG office, and we are waiting for 
recommendations back or final word on that, and so I can't 
discuss that in detail now.
    Chairman Nye. I will give you an opportunity to follow up 
with us after this hearing in writing with some detail about 
what actions your Agency is taking to solve the problem.
    [The information is included in the appendix.]
    Chairman Nye. Mr. Martoccia, please.
    Mr. Martoccia. Thank you.
    We have a pretty robust review system for contracting 
officers. We go through a preaward process when procurement 
strategies are being developed. We work with our Small Business 
Office, a person like Jeanette, and we discuss what strategies 
to use. And we train. We have a good career development program 
and training program for our contract specialists and 
contracting officers.
    In our particular case we need to be more diligent at the 
time of solicitation award to assure ourselves that these 
companies who are certifying the particular socioeconomic 
program, including disabled veterans, that they are, in fact, 
owned by the service-disabled veterans. So we are making it a 
point, through myself and my boss and through my branch chiefs, 
that at the time of solicitation and award, that we are 
thorough and deliberate review of the qualifications to make 
sure that those companies are, in fact, qualified to bid on 
those solicitations.
    Chairman Nye. Mr. Foreman.
    Mr. Foreman. One of the things I would like to caution 
everybody about when we think about fraud, a lot of folks that 
we deny verification is really not because of purposeful fraud. 
It is they don't understand that it is not only the status 
fraud, i.e., I am a veteran or a service-disabled veteran, and 
I am not, that would be a status fraud; but part of status 
fraud, the harder part, is total ownership and control, and a 
lot of folks don't do that with their paperwork. So there is--
and I can term it innocent fraud, but there are people that 
make mistakes, and they do change, and they do reapply and get 
verified. So I am very hesitant to condemn everybody who runs 
into that problem, because there are legitimate service-
disabled veterans who don't understand the process and will do 
things wrong.
    In terms of what do we do, one of the things that we did 
when we first heard about it--and I think I had the pleasure--I 
think I was there about 2 weeks and had to testify on the House 
Veteran Affairs Committee, took the 10 firms, referred them 
over to our IG to see if there were other things that we could 
do, what kind of penalties can be placed on them, et cetera, 
if, in fact, they were true bad actors.
    The other things that we did, we do a lot of our own right 
now--I am trying to give it over to Joe Jordan, but the 
protests. So I actually do work on the protests, and I am the 
adjudicator for those kind of things. So when the protests come 
in, you get a file about that thick versus when we do a 
verification, that is only about that thick. So you are talking 
about 2 inches to 5 inches. We do a lot of background checks. 
We do what they call site visits, unannounced and announced, to 
ensure that the right things are going on. We get a very good 
report.
    We are in the process of tripling our contract support to 
go out and look at these contracts. We have also expanded our 
employees, the full-time equivalents. We are starting to fill 
the office with more folks. We are finding that it is a lot 
better in that regard.
    Also, teaching. Like in the old infantry days, command, 
control, communication, and intelligence. If communication 
doesn't work, none of those work. You don't have control if you 
lose communication, you don't have command, and you don't have 
intelligence.
    So part of it is me going out and talking to the veteran 
committees and communities, making them understand the critical 
but the most difficult part for us to judge is control of a 
business and total ownership of a business. You don't have a 
board of directors that can outvote you. And that has been one 
of those little things that we have.
    So, again, we have to be careful of how high we ramp up to 
guard against allowing legitimate firms in, but we have to 
guard against it. I am, like I said, going to be the debarment 
chairperson, and in that role we are going to look at 
protecting the government's interests. It is in the best 
government's interests that we keep people who are not who they 
say they are out of doing business with the government, and so 
we will do that.
    Chairman Nye. Thank you.
    Ms. Oliver, the same question about the contracting 
officers. At least one of the cases involved an Air Force 
contracting officer who was shown to have been aware of the 
fraud going on. I know, as the DOD small business oversight 
person, you have to work with the each of the individual branch 
contracting folks. Can you talk to us about changes that are 
being made to prevent that from happening?
    Ms. Oliver. Yes, I can. And let me start with the most 
general way that we are trying to prevent this sort of thing 
from happening.
    We need to figure out the extent of this problem and the 
nature of the problem. Tim has a really good point that at 
least in the cases--our two cases, as I started to dig through, 
there was some ignorance on the part of these service-disabled 
veteran-owned owners, but they weren't--I would--it is not for 
me to judge, and the cases aren't finished, but there is, as a 
minimum, another side to explaining all this. And we need to--
that is two--I told you earlier that we are--in 2009, we 
contracted with 3,164 different service-disabled veteran-owned 
small businesses. The IG has looked at two.
    Now, the caution, we can't say, well, 2 out of 3,164, that 
is a nonexistent problem. I understand. They only looked at a 
few. But we need to see how extensive it is. And our inspector 
general has been working, gathering data, analyzing data to 
figure out how big is this problem?
    The contracting officer that you were talking about would 
say to you, as he has said to me, that there was at least a 
failure to clearly communicate or a certain inaccuracy. He took 
the spanking, which he would say was not completely accurate 
and, I am happy to say, moved forward to say, what can I learn 
from this? What can we do differently? And that contracting 
officer has instituted a system of market research which will 
ask pointed questions to the owners of the service-disabled 
veteran-owned small businesses so that they will understand 
better what the rules are.
    I think one of the things that comes out of this is we need 
to do--my office needs to do specific "just in time" kind of 
training of contracting officers and of service-disabled 
veteran-owned small businesses so they are very clear about 
what exactly are the limits of the joint ventures. These are 
pretty frequently joint venture problems. In other words, it is 
not veterans saying, I am disabled, when I am not. That appears 
to be the case. It is not people posing as service-disabled 
veterans. It usually involves a veteran who has, in the cases 
we have been able to look at, misunderstood.
    With me today is the poor guy who is going to get to put 
together all this training.
    Chairman Nye. Let me interrupt you for just 1 second, 
because I am not sure I understand what you are saying.
    Ms. Oliver. Okay.
    Chairman Nye. What I am hearing is that the problem here 
was ignorance on the part of the service-disabled veteran 
business owner, and not a problem with the contracting officer, 
despite what the GAO report said. So are you disputing the 
findings of the GAO report?
    Ms. Oliver. Yes.
    Chairman Nye. Okay. Because the report found that there was 
a relationship between the contracting officer and the 
subcontracting business owner that received a contract. So I 
just want to make sure that we are all clear and that we are 
talking about the same case.
    Ms. Oliver. I would be so happy to have the contracting 
officer--let us see. The most important thing is we learned 
from--we learned the lesson. And we have learned the lesson.
    Chairman Nye. I agree with that, that the most important 
thing is that we learn the lesson. But if we don't agree on 
defining of the problem, it is difficult for us to say that we 
agree that we learned the lesson. I am going to follow up with 
you in just a minute--
    Ms. Oliver. Okay.
    Chairman Nye. --because I am having a hard time 
internalizing your response on that question, because now it 
seems like we have backed up a step in terms of whether we are 
looking at whether the GAO report was actually accurate, and we 
can move on to solving the problem, if we agree on that or we 
don't, and now it sounds like we are back another step.
    We are going to have to vote in a few minutes. I want to 
offer an opportunity to Mr. Schock to ask any questions before 
we go to vote, and then we are going to come back after the 
votes, and I want to reconvene with the same panel and follow 
up with you.
    Ms. Oliver. Okay.
    Mr. Schock. Thank you, Mr. Nye. I am actually going to 
yield my time to my good friend Dr. Bartlett, who has another 
commitment at 11:30, and so he will not be able to return, so 
he can ask his questions. I will be back and then take Mr. 
Bartlett's time.
    So, Dr. Bartlett, please go ahead.
    Mr. Bartlett. Thank you very much.
    We have had hearings in this Subcommittee and full 
Committee on fraud and HUBZones and this program. And the real 
surprise would have been that there were no frauds, because 
what we did here was to ask these people to self-certify. We 
should have had some pangs of conscience when we repeated the 
Lord's Prayer and came to that part of it that said, "Deliver 
us from temptation." How can we ask the Lord to deliver us from 
temptation and put this kind of temptation in front of these 
people?
    And we here at this dais should have had some pangs of 
conscience, too, because we didn't give you enough money to do 
the policing of this that we should have given you. If you look 
at the amount of money we gave the 8(a) programs, it was 
enormously more in terms of percentage than we gave these two 
programs.
    So the real surprise would have been that there were no 
frauds. And I hope that there is some pangs of conscience when 
you repeat the Lord's Prayer and you come to that part that 
says, "Lead us not into temptation." What right have we to 
place these people in this path of temptation?
    Have we now given you enough money that you can adequately 
police these programs? Or should we still have some pangs of 
conscience when we repeat the Lord's Prayer?
    Mr. Bartlett. Do you have enough money now to police the 
program? We didn't give you enough money to police the program, 
and that was obviously true in the HUBZone programs, and I 
gather it was true in these programs, too. Do you now have 
enough money to police these programs?
    Mr. Martoccia. Speaking from FEMA, I think we have enough 
money. I think it is making sure that the contract specialists 
and the contracting officer understand that these companies 
have to make sure that they verify their status. It is a simple 
thing to do. I think in our case, I think it was an oversight.
    Mr. Bartlett. We have to run to vote. I just want to make 
sure, if you don't have enough money, please let us know, 
because we don't want to be a part of the problem. If we 
haven't given you enough money, then we need to give you enough 
money so you can police these programs.
    Mr. Jordan. Congressman, one thing I would add is that in 
the SBA's fiscal year 2011 budget, the President requested an 
additional $2 million specifically for rooting out fraud, waste 
and abuse in the contracting programs, and that would be a very 
helpful funding source for us.
    Mr. Bartlett. It would have been nice if we gave that money 
to you early on, and so we wouldn't have had to sit hear 
listening to these cases of fraud, waste and abuse. If you had 
enough money to police the programs, we wouldn't be here.
    Thank you very much. We have to run to vote.
    Chairman Nye. There is apparently one vote, so I will ask 
the panelists to remain in place until we return.
    [Recess.]
    Chairman Nye. I am going to reconvene this hearing.
    Ms. Oliver, I wanted to follow up with you on a 
conversation we were having before we broke. Before we 
recessed, you said while the small business owner in question 
in this Air Force contract case might not have been completely 
educated on the requirements of the program, there was no 
attempt by the contracting officer to intentionally violate the 
law. I want to make sure that was your statement?
    Ms. Oliver. That is my statement.
    Chairman Nye. Okay. This is what the GAO report said. In 
the report it said that the base director of contracting and 
legal counsel who approved the award had a prior working 
relationship with the service-disabled vet owner on the base, 
and it found that the contracting officials were aware of the 
service-disabled veteran owner's limited involvement in 
performing the contract. Also, when the contracting officer was 
deposed by the Committee staff, he confirmed that it was indeed 
a Federal employee that worked there, and that an entity other 
than the service-disabled business that was awarded the 
contract was going to provide the service.
    What I need to know, given the fact that agencies have an 
opportunity to dispute the GAO findings when they are first 
reported, and, as far as I can tell, the DOD did not, I would 
like to know if you are disputing that finding, or whether you 
are prepared to accept the finding, and then we can move 
forward.
    Ms. Oliver. I need to have you tell me exactly which 
finding?
    Chairman Nye. It is a $900,000 contract that was let under 
an Air Force contract at McDill Air Force Base.
    Ms. Oliver. Yes, I agree with that.
    Chairman Nye. Okay. So what I need to know is are you 
disputing the GAO finding that was in the report?
    Ms. Oliver. On the McDill discussion, I agree with some of 
the things that are in that discussion. I think some of the 
conclusions are conclusions that aren't completely, at least in 
the report--don't explain why they came to those conclusions.
    Chairman Nye. Do you know why DOD hasn't presented an 
attempt to refute the GAO finding until now? Because there is 
an opportunity in the GAO report process for the agency to say 
they don't agree with the finding.
    Ms. Oliver. I don't know whether this went to McDill, 
whether this report went to McDill before.
    Chairman Nye. The reason I am asking you, I am surprised at 
your response, and I want to make sure that I understand 
whether or not you are saying that essentially--and what I 
heard was the problem here was ignorance on the part of the 
service-disabled business owner and not responsibility on the 
contracting officer to have seen the problem and taken action 
to prevent this contract from being wrongly awarded.
    Ms. Oliver. Here is what the contracting officer would 
probably say to you: I didn't know enough to ask enough 
questions; I didn't know enough about joint ventures with 
service-disabled veteran-owned small businesses to ask the 
questions which would have made that potential contracting 
officer give me the information that would have kept this whole 
thing from happening.
    That is the reason I said earlier he has put into place a 
system to make sure--the head of contracts--to make sure he and 
other contracting officers ask the questions that would have 
brought the facts out that would have prevented awarding a 
contract to a joint venture which--where, in fact, the service-
disabled veteran-owned small business owner didn't have 
control.
    Chairman Nye. The reason I am pressing you on this point is 
because in this case it was the contracting officer who saw the 
paperwork and the plans submitted that clearly showed there was 
a problem, and went ahead and issued the contract anyway. That 
is what the GAO report found. Now, rather than relitigate that 
today--and the reason I raise this is because I want to make a 
couple of key points. I don't agree with your assertion that 
essentially the essence of the problem is ignorance on the part 
of the service-disabled veteran business owner. I don't agree 
with your assertion that the fact that there were a small 
number of cases total investigated by the GAO implies that 
there is a relatively small problem out there. To my mind, it 
implies that there is a much larger problem we have barely 
scratched the surface on.
    So if we can agree on those points, I will tell you one 
thing I do agree with that you said. You concluded by saying 
your office needed to do a training program, better oversight 
over the contracting officers to make sure that they understand 
the importance of why we ask for a goal for service-disabled 
veteran-owned businesses and how to make sure that happens in 
fact and not just on paper. I agree with that assessment. What 
I am disappointed in is the fact that 9 months after the GAO 
showed fraud, we are still back at the same place we were 9 
months ago saying we need to do more going forward.
    Ms. Oliver. I don't think we are.
    Chairman Nye. Okay. This is your opportunity to show me 
what you have done in the last 9 months to help solve that 
problem.
    Ms. Oliver. Our inspector general has worked, and we hoped 
this would be--when I heard about this hearing, I said, is 
there any way you can move this through faster, because our 
inspector general has spent a lot of hours, I have talked to 
the people involved, in looking at the extent of the problem 
and what can be done about the problem.
    You may very well be correct that this is the tip of an 
iceberg. I don't know. But I do think that there is a whole 
bunch of failure to understand in all of this, because I just 
hardly ever meet a contracting officer who wants to disregard 
the rules. More frequently they, DOD contracting officers, are 
very knowledgeable, but when it comes to small business, it is 
an area that they need to know more. We work on that all of the 
time. I think most contracting officers would say that to you.
    Chairman Nye. I think I agree with your assessment that 
there is a failure to understand among many contracting 
officers of how to stop fraud in the system. What I don't feel 
satisfied with is that we are not further down that chain, as 
we ought to be, given the fact that we have known about this 
for almost a year.
    Let me move on to another question, and I want to talk to 
you about consequences. We recognize, as Mr. Foreman pointed 
out, that there is a challenge in trying to ensure that 
contract dollars are awarded appropriately; that business is 
done and transacted in a way that gets done, the business of 
the government is done on behalf of the taxpayer, and at the 
same time there are appropriate protections to ensure at the 
front end that we know who signed up and said they are a 
service-disabled veteran, and we can certify that they really 
are; that there is a process in the middle to check and hear 
complaints and follow up on them; and that there is a 
consequence at the end of the day for someone who commits 
fraud. I am not satisfied that that system works, and the 
reason I am not satisfied is because of what the GAO report 
showed.
    We have to figure out how to solve this, and this is what 
we are asking you to do. I am going to start with Mr. Foreman, 
because you mentioned you set up a special commission for 
debarment within the Veterans Administration, and I would like 
you to describe succinctly, please, how your committee works 
and how do you think this will solve the problem in terms of 
presenting consequences which will change the system and change 
the calculus for those who would defraud our veteran business 
people?
    Mr. Foreman. Chairman Nye, you really nailed it on the 
issue of consequences. What we will look at is every denial, 
where we deny a verification to a veteran-owned firm. We will 
forward that both through the IG for the VA and to the 
committee which I am the chairperson of. We will look to see if 
it is just a knowledge factor where somebody made a mistake, 
and usually it happens in the ownership and control arena, what 
we call the status fraud arena.
    And if it is a simple thing, we can push it off and say, 
you can resubmit. If we find that there is actual fraud where 
they are working with somebody's brother, or they are not even 
at the facility--we have had that happen. You would be 
surprised how many people come in, sit down, and this is the 
veteran, the president and CEO, and the other guy or lady talks 
to you. You really want to have the fraud barometer very low. 
You don't want to have it high. When they get around 49 to 51 
percent ownership, that drives us into what we call a risk 
factor.
    What we need to do is, of course, really get into the 
debarring mode. Once that happens, I think you are going to see 
a lot of the fraud fall away. We want to make sure that we 
capture the guilty, not the innocent, and that is going to 
happen. We have already processed--we have 57 in house. I have 
already administered 23 of those, most of which we sustained 
the protest; i.e. we found there was fraud. So all of those go 
to the IG automatically, and it is automatically going to go 
over to the committee for the debarment.
    Chairman Nye. I appreciate your explanation on that. I want 
to ask, voluntarily are there any other agency representatives 
who would like to describe similar actions that their agencies 
have taken in terms of pursuing debarments since the GAO report 
came out in November?
    Mr. Jordan. If I can respond.
    Chairman Nye. I want to offer the other agencies an 
opportunity to respond.
    Noting none, Mr. Jordan from SBA.
    Mr. Jordan. I had the opportunity to speak with an SBA 
suspension/debarment official during the short break, and one 
of the things that he suggested I highlight is since this 
report we have developed regulations which are now going 
through the process that would allow SBA, when we receive 
credible information that a service-disabled veteran-owned 
small business may not be who or what they say they are, SBA 
can demand that that firm prove its eligibility. And if we find 
them ineligible, then we remove them from CCR and pursue those 
enforcement actions, as opposed to the process now, which I 
outlined before, which does originate with the contracting 
officer as the point of contact for a contract. We hope that 
will further allow us to do that.
    You talked about the continuum, to add another tool into 
that continuum. One other thing on the back end that SBA has 
been pushing, you talked about enforcement and consequences, is 
that currently, as Dr. Bartlett mentioned, the government 
contracts for 100 chairs, gets 100 chairs for the price it 
paid, and so the Department of Justice, when we ask them to 
prosecute, will say there was no harm to the government. There 
is legislation that has been discussed that would remove the 
value to the government from the equation when the contract or 
procurement was received or awarded under fraudulent 
circumstances.
    So those are things that we are aggressively trying to 
think proactively beyond the tools that we already have at our 
disposal.
    Chairman Nye. One more question before I yield to Mr. 
Schock.
    I would like to know, again voluntarily, if any agencies 
can tell me, 9 month point since the GAO report showed evidence 
of fraud in this program, which agencies have suspended active 
contracts, suspended businesses that were found to be 
fraudulent underneath that program?
    Mr. Foreman.
    Mr. Foreman. Through the protest process, we have 
suspended, in terms of the debarment--not debarment, but in 
terms of the protest, if we have found that they are not 
verified, we refer them to the IG and to the debarment 
committee. The debarment committee is brand new, but it is 
going to happen. There are a lot of other little issues that 
get involved.
    We also do--in just the straight verification, we do 
denials. Every time we do a denial, that goes through our 
general counsel's office. So when we deny, probably in the 
neighborhood of maybe a couple hundred we have denied over the 
course of the years.
    Chairman Nye. My question is more about suspension. I 
understand that debarment is a tool, and it does take time to 
go through a process. Suspension can be done quickly. Have any 
of these cases resulted in a suspension? Has this GAO report 
resulted in a suspension of any of the immediate contracts?
    Mr. Foreman. Not to my knowledge. In fact, the statute for 
109-461 mentions the debarment committee, but it doesn't 
mention suspension.
    Chairman Nye. Thank you.
    I note no one else has raised their hand as well. I have to 
admit, I am disappointed to hear that. The reason why I wrote 
the law I wrote, which provides for criminal penalties, is 
because we have to have consequences in place. I think one of 
the first consequences ought to be a suspension of the 
contract.
    I yield to Mr. Schock.
    Mr. Schock. Thank you, Chairman Nye. Again, I appreciate 
you holding this hearing. I would ask unanimous consent that my 
opening remarks be submitted for the record.
    Chairman Nye. Without objection, so ordered.
    [The statement of Mr. Schock is included in the appendix.]
    Mr. Schock. The GAO report focused on a lot of things. One 
of the things that was of concern to me was the whole purpose 
of these preferences is to try and help out the specific 
demographic that we are trying to help out. One of the things 
that the GAO highlighted that I think raises an additional 
concern, in addition to the fact that we are not meeting the 
threshold, is that the percent that are supposedly being helped 
oftentimes are a front man, if you will, or a front lady for 
basically garnering that set-aside only for the money, the 
business. The contract can then be handed off or subcontracted 
to much larger entities.
    So I guess my question is we rely right now--or the way the 
rules are written are that we rely on other small businesses to 
cry foul, other small businesses to somehow know about the 
unfairness of those practices, to report. And I guess my 
question would be perhaps the agencies themselves who are 
awarding the contracts to these small business set-aside 
preferences should be the ones to follow up and verify that, in 
fact, it is small business people who are doing the work 
because your agencies are the ones who know what work is to be 
provided. Your agencies, your folks letting the contracts and 
awarding the contracts are the ones who have the relationship 
with the small business, so doesn't it make sense that your 
agency verify that, in fact, the work is all being done by 
these set-aside contractors as opposed to saying, well, we are 
going to award the contract, close your eyes and not open until 
someone screams foul?
    As a small business person myself, I will tell you that 
unless I catch wind of it somehow, I don't know when another 
small business person in my community gets awarded one of these 
contracts. And so if they go out and are basically a shill and 
sub it out to a bunch of large corporations, I am not going to 
know, first of all, that it happened and, second of all, who to 
contact within your agency to let you know that there is a 
problem, and that they are skating the system.
    So the point is my question is why don't you within your 
respective agencies take it upon yourself to be responsible for 
policing these efforts? Any of you? All of you?
    Mr. Foreman. I will give it a little bit of a shot here. We 
call that process fraud, and process fraud is one of the harder 
ones to catch because, as you noted, it is after contract 
award. It is postaward. The contractor promises up front here 
are the deliverables; here is how I am going to do it. You 
actually do preawards, and you actually do postawards when you 
are talking to the contractor: Remember, you have this that you 
have promised that you are going to do. It is called the 
subcontracting limitation, and the contractor doesn't live up 
to it, but they don't tell you that. If they did, you know, the 
show would be over right then. I am sorry, we are going to have 
to pull this award back and resolicit. But that doesn't happen. 
Generally the business will say--and, again, it is a hard one 
to catch because it is after award--how many contractors and 
contracting officers do you have, where are the businesses 
located, and how do you trace it down?
    I am not making excuses for them, but it would cost a lot 
to really police that. And the more that I have learned from 
this last 6 months here in my job, I look back, it could be a 
HUBZone problem, it can be a small business problem, it can be 
a woman-owned business, or an 8(a) problem. As a matter of 
fact, the first time it came to me in my career, it was an 8(a) 
problem. It wasn't even the 8(a) company was shipping the 
products. And the only reason we found out about it, the 8(a) 
stopped paying the subcontractor, and he complained to us. That 
is when I worked for DOD. It was a defense construction supply 
agency issue.
    That has happened, and I guess, to me, it is probably the 
dirty, lingering area, how do you catch it all. We have 40 
people, but my people are physically in D.C. What you need to 
do is have some sort of a centralized process where we can go 
out and verify small businesses. Where are they? If they do 
progress payments, it is fairly easy, by the way. I used to be 
a price analyst, and you can really challenge it, because you 
go to the engineer, they will tell you how much is done, where 
it is and who is doing what. But if it falls out of that realm, 
it is tough.
    I probably left more questions than answers.
    Mr. Schock. I asked two follow-ups. Any of you can answer.
    First, beyond them guaranteeing the deliverables that they 
are signing up for that you are awarding them for, specifically 
what do you have in that contract that then they are--in 
addition to signing that they are going to be doing 
deliverables, but they are also signing that they are, in fact, 
going to be the ones producing the product?
    Mr. Foreman. It is called the subcontract limitation 
clause. That clause requires any small business preference 
program, that they have to do 50 percent construction. There 
are two types of construction. It is either they have to do 15 
percent or 25. All other programs are 50 percent or more.
    The uniqueness to service-disabled veterans, they can make 
that subcontracting limitation working with other veterans. So 
if two veterans get together, one is a sub and one is a prime, 
and they do over 50 percent of the effort, that is legal. That 
is also true of the HUBZone program, a HUBZone or any other 
HUBZone program. The rest of the government, that firm has to 
do that percentage.
    Mr. Schock. My second question would be, you know, each 
agency is different. I know one of the concerns at the 
Department of Defense I always hear, a lot of our products we 
need manufactured, small businesses themselves can't produce. 
They don't have the capital. What we need, small businesses by 
nature can't produce in volume.
    Aside from being a veteran, aside from being one of these 
demographic qualities that then qualify you to apply for that 
set-aside contract, what do your respective agencies do to 
verify that, in fact, it is a company that can produce the 
product that they say they are competing for? In other words, 
if I am a woman, or I am a minority, or I am a veteran, and I 
can show proof that I am an X-owned company by virtue of me 
filling that category, and I say that I produce weapons, or I 
produce whatever the deliverable is for the Federal Government, 
beyond showing proof that I am the owner and, therefore, 
qualified to compete for the contract, what do you do to verify 
that, in fact, they build a product, that the product is 
actually of the quality of your respective agency? And I would 
think through whatever process that is, you would verify that, 
in fact, they can produce it in house, and that they are not a 
shill corporation and, you know, simply a front person with 
nothing more than a P.O. box and a 1,000-square-foot office 
competing for Federal contracts.
    Mr. Foreman. At least what happened when I was in the 
field, which was over 30 years ago, we used to have DCMA, 
Defense Contract Management Agency. And I worked for that 
agency, and part of my job was to postaward reviews and 
preawards. During the preaward phase, you judge the financial 
capability, the engineering capability, the manufacturing 
capability, the equipment, the site, transportation and 
shipping of the products. You would look at all parts. You 
would go back and adjust, and you would get together as a group 
and either accept or deny that firm as the right firm when you 
do a preaward.
    Over the years they have moved away from doing preawards. 
They have made it very limited as the years have gone on, so I 
don't know that is being done now. But that was one way you 
could handle it.
    The other issue was in the postaward at DCMA, and I would 
get involved in that where you would go out and sit down and 
talk to the contractor after they received award. You would 
again go through the clauses so that they understand. It is an 
educational issue; it is a communication issue. We have to do 
that. I don't know so much. It has been like 30-plus years now 
that I have been out of that organization, but that is one of 
the ways that I felt very comfortable about what we were doing.
    Mr. Jordan. If I can build on that, Congressman, going back 
to Chairman Nye's point regarding outcomes, we need to hit 
these goals, and we need to do so absent waste, fraud and 
abuse. I would divide it into three sections. One is do we have 
these right policies and procedures when you are looking at 
determinations of responsibility and doing your market 
research, and during the contract operation is the contracting 
officer appropriately looking at subcontracting plans and 
subcontracting performance?
    Then in the second phase it is training. And I spoke a 
little bit about the President's Small Business Contracting 
Task Force that he has set up, which has to deliver 
recommendations to him late next month. I chair one of the five 
workings groups of that, and it is on workforce training and 
agency accountability. One of the big things that we are trying 
to push is closing any awareness gap on the contracting officer 
front to make sure that not only do we have the right policies 
and procedures in place, but they know what those are.
    The third thing I would say, you mentioned these 
preferences are aimed at helping these specific groups, and we 
are not meeting the thresholds. To that I would only implore 
you, one of the key things that we can do overall to help 
service-disabled veterans is ensuring parity between all of 
these different programs and replacing that "shall" in the 
HUBZone language with "may" so we get the contracts, and so the 
contracting officers don't, during this training, don't become 
confused as to what they can or cannot do.
    Mr. Schock. Anyone else?
    Mr. Foreman. That is except for VA. We like to have the 
program we have. We want to continue with 109-461. Thank you.
    Mr. Schock. Well, to that point, when I spoke with the SBA 
Administrator, my first point to her was: Why don't we make 
them all "shall" as opposed to all "may"? But apparently 
legally then you would have to qualify for every one of them, 
which would be kind of difficult.
    But my point to her was, look, we are failing. We are 
failing on all of them. And so what are you doing to make it so 
we are not failing on all of them?
    Her point to me was that, in her opinion, it was a lot to 
do with the leadership; that it takes the agency heads as high 
as up as the Secretary at each one of these departments to say, 
you know what, it is going to be a mission. It is a directive 
of mine to the folks letting these contracts that we are going 
to meet these goals, and people are going to be held 
accountable for it.
    My question to all of you would be have you to this date 
heard from any of your respective heads; you know, has 
Secretary Gates ever mentioned the set-asides and the need to 
meet those goals as specified by Congress really? I am sure 
Shinseki wants the veterans set-aside met.
    I am curious. I think the leadership of each respective 
agency is very key to what the goals are. I know within our 
organizations, if we say, well, this is kind of a goal, but if 
we don't meet it, gee, you all tried, too bad, so sad, we will 
do it again next year. But if it is this is a key goal, and if 
we don't meet it, there are going to be consequences, I think 
you have a different outcome.
    I am just curious what directives and what message you have 
heard, if anything, from your respective heads about meeting 
those set-aside goals?
    Ms. Oliver. I would need to go back and get the specific 
letters, but our leadership has put a great deal of emphasis on 
service-disabled veteran-owned small business achievements. The 
Secretary has discussed it. Dr. Carter, I think, has signed out 
a letter. Our leadership really is behind; it is just behind 
getting the--
    Mr. Schock. How long have you been at the Defense 
Department?
    Ms. Oliver. Working with small business issues?
    Mr. Schock. Yes.
    Ms. Oliver. Eleven years, 12 years.
    Mr. Schock. Okay. So you have been there under several 
Secretary of Defenses?
    Ms. Oliver. I have.
    Mr. Schock. Is the directive any different now than it was 
5 years ago, 10 years ago?
    Ms. Oliver. Yes. It is not a directive, meaning a directive 
as a specific.
    Mr. Schock. I guess my question is on the part of us 
policymakers who are responsible to our electorate, should we 
be able to tell our electorate and the folks we are claiming we 
are helping that we should expect any different outcome this 
year as opposed to 5 years ago, 10 years ago based on the 
leadership of your respective department?
    Ms. Oliver. There has been a difference. It is in my 
testimony. Think about the size of the Department of Defense. I 
mean, I think it is fantastic that since we got a tool where we 
could make progress, that the progress has gone in the 
direction that it has. It has been 7 years.
    Mr. Schock. Do you think that the 3 percent set-aside is 
too high?
    Ms. Oliver. I think for the Department of Defense, given 
our product mix, it is a challenge; but I think it is one that 
we can meet. I think we have to think every single year of 
another way to find the less low-hanging fruit. And we keep 
working at it. I think we will make it.
    Mr. Schock. How about the other agencies?
    Mr. Martoccia. Secretary Napolitano as well as our 
Administrator Fugate have made it a priority for us to provide 
opportunities for all small businesses, including service-
disabled veteran-owned small businesses. So we are doing good. 
Our goals are high. We exceed at FEMA the 23 percent. We are 
about at 32 percent, and they continue to move up our goals. 
Our trend has been good over the last few years.
    Ms. Brown. At EPA, Administrator Jackson has made it very 
clear that she is very supportive of the program. She had a 
conversation with me when she first came and said, I want these 
numbers to go up on my watch and not down.
    We do have a good story at EPA when you look at our 
numbers. Our small business numbers, we hit over 40 percent for 
small service-disabled veteran-owned last year, in fiscal year 
2009; 8.93 percent was what we accomplished. We are on track 
now as of the third quarter with 5.6 percent, and we don't see 
that going down. We anticipate that we will exceed the 3 
percent.
    So Administrator Jackson has--I report to the Deputy 
Administrator. I sit in with senior staff. She has made it very 
clear. She asked during senior staff, what are my small 
business numbers looking like? And she has signed a memo out to 
the Agency saying that the administration--and she is 
supportive of the small business program and wants to continue 
its success.
    We have incentive programs where we recognize our regions. 
We give out the Crystal Duck Award, and it is very competitive 
within the Agency amongst the program officers and the regions 
competing for that recognition for our small business program 
as a whole.
    Mr. Foreman. In VA I have the pleasure of working closely 
with Secretary Shinseki. He is very committed not only to the 
service-disabled or the veteran business goals, but to the SDV 
goal, to the HUBZone goal, and he personally sends out those 
goal letters. I have with me a copy of the goal letter that he 
sent out, and given his druthers, he would probably rather push 
them up. But I will have to say sometimes the staff says, wait 
a second, you are going too aggressive. But we have aggressive 
goals.
    We have done some things. This year to date we are at 18.4 
percent with service-disabled. With veterans we are at 21 
percent of our total spend as of the 10 months.
    With HUBZones, this is where we fall behind. We are 2 
percent. Of course, we are only trying to get to 3, but we are 
not just trying to get to 3, we are trying to blow past those 
goals. Those are minimums, they are not where we should go.
    In terms of small business, we are at 35.4 percent right 
now. So this is the highest level except for the year 2008; we 
did finish at 36 percent for small business. So, I mean, we are 
committed. I think the management team is committed. I have 
never been in so many what they call ELB, executive leadership 
board, meetings where we talk to each other about where we are 
going, and how we are going to get there, and what are the 
problems. And it is not one you can just sit there and listen 
to. They go around the room, and you have to speak on your 
issues, what are your problems and what are your fixes.
    Mr. Schock. Well, I think, based on your own testimony and 
numbers, you represent some of our better-performing agencies, 
and perhaps we will have to have a hearing in the future with 
some of those that are not meeting the goal and are bringing 
down our average. I appreciate you answering the questions.
    With that, I yield back to Chairman Nye.
    Chairman Nye. I am going to wrap up this panel and move on 
to the next panel, noting the time.
    In summary, as I said in my opening statement, I am also 
pleased to note that your small business contracting goals, the 
numbers are looking better and better. I am pleased to note 
that service-disabled veteran and small business contracting 
goals are looking better and better. That is good. However, 
when the GAO report shows that some significant portion of that 
contracting pool was fraudulent, there is a big asterisk next 
to that number now for me. The only way I can be confident that 
we are actually meeting those goals, the only way, more 
importantly, that the taxpayers that we all work for can be 
confident that you are actually using that money in a way that 
it was designed to be used, and it is going to the correct end 
user, and, most importantly, the only way that our veteran 
business owners can be confident that the program that we set 
out to provide them with tools to improve their lives and show 
them that we care about their service to our country is if you 
find instances of fraud and take action to root them out.
    I am going to release you so you can go back to work on 
doing that. I have expressed some disappointment today because 
I feel we have not moved far enough along in a demonstrable 
way. I am asking you to redouble your efforts on this. We owe 
it to our veterans, and we owe it to the taxpayers.
    Thank you for your time.
    Chairman Nye. I would like to go ahead to invite the second 
panel to the table, and we will start right away.
    I want to go ahead and thank the witnesses on our second 
panel for taking the time to be with us today. I know some of 
you have traveled from across the country to join us. It is 
important that you are here with us.
    You were here and had an opportunity to listen to 
representatives of the executive agencies talk about their 
approach to solving the problem, the fraud problem, that was 
uncovered by the GAO report last year. You have had an 
opportunity to understand, I think, where I am coming from on 
this and how I feel the agencies have responded to it. But I 
think what is even more important is to hear from you, those 
who are out there in the trenches of the economy every day, the 
ones who are responsible for competing for these contracts, and 
the ones who create the jobs and represent those veterans 
businesses that do that, and hear your thoughts on where the 
rubber meets the road, and what it is like to be with dealing 
with the government contracting officers, and what it feels 
like for you to have to engage with that system, and does it 
work. That is what we are trying to get to at the end of the 
day here: where is it not working, and how can we make it work 
better for you.
    I would like to go ahead and introduce our first panelist, 
Mr. John Kobelski, president and CEO of Andromeda Systems 
Incorporated, from my district in Virginia Beach, Virginia. 
Andromeda Systems Incorporated provides technical and 
contractor support services in both the government and 
commercial sectors and is a service-disabled veteran-owned 
small business.
    We will have a 5-minute clock.
    Mr. Kobelski, thank you for being with us.

                 STATEMENT OF JOHN H. KOBELSKI

    Mr. Kobelski. Good afternoon, Chairman Nye and members of 
the Committee. My name is John Kobelski, and I am president and 
CEO of Andromeda Systems Incorporated. I am pleased to be 
before the Committee today testifying on behalf of the service-
disabled veteran business owners. I have submitted my full 
statement, which I ask be made part of the hearing record.
    I am a small business owner and a service-disabled veteran, 
who proudly served my country as an enlisted member of the 
United States Air Force from 1967 through 1971, serving in 
Vietnam from October 1968 through September 1969; and as a 
naval flight officer and an aeronautical engineering duty 
officer with the United States Navy from 1974 to 1990. I am a 
graduate of Louisiana Tech University, with a B.S. In 1973 on 
the GI bill, and the naval postgraduate school, MSEE 1980. 
Since my retirement in 1990, I have been employed by several 
government service contractors, both large and small, and in 
2005 I established Andromeda Systems Incorporated along with my 
partner John W. Henson, a fellow Vietnam veteran. I am also 
currently the vice president of the Service-Disabled Veteran-
Owned Small Business Council out of Virginia Beach, Virginia, 
working exclusively for the promotion of service-disabled 
veteran-owned small businesses.
    Drawing from my experience as a service contractor, I have 
seen numerous obstacles placed before SDVOSBs seeking to gain 
the share of government contract opportunities outlined in 
Executive Order 13360 and have been made aware of incidents of 
fraud and abuse in the community. In my written statement I 
have detailed my experience in these matters and have given 
several examples and possible solutions.
    It is my opinion that the major reason the 3 percent goal 
is not being met is because agencies claim they cannot find 
enough qualified companies in their searches to justify 
contract set-aside competition. I find it hard to believe that 
out of over 17,000 SDVOSBs--and I heard today there are about 
24,000 of them now--listed in the CCR, an agency can't find two 
qualified to perform most any contract. Are they really trying? 
Really? The requirement should be made into law and not just an 
Executive Order.
    Another reason given by agencies for not setting aside a 
contract is that the magnitude of the procurement disqualifies 
or increases the performance risk for several RFI responders. 
This again is disheartening to SDVOSBs, and I address this in 
more detail in my written statement.
    The 8(a) quotas are apparently being met by government 
agencies. Why isn't it the same for SDVOSBs? Is it because the 
5 percent set-aside quota for section 8(a)-certified companies 
is law and not an Executive Order?
    A third reason, and probably the most compelling, is the 
political climate that surrounds all procurements. I am not 
sure how one combats cronyism, favoritism, or the "good old 
boy" network, but highly qualified SDVOSBs, as well as plenty 
of other small businesses, have been denied contracts as a 
result of it.
    One major way to improve prime contract opportunities for 
SDVOSBs would be to streamline the sources sought in RFI 
processes and use other search criteria.
    A major reason why we established the council in Virginia 
Beach in 2009 was to provide qualified sources to Federal 
agencies for competitive set-asides. All they have to do is ask 
us, and we will go out and search for them.
    On the subcontracting side, unrestricted companies are not 
being held accountable for adhering to their small business 
subcontracting plans. Small business teammates on an awarded 
unrestricted contract see very little, if any, of the contract 
percentage promised them by the prime. Without oversight and 
penalties for large prime contractors, the practice of ignoring 
SDVOSBs will continue.
    Bundling, or the combining of many contracts into one, has 
hurt many small businesses, and in particular the SDVOSBs. 
Bundled contracts are usually competed as unrestricted and won 
by large companies, and, as mentioned earlier, the large 
prime's small business subcontracting plans are hardly ever 
enforced, and very little, if any, work flows down to the 
SDVOSBs.
    In order for SDVOSBs to reach parity with the other set-
aside programs, laws must be enacted similar to that in the 
8(a) community. Executive Orders are important, but in no way 
do they carry the weight of law. We understand that Congressman 
Wittman of Virginia has introduced legislation that makes 
Executive Order 13360 into law and even strengthens it.
    On the issue of fraud and abuse, there must be an official 
SBA certification process. It should be made mandatory for all 
businesses claiming to be SDVOSBs, with severe penalties for 
those that falsify their representation. We also understand 
that Congressman Nye is preparing legislation in this area.
    In summary, laws are the key. Everyone jumps to the mention 
of the Federal Acquisition Regulations, and everything else is 
a "nice to have." It is a shame that some of our best and 
brightest, especially those coming home from Iraq and 
Afghanistan, who have given so much to this country and have so 
much more to offer, have to play second fiddle to the rest of 
the set-aside community. Those veterans know the sacrifices, 
hard work and determination as much, or even more, than anyone.
    It is my opinion that all veteran small business owners 
should be given parity, at least when it comes to DOD 
contracts. Veterans can make a difference, and like the 8(a) 
program, there should be a formal SBA process for certification 
and parity among set-asides.
    Thank you, Chairman Nye and Committee members, for the 
opportunity to appear before you today. I stand ready to answer 
any questions you might have.
    Chairman Nye. Thank you, Mr. Kobelski.
    [The statement of Mr. Kobelski is included in the 
appendix.]
    Chairman Nye. I am aware of your work with the Service-
Disabled Veteran-Owned Small Business Council in Virginia 
Beach, and appreciate your leadership on that. You are doing a 
lot of good in the community.
    I would like to introduce Mr. Joseph Sharpe, the director 
of the National Economic Commission for the American Legion. 
The American Legion's economic division focuses on veterans 
education, employment, business development and assistance. The 
National Economic Commission was formed to ensure that veterans 
receive ample opportunities for success once they leave the 
military.
    Mr. Sharpe, welcome.

               STATEMENT OF JOSEPH C. SHARPE, JR.

    Mr. Sharpe. Thank you, Chairman Nye, Ranking Member Schock 
and members of the Subcommittee. Thank you for the opportunity 
to present the American Legion's views on improving contracting 
opportunities and preventing fraud for service-disabled 
veteran-owned small businesses.
    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 progress through this unstable economy.
    The American Legion supported legislation in the past that 
sought to add service-connected disabled veterans to a list of 
specific small business categories receiving 3 percent set-
asides. The American Legion understands that by raising the 
priority level of service-disabled veteran business owners in 
the Federal Acquisition Regulation by changing "may" to 
"shall," they would be awarded more contracts within the 
Federal system.
    The American Legion seeks to support legislation that 
supports and develops service-disabled veteran-owned small 
businesses, while providing them equal opportunity to start and 
grow a small business, including establishing numerical goals 
for all veterans to compete in the government procurement.
    Also, the American Legion is concerned about the 
administration's direction towards end sourcing and how that is 
affecting small businesses. We believe the push to end-source 
thousands of contractor positions could have severe 
repercussions for small businesses, particularly service-
disabled veteran-owned businesses, across the Nation, and force 
small businesses to scale back decisions or to go out of 
business.
    Concerning the prevention of fraud, the Veterans Affairs 
and the Small Business Administration should develop a 
comprehensive partnership to assist veterans who are interested 
in participating in Federal procurements. The Center of 
Veterans Enterprise should maintain the database and verify 
accurate veteran/service-connected disabled veterans' status. 
SBA should retain the responsibility for validating the 
business ownership, size, standards and structural integrity of 
the business. SBA should have direct reporting and import 
authority to the VIP database through the Office of Veterans 
Business Development once this information is collected. VA 
should maintain the eligibility status regarding veteran 
status. SBA is responsible for verifying all other 
socioeconomic categories for the purpose of Federal 
procurement. SBA already maintains the infrastructure, the 
expertise and established regulatory guidance to include the 
veterans population within that authority.
    To boost the Federal Government procurement numbers within 
the veteran business community, the American Legion recommends: 
One, currently GSA schedules are exempt from small business 
regulations. Without this change, SDVOSBs will be limited in 
their quest to expand business opportunities.
    Two, implementation of a coordinated, standardized training 
program for procurement staff that focuses on SDVOSB 
procurement strategies in their respective agencies.
    Three, President Obama should reissue Executive Order 
13360, providing opportunities for service-disabled veteran-
owned businesses to increase Federal contracting and 
subcontracting opportunities for veterans, and require that its 
tenets be incorporated into SBA regulations and standard 
operating procedures.
    Four, the SBA needs to emphasize Executive Order 13360 
again and establish it as a procurement priority across the 
Federal sector. Federal agencies need to be held accountable by 
SBA for implementing the Executive Order, and SBA needs to 
establish a means to monitor agencies' progress and, where 
appropriate, establish a report to identify those that are not 
compliant and pursue ongoing follow-up.
    Five, in order to achieve the mandates of Executive Order 
13360, the SBA must assist Federal agencies to develop a 
strategic plan that is quantifiable and will assist them in 
establishing realistic reporting criteria.
    Six, the American Legion also recommends that the House 
Small Business Committee embrace and promote development of 
stronger policy and legislative language that champions the 
utilization of Veteran-Owned Small Business Joint-Venturing as 
a ready solution to the small business spending requirements of 
the Stimulus Spending Initiative.
    And, seven, hold those agency leaderships responsible for 
meeting the 3 percent congressional mandate goal. We recommend 
the Committee schedule a hearing with all Federal agencies who 
consistently do not meet their Federal procurement goals.
    This concludes my portion of the testimony. We look forward 
to continuing working with the Committee to enhance 
entrepreneurship among American veterans. The American Legion 
appreciates this opportunity to present this statement for the 
record. Again, thank you, Chairman Nye and Ranking Member 
Schock for allowing the American Legion to present our views on 
this very important issue.
    Chairman Nye. Thank you, Mr. Sharpe, and thank you for your 
work for our veterans.
    [The statement of Mr. Sharpe is included in the appendix.]
    Chairman Nye. I now yield to Mr. Schock.
    Mr. Schock. Thank you, Chairman Nye.
    I am pleased to introduce Stephen J. Hope, the president 
and CEO of Office Automations Systems, Limited, also known as 
CIAN, Inc., a service-disabled veteran-owned small business.
    Mr. Hope is a 20-year veteran of the United States Navy. 
With a background in cryptologic computer programming and 
systems engineering, Mr. Hope's diverse framework centers on 
the military and national intelligence area. He attended 
postgraduate studies at the Defense Intelligence College and 
holds a B.A. in business management with a concentration in 
information systems from the University of Maryland.
    With over 30 years of experience in the computer industry, 
Mr. Hope has become an expert on microcomputer networks, 
computer security, computer forensics, and industry compliance 
matters. His company, CIAN, Inc., specializes in computer 
network security and employs 40 people, over 50 percent of whom 
are veterans, in my hometown of Peoria.
    CIAN, which provides, determines, and ensures the 
confidentiality, integrity and availability of your network, 
that is their mission, is to provide remote and on-site 
computer network security to include access control, forensics, 
intrusion and vulnerability detection, risk assessment, 
auditing, and incident response to government and corporate 
networks.
    Last year in 2009, Mr. Hope started the first-ever 
Businesses Back to Basics in Peoria, recognizing that budgets 
were tight, and information technology is crucial to a 
company's continuation of operations and success. CIAN launched 
this service to assist local businesses with their IT concerns. 
Beginning February 23, 2009, and still continuing, CIAN offers 
free support to any IT-related issue a business may have. 
Additionally, seats in this call center are being filled by IT 
professionals in a community currently seeking full-time 
positions with benefits.
    Given his diverse background and his work with the Federal 
Government, I know Mr. Hope has several ideas for how Congress 
can work to improve the service-disabled veteran-owned small 
business program.
    With that, I am happy to yield 5 minutes to Stephen Hope of 
Office Automation Systems.
    Welcome, Mr. Hope.

                  STATEMENT OF STEPHEN J. HOPE

    Mr. Hope. Thank you and good afternoon, Chairman Nye, 
Ranking Member Schock, and members of the Committee. Thank you 
for inviting me to testify today.
    My name is Steve Hope. I retired over 21 years ago after 20 
years of Active Duty honorable service in the Navy. 1990, I 
started my own company, a small commuter consulting firm, with 
offices now in Peoria, Illinois, and Bowie, Maryland. I have a 
service-connected disability, and run the day-to-day operations 
of my company.
    I am the president and CEO of Office Automation Systems, 
Limited. We do business as OASYS and CIAN, Incorporated. We are 
a C-corporation, registered with the Small Business 
Administration as a Vietnam-era veteran-owned and service-
disabled veteran-owned small business concern. We are 
registered with the CCR, ORCA, Small Business Association, and 
VetBiz. We are an information technology firm specializing in 
computer network security, including penetration tests, 
forensics incident response and information assurance. 
Basically we keep the bad guys off your networks. Over 50 
percent of my employees are veterans, and nearly every one of 
my employees carry a certified industry certification.
    I offer this background on my company because I want to 
emphasize that I have done my homework. I have followed the 
rules and regulations, and I have complied with 8(a) agency 
mandates. The issue before the Committee has deeply affected 
the growth of my company and pursuit of my doing business with 
the government. To date, we have yet to receive one single 
government prime contract nor any service-disabled veteran-
owned small business concern set-aside contract.
    I have read every word of the GAO reports that have been 
submitted to the Committee, and while I have no firsthand 
knowledge of waste, fraud or abuse of SDVOSBs contracts, it 
doesn't surprise me. I have witnessed it in other Small 
Business Administration business development programs, but I 
have chalked up our inability to get a primary SDVO contract to 
the typical government red tape, the "good old boy" network, 
and Federal regulations. One such regulation puts the onus on 
the losing contractor to protest a bid to prove any wrongdoing 
in terms of an SDVO status by the winner. I see other evidence 
of the problems all the time.
    I am not here to add any more confusions or problems to the 
Committee. Actually, I have solutions. I think I have four very 
viable, realistic solutions that could be put into place now.
    Number one, the implementation of a business rules 
management system, sophisticated artificial intelligence 
software that will capture, analyze, test and execute the rules 
and regulations of numerous sources. Capturing, collating and 
analyzing agency databases will indeed yield the intended 
results to confirm the eligibility, the industry, and the 
possible involvement of the day-to-day operations by the 
owners. That is all required by current regulations.
    Number two, it should be imperative that the contracting 
officers interview the bidding finalist and ascertain the 
particulars of how the operations will be run, and review their 
SDVO eligibility. I also highly recommend site visits. 
Currently many contracts require a contractor site visit 
precontract award. This additional requirement to visit the 
finalist's site should be added to every SDVO awarded contract.
    Number three, something needs to be done to reverse the SBA 
regulation that makes it imperative that 8(a) minority status 
contracts remain an 8(a) contract. The "once an 8(a) contract, 
always an 8(a) contract" CFR 125.504 fights the effort to allow 
existing contracts to be realigned into the SDVO initiative. 
Although well intended, the "forever an 8(a) contract" clause 
was introduced when information technology was experiencing 
exponential growth. The unintended consequence has arisen that 
8(a) contract set-asides have a virtual lock on many IT support 
contracts at many and dozens of Federal agencies.
    Number four, all disabled veteran-owned companies are 
issued a separate identification card, as I am holding up now, 
by the Department of Veterans Affairs. For veterans indicating 
that they own and operate a business, and they desire to 
operate within the SDVO initiative, additional information 
should be included on this card either on a microchip or other 
means of doing it, even with a bar code; that this card should 
be presented when contracts are awarded and they are signed.
    My overall goal in addressing the Committee today is to 
make myself available, my experiences known to the Committee 
members, and I hope to illustrate how the President's SDVO 
directive actually affects the business owners attempting to do 
work with the Federal Government. I respectfully request that 
you consider my recommendations and you help us improve the 
opportunities for SDVO initiatives.
    I would thank the Committee for inviting me. Thank you for 
the opportunity to testify, and I would like to answer any 
questions.
    [The statement of Mr. Hope is included in the appendix.]
    Chairman Nye. Thank you very much. I appreciate all of our 
panelists having proposed some succinct and I think very 
thoughtful solutions, ideas that would actually help government 
agencies increase their contracting to service-disabled 
veteran-owned businesses and increase efficiency in the system.
    I just have a couple quick questions, and then I am going 
to defer to our ranking member.
    But I heard from a number of service-disabled business 
owners complaints about the process whereby when they make a 
complaint about an award, they protest to the SBA and they are 
sent back to the original contracting officer, who then either 
tells them to go back to the SBA, or they are concerned that 
complaining to that contracting officer kind of muddies the 
waters for them for any future contracts.
    What I want to hear from you are any thoughts about--and 
also from Mr. Sharpe about the people you represent--Any 
thoughts about your approach, how you see your relationship 
with those contracting officers. And are there things that we 
can do from the Congressional side that can make it easier for 
you in terms of your ability to relate openly with contracting 
officers, but also be able to point out problems when they 
exist without suffering repercussions?
    Mr. Kobelski. Yes, sir. I think the contracting officers 
are not well trained. The ones that have been in business for a 
while are. And we approach contracting officers, we don't go to 
the SBA to protest, we go directly to the contracting officer. 
And the contracting officer comes back with a few excuses and 
says, well, this, that, and another thing.
    But what we have talked with--for instance, this morning, 
we had my contracts person contact a contract officer in NAVSEA 
and he--wondering why this contract is being put out 
unrestricted vice small business or even SDVOSB. The contractor 
replied that he was--Seaport told them--this is on the Seaport 
contract--told him that he would have to put it out to small 
business, but he was able to have them change that to go 
unrestricted. Now, it is a 15-man-year contract, it is about a 
$1.5 million a year contract for 5 years. And what has 
happened, he told my contract representative that he--well, she 
asked him whether he did market research or not, and what kind 
of market research did he do on making this unrestricted. And 
she was replied to with the comment: I don't do market 
research.
    I mean, I think the FAR states that you have to do market 
research. I am not sure, but I think that is the case. But I 
think it all lies with the contracting officer. I think if the 
contracting officers are really trained well or at least abide 
by the FAR, I think you will get more out of it, really.
    Chairman Nye. Thanks. Anybody else? Mr. Sharpe.
    Mr. Sharpe. I have also been told that the contracting 
officers are poorly trained, and I have also participated with 
some of our business owners as they had meetings with various 
contracting officers, and it appears that there is a lack of 
knowledge. And my opinion is that, basically, the process is 
pretty dishonest.
    I just don't think our veterans need to come back when they 
are working with these contracting officers, that they have to 
do certain things by providing them dinners and taking them out 
and all these other little things that all seem to be included 
in this process. And I really think that there needs to be 
stricter oversight to this, because it gets to the point where 
it is really pretty dishonest for our veterans to have to more 
or less pimp themselves to get a contract.
    Chairman Nye. Mr. Hope.
    Mr. Hope. Personally, I have never protested an SDBO 
contract award to another person because of the issue that you 
mentioned there, retaliation, or just not wanting to muddy the 
waters with any agency.
    I think that if we stick to the four issues that I brought 
up, precontract award homework has to be done. We don't need 
the losers to step forward and try to protest if it has been 
confirmed by the SBA or others.
    Chairman Nye. I think that is a good point. We obviously 
want to take the onus off of our service-disabled business 
owners from having to do all the protesting and all the heavy 
lifting when they have got very little extra time, when they 
are trying to focus on doing their business. I appreciate that.
    I want to give the opportunity to any of our panelists to 
comment on anything they heard from the first panel. You have 
brought prepared statements, but you also have had a chance to 
listen to testimony provided by the agencies about how they 
look at contracting. And this is just an open-ended 
opportunity, if there are any comments you want to make on what 
you have heard. Yes, Mr. Kobelski.
    Mr. Kobelski. Yes, I really admire the VA. They have really 
gone above and beyond in meeting their goals. They are really 
doing a fantastic job.
    As far as the rest of the agencies, I am not sure about the 
other two; but DOD, I think they are not getting the 
information up top. I think the information is not flowing up. 
I think there are a lot of excuses being made from the 
contracting officer and even the small business advocates in 
the commands, and I think they need to investigate it a little 
bit more.
    Chairman Nye. Mr. Sharpe.
    Mr. Sharpe. We have actually visited a number of these 
agencies, and one part of the conversation that came out 
earlier today was that a lot of these agencies, if it is not 
coming from the head, that it is definitely not getting down to 
the procurement officers and there is just not enough buy-in. 
We were even told by one particular agency that they are not 
getting that. And since their agency is the client that 
generally, when a company wants to do business with them, they 
will do anything that that agency says that needs to be done 
prior to receiving the contract.
    So if an agency is saying that in order to do business with 
us, you will work with our veteran-owned businesses, that will 
generally happen. If that is not being said, then they will not 
do it. And they will use the excuse, "Well, I don't need to do 
business with you. The regulations state that I "may" do 
business with you." And a lot of our veterans see that as 
saying no.
    So those agencies where there is oversight, where the 
Secretary and the Administrator is telling them, giving them a 
directive that you will deal with veterans, generally you see 
their percentages rise. And then when you witness some of the 
meetings, you don't see all the other shenanigans that are 
going on, and then the fear of a protest, and then having to do 
other things than to do what they are supposed to do.
    Mr. Hope. The only comment I have is more general. And that 
is, we have been hearing this same thing for all the Small 
Business Administration business development programs, the same 
type of chatter, the same type of thing. We don't see anything 
being done, we don't see anything being implemented. There is 
no realistic approach by any one of the agencies that they have 
mentioned. It is more of a "We will try to do better. Our 
numbers will go up and things will get done." But there has got 
to be something tangible. We don't see it. We just don't see 
it.
    Chairman Nye. Thank you. I will yield to our ranking 
member, Mr. Schock.
    Mr. Schock. Thank you, Mr. Chairman. To follow up on that, 
Mr. Hope, I would give the opportunity for you and the other 
panelists to respond to that. What barriers do you see for 
yourself trying to go after contracts with these Federal 
agencies? Are there certain barriers that are in place? Is 
there a difficulty getting the information? What would you like 
to see as a possible competitor for providing services or a 
provider of services to the Federal Government--what barriers 
are in place as someone who is in the Midwest or someone who is 
on the East Coast, but not in Washington, D.C., trying to 
compete for business with these respective agencies that you 
just heard from and others are there?
    In other words, if you are up here and you could get them 
to provide different information or do things differently, what 
would it be to make it easier for you to compete and be awarded 
contracts at the Federal Government?
    Mr. Kobelski. As far as set-asides go, SDVOSB set-asides, 
again, the agencies are not out there looking. They are not 
seeking other ways to find those companies out there. I think 
anybody can do any work across the Nation. I do work in 
California. I am out of Virginia Beach, Virginia. I also do it 
in Jacksonville, and we do it well, and we do it on naval 
aircraft mostly.
    I don't see any barrier at all for us to get work, or at 
least qualify for work along with a couple other small 
businesses, SDVOSBs that I know of that can do the work. Now, I 
would love to compete it, I would love to compete the work, but 
I would like to compete it within the SDVOSB community. And 
there are enough of us out there to do that engineering work in 
Naval aviation or in Air Force aviation, wherever it is.
    Again, I see no barriers except for the agencies not 
looking for us, even though we are going through the small 
business offices and we are sending documents out and 
everything, but it seems to be going to deaf ears.
    Chairman Nye. Mr. Hope or Mr. Sharpe.
    Mr. Sharpe. The barriers that we see are that many of our 
business owners would prefer to have an office here in 
Washington so they have access not only to the Hill, to be able 
to provide complaints or concerns--complaints or concerns to 
you--but also they like to be closer to the head, the heads of 
the various agencies here. I mean the offices, where they are 
able to talk to someone with some sort of authority. They feel 
like if they are out in the Midwest somewhere, that they are at 
a disadvantage. And also, there is a feeling that some of the 
Federal representatives that are in those areas really don't 
pay too much attention to them.
    It is like they need to come to Washington, talk to the 
Representatives, come to hearings like this, provide 
information for testimony before they are actually heard, 
because they just feel like it is not really coming from the 
heads of the various agencies, it is not getting out to the 
rural areas, and there appears to be some disadvantage to that.
    Mr. Hope. I would say our number one barrier is the 
resources internal to the organization, that we cannot afford 
to, number one, protest after the fact. And we don't have 
enough resources to bid on every possible contract in hopes of 
getting one.
    I would like to offer a real-day situation that we are 
confronted with today. Six weeks ago, a government agency went 
out with us, SDBO set-aside RFQ, request for quote, on a 
product and services, of which my organization spent numerous 
days, 6 weeks, of three engineers learning, making sure we 
understood everything inside out. Our executive assistant spent 
many hours getting the RFQ prepared.
    We submitted it on time on Tuesday night of this week. It 
was due today. Last night or the night before, they came out 
with an amendment to the RFQ saying that this is no longer an 
SDBO set-aside and it has been opened to small business 
industrywide.
    That number of resources we just spent, we can't just 
continue that way, so we need to find out why these SDBO set-
aside contracts are being rescinded at the last minute. That is 
number one. I mean, there are lots of issues like that, that I 
have talked to many SDBO presidents that have the same issues, 
the same concerns about expending resources to get nowhere.
    Mr. Schock. Mr. Kobelski, you mentioned that you didn't 
feel like the agencies themselves are even looking for you, or 
aren't really making a sincere effort to try and maybe fill 
their quotas. What leads you to believe that?
    Mr. Kobelski. Several sources sought RFIs--they are trying 
through RFIs and sources sought. But it appears that they are 
not making it--the RFI or the sources sought is not the way to 
really go, to really get the attention of the SDVOSBs. Most of 
the companies are small, they are under $5 million, $3 million 
companies, and they don't have the resources to answer 10-page 
requirements and listing all the information they have.
    Why can't we have just a one-page sources sought document, 
go out to the community and go to organizations like the SDVOSB 
Council out of Virginia Beach, Virginia, go to the American 
Legion, go to a few other places to find these sources? And I 
think you will get a lot more responses to these things.
    And I think most of the agencies are doing it via RFIs. 
They are trying to get the information out, they are abiding by 
the FAR and getting information out there, but it is not 
hitting home.
    Mr. Schock. Anyone else?
    With that, before I yield back, I will just give you the 
opportunity once again, if you have any other closing remarks 
for me as far as if you were up here and had the ability to 
effect change, what changes you would like to see that would be 
most helpful to you to be awarded these contracts or to be able 
to better compete for them?
    Mr. Kobelski. I would put some more teeth into 13360, 
executive order. I would make it law, just like the 8(a). Put 
it on parity with the 8(a) companies--or program.
    Mr. Schock. Fair enough.
    Mr. Sharpe. More legislation, changing "may" to "shall." 
Having joint hearings, bringing in the agency heads. The last 
thing they want to do is have you ask, "Why, Secretary, your 
veterans aren't being taken care of," and letting a roomful of 
veterans hear his answer.
    Mr. Kobelski. I have one more comment. I think the idea 
that Chairman Nye had about putting an SBA rep in every 
location would really help the program unbelievably. I think 
that is the greatest idea I think I have heard. And making sure 
that all SDVOSBs are certified by the SBA.
    Mr. Schock. Thank you very much. I appreciate your time.
    Chairman Nye. Just let me say again how much I appreciate 
you taking the time to be here, and let us hear directly from 
the folks who are out on the front lines every day. We got to 
hear from the agency representatives, that is useful; but we 
need to juxtapose their comments with what you are seeing from 
your end.
    So, again, I appreciate you taking the time and making the 
effort to travel to Washington to be here with us.
    Let me also thank and note that there are some agency folks 
who remained to listen to the testimony provided by the 
business owners. So thank you for being here to listen to what 
these folks had to say today.
    With that, I will ask unanimous consent that all members 
have 5 legislative days to submit materials for the record. 
Hearing no objection, this hearing is now adjourned.
    [Whereupon, at 12:15 p.m., the subcommittee was adjourned.]

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