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






                         [H.A.S.C. No. 111-104]

                     CAN DOD IMPROVE INNOVATION AND

                     COMPETITION IN ACQUISITION BY

                    BETTER UTILIZING SMALL BUSINESS?

                               __________

                                HEARING

                               BEFORE THE

                  PANEL ON DEFENSE ACQUISITION REFORM

                                 OF THE

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD

                            OCTOBER 29, 2009

                                     

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]






                  U.S. GOVERNMENT PRINTING OFFICE
58-100                    WASHINGTON : 2010
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001












                  PANEL ON DEFENSE ACQUISITION REFORM

                  ROBERT ANDREWS, New Jersey, Chairman
JIM COOPER, Tennessee                K. MICHAEL CONAWAY, Texas
BRAD ELLSWORTH, Indiana              DUNCAN HUNTER, California
JOE SESTAK, Pennsylvania             MIKE COFFMAN, Colorado
                Andrew Hunter, Professional Staff Member
                Jennes Simler, Professional Staff Member
                      Zach Steacy, Staff Assistant














                            C O N T E N T S

                              ----------                              

                     CHRONOLOGICAL LIST OF HEARINGS
                                  2009

                                                                   Page

Hearing:

Thursday, October 29, 2009, Can DOD Improve Innovation and 
  Competition in Acquisition by Better Utilizing Small Business?.     1

Appendix:

Thursday, October 29, 2009.......................................    21
                              ----------                              

                       THURSDAY, OCTOBER 29, 2009
  CAN DOD IMPROVE INNOVATION AND COMPETITION IN ACQUISITION BY BETTER 
                       UTILIZING SMALL BUSINESS?
              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Andrews, Hon. Robert, a Representative from New Jersey, Chairman, 
  Panel on Defense Acquisition Reform............................     1
Conaway, Hon. K. Michael, a Representative from Texas, Ranking 
  Member, Panel on Defense Acquisition Reform....................     2

                               WITNESSES

Jenkins, Calvin, Deputy Associate Administrator, Government 
  Contracting and Business Development, U.S. Small Business 
  Administration.................................................     5
Oliver, Linda, Acting Director, Office of Small Business 
  Programs, U.S. Department of Defense...........................     4

                                APPENDIX

Prepared Statements:

    Andrews, Hon. Robert.........................................    25
    Conaway, Hon. K. Michael.....................................    27
    Jenkins, Calvin..............................................    37
    Oliver, Linda................................................    29

Documents Submitted for the Record:

    Letter from Calvin Jenkins to Hon. Robert Andrews Regarding 
      Online Courses Related to Government Contracting Offered by 
      the Small Business Administration..........................    45

Witness Responses to Questions Asked During the Hearing:

    Mr. Andrews..................................................    49
    Mr. Cooper...................................................    49

Questions Submitted by Members Post Hearing:

    Mr. Conaway..................................................    53
 
  CAN DOD IMPROVE INNOVATION AND COMPETITION IN ACQUISITION BY BETTER 
                       UTILIZING SMALL BUSINESS?

                              ----------                              

                  House of Representatives,
                       Committee on Armed Services,
                          Defense Acquisition Reform Panel,
                        Washington, DC, Thursday, October 29, 2009.
    The panel met, pursuant to call, at 8:00 a.m., in room 
1310, Longworth House Office Building, Hon. Robert Andrews 
(chairman of the panel) presiding.

OPENING STATEMENT OF HON. ROBERT ANDREWS, A REPRESENTATIVE FROM 
   NEW JERSEY, CHAIRMAN, PANEL ON DEFENSE ACQUISITION REFORM

    Mr. Andrews. Good morning ladies and gentlemen. Thank you 
very much for your attendance. We thank our colleagues on the 
panel for their attendance, and especially the witnesses for 
giving us their time this morning.
    Yesterday, the President signed the fiscal 2010 defense 
authorization bill. Let me say for the record we express our 
appreciation to the professional staff and all the support 
staff on both the minority and majority side for the excellent 
work that these ladies and gentlemen did on that bill.
    And the President highlighted in his remarks before he 
signed the bill the need to achieve more efficiency in defense 
procurement. As you know, he signed some provisions in that 
bill which we believe will lead us to that result and enjoy 
broad bipartisan support.
    And of course earlier this year, the President signed a 
major weapons system acquisition reform bill that the members 
of this panel, both sides of the aisle, worked very hard on and 
were pleased to be a part of.
    One of the points the President made in arguing for the 
need for efficiency was the principle that enhanced competition 
enhances taxpayer value and warfighter value. One of the ways 
that we have attempted to enhance competition is to engender 
more small business participation in the procurement process.
    And as this panel has continued our work, we have looked at 
a series of hypotheses as to why the warfighters and taxpayers 
do not get full value for the dollars that are provided, and we 
have examined a number of hypotheses along that path.
    The one we are looking at this morning would be the 
implicit hypothesis that one of the reasons that we don't get 
full value is we don't have robust competition.
    And one of the reasons that we don't have robust 
competition is we have, in some instances, inadequate small 
business opportunities for small businesses to join the 
competition, which not only enhances their commercial position, 
but we believe would also enhance the value-added for the 
taxpayer.
    So this morning we are going to examine a number of 
questions that revolve around the role of small businesses in 
defense procurement competition. The data show that in fiscal 
2007, of the $269.3 billion in prime contract awards for 
procurement, small business awards totaled $55 billion of that 
or 20.44 percent of the total.
    By our standards that are in the law, that is a success. 
The agencies responsible for enhancing small business 
opportunities have targets to shoot at, and that 20 percent 
total is very much in the range of the target that they are 
supposed to shoot at.
    This would on its face appear to be good news. There are, 
however, questions that we want to explore in relation to these 
data. The first is, to what extent do the data truly reflect 
small business participation in the competition, and to what 
extent are the data flawed by situations where the small 
businesses are mislabeled and are not, in fact, operating as 
small businesses? To what extent are the data accurate?
    The second question is, to what extent is our premise 
correct? Does small business competition in fact enhance 
taxpayer value in quality or not? Superficially, it would 
appear the answer is yes, but the panel has a responsibility 
and an interest in going beyond superficiality to examine the 
actual record.
    And then finally, as a corollary to the second point, 
indisputably there are administrative costs associated with 
compliance with these kinds of small business goals and 
targets. And I do think it is a fair question to ask, whether 
the benefits of enhanced competition, in fact, substantially 
outweigh the costs of administrative compliance.
    I happen to believe that there is a happy middle ground 
where we can expand and enhance competition, but we can do so 
in a way that is efficient, that does not involve an overly 
cumbersome process, and can serve the twin goals of enhancing 
competition while minimizing additional administrative burden 
and responsibility.
    The way we will proceed this morning is that I am going to 
ask my friend, the senior Republican on the panel, Mr. Conaway, 
to make an opening statement, and when he has finished, without 
objection, we will take opening statements from our other 
members on the record.
    We will then introduce the two witnesses. We have had a 
chance to review your written testimony, so we would ask you to 
orally summarize in about five minutes your written testimony 
so we can maximize the opportunity for interchange with the 
members of the panel.
    So at this time, I am pleased to recognize Mr. Conaway for 
his opening statement.
    [The prepared statement of Mr. Andrews can be found in the 
Appendix on page 25.]

  STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE FROM 
   TEXAS, RANKING MEMBER, PANEL ON DEFENSE ACQUISITION REFORM

    Mr. Conaway. Well, thank you, Mr. Chairman. I appreciate 
you calling this hearing, and Mr. Oliver--excuse me, Mr. 
Jenkins and Ms. Oliver, thank you for both being here. Our 
panel has held hearings on everything from the Department of 
Defense's (DOD) role in tackling the challenges facing the 
industrial base to information technology contracting, to last 
week's hearing where we looked at auditing.
    I find it very appropriate that with today's subject we are 
going from Wall Street to Main Street. Very few members of 
Congress have multinational corporate companies in their 
districts but every one of us have some form of small business 
in our district.
    I realize that today's hearing will focus on the Department 
of Defense utilization of small business to improve innovation 
and competition in defense acquisition. It is no secret that it 
can be very challenging for small businesses to participate in 
the defense acquisition process.
    We are very fortunate to have a couple of expert witnesses 
in front of us today to help us understand how we can continue 
to help small businesses to successfully participate in the 
system.
    One question that I get asked from small business is in 
regards to the small business set-asides, and I hope to learn 
more about that today. But are there specific metrics, which 
lead to the inclusion or exclusion of small business set-asides 
in a request for proposal, and are set-asides more prevalent in 
product development type contracts or maintenance and repair 
contracts?
    I also think that the news report this week of a scam, at 
least the alleged scamming of the system, by a group of small 
businesses in California speaks clearly to the chairman's 
comments about the need to make sure that it is being policed 
properly and that the right folks are in the competition. So I 
look forward to our witnesses' testimony. Thank you for both 
being here.
    [The prepared statement of Mr. Conaway can be found in the 
Appendix on page 27.]
    Mr. Andrews. Thank you. Without objection, opening 
statements from all panel members will be included in the 
record. I am now going to proceed to introduce this morning's 
witnesses. Ms. Linda B. Oliver is the Acting Director of the 
Office of Small Business Programs for the United States 
Department of Defense.
    She assumed that position on January 21, 2009, the second 
time that she has served in this capacity. She began her tenure 
at the office as Deputy Director in December 2001. Her office 
is responsible for establishing and enforcing DOD policies so 
as to provide maximum practicable opportunities for small 
businesses to successfully compete for DOD contracts.
    Linda previously served in the Office of Management and 
Budget (OMB) where she was Associate Administrator for 
Procurement Law, Legislation and Innovation in the Office of 
Federal Procurement Policy. I love these names that we have 
created for these agencies.
    Ms. Oliver began her federal government career as an 
attorney with the U.S. Department of the Navy. During most of 
her Navy service she specialized in federal procurement law. 
While at the Pentagon, she was assistant general counsel at the 
Office of the General Counsel, advising on contract claims 
resolutions and has a tour at the Naval Air Systems Command 
where she provided contracting advice to program managers.
    Prior to joining the United States Government, she was in 
private practice in Honolulu, Hawaii and Bremerton, Washington. 
She has been a member of the Senior Executive Service since 
1998. Her honors include Presidential Rank Award of Meritorious 
Executive and U.S. Department of Navy Superior Civil Service 
Medal.
    Ms. Oliver, thank you for your service, and welcome to the 
panel.
    Mr. Calvin Jenkins is the Deputy Associate Administrator 
for Government Contracting and Business Development. He was 
appointed to that position by the Administrator of the U.S. 
Small Business Administration (SBA) in October 2005.
    Mr. Jenkins is the SBA's top career senior executive for 
government contracting and business development programs. He is 
responsible for overseeing the administration of the umbrella 
office with jurisdiction over the agency's offices of 
technology, size standards, government contracting, business 
development Section 8(a), and small disadvantaged businesses 
certification.
    Other management positions held by Mr. Jenkins include the 
Deputy Associate Deputy Administrator for Capital Access at the 
SBA, Associate Administrator for Field Operations, District 
Director of the agency's Washington district office and a 
number of other positions.
    He has been the recipient of several government service 
awards including the SBA's Distinguished Service Award and the 
1998 and 2004 Presidential Rank Award of Meritorious Executive. 
He is a native of New York and holds a bachelor's degree in 
economics and urban geography from the City College of New 
York.
    Mr. Jenkins, welcome.
    Ms. Oliver, you are up. We ask you to, as I said earlier, 
your written testimony without objection is included in the 
record, and we would ask if you could synopsize it so we can 
get to questions. Good morning.

  STATEMENT OF LINDA OLIVER, ACTING DIRECTOR, OFFICE OF SMALL 
         BUSINESS PROGRAMS, U.S. DEPARTMENT OF DEFENSE

    Ms. Oliver. Good morning, thank you. Good morning, Chairman 
Andrews, Ranking Member Conaway, members of the panel. I thank 
you truly for the work you have done on this panel. I have 
spent most of my professional career concerned about 
procurement and most of that procurement was in the Department 
of Defense.
    So I am grateful to have a distinguished group of people 
focused with such good staff also focusing on procurement in 
the Department of Defense. It is really important. And of 
course, I am always pleased to be able to talk about small 
business and how small business fits in to helping us provide 
the best possible products and services for our warfighters at 
the best possible cost to the taxpayers.
    Last night when I was reviewing my written statement, and 
particularly since Chairman Andrews has just said you have all 
read what I had to say, it occurred to me that probably 
although you know a lot about procurement, you are like a lot 
of other people who know a lot about the big picture but not 
about really very much about the small business specialist role 
with the Department of Defense, and what small business 
specialists do.
    Well, it seems to me like you might want to know that 
because as a response to Chairman Andrew's question, does small 
business enhance competition? Yes of course. It seems like a 
given to me, and I have addressed that in my remarks, my 
written comments.
    So I want to go on to talking briefly about what small 
business specialists do, how they fit in to the whole process. 
Most small business specialists in the Department of Defense 
are contracting officers who have, I always think, sort of 
gotten a master's in small business, although, of course, it is 
not a formal thing, but they are specialists, specialists 
beyond being contracting officers.
    They work in the organization with contracting officers but 
they actually report to the head of the organization, whatever 
the head of the organization is, and their function is actually 
to provide, to make sure that the Department of Defense 
provides maximum practicable opportunity to the small 
businesses.
    But they do it by focusing within the Department of Defense 
on the acquisition team, and so a small business specialist in 
a well-run situation will be one of the early members on a 
product integration team for example.
    A small business specialist will help as the team does a 
sort of a final refinement of the requirements. The small 
business specialist works with the team to think about, all 
right, now we have the requirement. What do we do to fill this 
requirement?
    It is important that small business specialists be involved 
at that very early stage so that the small business specialist 
can use their particular skills to devise the procurement which 
provides the maximum practicable opportunity in that direction 
you have given us.
    The small business specialist will work with the team 
throughout the entire procurement, and of course there is a 
role for the small business specialist. There is an enforcement 
role at the end of the contract.
    I delve briefly into this so that you have a fuller 
understanding that a small business specialist, it is not their 
function, it is one of the things they do, but it is not their 
primary function to do outreach and give speeches, to shake 
hands. It is to understand and fit small business into the 
Department of Defense procurement system.
    Thank you very much. I will be happy to answer any 
questions for you.
    [The prepared statement of Ms. Oliver can be found in the 
Appendix on page 29.]
    Mr. Andrews. Ms. Oliver, thank you very much for your 
preparation and your testimony this morning.
    Mr. Jenkins, welcome to the committee. We are happy to have 
you with us.

 STATEMENT OF CALVIN JENKINS, DEPUTY ASSOCIATE ADMINISTRATOR, 
  GOVERNMENT CONTRACTING AND BUSINESS DEVELOPMENT, U.S. SMALL 
                    BUSINESS ADMINISTRATION

    Mr. Jenkins. Thank you, Chairman. Chairman Andrews and 
other distinguished members of the committee, I want to thank 
you for inviting me today to testify about the Small Business 
Administration and its small business procurement-related 
programs.
    A key part of SBA's mission is to ensure that small 
businesses receive a fair share of federal procurements. We 
also include in that small businesses that are women-owned, 
small businesses that are owned by individuals who are socially 
and economically disadvantaged, small businesses that are owned 
by service-disabled veterans and small business located in 
Historically Underutilized Business Zones (HUBZone).
    This mission is important because federal procurement is a 
significant market for small businesses to sell their products 
and services, and they contribute as a driver to the economy. 
Earlier you mentioned some of the statistics regarding small 
business share within the Department of Defense, but overall in 
2008, federal procurement accounted for about $434 billion.
    Of that, small businesses in general received about $93 
billion. Small disadvantaged businesses received about $29 
billion, women-owned small businesses $14 billion and HUBZone-
certified firms $10.1 billion, and also firms owned by service-
disabled veterans $6.4 billion.
    Clearly, these are significant numbers. However, when we 
look back at the procurement goals, consistently the federal 
government has only met one goal, and that is the goal for 
small disadvantaged businesses. We have yet to achieve the goal 
for women-owned small businesses, service-disabled veterans as 
well as HUBZones, and have not on a consistent basis even met 
the goal for small businesses.
    SBA's role in the procurement process, SBA helps agencies 
try to meet these goals by working with them through our 
network of procurement center representatives. These are 
individuals assigned to major procurement buying activities 
throughout the country. Their job is to, one, review 
procurements in which the contracting activity feels that they 
wish not to set-aside for small business.
    We review those contracts and review the effort that the 
contracting official put forth to try to identify small 
businesses. Our first aim is to set those contracts aside for 
small business, and then we look at whether or not those 
contracts can then flow down to some of the socioeconomic 
groups that I mentioned earlier.
    SBA is also responsible for establishing size standards. 
And one of the initiatives that we are currently embarking on 
now is to re-evaluate all of the size standards. This is a 
process which we just recently issued three of the next sectors 
for public comment in which we are going to adjust those. A 
number of agencies, including the Department of Defense, has 
indicated that our size standards are at a level that are too 
low, in order for them to continue to use small businesses in 
federal procurements.
    Based on the types of procurements that they are procuring, 
the size of procurements that they are procuring, they need 
more small business with more capacity and capability to 
perform. So we are currently looking at that process.
    We also just yesterday released regulations to streamline 
and improve the 8(a) Business Development Program. Out of the 
$29 billion in 2008, that program accounted for $16 billion. 
However, the program is a Business Development Program not a 
contracts program.
    Contracts is just one of the tools we use over a nine year 
period to assist those businesses, and so we are looking to 
ensure that the program is streamlined and that the benefits of 
the program truly goes to those that are eligible.
    We are also looking to reduce risk and streamline the 
HUBZone Program. We believe that program, unlike the 8(a) 
Program, is more of a place-based program where the leveraging 
of the federal contracts are used to improve distressed 
communities.
    Our concerns there is to ensure that that program has the 
integrity built into it, and so we have undertaken a business 
process re-engineering effort to ensure that it works 
consistent with congressional intent.
    Two other programs that help to contribute innovation are 
the Small Business Innovative Research Program, SBIR and the 
Small Business Technology Transfer, STTR. We are currently 
waiting for reauthorization for both of those programs. 
Certainly the Administration supports reauthorization, as well 
as the business community there.
    Thank you for the opportunity to speak with you this 
morning. I would be happy to answer any questions you have.
    [The prepared statement of Mr. Jenkins can be found in the 
Appendix on page 37.]
    Mr. Andrews. Well, thank you to each of you. We appreciate 
your time and efforts.
    Ms. Oliver, I would like to begin with you. When small 
businesses win Department of Defense procurement contracts, is 
the typical situation that they are competing against only 
other small businesses or are they competing on a larger 
playing field?
    Ms. Oliver. I asked somebody to look up the numbers on 
this, on the possibility that you would want to know that. As I 
mention in my testimony, the amount that small business--the 
amount of competition--when you look at the contracts that are 
awarded to small business, and you say how much of this 
business is competed----
    Mr. Andrews. Right.
    Ms. Oliver [continuing]. And you compare that to 
competition in general in the Department of Defense, there is 
much more competition where small businesses are awarded 
contracts than the number overall. Those numbers are about--
competition rate for the Department of Defense is about 64 
percent.
    Mr. Andrews. Meaning that 64 percent of the contracts have 
more than one bidder?
    Ms. Oliver. The dollars, yes. For small business, it is 
about 77 percent.
    Mr. Andrews. So I think--that was my second question, which 
I am glad you anticipated. My first one, though, is when a 
small business is in a competitive situation, is its 
competition other small businesses exclusively or is it the 
entire range of competitors?
    Ms. Oliver. That 77 percent is composed of full and open 
competition. Let us see, I have a summary of this. I broke it 
down. I had them break it down by the special categories.
    Mr. Andrews. Right.
    Ms. Oliver. That 77 percent is full and open competition 
and full and open competition after exclusion of sources. Full 
and open competition after exclusion of sources means a set-
aside, most frequently----
    Mr. Andrews. Right.
    Ms. Oliver [continuing]. A set-aside for small businesses.
    Mr. Andrews. Right. So what share of that 77 percent is the 
set-aside environment--I don't mean as the pejorative either. I 
mean, in a, you know, limited market----
    Ms. Oliver. No.
    Mr. Andrews [continuing]. And what portion of it is not a 
set-aside environment? You know, you don't have to be--just 
roughly.
    Ms. Oliver. It is----
    Mr. Andrews. You can submit for the record.
    Ms. Oliver. Let me submit it for the record because I----
    [The information referred to can be found in the Appendix 
on page 49.]
     Mr. Andrews. Yes. But is it half and half, is it two-
thirds, one-third, about what is it?
    Ms. Oliver. I would rather that--let us see--40, about 40 
percent is full and open competition and about 37 percent is 
full and open competition after exclusion of sources.
    Mr. Andrews. Okay, that is good.
    Ms. Oliver. So it went a little bit more----
    Mr. Andrews. Yes.
    Ms. Oliver [continuing]. Full and open, one on full and 
open and one on----
    Mr. Andrews. So when a small business gets a contract, 40 
percent of the time that is after they have competed in full 
and open competition.
    Ms. Oliver. Yes. That is right.
    Mr. Andrews. Thirty-seven percent of the time, it is when 
they have competed only against other small businesses, and the 
remaining, which would be 16 percent, if my math is right, is 
where it is sole source? Would that be right?
    Ms. Oliver. Yes, yes.
    Mr. Andrews. Or 23--no 23 percent, I am sorry. At any rate 
that is about the distribution.
    Ms. Oliver. Well, there is one other category.
    Mr. Andrews. Yes, what is that?
    Ms. Oliver. Earmarks, earmarks do not count as competed.
    Mr. Andrews. Nor should they. Nor should they. I agree with 
you. And I assume earmarks bear a very small portion to the 
overall universe.
    Ms. Oliver. I don't have it broken out into subcategories, 
but it looks to me, among my figures, that it is a little bit 
over 12 percent.
    Mr. Andrews. That is interesting. That is interesting. Now, 
are there any--now, given these four categories, right, once 
your small business wins a contract sole source, small business 
gets an earmark, small business competes against all comers, 
and small business competes against other small businesses.
    Are there any data that compare the price that the 
taxpayers pay for that product or service versus a competition 
where there is no small business involved? Do you understand 
what I mean?
    Let us say that in the full and open competition segment, 
the product that is being purchased is a sheet metal produced 
product for a refrigeration unit, okay? And we have a similar 
product where there is no small business competition, and then 
we have the marketplace where there is small business 
competition.
    Are there any data on, comparing apples to apples, are 
there any data on the price differential results from that 
competition difference?
    Ms. Oliver. There are none that I have. However, I will be 
happy to go back. I do have some people who are just astounding 
at being able to figure out what it might be, and I will 
surely----
    [The information referred to can be found in the Appendix 
on page 49.]
    Mr. Andrews. Yes, we would be very interested, and I will 
tell you why, because as I said, at the outset of the hearing, 
to me it is intuitively true that broader competition produces 
a better result, but I don't want to rest on my intuition.
    I would actually like to see the data which leads to the 
second point that I made. To play devil's advocate for a 
minute, there are people who would argue that the incremental 
gain that we get from the increased competition is more than 
offset by the administrative cost of qualifying people and 
figuring that all out. I don't think that is true, but again I 
would like empirical evidence that would demonstrate that.
    Let me just move on to Mr. Jenkins, if I may, because I 
want to make sure our colleagues get time. Mr. Jenkins, I want 
to describe to you a concern that I think the members would say 
is heard throughout the country in all districts and see if I 
can get an answer as to how I would help my constituents.
    I had a constituent who came in, runs a business with very 
small, like 45 employees, and they make a floor coating product 
that helps in industrial situations to keep the floor clean and 
protected. And they are near an Air Force base in New Jersey.
    No, they actually came in and they said, ``Look, like 
everybody else, we are hurting in this economy, we are looking 
for some contracting opportunities. How do we get involved in 
the defense field? We are near an Air Force base, airplane 
hangars use the kind of product that we make. We would like to 
compete for the right to sell this product to the Air Force 
base.''
    And we went about trying to help them, but what is the best 
answer I could give them is to say here is how you do it. Here 
is how you can get yourself on the list to compete for the 
right to sell this floor sealant to the Air Force base, and 
maybe pick them up with as a customer. How do they do that?
    Mr. Jenkins. Sure. There is a number of ways and various 
strategies that we present to small businesses and try to help 
them.
    How do you get into the federal procurement arena? One, you 
have to do your homework. For example, the federal procurement 
data system, which is all of the federal procurement data, is 
just packed with information as----
    Mr. Andrews. It has too much----
    Mr. Jenkins. Well----
    Mr. Andrews [continuing]. As far as they are concerned.
    Mr. Jenkins. Well, I think if, you know, there is help that 
can kind of help them weed through that.
    Mr. Andrews. I don't want to cut you short, but I want to 
focus the question this way----
    Mr. Jenkins. Yes.
    Mr. Andrews [continuing]. And you understand this, because 
you work with these businesses all the time. You know, they may 
have 3 or 4 administrative people out of those 45. And if they 
guess wrong and go after the wrong contract because it is just 
way out of their league to get, they have just wasted an 
enormous amount of time and money and taken a big step 
backward.
    So how do they deal with this information flow? How do they 
figure out more surgically which is the right contract for them 
to go after and how to do it?
    Mr. Jenkins. Well, once again, I really have to point you 
to the federal procurement data system. And the only reason why 
I do that is it is the eyes for all of federal procurement as 
to what happens.
    Let us say that company sells about less than $1 million of 
product. They can go into the system, and see what agency 
actually purchased the item and what volumes had previously 
been purchased.
    Mr. Andrews. Right, that would be important.
    Mr. Jenkins. If they look and all of a sudden see that that 
Air Force buys in huge quantities that they can't actually 
supply, then they need to shift their strategy a little bit.
    Mr. Andrews. Got it.
    Mr. Jenkins. They also have access to our procurement 
center representatives. SBA has cognizance over all federal 
procuring and buying activities. We have individuals stationed 
at the major ones, but we can go in and sort of introduce that 
individual to the small business office at that buying 
activity. One of the strategies we talk about is don't 
necessarily spend a lot of time with the contracting officer. 
Spend time with the actual user.
    Mr. Andrews. Right. Is there an online tutorial as to how 
to use that data system you referenced a few minutes ago?
    Mr. Jenkins. There are a few online. SBA recently 
introduced How to Win Federal Contracts, an online course, 
offered toward small businesses, women-owned small businesses 
and----
    Mr. Andrews. Because I think you gave a great example, that 
if I were running that floor coating business, and I saw that 
the Air Force never bought in quantities of less than two 
million gallons and that is my entire output for the year, I am 
crossing that one off the list.
    But knowing where to look for that, and how to slice the 
data to find it is something I wouldn't know how to do. So I 
would think--I would like to take a look at those online 
courses, if I could----
    [The information referred to can be found in the Appendix 
on page 45.]
    Mr. Jenkins. Sure.
    Mr. Andrews [continuing]. And thank you. That is very 
helpful.
    Mr. Jenkins. Yes.
    Mr. Andrews. Mr. Coffman.
    Mr. Coffman. Thank you, Mr. Chairman. I think your point is 
very interesting about simply the volume of some of these 
contracts and has there been a thought to, I mean, for those 
that produce products probably more than services, such as the 
one that the chairman mentioned, has there been a thought to 
breaking it down a little bit more for small business, in terms 
of quantities?
    I know that is probably inefficient in terms of costs, in 
terms of economies of scale, but has there been consideration 
for that?
    Mr. Jenkins. From SBA's standpoint, it is certainly one of 
our key strategies. When we send our procurement center 
representative into a buying agency and we look at a 
procurement, one of the things we try to go through with the 
buying activity is different strategies to increase small 
business participation.
    So if we do see a procurement where it is structured in a 
certain way that precludes small business participation, we try 
to work with that agency to structure it in such a way that we 
could increase small business participation.
    Mr. Coffman. Okay.
    To Ms. Oliver, you mentioned the earmark issue, and is that 
when--I mean, I am new to Congress--and so it is when you would 
just, I mean, trying--where it would impact a specific small 
business.
    Where you would earmark and say I have got a small business 
in my district that produces a very specific product that--let 
us say it is ceramic plates for the bulletproof vests, for the 
protective body armor.
    And so what I want to do is put an earmark in for that 
small business to produce that particular product, and that is 
generally how it is done. Is that correct?
    Ms. Oliver. That is correct. I believe, currently, the 
requirement is that they--don't rely on this--ask somebody on 
the legal staff. I believe the current requirement is that the 
congressperson have passed into law legislation that says this 
amount of money for this purpose to this organization. I think 
that is the format it takes.
    Mr. Coffman. Yes, I see. And in your view, in terms of the 
cost effectiveness of that, could you respond to that?
    Ms. Oliver. Of earmarks?
    Mr. Coffman. Related to a specific firm to produce a 
specific product or service. Am I----
    Ms. Oliver. That is sort of slightly outside my area of 
competence, but----
    Mr. Coffman. Okay.
    Ms. Oliver [continuing]. But you know it depends on who 
knows what. In terms of is it actually it efficient, it depends 
on who knows about it. And I mean by that I am not too quick to 
say that a Congressman sometimes doesn't have special insights 
about the capabilities of people in their district.
    Now, I understand all the problems with earmarks, and I 
definitely am in favor of competition and I speak only for 
Linda Oliver, not for the Department of Defense--but I don't 
discount that the--I don't just automatically discount, in my 
mind, about whether the Congressman is--whether this is an 
uneconomic thing to do. I think sometimes it is.
    Mr. Coffman. Thank you.
    Mr. Jenkins, on the notion of set-asides, I mean, all 
categories, can you define to me the different categories that 
there are? I know it is women-owned and minority-owned small 
businesses, but what are the other set-aside areas that we use 
right now?
    Ms. Oliver. Sure, the first one and probably most noticed 
is the small business set-aside. Then you have the set-aside 
for service-disabled veterans. The women-owned set-aside 
program has not been put in place yet. SBA has regulations over 
to the Office of Management and Budget to establish that set-
aside program. You also have a set-asides within the HUBZone 
Program itself.
    And in terms of how we have set-aside procurements or how 
SBA requests set-asides from the agencies, we look for at least 
two or more small businesses that can provide the product or 
services to the agency to meet their needs.
    The companies have to also be competitive, meaning their 
price has to be competitive because every procurement that is 
issued, the contracting officer has to attest that the price is 
fair and reasonable.
    And so we look at that area first and that becomes the 
basis for the market research, are there two or more small 
businesses out there? Can they provide a competitive price to 
meet the needs of the agency?
    Mr. Coffman. Mr. Jenkins, I have seen so many different 
definitions of small business. Is there, for purposes of DOD 
procurement, is there one definition for a small business and 
is that by the number of employees?
    Mr. Jenkins. Unfortunately, there are not. There are 
probably common standards but there are various industries and 
because of the number of industries, there are different size 
standards that go with each of those industries.
    Commonly, you would see maybe 500 or less in terms of 
number of employees would define a small business where it is a 
manufactured item. So, on the manufacturing side it is number 
of employees. On the service-based side, it is the end of the 
revenues of the business over a three-year period of time.
    Mr. Coffman. Thank you, Mr. Chairman. I yield back.
    Mr. Andrews. Thank you very much.
    The chair recognizes Mr. Ellsworth.
    Mr. Ellsworth. Thank you, Mr. Chair, for calling this 
timely meeting. I just had some gentlemen in my office this 
week. They were talking about the system, I guess I will call 
it a system, where a small--or a large business would 
subcontract, create a small business in order to bring even 
more in.
    And I was curious--I know that there is occurrences in the 
HUBZones where large businesses rent a storefront somewhere in 
a downtrodden area to get those benefits. But I was curious how 
large of a problem both of you see this is where--how pervasive 
it is?
    And then how many people do you all have dedicated to that, 
to weed that out? You know, let us say, we used to call them in 
Indiana ``hogs at the trough.''
    So how much effort, how pervasive is the problem where 
large companies are creating these small companies, and I know 
that, you know, I know back at home I hear this where you would 
see someone where the requirement is for minority-owned and 
female-owned and all of a sudden you see somebody start a 
business whether it was laundry cleaning or linen service, 
somebody who never had a business in that, no storefront, and 
all of a sudden they got the contract whether--you know.
    Can you explore that a little bit and how big of a problem 
that is and how far you go and how many resources do you have 
dedicated to weeding that out and stopping that?
    Ms. Oliver. That is fine. We will do a tag team here.
    Mr. Jenkins. There you go.
    Ms. Oliver. I think that the extent of the problem is 
exaggerated. And this is in part because it is very hard for a 
small business--it is very hard for any business to--when they 
don't win to contract to attribute the problem to themselves, 
and this is just hard.
    So people are quick to look for other reasons; reasons 
external. And that is the reason that fairly frequently, when 
we pull a string on one of these, it turns out not to be quite 
what the small business owner thought was happening.
    There are two--well, at least two sources of--the most, let 
me say, put it this way--the most frequent sources of small 
business credit being taken when it is a large business 
performing the contract, there are two primary sources, in my 
opinion, and we spend a lot of time trying to get the record 
right.
    One is when a big business buys a small business, but the 
small business had a contract. That contract continues to be 
performed even though it is now no longer--the Department of 
Defense no longer gets credit for it being a small business for 
example. So that is one legitimate way.
    Another way, to be honest with you, is data input is a huge 
problem, and it is especially a huge problem if the system is 
set up and it is the sensible way of having lower-level people 
do the data input. Now, we are working hard on that at the 
Department of Defense.
    But the biggest reason--every time I try and track one of 
these things down, what has really happened is somebody has a 
stack of papers they want to get through. They have no idea 
that the numbers are even used by anybody. They just know they 
need to get through it. So they put in whatever will make the 
program move forward to the next thing, and they kind of learn 
how to do that.
    If they don't think the data is valuable, I can surely 
understand why they are putting in inaccurate data, and that 
happens really frequently. This doesn't happen hugely 
frequently, but when there are problems, that is very 
frequently the source of it, as opposed to some sort of 
conspiracy to have the data show something which it isn't 
showing. We are not clever enough to be good conspiracists to 
be honest with you. Anyway, that is the way that I say the 
problem is exaggerated.
    Mr. Jenkins. Yes, I have to tend to agree with Linda. We 
have looked at the data, for example, in the 2005 small 
business procurement data, and when we went back to the various 
federal agencies we had to reduce the amount of achievements by 
about $5 billion. The large amount of that was due to, as Linda 
said, data entry errors.
    We have found just minimum amount of cases where someone 
deliberately said, ``I am a large business, and I am going to 
certify myself as small.'' We also had to change the entire 
process. In years past, prior to 2007, if you were a large 
business, and you purchased a small business, that contract was 
hardwired forever to still show up as a small business 
contract.
    We changed that rule in 2007 to say within 30 days of a 
large business purchasing a small business, that entity has to 
recertify to the contract and also that they are still small or 
that they are other than small. Then the contracting officer 
can no longer get credit as small business.
    We also have some mechanisms in place, if a small business 
believed that someone won a contract on a small business set-
aside and they are not small, they can protest that to SBA, and 
we have staff throughout the country that process those 
protests.
    We also do ongoing certification reviews of firms within 
the 8(a) Program. We are required to do annual reviews to 
ensure that they are continuing to be eligible. As I mentioned 
earlier, we are revitalizing or changing the entire HUBZone 
Program to put more integrity in that program and minimize the 
risk of someone setting up a storefront in an underutilized 
area and really don't qualify for the program.
    Also in the service disabled veterans program, there is a 
protest mechanism as well. So we have staff in place that are 
reviewing those and certainly, if any small businesses have 
some concerns or we can identify a firm they have concerns, we 
will certainly look at those.
    Mr. Andrews. Thank you, Mr. Ellsworth.
    Chair recognizes Mr. Cooper.
    Mr. Cooper. Thank you, Mr. Chairman. I would like to 
explore with Ms. Oliver the earmark situation.
    Ms. Oliver. Okay.
    Mr. Cooper. You mentioned a figure of 12 percent, what is 
that 12 percent of?
    Ms. Oliver. I need to get you, probably, a better figure.
    [The information referred to can be found in the Appendix 
on page 49.]
    Ms. Oliver. The number is probably accurate, but the 
composition of the number may be not completely accurate. Under 
not available for competition, we look at not available for 
competition, the number--and these are the 2008 numbers--the 
number is 12.69 percent.
    I don't know if I can break it out where you can go back to 
the folks who gave me the numbers and break that specifically, 
you know, which subcategories that falls into. I know earmarks 
is----
    Mr. Cooper. So this would be a total Pentagon small 
business procurement?
    Ms. Oliver. Yes.
    Mr. Cooper. Or total Pentagon procurement or----
    Ms. Oliver. But small business.
    Mr. Cooper. Small business.
    Ms. Oliver. Yes.
    Mr. Cooper. Okay. So 12 percent of that universe is not 
available for competition because it is a congressional 
earmark?
    Ms. Oliver. It is not available for competition. A good 
portion of that will be an earmark, but I don't know what the 
proportion is. I don't know what is in that whole category. I 
mentioned earmarks to Chairman Andrews because we were going 
through a list of reasons they might not be competed, and one 
of the ones that he had not thought about was earmarks.
    Mr. Cooper. So this category is not only not available for 
competition it is also not subject to regular small business 
rules, right? They can bypass all those rules?
    Ms. Oliver. With an earmark you mean?
    Mr. Cooper. Yes.
    Ms. Oliver. Yes, we do whatever you tell us to. I mean, you 
make the law.
    Mr. Cooper. And so it doesn't have to be a small business 
or a minority business----
    Ms. Oliver. No.
    Mr. Cooper [continuing]. Or a disadvantaged business----
    Ms. Oliver. No.
    Mr. Cooper [continuing]. Or a woman-owned business or 
anything like that?
    Ms. Oliver. No.
    Mr. Cooper. It doesn't even have to be a small business?
    Ms. Oliver. No.
    Mr. Cooper. It can be a large business?
    Ms. Oliver. Absolutely.
    Mr. Cooper. And the Pentagon doesn't even necessarily need 
what they are producing?
    Ms. Oliver. All that is true.
    Mr. Cooper. So this is very curious category here. Has that 
category been growing or shrinking in recent years?
    Ms. Oliver. I don't know but I definitely can----
    Mr. Cooper. Find that out for me?
    Ms. Oliver [continuing]. Find that out for you, and I would 
be happy to.
    [The information referred to can be found in the Appendix 
on page 49.]
    Mr. Cooper. Is there any record of the usefulness or the 
viability of these earmarks and the services they produce? You 
said you didn't want to assume that Congressmen didn't know 
what they were doing, but some of us might assume that. 
[Laughter.]
    Ms. Oliver. It is very hard to--I don't--that is one that I 
wouldn't know how to help people get at because usefulness is 
sort of in the eyes of the beholder. If we could think of a 
way, an indication of what might mean not useful and, you know, 
some way to tag it to the data system, I can get people to look 
at those tags.
    Mr. Cooper. But these are specific businesses that are 
mentioned by name in the legislation or in the report language?
    Ms. Oliver. Yes, there is a----
    Mr. Cooper. They get the money.
    Ms. Oliver. Yes. There is a--and it isn't even a report. At 
least last year there was a list that was specific. I mean, it 
was so that we could clearly understand what Congress wanted us 
to do and----
    Mr. Cooper. And we are talking here----
    Ms. Oliver [continuing]. A version of greater than----
    Mr. Cooper [continuing]. Just in the DOD area because 
earmarks exist in many other areas as well, but now we are just 
talking about national defense?
    Ms. Oliver. That is, last year, the appropriation I paid 
attention to. I can't--I don't know for sure about the other 
areas, the other appropriation acts.
    Mr. Cooper. So essentially we have a small business program 
here in DOD, and then we have this earmark program which may or 
may not be small business?
    Ms. Oliver. Well, let me tell you how we arrived at those 
numbers because I have misled you I am afraid. We looked at 
contracts awarded to small business, and then we put those into 
pockets, into categories.
    Mr. Cooper. Okay.
    Ms. Oliver. And of contracts awarded to small business, 
about 77 percent of them were competed. If we look at the 
other--whatever the number is--17--27--whatever the rest of it 
is, if we break that number down, two of the categories are not 
available for competition and another category--the two biggest 
other categories are not available for competition and not 
competed.
    Mr. Cooper. So you were just referring to the earmarks that 
went to small businesses?
    Ms. Oliver. Yes.
    Mr. Cooper. And there is another larger universe of 
earmarks probably that went to other businesses.
    Ms. Oliver. That is right. I was only focused on small 
business numbers.
    Mr. Cooper. Do you think----
    Ms. Oliver. I don't know whether--from a percentage 
standpoint, I don't know whether small businesses or other than 
small businesses get the higher percentage of earmarks. My very 
partisan in favor of small business guess is that the ``bigs'' 
aren't as competitive and get more earmarks, but, I mean, that 
is maybe just wishful thinking.
    Mr. Cooper. I see my time is expiring. If I could have one 
more question to Mr. Jenkins. He had mentioned that SBA is 
thinking of raising the size standards for small business so 
that more capacity could be in that category? Was that----
    Mr. Jenkins. Well, I don't want to necessarily say raise 
it. We were doing a comprehensive review of all of the size 
standards and some--and in a number of industries we will 
certainly see that they will go up.
    Mr. Cooper. Yes. Is this kind of like the super-size me 
approach, so no longer we are talking about small business, but 
you are going to go for medium-sized businesses, too, and we 
will have a medium-sized business program?
    Mr. Jenkins. Well, no. Hopefully--that is not our aim and 
that has been our challenge is to strike that balance. A lot of 
our data and a lot of our analysis is dependent on federal 
procurement. Our size standards also apply to our lending 
program as well, and so it is a very extensive analysis.
    We spent a lot of time developing the methodology, and we 
have listed the methodology out there for the public to review 
that as they submit their comments. And certainly we expect 
some comments to come in and say, hey, your methodology might 
be flawed or that you raised these standards too high and here 
is the reasons why. And certainly we are open to look at those.
    Mr. Cooper. I thank the Chair.
    Mr. Andrews. Thank you, Mr. Cooper. I do have a couple of 
follow-up questions. Do any other members have, and Mr. 
Coffman, would you have any follow ups?
    Mr. Coffman. Well, Mr. Chairman, one of my military 
legislative assistants raised the prospect, Ms. Oliver, that 
the DOD does have some discretion on earmarks up or down in 
evaluating their efficacy. Could you respond to that now or get 
back to the committee later on with that?
    Ms. Oliver. Yes. The Department of Defense has some 
discretion about following or doing what is an earmark. It is 
the discretion you have given us because we have to do exactly 
what you tell us to do, but particularly on spending money.
    There is less flexibility with spending money. I mean, 
there may be--I am not quite sure--I probably am not completely 
sure what--your staffer is thinking of something, and I am not 
meeting--I am not thinking of what it is.
    Whoever is wondering didn't just make it up out of this. 
There is something there, but I don't know what it is. I don't 
know what to address.
    Mr. Coffman. Maybe that is something----
    Mr. Andrews. Would the gentleman yield? I wonder if Ms. 
Oliver would--my understanding is there is a distinction 
between statutory language----
    Ms. Oliver. Yes.
    Mr. Andrews [continuing]. ``The DOD shall spend the billion 
dollars on X.''
    Ms. Oliver. Right.
    Mr. Andrews. And report language which is directive with 
respect to an existing program element (PE) number, where if 
there is a PE number that has a billion dollars in it, and the 
committee in its report says the committee directs, urges--
there is various permutations of this--the committee directs 
that money be spent to buy widgets. My opinion is you would 
have a lot more discretion over that because it is not a 
statutory direction. I think that may be what we are getting at 
here.
    Ms. Oliver. That makes sense, yes. I think that is probably 
true.
    Mr. Andrews. Although I think the custom has been to treat 
that report language as directive, it has not been a universal 
or exhaustive practice, something we ought to think about in 
how we conduct our business.
    Mr. Ellsworth, did you have any follow up?
    Ms. Oliver, I did have a question on SBIR----
    Ms. Oliver. Yes.
    Mr. Andrews [continuing]. Which we think is a very valuable 
tool, not only in expanding small business opportunities, but 
putting us on a much sharper cutting edge for the kinds of 
products that we buy.
    I am particularly interested in the Pre-Milestone A 
material acquisition area, where we have a material solution 
process going on within the Department. We are Pre-Milestone A. 
The reason I ask this question is that I think evidence, 
anecdotal evidence has shown some really terrific ideas to come 
out of small businesses in that phase.
    But once we get beyond A and certainly when we get beyond 
B, almost by definition, the small businesses are in very deep 
water and don't have a chance to contribute as much. What 
mechanism do we have in place Pre-Milestone A in these material 
solutions contexts, to make sure that there is an active 
outreach effort to the small business that may have a great 
idea but not a whole lot of capital to develop it? How do we do 
that?
    Ms. Oliver. Well, that is one of the things we are working 
on. To be honest with you, we need to do a better--we in the 
Department of Defense have to do a better job than we are doing 
in making program managers understand that if there is an SBIR 
product or almost product, they need to consider it.
    It is so hard to put a program together, and there are so 
many----
    Mr. Andrews. Yes.
    Ms. Oliver [continuing]. Things to think of. I do 
understand why a program manager might say, ``I don't want to 
hear anything more about anything. I am overwhelmed here. I am 
overloaded.'' Well, we have to do a better job in helping them 
understand----
    Mr. Andrews. How does the program manager educate himself 
or herself about those possibilities? Let me use an amateur 
example, but----
    Ms. Oliver. Okay.
    Mr. Andrews [continuing]. If I am in charge of a material 
solutions process, I know there are certain vendors to whom I 
can go, the biggies, as you call them, that probably have a dog 
in the hunt.
    Ms. Oliver. Yes.
    Mr. Andrews. But I am just not going to be aware of a five-
person company spun off of Stanford University or Massachusetts 
Institute of Technology (MIT) or Cornell----
    Ms. Oliver. Yes, yes.
    Mr. Andrews [continuing]. Regulars. How--and I don't expect 
these program managers to spend their whole day looking for 
those. That would be pretty inefficient. How do we set up--this 
is not a rhetorical question--how do we set up a system where 
he or she can be aware of the creative, entrepreneurial, 
dynamic, small decisionmakers out there? How do you do that?
    Ms. Oliver. It is function of resources.
    Mr. Andrews. Yes.
    Ms. Oliver. Not to get off on a hobby horse, but the SBIR 
program is almost unique, not completely, but almost unique in 
that you may not use program funds to administer the program.
    Mr. Andrews. Yes.
    Ms. Oliver. That makes things like helping program managers 
understand what is out there, that makes it sort of a luxury in 
a way for the program managers. The Department of Navy has done 
a good job on it.
    Mr. Andrews. Yes.
    Ms. Oliver. And there are----
    Mr. Andrews. So if our rules say that all of the SBIR money 
must go for contracts and grants to the recipients----
    Ms. Oliver. That is correct.
    Mr. Andrews [continuing]. But you have got to eat the 
overhead through some other aspect of your budget basically?
    Ms. Oliver. I didn't hear the last.
    Mr. Andrews. How--the overhead to----
    Ms. Oliver. Yes.
    Mr. Andrews [continuing]. To give the money out----
    Ms. Oliver. Yes.
    Mr. Andrews [continuing]. Has to come from some other pool 
of money?
    Ms. Oliver. Yes.
    Mr. Andrews. Would you favor and, you know, not speaking 
for the Department, just your professional opinion as someone 
who knows this area, would you favor a small administrative 
set-aside in SBIR that would give the program managers some 
support for that?
    Ms. Oliver. Yes. I think you have to have money to run a 
program well.
    Mr. Andrews. I mean, my instinct would be that the savings 
would be multiples of the set-aside. If you had some program 
support for the small business--for the program manger in the 
material solution context, to find the five people at Stanford 
that have a great idea about this, that even if they don't wind 
up awarding the contract to that enterprise, the competition 
that would be stimulated would probably bring the price down of 
the contract they would eventually award and maybe sharpen the 
competition in a qualitative way as well.
    Ms. Oliver. Absolutely.
    Mr. Andrews. You would agree with that idea?
    Ms. Oliver. Absolutely I do.
    Mr. Andrews. Well, ladies and gentlemen, we have really 
benefited from your hard work and preparation for today. And as 
I say, I start with the presumption that competition enhances 
value and that broader small business participation enhances 
competition.
    I think it would behoove us, wherever we can, to put 
empirical data behind those suppositions because it would then 
give the committee the intellectual heft, as it were, to make 
the argument that there should be some changes in the law that 
would benefit small businesses and benefit the country.
    So we are interested in whatever you can do to supplement 
the record. A number of members asked questions that would help 
us do that. And as we proceed in this process, the panel during 
the end of this calendar year and early of next year, is going 
to be meeting to consider a series of recommendations, which 
will take the form of a report which will hopefully then take 
the form of legislative language in the fiscal year 2011 
authorization bill.
    We would welcome your input into that process, that we 
would hope that your participation would not end with today's 
hearing but, in fact, would begin with it.
    Again, we thank you for your involvement. I thank my 
colleagues, and the hearing stands adjourned.
    [Whereupon, at 8:58 a.m., the panel was adjourned.]


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




                            A P P E N D I X

                            October 29, 2009

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


              PREPARED STATEMENTS SUBMITTED FOR THE RECORD

                            October 29, 2009

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


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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


                   DOCUMENTS SUBMITTED FOR THE RECORD

                            October 29, 2009

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


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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


              WITNESS RESPONSES TO QUESTIONS ASKED DURING

                              THE HEARING

                            October 29, 2009

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

      
            RESPONSES TO QUESTIONS SUBMITTED BY MR. ANDREWS

    Ms. Oliver. The following is provided to identify the competitive 
break-down of dollars awarded to small businesses in FY 2008, based on 
information generated from the Federal Procurement Data System - Next 
Generation (FPDS-NG) as of September 22, 2009. Of the $62.027B awarded 
to small businesses, $24.9B or 40 percent of the dollars were awarded 
using full and open competition where competition was not restricted to 
small businesses. Another $23.2B, or 37 percent of the dollars were 
awarded using full and open competition after exclusion of sources 
which means competition is restricted in some manner, such as for small 
business set-asides. The remainder of the dollars awarded to small 
business were either not available for competition 12.69 percent or not 
competed 9.7 percent. A contract action is categorized as not available 
for competition in limited cases such as when a law specifies a 
particular source, sole source awards to 8(a), HUBZone or Service-
Disabled Veteran-Owned Small Business concerns, international 
agreements, items bought for resale in the commissary, or utilities. 
Other non-competitive awards are reported as not competed. [See page 
8.]
    Ms. Oliver. The following is provided in response to the question 
of whether there is a price differential realized when there is small 
business competition in the market place. The DOD Office of Small 
Business Programs relies on the data and reports that can be generated 
from the Federal Procurement Data System - Next Generation (FPDS-NG). 
For awarded contracts, FPDS-NG contains data elements that allow for 
reporting the dollar value of contracts awarded by DOD and other 
federal agencies. However, information in this database does not 
include the prices that the government may have received in the 
competition process from unsuccessful offerors. In addition, reports 
generated from FPDS-NG do not offer the opportunity to assess 
competition and pricing differences between full and open competition 
and those competitions that have been set aside for small business 
concerns (full and open competition after exclusion of sources). It 
should be noted however, that when a small business concern is awarded 
a contract under full and open competition, it is competing against all 
offerors, regardless of their size. FPDS-NG reporting for FY 2008, 
indicates that $24.9B or 40% of dollars awarded to small business 
concerns resulted from full and open competition and another $23.2B or 
37% of dollars awarded to small business concerns resulted from full 
and open competition after exclusion of sources. These statistics 
support the premise that small businesses are price competitive in open 
market competitions. [See page 9.]
                                 ______
                                 
             RESPONSES TO QUESTIONS SUBMITTED BY MR. COOPER
    Ms. Oliver. The following is provided to clarify what type of 
actions compose the 12 percent of dollars awarded to small business 
that are reported as Not Available for Competition. The DOD Office of 
Small Business Programs relies on the data and reports that can be 
generated from the Federal Procurement Data System - Next Generation 
(FPDS-NG). DOD contract awards that were made to small businesses in 
Fiscal Year (FY) 2008, total $62.027B. The 12 percent mentioned is 
actually 12.69 percent and represents the total amount of DOD contract 
awards that were made to small businesses that were reported as Not 
Available for Competition. This amount is $7.84B of the total. 
Contracts reported in this category include those where statute 
expressly authorizes or requires that the acquisition be made from a 
specified source or through another agency. For example, awards to 
Ability One, sole source awards to 8(a), HUBZone, or Service-Disabled 
Veteran Owned small business concerns. Awards authorized by statute 
comprised $7.7B of the dollars awarded to small business that were 
reported as Not Available for Competition, with the remainder reported 
as being authorized by international agreement. Contracts for earmarks 
do not automatically fall into this category. Unless law specifically 
requires procurement from a specified source, the buying office must 
compete a new contract for an earmark or justify a non-competitive 
award consistent with the exceptions authorized by the Competition in 
Contracting Act. [See page 14.]
    Ms. Oliver. We obtained data from the earmark database managed by 
Office of Management and Budget to answer the question whether earmarks 
have been growing or shrinking in recent years. The database reflects 
that in Fiscal Year (FY) 2008 there were 2,275 earmarks for DOD 
totaling $7.8B, down from 2,636 earmarks for DOD in FY 2005 totaling 
$9.3B. [See page 15.]
?

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


              QUESTIONS SUBMITTED BY MEMBERS POST HEARING

                            October 29, 2009

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

      
                   QUESTIONS SUBMITTED BY MR. CONAWAY

    Mr. Conaway. I want to focus on small business set-asides in DOD 
contracting for a moment. In your experience, are there certain types 
of procurements--be it product development, maintenance and repair, 
etc.--that achieve stronger results with small business set-asides in 
them?
    Ms. Oliver. There is no specific area; small businesses are capable 
of providing and performing a wide range of products and services for 
DOD. Based on contract award data from the Federal Procurement Data 
System - Next Generation for Fiscal Year 2008, areas where small 
businesses achieve strong results include information technology, 
professional scientific, technical services and wholesale and retail 
trade.
    Mr. Conaway. We have all seen and understand that resources are 
tight these days, and we all share a responsibility as stewards of 
taxpayer funds. In your experience, what level of savings do small 
business bids on DOD contracts achieve for the government and the 
taxpayer? Can you detail it in any specific way for us?
    Ms. Oliver. The Department maintains no data that would show the 
level of savings that small business bids achieve on DOD contracts. 
However, it is instructive to look at DOD contract awards that were 
made to small businesses in Fiscal Year (FY) 2008. These awards total 
$62.027B. Of this amount, forty percent, or $24.9B, are contracts that 
were awarded to small businesses under full and open competitions. This 
strongly suggests that small businesses are competitive and bring the 
best value to the taxpayer. It is also instructive to note that another 
$23.2B, or 37.4 percent of DOD contracts that were awarded to small 
businesses were competed under full and open competition after the 
exclusion of sources (i.e., set aside for small business). The total 
percentage of competed contracts for small businesses (both full and 
open and full and open after the exclusion of sources) is more than 77 
percent. Competition among small business is valid competition that 
brings best value and savings to the taxpayer.
    Mr. Conaway. Can you give us an idea what leads to the inclusion or 
exclusion of a small business set-aside in an RFP? As an example, the 
P-3 Orion, an airplane which is seeing extensive use in a vital role in 
Iraq, is currently the subject of a draft RFP for Programmed Depot 
Maintenance (PDM). The current draft RFP does not have a small business 
set-aside in it, yet the service is considering it for the final RFP. I 
am aware of small businesses that can perform this work for the Navy 
but would be shut out of the competition if there is not a small 
business set-aside included in the final RFP. Given the demand for 
these airplanes around the world, shouldn't we include a small business 
set-aside in the RFP that can serve as an additional source of repair 
for the Navy?
    Ms. Oliver. To clarify a potential misunderstanding derived from 
the question posed--the P-3 Orion RFP referenced is not for PDM (Phased 
Depot Maintenance), but for the maintenance, repair, and modifications 
of the Navy's P-3 aircraft. The Navy Program Office, PMA-290, recently 
completed a comprehensive review of six potential small businesses who 
expressed interest in the contract being designated a full or partial 
small business set-aside during the pre-solicitation Industry Day. The 
review was conducted using NAVAIRSYSCOM Sources Sought Process 
Guidebook to ensure a consistent methodology was used to evaluate the 
company's ability to meet minimum capability and capacity requirements 
necessary to meet the Navy's requirements. It is the assessment of 
PMA290 and the NAVAIR Procurement Contracting Officer that this 
contract is not suitable for set-aside to small business. However the 
evaluations and recommendation are still under review by the NAVAIR 
Small Business office (OSBP) and the Small Business Administration's 
Procurement Center Representative (PCR) as part of the Small Business 
Coordination Record (DD2579) process. Once recommendations are received 
from the OSBP and PCR, the contracting officer will make the final 
determination of the acquisition strategy.
    Mr. Conaway. The Small Business Acquisition and Sustainment Tool 
(SbAST) is being conducted as a total small business set-aside by the 
USAF and specifically Warner Robins ALC. The contract requirements 
include maintenance, repair, modifications, upgrades, and enhancements 
for reliability, serviceability, maintainability, and performance 
improvements for Air Force operated systems at Warner Robins Air 
Logistics Center. I recently spoke with the CEO of a small business DOD 
contractor who will be submitting his proposal in early November for 
SbAST. His enthusiasm for this type of RFP and the prospects it holds 
for his business and employees was clear. I wonder if you would comment 
on SbAST and whether this form of RFP, directed at Small Businesses, 
will continue to be utilized in DOD contracts?
    Ms. Oliver. The Small Business Acquisition and Sustainment Tool 
(SbAST) is being conducted as a companion contract which is a strategy 
developed by the Small Business Office at the Department of the Air 
Force. Under this approach two separate request for proposals (RFPs) 
are issued. One RFP is designated work set-aside exclusively for small 
businesses. The proposal is similar but may not be identical to the 
full and open RFP issued for the same general requirement using 
multiple award contracts. Companion contracts allow small businesses to 
compete against other small businesses for all task orders to be 
awarded under the companion contract. The contracting officer decides 
at the task order level whether a requirement is best suited to be 
competed amongst small business contract holders or by those who won 
contracts under the full and open request for proposal. The Department 
of the Air Force is considering the use of this strategy on other large 
service acquisitions.

                                  
