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




                         [H.A.S.C. No. 111-183]
 
 SMALL BUSINESS' ROLE AND OPPORTUNITIES IN RESTORING AFFORDABILITY TO 
                       THE DEPARTMENT OF DEFENSE

                               __________

                                HEARING

                               BEFORE THE

   SUBCOMMITTEE ON TERRORISM, UNCONVENTIONAL THREATS AND CAPABILITIES

                                 OF THE

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD

                           SEPTEMBER 29, 2010

                                     
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   SUBCOMMITTEE ON TERRORISM, UNCONVENTIONAL THREATS AND CAPABILITIES

                LORETTA SANCHEZ, California, Chairwoman
ADAM SMITH, Washington               JEFF MILLER, Florida
MIKE McINTYRE, North Carolina        FRANK A. LoBIONDO, New Jersey
ROBERT ANDREWS, New Jersey           JOHN KLINE, Minnesota
JAMES R. LANGEVIN, Rhode Island      K. MICHAEL CONAWAY, Texas
JIM COOPER, Tennessee                THOMAS J. ROONEY, Florida
JIM MARSHALL, Georgia                MAC THORNBERRY, Texas
BRAD ELLSWORTH, Indiana              CHARLES K. DJOU, Hawaii
BOBBY BRIGHT, Alabama
SCOTT MURPHY, New York
                 Tim McClees, Professional Staff Member
               Alex Kugajevsky, Professional Staff Member

                      Jeff Cullen, Staff Assistant


                            C O N T E N T S

                              ----------                              

                     CHRONOLOGICAL LIST OF HEARINGS
                                  2010

                                                                   Page

Hearing:

Wednesday, September 29, 2010, Small Business' Role and 
  Opportunities in Restoring Affordability to the Department of 
  Defense........................................................     1

Appendix:

Wednesday, September 29, 2010....................................    15
                              ----------                              

                     WEDNESDAY, SEPTEMBER 29, 2010
 SMALL BUSINESS' ROLE AND OPPORTUNITIES IN RESTORING AFFORDABILITY TO 
                       THE DEPARTMENT OF DEFENSE
              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Miller, Hon. Jeff, a Representative from Florida, Ranking Member, 
  Subcommittee on Terrorism, Unconventional Threats and 
  Capabilities...................................................     3
Sanchez, Hon. Loretta, a Representative from California, 
  Chairwoman, Subcommittee on Terrorism, Unconventional Threats 
  and Capabilities...............................................     1

                               WITNESSES

Lemnios, Hon. Zachary J., Director, Defense Research and 
  Engineering, U.S. Department of Defense........................     4
Oliver, Linda B., Acting Director, Office of Small Business 
  Programs, U.S. Department of Defense...........................     6

                                APPENDIX

Prepared Statements:

    Lemnios, Hon. Zachary J......................................    24
    Miller, Hon. Jeff............................................    22
    Oliver, Linda B..............................................    34
    Sanchez, Hon. Loretta........................................    19

Documents Submitted for the Record:

    [There were no Documents submitted.]

Witness Responses to Questions Asked During the Hearing:

    Mr. Miller...................................................    51

Questions Submitted by Members Post Hearing:

    Mr. Johnson..................................................    59
    Ms. Sanchez..................................................    55
 SMALL BUSINESS' ROLE AND OPPORTUNITIES IN RESTORING AFFORDABILITY TO 
                       THE DEPARTMENT OF DEFENSE

                              ----------                              

                  House of Representatives,
                       Committee on Armed Services,
     Subcommittee on Terrorism, Unconventional Threats and 
                                              Capabilities,
                     Washington, DC, Wednesday, September 29, 2010.
    The subcommittee met, pursuant to call, at 2:06 p.m., in 
room 2212, Rayburn House Office Building, Hon. Loretta Sanchez 
(chairwoman of the subcommittee) presiding.

  OPENING STATEMENT OF HON. LORETTA SANCHEZ, A REPRESENTATIVE 
    FROM CALIFORNIA, CHAIRWOMAN, SUBCOMMITTEE ON TERRORISM, 
            UNCONVENTIONAL THREATS AND CAPABILITIES

    Ms. Sanchez. The subcommittee will now come to order.
    Good afternoon. I would like to welcome all of you, and 
thank you for joining us this afternoon. Today, we are here to 
further examine the opportunities and the challenges for small 
technology firms to compete in defense acquisition.
    The purpose of today's hearing is to answer some of the 
questions that I know I am asked, and my colleagues must be 
asked all the time, by small business owners in our districts. 
Many small businesses do not know how to navigate or approach 
the Department of Defense [DOD] bureaucracy. And so, this 
subcommittee has held a number of hearings on small businesses 
this past year because, as I have stated before, small 
businesses are the key driver of innovation for the Department 
of Defense.
    And that is where the jobs are located and that is what we 
are trying to do in our nation, so this is one of the areas 
where I hope we can have some effect. And I cannot stress 
enough how pertinent the success of small businesses are to the 
U.S. economy and, of course, to our daily responsibilities in 
the Department of Defense.
    Small businesses have different perspectives on key 
national security issues particularly compared to their large 
counterparts. One of the goals for this hearing is to 
understand how our national security requirements and goals are 
interpreted by small business and how better the Department of 
Defense can guide small businesses to the current technological 
needs of the department.
    Currently, this nation's small businesses encounter a lot 
of challenges. I have known so many businesses have come out 
here and have tried for years and years and have come up with 
nothing. And so, it is important for them to know how to 
navigate because that is where some of our critical technology 
and innovation can come from.
    I hope, today's hearing, our witnesses will address these 
challenges, and also to highlight effective tools and resources 
that we can take back to our communities to help these small 
businesses access these contracts. For example, I am sure that 
my colleagues are constantly approached about more information 
about who they call.
    Everybody thinks there is always some person, that they are 
just missing the right person's name or their phone number, and 
that they would get a contract if they could just get to that 
person. So maybe you can shed some light on who that person is 
and what their phone number might be, or maybe what the real 
process is for our small businesses.
    And I know these sound like small requests, but when you 
are a small business, you think you have a great idea, and you 
just can't seem to break through, it can become very 
frustrating. And that is a frustration that many of the members 
hear.
    Another issue that could be discussed during this hearing 
is the ongoing challenge of reauthorizing the Small Business 
Innovation Research [SBIR] program. The underlying law 
authorizing that program expired in 2008, and we have been 
having many fits and starts trying to get that underway to 
reauthorize it. However, it hasn't been successful, and I find 
it very disturbing, and I am extremely concerned, and it is 
very time-consuming. So we are trying to figure out how to get 
that on track.
    So I think it would be particularly helpful for our 
witnesses to explain the consequences of not passing a 
comprehensive reauthorization bill and the effect that it will 
have on our overall strategic effectiveness of the SBIR 
program.
    And finally, I would like to point out that the Department 
of Defense has invested nearly $5 billion in SBIR over the last 
5 years across thousands of projects but doesn't get full value 
for this investment because proper funding isn't available to 
field and transition these technologies to the warfighter or to 
the commercial marketplace. And that is why this committee 
established a new program in the pending fiscal year 2011 
defense bill called the Rapid Innovation program.
    The Rapid Innovation Program authorizes $500 million for 
the purposes of developing innovative solutions to defense 
needs and to accelerate insertion of those technologies into 
weapons programs or into the marketplace. This program is 
intended to primarily support small, high-tech private firms. 
So I would welcome your comments on how the department would 
execute this new authority if it becomes law.
    So today, we have two distinguished witnesses before us. 
The first, we have brought back the Honorable Zachary Lemnios, 
the director of defense research and engineering at the U.S. 
Department of Defense--welcome again, Doctor--and Ms. Linda 
Oliver, the acting director of the Office of Small Business 
programs in the U.S. Department of Defense. Welcome.
    And once again, I would like to thank the witnesses for 
being here today. I am looking forward to your testimony. 
Without objection, we will accept the written testimony into 
the record. I would like to tell you that each of you will have 
5 minutes to summarize your testimony, or tell us something 
that is not in there that you think we need to know, and then 
we will ask some questions, and we will be observing the 5-
minute rule.
    So I will now yield to my very capable ranking member from 
Florida, Mr. Miller, for his opening statement.
    [The prepared statement of Ms. Sanchez can be found in the 
Appendix on page 19.]

 STATEMENT OF HON. JEFF MILLER, A REPRESENTATIVE FROM FLORIDA, 
   RANKING MEMBER, SUBCOMMITTEE ON TERRORISM, UNCONVENTIONAL 
                    THREATS AND CAPABILITIES

    Mr. Miller. I thank the chairwoman for yielding for an 
opening statement.
    This morning, the full committee heard testimony on 
Secretary Gates' Department of Defense initiative on 
efficiency, targeted to finding cost savings and to improving 
general business operations within DOD. Now, many of us, I am 
sure, have questions and concerns regarding the secretary's 
initiative, as we have got to ensure that critical capabilities 
are not sacrificed in the name of blind cost-cutting.
    The threats to our great nation are varied, so really a 
fine balance must be struck between identifying effective 
savings and protecting needed capabilities. And at the end of 
the day, we must be fiscally responsible while not failing in 
our responsibility to ensure that our country has the ability 
to defend its interests.
    I believe DOD can find many solutions by turning to the 
small business community. Small business men and women are 
constantly developing innovative solutions to the myriad of 
challenges that exist in today's world, and they do so 
precisely while operating efficiently and effectively. They are 
truly an invaluable source of talent and technology creation 
increasingly important to the department's operations.
    With this in mind, we as a Congress must work with DOD to 
improve small business availability to access the department. 
We must improve the information flow and engagement between the 
department and the small business community and eliminate 
remaining contracting obstacles that deter small business from 
working with the department.
    By leveraging the expertise, creativity and passion that 
exists among small business owners and their companies, the 
department will find improved efficiencies often without 
significant disruption or impact to current DOD functions.
    Madam Chairman, I have additional information that I would 
like entered into the record in regards to my opening 
statement, but because we do have votes coming, I would like to 
yield back the balance of my time.
    [The prepared statement of Mr. Miller can be found in the 
Appendix on page 22.]
    Ms. Sanchez. Okay. So first, we will hear from the 
Honorable Lemnios, please, for five minutes.

    STATEMENT OF HON. ZACHARY J. LEMNIOS, DIRECTOR, DEFENSE 
      RESEARCH AND ENGINEERING, U.S. DEPARTMENT OF DEFENSE

    Mr. Lemnios. Well, thank you very much, and good afternoon, 
Chairman Sanchez, Ranking Member Miller, and subcommittee 
members. It is a pleasure to be back before you again today. 
And I know we have talked about a number of technology issues 
in the past, and we will continue that dialogue as we move 
forward. I am pleased to be here today on behalf of the 
dedicated men and women working across the Department of 
Defense who discover, develop, engineer and field critical 
technologies in defense of our nation.
    As a chief technology officer for the Department of 
Defense, I am also honored to be joined today by Ms. Linda 
Oliver, the acting director of the Office of Small Business 
Programs in the office of the under secretary of defense for 
acquisition, technology and logistics. Ms. Oliver will speak 
specifically to the Small Business Innovation Research program.
    My comments this afternoon are a summary of my written 
testimony, and they will center on the importance of the small 
business community in driving invention and innovation to 
quickly launch new capabilities that support our warfighters. I 
will keep this opening statement brief so we will have plenty 
of time for questions during our session this afternoon.
    The department of science and technology, our S&T 
enterprise, encompasses a remarkable pool of talent and 
capabilities. Our footprint includes 67 DOD laboratories in 22 
states with a total workforce of 61,400 employees. We operate 
10 federally funded research and development centers, 13 
university-affiliated research centers, and 10 information-
analysis centers across critical disciplines for the 
department.
    Coupled to this enterprise, the department enjoys a strong 
relationship with the small business community through a 
variety of programs designed to foster invention and 
innovation. It is these programs that I would like to discuss 
today, which include the Defense Acquisition Challenge, the 
Rapid Reaction Fund, the Quick Reaction Fund, and the Open 
Business Cell, as well.
    The Defense Venture Catalyst Initiative is our way to 
couple with the small business communities, specifically with 
companies that aren't the traditional contracting vehicles for 
the department and offer us new opportunities to see new ideas. 
Each of these represent an avenue of innovation and a path to 
bring ideas into the department and transition concepts 
developed in our laboratories in these small business 
environments to commercial use.
    The small business community is an engine of innovation. It 
attracts entrepreneurial talent and the agility to rapidly form 
new teams with the speed of the commercial marketplace. It has 
been my goal to move the department's innovation cycle to that 
of the commercial sector, and Chairman Sanchez, when we met 
last time, we spoke exactly on those terms.
    In many cases, simply providing access to a field unit, our 
operators, our testing facilities provide small businesses with 
insight and fundamental technical and operational challenges 
that we face. To that end, we have provided these companies 
with access to our S&T advisors across the combatant commands, 
and we have strengthened our S&T engagement to support the 
department's joint urgent operational needs environment. And 
because small businesses typically have fewer resources to test 
and operationalize their techniques, we have provided access to 
the department's training facilities and test results.
    One example of this type of access is the Joint 
Experimental Range Complex at the U.S. Army Yuma proving 
ground. This facility allows a number of small companies to 
test a wide range of technologies in a realistic environment 
and has open channels of innovation to provide us with new 
capabilities.
    The department provides other paths for small businesses to 
respond to time-critical challenges. These include our Rapid 
Reaction fund, our Quick Reaction fund, and our Defense 
Acquisition Challenge. Each of these programs addresses a 
different opportunity for the small business community to 
connect with the department, and it is precisely that 
connection that I think many of you have asked about.
    As an example, the Open Business Cell uses a Web interface 
to solicit solicitations to a defined set of problems. Over the 
past several months, we have received over 7,000 inquiries on 
our Web site. We are evaluating those concepts now, many of 
which wouldn't come through a normal acquisition process, a 
normal solicitation process.
    This nontraditional approach allows companies that are not 
familiar with the DOD acquisition process to understand our 
needs and our future in terms that they can relate to in a 
very, very simple fashion. Our Defense Venture Catalyst 
Initiative, or DVCI, targets small companies with emerging 
technologies that meet our warfighter needs and are ready to go 
directly from the commercial marketplace.
    In addition to the activities already in place, the 
department continues to drive the participation of small 
business across all of our programs. My office, DDR&E 
[Director, Defense Research and Engineering], is investigating 
and developing and implementing new small business initiatives. 
We are looking into ways that we can exploit our existing 
authorities under the SBIR program to couple to those 
identified needs from our combatant commanders and either 
augment ongoing projects or accelerate projects that are 
underway to tie them directly to our combatant commanders' 
needs.
    As part of our defense industrial base, small businesses 
represent a cadre of entrepreneurial innovation who bring new 
technology solutions and the agility to take on technical 
challenges that we face today and will face for years to come. 
The efforts that I have highlighted in my written testimony 
discuss in detail how we are connecting broadly across this 
community and how we are providing our department's needs to 
the small business community.
    Madam Chairwoman, thank you for the opportunity to present 
these brief remarks, and I look forward to your questions.
    [The prepared statement of Mr. Lemnios can be found in the 
Appendix on page 24.]
    Ms. Sanchez. Thank you, Director.
    And now, I would like to have Ms. Linda Oliver, acting 
director for the Office of Small Programs, please.

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

    Ms. Oliver. Thank you, Chairwoman Sanchez, Ranking Member 
Miller. It is a pleasure to be here, and how nice for me to be 
the fourth person to say something, and every single one of you 
have just said nice things about small business. This is my 
very favorite kind of hearing.
    My testimony is a description, in quite excruciating 
detail, of what the Department of Defense does to sort of seed 
innovation in the Department of Defense through the SBIR 
program. You are entitled, and we are happy to provide this 
detail, what we spent, where it went, broken down in a hundred 
ways.
    However, I would like today to present a different way of 
looking at how it works, how we seed innovation in the 
Department of Defense and perhaps, Chairwoman Sanchez, to 
answer for at least one of the programs how people get in.
    I have an SBIR product here. Somebody--yes, thank you. 
Good. Thanks. The black ones are prototypes. The khaki colored 
ones are the most recent developments.
    A little company in Seattle--now, see, I brought these 
because this is one that could get through the security and was 
concrete and all that kind of thing. This is actually a very 
high-tech set of gloves. These gloves are used in Afghanistan, 
are allowing our service people to be able to function in those 
high elevations.
    These were made by a little company called Outdoor 
Research, Inc. This company is in Seattle, had been in business 
for 19 years before it thought about an SBIR project. It came 
in with a discussion of what--we had a topic, a concern about--
--
    Ms. Sanchez. But it came in.
    Ms. Oliver. Yes.
    Ms. Sanchez. Here is the question. It came in. What does 
that mean, it came in? How did it get to you?
    Ms. Oliver. That is a----
    Ms. Sanchez. That is the question the small businesses back 
at home want to know. Hey, I got this great idea. I am making 
gloves. I think I can make them for people in Afghanistan. They 
came in. Don't gloss over that. They came in. What does that 
mean?
    Ms. Oliver. Okay. The SBIR program consists of what are 
sort of like broad agency announcements. There are general 
topics we need to know more about. The companies respond to the 
proposal, and the SBIR program is in two parts.
    The first part is here is kind of what we propose to do. 
This is sort of the concept, and then there is a proof of 
concept. And then, the second part, the phase two part, would 
be the prototype, in this case the gloves.
    Everybody understands gloves, I guess, but these are new 
materials, a new way to process. And the ones that you have on, 
Chairwoman Sanchez, are in fact ten years old. Representative 
Miller has the more developed ones, the ones that are now under 
contract. We got the prototype so that you could see there--we 
have, and I would be happy to send this to your staff, Tim, 
particularly----
    Ms. Sanchez. Well, Tim wants to know if he can keep them to 
go skiing.
    Ms. Oliver. No. Sorry, Tim. These don't belong to us.
    Ms. Sanchez. So you put out a thing saying, ``Hey, we are 
looking at this. We are looking for some ideas about this.'' 
You put it on the Web. These people answer back.
    Ms. Oliver. Yes.
    Ms. Sanchez. You like their answer.
    Ms. Oliver. Well, because SBIR is a particularly small-
business friendly process, Dr. Lemnios's people look at the 
questions before they even go out to make sure that all of it 
is clear. The process is set up so that, during one period of 
time before the competition itself starts, there are experts 
available for each of those topics. The small business can 
actually--and this is very unusual in a procurement--can 
actually talk to the person who is responsible for the topic 
and who will determine--who answered best for the topic.
    Let's see. I am not sure. That is about half of the small 
businesses that are selected for phase one go on to phase two. 
At that point, our SBIR funds are finished, and the scramble is 
to find what we call phase three, but which really means 
finding----
    Ms. Sanchez. Somewhere that it fits in the----
    Ms. Oliver. Exactly.
    Ms. Sanchez [continuing]. In the defense or somewhere that 
they can get funds to actually do the things that you can buy.
    Ms. Oliver. Right. And in the case of this company, for 
example, there are 146 people working, making gloves in Seattle 
that the company representative told me yesterday would not be 
there making those gloves but for the SBIR program, that it was 
there at the right time. They have a couple of large--see, the 
contracts with very large ceilings, meaning the Department of 
Defense can order from them. They went from a little, I don't 
know, $1.5 million company 20 years ago, 25 years ago, to a $50 
million company now.
    And most importantly, according to this company, they are 
actually helping our service members. They keep their hands 
from freezing. These gloves keep their hands from freezing, and 
one of the sets makes it possible for them to operate machine 
guns, for example, and not burn their hands.
    Ms. Sanchez. Great.
    Ms. Oliver. Those are just the kinds of things that we 
want, and we have a very well developed Web site. And I will 
send Tim the site.
    [The prepared statement of Ms. Oliver can be found in the 
Appendix on page 34.]
    Ms. Sanchez. Right. I am going to stop you here only 
because we have got some votes that are going to be called on 
the floor, so I want to make sure that we get at least a round 
of questions in, and then we will decide whether you guys want 
to stick around while we spend our time over on the floor.
    I am going to ask my ranking member, Mr. Miller, if he 
would like to ask his 5 minutes' worth of questions first.
    Mr. Miller. Thank you.
    Ms. Oliver, I know you have got to be aware that insourcing 
has been a contentious issue for many private contractors in 
this country. Thousands of individuals have either lost their 
job or really have been forced into accepting government 
positions, many times at less pay.
    So could you expand a little bit on what your office is 
doing to assist the hundreds of small businesses around the 
country who are being directly impacted by insourcing efforts?
    Ms. Oliver. I would be happy to take the question back to 
the Department of Defense. The piece of the Department of 
Defense that is doing all the policy and the process for 
insourcing is called Personnel and Readiness. I will ask them 
to specifically ask what we are doing with--to try and make 
this impact not as great on small businesses. I will take that 
back for you.
    [The information referred to can be found in the Appendix 
on page 51.]
    Mr. Miller. Mr. Lemnios, the importance of small business 
in America is obvious to each of us up here on the dais, and I 
understand your role, that you want to get the best and most 
cost-effective product to the warfighter and to their enabler. 
Please explain which programs you think best bring our highly 
innovative and successful small businesses into DOD's 
marketplace of ideas.
    Mr. Lemnios. Congressman, let me give you one example. I 
was at Fort Bliss yesterday and the White Sands Missile Range 
yesterday with Army units that were training with a variety of 
components.
    One of the components that I saw there was built by a 
company called iRobot. You may have seen it. These are robotic 
platforms. This has given our warfighters tremendous 
capability. It has kept young kids out of the fight where they 
can operate this tele-operated vehicle to clear a room, to 
clear a building, to provide initial insight into very 
dangerous areas. And quite simply, it saved lives.
    That was a capability that came out of a small company 
initially developed maybe 5, 6 years ago. It was at the very 
forefront of cutting-edge technology at the time. That company 
has since driven that equipment set with additional sensors, 
additional tele-operated, and in some cases autonomous 
capability.
    I have talked to these 19-, 20-, 25-year-old kids that are 
using it, and it is intuitive because it is in their framework. 
They understand how to use video games, and they understand how 
to use this piece of equipment very much in the same way.
    There are many examples like that. And five years ago, 
eight years ago when I was at DARPA [Defense Advanced Research 
and Projects Agency], there were very few companies that had 
that capability in their mainstream technology base, that had 
that capability in their current product offerings. And the 
department made an investment in this small company, and that 
investment has paid off that it is now a core capability in our 
department. Just one example of many.
    Ms. Oliver. And that is an SBIR company, was an SBIR 
company.
    Ms. Sanchez. Thank you. Okay.
    As I mentioned in my opening statement, delays in passing a 
comprehensive reauthorization act must impact the department's 
ability to run a $1.2 billion effort. Could either of you 
comment on some of the challenges the department faces in 
planning and executing the SBIR program as a result of the 
reauthorization delays or the 30 and 60 temporary extensions 
that the agencies have had to live with over the past 2 years?
    And I know that last year, House was able to give DOD-SBIR 
a 1-year extension, which ends tomorrow. What can you tell me? 
What would you prefer to see, and how is it affecting your 
work?
    Mr. Lemnios. Chairman Sanchez, let me just start by maybe 
clarifying and exemplifying--amplifying an answer to your 
previous question and then how this reauthorization applies. 
And I think it is actually helpful to step back a little bit 
and give you some insight into how the SBIR topics come 
forward, how the selection is done, and how we couple with the 
small business community.
    The SBIR program has been remarkably successful in holding 
grassroots conferences--in fact, I have spoken at many of 
these--that engage the small business community to understand 
what the needs of the department are. The topics that are then 
solicited actually come through my office for technical review.
    But we work with the service community to really make sure 
that the topics that these companies respond to reflect the 
current needs of the department. And that is a very broad 
process.
    When I go to the service laboratories, they are all 
involved, again, at the grassroots level with the local small 
companies, constituents, to really get the best and the 
brightest ideas. I really want to make sure that you folks 
understand that this just isn't a vertical program. It is one 
that has enormous breadth, enormous context across many, many 
states.
    Now, with regard to the reauthorization, Ms. Oliver will 
speak to that. But I wanted to make sure you understood that 
the connection, the critical front-end connection is really a 
one-to-one connection with these small companies that have 
innovative ideas. It is critically important.
    Ms. Oliver. It is very disruptive to have a stop-and-start, 
stop-and-start kind of program. We have now, I am sorry to say, 
standard plans for what we would do if it were not 
reauthorized.
    But a much more optimum way--and thank you so much. I know 
it was this committee, this subcommittee specifically that gave 
us a year of a sort of freedom to think about our programs 
instead of thinking about reauthorization.
    It would be so much better to have the authorization of the 
SBIR program match with practically anything, our budget 
planning, which is about 5 years, the amount of time it takes 
to--since with each reauthorization, usually there are changes. 
The time it takes to implement the changes and then see how the 
changes go, measure whether they are good changes or bad 
changes, again for 5 years, or even with the cycle of the SBIR 
program itself from the time that somebody thinks up an idea 
and it gets into this sort of broad agency announcement status. 
After Dr. Lemnios's people have done their work, from the time 
that phase one is awarded and carried out, phase two is awarded 
and we start to find a home for it at phase three, that is at 
least 4 years.
    The reauthorizations would be so much more--they would make 
so much better use of our time, of our resources, if we could 
stay focused on the results of the program. So I thank you for 
the question. Every 30-day reauthorizations are a huge waste of 
resources.
    Ms. Sanchez. Thank you.
    In your turn on page six of your written testimony, Ms. 
Oliver, I see that the services have available, and on average, 
$300 million for SBIR collected via a statutory tax. I also 
understand that the current law does not allow the agencies to 
spend the tax dollars to administer the SBIR program. Is that 
correct?
    Ms. Oliver. That is correct.
    Ms. Sanchez. And if so, how do you fund this effort?
    Ms. Oliver. We beg, borrow and steal the resources insofar 
as we can. And we would have a better program if we were able 
to use program resources to run the program.
    Ms. Sanchez. What should that percentage be?
    Ms. Oliver. The National Academy of Science has estimated 6 
percent in its study to look at that very problem it looked at, 
from 15 to 3 percent. Six percent is an average for overhead 
that needs to be spent on a program in order to have it be 
effective.
    Ms. Sanchez. And Ms. Oliver, on the last page of your 
written testimony, you mentioned that a policy memorandum was 
issued clarifying SBIR phase two responsibilities. Could I get 
a copy of that memorandum? I don't think that I have seen it. 
And who was it addressed to, and can you give us examples of 
what you meant by SBIR two responsibilities?
    Ms. Oliver. Yes, ma'am. Dr. Findley was the official who 
signed that out. He was in the prior administration. He was--
and we will surely provide you with a copy of it--signed out in 
2008.
    The responsibilities he was talking--that he was 
reiterating are that prime contractors have responsibilities to 
be--in the way they treat the intellectual property of the 
small businesses, as do program managers, and there is a 
responsibility on the part of the program managers, and 
actually the prime contractors, to help find the most cost-
effective way to carry out programs, and that very frequently 
is through SBIR projects. So that is what that letter was 
about.
    Ms. Sanchez. Okay.
    The gentleman from--Mr. Conaway. I was trying to think of 
what state you were from.
    Mr. Conaway. Exactly, the state of confusion, Madam 
Chairman. I have only been around a short period of time, so 
don't worry about it.
    You mentioned your prime contractors, and their supply 
train contractors many times are not small businesses. What 
kind of incentives and/or requirements do they have for 
providing--I mean, I can figure out how small business can be 
the glove manufacturer, because that is, start to finish, their 
deal. But how do they plug into the bigger programs where we 
spend more money? And how does the--we hold the prime 
contractor responsible, and their supply chains responsible for 
any of that? And if so, how do you go about doing that?
    Mr. Lemnios. Congressman, let me--so each of those is on a 
case-by-case basis. In fact, that issue is one that has been 
the subject--or one of the elements of the directive that 
Secretary Carter signed out on September 24 to actually look at 
how we can do that more effectively, more efficiently to 
protect the innovation of the small business community in the 
context of a lead system integrator.
    But let me give you one example that I saw just, again, 
last week. I don't travel every week, but last two weeks it has 
been pretty heavy. I was up at Fort Drum, New York. And in that 
case, we had a capability that we are putting on our H-60 Black 
Hawk helicopters to detect small arms fire.
    This is a capability that doesn't exist today. And the Army 
has a similar capability. It is called Boomerang, and you may 
have seen this. It is a system that acoustically detects a 
gunshot, and again, it has protected many lives in theater.
    This system will triangulate on a gunshot, will allow the 
operator to know he is being shot at. It is a very effective 
system.
    Through a DARPA program, we funded--DARPA funded an effort 
to take the same contractor--this is a small company, BBN is 
the company. They are in the Boston area--to apply that same 
acoustic signature, acoustic detection system, to our H-60 
Black Hawks. And we are now testing that. In fact, we will be 
deploying four of these special helicopters to theater shortly.
    But the innovation there was coupling the small company, 
BBM, with the lead system integrator, Sikorsky. Sikorsky----
    Mr. Conaway. Yes, but Sikorsky didn't do that. You guys did 
that.
    Mr. Lemnios. Well, we worked with Sikorsky as the lead 
system integrator, and we directed that they use this small 
company because this small company had the capabilities that 
were needed. They had the technology that Sikorsky did have.
    Mr. Conaway. But you directed Sikorsky to do that. I guess 
my question was--and that fly that you brought with you, by the 
way, is your friend, not ours.
    Mr. Lemnios. We have noticed.
    Mr. Conaway. Exactly, so he will be hanging around you a 
lot.
    How does Sikorsky--I understand how you could direct them 
to say we want this capability. We have got a company over 
here. You guys figure out how to--but how does the system--or 
should the system work in such that Sikorsky, as it is building 
its base model of the UH-60, is plugging in small businesses 
where that makes sense, or should they?
    Mr. Lemnios. Well, there are many examples where large 
companies don't have an innovative technical concept that they 
need to complete a full system build. We see this all the time. 
I have seen this in propulsion. I have seen it, in this case, 
with this acoustic sensor. Even the robotics system that I 
mentioned earlier is part of a larger system that is being 
integrated by a much larger set of companies.
    So the glue that brings all that together are discussions 
that we have in the department with this full set of companies. 
We do that through conferences. We do that through 
solicitations. And when these companies come together, they in 
fact see the value in taking that small idea and integrating it 
into a larger system.
    Mr. Conaway. Okay. Give us about a half a minute on 
contract bundling, as that phrase is used, and the restrictions 
in last year's NDAA [National Defense Authorization Act] that 
said you are supposed to notify Congress when that happens. 
Have you actually notified Congress that there was an intent to 
bundle, as that phrase is used?
    Ms. Oliver. Yes. I am sure we have. I should say that 
bundling is sort of a misused word, has been a misused word. We 
keep track of every--in the Department of Defense, we keep 
track of every bundled contract that must be identified, and my 
office actually looks at every single one to see, rather, 
whether there has been a full justification.
    However, when people use the term ``bundling,'' usually 
they are thinking of consolidating, thinking of contract 
consolidation as opposed to bundling, which is a much more 
narrow aspect of consolidation. There is--I think this has been 
signed--there is new legislation, which I think was signed 
yesterday, which redefines consolidation--which treats 
consolidation as we have in the past treated bundling, which 
will go a long way.
    Mr. Conaway. Right. Would you mind checking and, for the 
record, getting back to us----
    Ms. Oliver. I would be happy to.
    Mr. Conaway [continuing]. On compliance with the director--
--
    Ms. Oliver. Notification.
    Mr. Conaway [continuing]. Notification that you notify us?
    Ms. Oliver. Yes, certainly.
    Mr. Conaway. Thank you, Madam Chairman. I yield back.
    Ms. Sanchez. Great.
    Do you have any other questions?
    I have one more before we--actually we will break for 
votes, and I think, since we have no other members who came, I 
am sure that they will have questions to submit for the record 
and would appreciate your answers.
    Mr. Lemnios, you mentioned that you have increased your 
outreach to the industrial base. Can you give us some examples 
of how that is, or what you mean by that?
    Ms. Sanchez. Well, as I mentioned earlier, the critical 
part of the engagement with the small business community is 
right up front. It is providing insight into the department's 
challenges, the areas where we need new technical ideas and new 
capabilities.
    We have a Web site, defensesolutions.com, one-stop 
shopping. Companies can come on board, take a look at what we 
have--defensesolutions.com. They can take a look at what is 
there. We regularly post challenges that the department has, 
areas where we need new innovation, areas where we need new 
ideas. This is on the DTIC, Defense Technology Information 
Center portal, so it is government-wide. It provides access to 
a wide range of challenges.
    So the Web-based portals have been very helpful. There are 
many small companies that simply can't afford to go to 
conferences, and they can't afford to travel to Washington, and 
this is a simple way for them to get some insight into areas 
that we need new ideas.
    The other way that we have reached out, my full staff and 
the staffs that I see across the service laboratories, we have 
conferences. We speak and meet with small business community 
regularly. In fact, many, many times for me, that is an 
enlightening moment, because you see new ideas that you 
wouldn't see otherwise.
    I will give you an example. I was at Aeros Aviation in 
Tustin, and in fact this small company is building an airship 
that we are funding. It is called Pelican, and it was 
originally funded as a DARPA project, and we are now 
transitioning it to first flight the end of next year.
    And this small company has an idea for building an airship 
that can transition from lighter than air to heavier than air 
so you don't have to carry ballast. It is a tremendous 
operational capability.
    Our value in that is connecting that company with technical 
resources at NASA [National Aeronautics and Space 
Administration] Ames for additional simulation and connecting 
them to the end user. So they are not just developing the 
concept. They are thinking about how that concept will be used.
    So this outreach is more than just publishing a set of 
needs. It is connecting this community with technical resources 
and operational insight so that the products that they develop, 
whether it is gloves or whether it is 100-yard airship, has a 
transition path that is in the framework of what the end-use 
case will look like.
    The last thing I will say that has tremendous value to this 
community is coupling these small companies with our test 
ranges and with our test resources so they can get the same 
insight that I saw the last two days at Fort Bliss and White 
Sands, giving that insight to companies that wouldn't normally 
have that ability to see what an operational environment 
actually looks like.
    It changes their way of thinking, and it changes the 
ability and the speed and the context of how they develop a 
product. Critically important, and we have done that through a 
number of avenues--companies all the time that we try to make 
those connections.
    Ms. Sanchez. Okay, great.
    Well, I thank you for your testimony before our committee 
and for your written testimony. We will be submitting some more 
questions for the record, and thank you both for at least 
enlightening me about some of the things going on with the 
program. Thank you.
    And the committee is now adjourned, I think in time for 
some votes that are about to be called. Thank you.
    [Whereupon, at 2:49 p.m., the subcommittee was adjourned.]


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                            A P P E N D I X

                           September 29, 2010

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                           September 29, 2010

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


              WITNESS RESPONSES TO QUESTIONS ASKED DURING

                              THE HEARING

                           September 29, 2010

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


              RESPONSE TO QUESTION SUBMITTED BY MR. MILLER

    Ms. Oliver. It is important to note that the Department's 
insourcing efforts are focused on services and not individual firms or 
contractor positions. To that end, the Department's insourcing efforts 
(under the purview of the Under Secretary of Defense for Personnel & 
Readiness) are intended to:

      reduce inappropriate reliance on contracted services;
      help shape the workforce by ensuring that work that is 
inherently governmental, closely associated with inherently 
governmental, or otherwise exempt from private sector performance (to 
mitigate risk, ensure continuity of operations, build internal 
capacity, meet readiness needs, etc) is performed by government 
employees;
      ensure the Department has the necessary capabilities and 
skills to meet its missions; and
      generate efficiencies and savings.

    The Department greatly values the contributions made by private 
sector firms, particularly small businesses, to the Department's 
missions. The private sector is, and will continue to be, a vital 
source of expertise, innovation, and support to the Department's Total 
Force. In fact, we have seen continued growth of contracted services in 
our budget requests. Insourcing impacts less than 1% of currently 
contracted services, and the net growth in contracted services this 
past year was still more than $5 billion.
    At the same time, we are conscious of the impact our insourcing 
decisions may have on private sector firms and their employees. The DOD 
Office of Small Business Programs is committed to assisting small 
businesses and maximizing their participation in DOD acquisitions. [See 
page 8.]
?


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


              QUESTIONS SUBMITTED BY MEMBERS POST HEARING

                           September 29, 2010

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


                   QUESTIONS SUBMITTED BY MS. SANCHEZ

    Ms. Sanchez. I understand you helped develop Secretary Gates' 
recently announced ``Efficiencies Initiative.'' It is my understanding 
that the premise of the initiative offers specific guidelines to 
Pentagon acquisition folks for how to make smarter contracting 
decisions that don't waste taxpayer dollars. I believe the Secretary 
stated something to the effect that if successfully executed, the plan 
would save around $100 billion over the next five years.
    Mr. Lemnios. In August, the Under Secretary of Defense for 
Acquisition, Technology and Logistics announced the fact that the 
acquisition community would be intimately involved in supporting 
Secretary Gates' Efficiencies Initiative. Throughout August, 
culminating in a formal announcement on September 14 by Under Secretary 
Carter, I served on a senior integration group led by Secretary Carter. 
This group includes the senior acquisition leadership from OSD, the 
Services, and select Defense Agencies. One of my specific tasks was to 
represent the DOD small business enterprise and suggest options to 
support the Secretary's initiative.
    Ms. Sanchez. What was your specific task in the development of the 
Efficiencies Initiative?
    Mr. Lemnios. In August, the Under Secretary of Defense for 
Acquisition, Technology and Logistics announced the fact that the 
acquisition community would be intimately involved in supporting 
Secretary Gates' Efficiencies Initiative. Throughout August, 
culminating in a formal announcement on September 14 by Under Secretary 
Carter, I was involved in a senior integration group led by Secretary 
Carter. This group included the senior acquisition leadership from OSD, 
the Services, and select Defense Agencies. My specific task was to 
represent the science, technology, systems engineering and 
developmental test communities, and suggest options to support the 
Secretary's initiative.
    Ms. Sanchez. What will your role or roles of your office be, if 
any, with implementing the initiative?
    Mr. Lemnios. My responsibilities include leading how we are looking 
at ways to strengthen the Industrial Research and Development linkages 
to the DOD, ways to strengthen technology maturity assessments, and 
ways to strengthen test and evaluation.
    Ms. Sanchez. What roles can/should small high-tech businesses play 
toward reaching the goals of this new initiative?
    Mr. Lemnios. It is still too early to make specific comments as the 
initiatives are being developed. I will say that we are also looking at 
ways to strengthen the small business interactions with the Department 
and warfighter. Small business has long been the innovation engine of 
the Department and the nation. We recognize this and wish to continue 
to strengthen the relationship. We are also outlining a range of 
options that would allow us to use the current structure and 
authorities of the small business innovative research program to 
address time-critical warfighter needs; if successful, this will 
strengthen both the small business community and the Department.
    Ms. Sanchez. What do you view as the biggest hurdles, particularly 
for small high-tech firms, with supporting this initiative?
    Mr. Lemnios. It is still premature to discuss specific hurdles in 
depth, but over the years, the Department has recognized there are 
special needs for small business. These include ensuring access to 
information, competitive equity and getting funds contracted. In part 
to address this, my office initiated a pilot program, called the Open 
Business Cell, to specifically reach out to small business. This office 
serves to marry small business solution providers with program offices 
and requirements generators to streamline the process. Information on 
this program can be found at www.defensesolutions.mil.
    Ms. Sanchez. Are there or will there be metrics developed and put 
into place to measure the progress of this initiative?
    Mr. Lemnios. We are still developing implementation plans and are 
looking at how to put metrics in place. These will be highlighted in 
the implementation roll-out.
    Ms. Sanchez. Does the new initiative leverage existing cost-savings 
efforts or is it dependent on the development of new methodologies, 
procedures, program, personnel adjustments, etc?
    Mr. Lemnios. Since we are developing implementation strategies, I 
can't give specifics. I can say, however, that we are looking very 
broadly at methodologies, procedures, program and personnel 
adjustments, and so forth.
    Ms. Sanchez. How can DOD leverage capabilities of small high-tech 
firms to drive better outcomes for the department on major weapon 
system acquisition?
    Mr. Lemnios. Achieving better outcomes on major weapon system 
acquisitions is a top priority for the Department. Though small 
business prime contracting opportunities in support of major systems 
programs are pursued, most of the opportunities for these programs will 
continue to be in subcontracting. A total of $49.5 billion dollars in 
subcontracts went to small businesses in FY2009. The subcontracting 
goal, established by the Small Business Administration, is 31.7% for 
FY2011. We anticipate small, high-tech firms will continue to develop 
new technologies to feed major systems. The Small Business Innovation 
Research and Small Business Technology Transfer programs alone involved 
awards totaling over $1.4 billion in FY2009. The Department's SBIR 
Commercialization Pilot Program exists to identify SBIR technologies 
that have the greatest potential for transition to production.
    Ms. Sanchez. Can you summarize the role SBIR plays in defense 
acquisitions? How does the Milestone Decision Authority ensure and 
monitor SBIR participation in all Milestone activities? Is it through 
the Milestone A Review and/or other governance processes? Are there 
incentives to drive inclusion of SBIR solution or penalties for failure 
to consider SBIR solutions?
    Mr. Lemnios. It is critical that promising technologies be 
identified from all sources domestic and foreign, including government 
laboratories and centers, academia, and the commercial sector. This 
includes consideration of the use of technologies developed under the 
Small Business Innovation Research (SBIR) program. The risk of 
introducing these technologies into the acquisition process must be 
reduced through coordination, cooperation, and mutual understanding of 
technology issues. DOD Acquisition Programs are required to provide 
maximum practicable opportunities to small business, including small 
disadvantaged business, women-owned small business, veteran-owned small 
business, service-disabled small business and Historically 
Underutilized Business Zones. Acquisition Program Managers document 
their utilization of small businesses in their Technology Development 
Strategy and their Acquisition Strategy. At Milestone A, the Milestone 
Decision Authority (MDA) reviews the proposed materiel solution and the 
draft Technology Development Strategy (TDS). The Technology Development 
Phase begins when the MDA has approved a materiel solution and the TDS, 
and has documented the decision in an Acquisition Decision Memorandum. 
SBIR technologies are pursued based on merit relative to all 
alternatives available to the program manager. There are no penalties 
for failure to use SBIR solutions. However, DOD encourages use of SBIR 
technologies and small businesses in order to meet subcontracting goals 
established by the Small Business Administration, which is 31.7% for 
FY2011.
    Ms. Sanchez. Are there documented guidance or procedures that 
define how Program Managers should evaluate and, more importantly, plan 
for insertion of SBIR technologies into Major Defense Acquisition 
programs?
    Mr. Lemnios. The Department of Defense Acquisition Instruction, 
DOD5000.01 requires that Major Defense Acquisition Programs develop 
acquisition strategies to facilitate small business participation 
throughout a program's life cycle through direct participation or, 
where such participation is not available, through fostering teaming 
with small business concerns. In addition, DOD5000.02 requires Major 
Defense Acquisition Programs to identify promising technologies from 
all sources domestic and foreign, including government laboratories and 
centers, academia, and the commercial sector. DOD5000.01 also requires 
the program manager to give small business the maximum practical 
opportunity to participate during the technology development phase and 
succeeding acquisition phases. Further guidance for inserting SBIR 
technologies into Defense Acquisition programs is defined in the Dec 
2008 AT&L policy memorandum ``SBIR program Phase III guidance.''
    Ms. Sanchez. How can SBIR participation in later-stage acquisition 
program activities, as occurred with the Virginia-class submarine, be 
ensured and what is the proper balance of responsibility between the 
prime contractor and the government program manager?
    Mr. Lemnios. The Department of Defense Acquisition Instruction, 
DOD5000.01 requires that Major Defense Acquisition Programs develop 
acquisition strategies to facilitate small business participation 
throughout a program's life cycle through direct participation or, 
where such participation is not available, through fostering teaming 
with small business concerns. The Acquisition Strategy guides program 
execution across the entire program life cycle, focusing primarily on 
the upcoming phase. The strategy evolves over the phases and 
continuously reflects the current status and desired end point of the 
phase and the overall program. An MDA-approved update to the 
Acquisition Strategy is required prior to Milestone C and Full Rate 
Production. This Acquisition Strategy developed by the government 
program manager translates into the provisions of their contract with 
the prime contractor. Integration and use of SBIR technologies on major 
programs can best be achieved when the program manager and prime 
contractor(s) proactively seek SBIR solutions. However, the program 
manager has overall responsibility for the outcome of the program, 
balancing requirements against affordability and time.
    Ms. Sanchez. You mentioned areas where you are seeking to improve 
either the government acquisition process or the SBIR program. Could 
you provide the committee more detail on your key initiative? Does it 
involve adding dollars to seed the initiative? Do you need additional 
authorities? Will you change or cancel failing redundant initiatives?
    Mr. Lemnios. It is still too early to provide specific details. 
However, at this time, I do not foresee the need for additional funds 
or new authorities. The Department will continue to look to the small 
business community in driving invention and innovation to quickly 
launch new capabilities that support our warfighters and protect our 
nation.
    Ms. Sanchez. I understand you helped develop Secretary Gates' 
recently announced ``Efficiencies Initiative.'' It is my understanding 
that the premise of the initiative offers specific guidelines to 
Pentagon acquisition folks for how to make smarter contracting 
decisions that don't waste taxpayer dollars. I believe the Secretary 
stated something to the effect that if successfully executed, the plan 
would save around $100 billion over the next five years.
    What was your specific task in the development of the Efficiencies 
Initiative?
    Ms. Oliver. In August, the Under Secretary of Defense for 
Acquisition, Technology and Logistics announced the fact that the 
acquisition community would be intimately involved in supporting 
Secretary Gates' Efficiencies Initiative. Throughout August, 
culminating in a formal announcement on September 14 by Under Secretary 
Carter, I was involved in a senior integration group led by Secretary 
Carter. This group included the senior acquisition leadership from OSD, 
the Services, and select Defense Agencies. My specific task was to 
represent the science, technology, systems engineering and 
developmental test communities, and suggest options to support the 
Secretary's initiative.
    Ms. Sanchez. What will your role or roles of your office be, if 
any, with implementing the initiative?
    Ms. Oliver. My responsibilities include leading how we are looking 
at ways to strengthen the Industrial Research and Development linkages 
to the DOD, ways to strengthen technology maturity assessments, and 
ways to strengthen test and evaluation.
    Ms. Sanchez. What roles can/should small high-tech businesses play 
toward reaching the goals of this new initiative?
    Ms. Oliver. It is still too early to make specific comments as the 
initiatives are being developed. I will say that we are also looking at 
ways to strengthen the small business interactions with the Department 
and warfighter. Small business has long been the innovation engine of 
the Department and the nation. We recognize this and wish to continue 
to strengthen the relationship. We are also outlining a range of 
options that would allow us to use the current structure and 
authorities of the small business innovative research program to 
address time-critical warfighter needs; if successful, this will 
strengthen both the small business community and the Department.
    Ms. Sanchez. What do you view as the biggest hurdles, particularly 
for small high-tech firms, with supporting this initiative?
    Ms. Oliver. It is still premature to discuss specific hurdles in 
depth, but over the years, the Department has recognized there are 
special needs for small business. These include ensuring access to 
information, competitive equity and getting funds contracted. In part 
to address this, my office initiated a pilot program, called the Open 
Business Cell, to specifically reach out to small business. This office 
serves to marry small business solution providers with program offices 
and requirements generators to streamline the process. Information on 
this program can be found at www.defensesolutions.mil.
    Ms. Sanchez. Are there or will there be metrics developed and put 
into place to measure the progress of this initiative?
    Ms. Oliver. We are still developing implementation plans and are 
looking at how to put metrics in place. These will be highlighted in 
the implementation roll-out.
    Ms. Sanchez. Does the new initiative leverage existing cost-savings 
efforts or is it dependent on the development of new methodologies, 
procedures, program, personnel adjustments, etc?
    Ms. Oliver. Since we are developing implementation strategies, I 
can't give specifics. I can say, however, that we are looking very 
broadly at methodologies, procedures, program and personnel 
adjustments, and so forth.
    Ms. Sanchez. Your testimony suggests that DOD should actively seek 
out and support small business contractors. What are some of the 
special or unique capabilities that small business brings to defense 
acquisition?
    Ms. Oliver. Small businesses generally have lower overhead than 
large companies and are more cost-effective in delivering goods and 
services to DOD. Small businesses are more agile and flexible than 
large companies in meeting DOD requirements, including highly technical 
solutions to complex problems. Consequently, DOD encourages small 
businesses to participate in the Small Business Innovation Research 
Program (SBIR).
    The SBIR program was established to help promote innovation and 
commercialization from small businesses through Federal research and 
development budgets. These programs are intended to harness the 
enthusiasm and innovation inherent in small, high-tech American firms 
to develop and commercialize critical technologies in order to meet the 
needs of our American and Allied Warfighters. This sector of our 
industrial base is a key element of our nation's military and economic 
strength, and it is also often found at the heart of regional economic 
development or cluster initiatives.
    The SBIR Program sets aside a significant amount of funds for 
research and development for small businesses in a given year. For 
example, during Fiscal Year 2008 a total of 12,280 Phase I and 1,672 
Phase II proposals were received and evaluated, and 1,826 Phase I and 
1,072 Phase II contracts were awarded at an aggregate value of $1.2B 
dollars. Competition among small firms is used for all Phase I awards, 
which provides funds to explore ideas that could move to the second 
developmental phase.
    Ms. Sanchez. How significant a problem for small business is 
contract bundling at DOD and what can be done to address this?
    Ms. Oliver. The table below summarizes contract bundling in DOD 
acquisitions for Fiscal Years (FY) 2006 through 2009 and is indicative 
of the significance of contract bundling for small businesses at DOD. 
In 2009 for example, there were only18 out of a total of more than 3.5M 
contract actions that were classified as bundling. In terms of dollars, 
this represents less than 1% of the total DOD small business eligible 
procurement dollars. The DOD Office of Small Business Programs 
regularly reviews contract bundling in DOD acquisitions through the 
standard bundling report from the Federal Procurement Data System 
(FPDS) that is generated on a quarterly basis. The report tracks all 
DOD bundled actions for the time period. Our goal is to eliminate all 
unjustified bundling within DOD.


----------------------------------------------------------------------------------------------------------------
                                             Total #
   Department        FY      DoD Total #     Bundled    DoD SB- Eligible $    DoD $  Awarded     Total  Bundled
                               Actions       Actions             *                to SB             Dollars
----------------------------------------------------------------------------------------------------------------
DEPT OF DEFENSE   2006      3,350,312     5             $234,951,480,470    $51,316,934,021    $159,926,275
DEPT OF DEFENSE   2007      3,529,595     25            $269,312,039,976    $55,047,209,461    $1,622,530,680
DEPT OF DEFENSE   2008      3,653,199     16            $314,555,539,523    $62,471,471,402    $6,193,632,827
DEPT OF DEFENSE   2009      3,559,134     18            $302,376,720,694    $63,894,421,489    $2,730,226,674
----------------------------------------------------------------------------------------------------------------
* SB-eligible dollars are the dollars remaining after SB goaling criteria have been applied

    Ms. Sanchez. Are primes and their supply chains specifically 
incentivized to identify and include small business solutions in 
acquisition planning, and how are SBIR solutions specifically reflected 
in a prime contractor's Subcontracting Plan, which has traditionally 
pointed generally towards ``small business'' but not SBIR?
    Ms. Oliver. DOD source selection regulations and policy incentivize 
prime contractors to identify and include small business as part of 
meeting contract requirements. In accordance with DOD regulations and 
policies, when a subcontracting plan is required, the contracting 
officer must evaluate the extent to which small businesses will 
participate in the performance of the contract. DOD policy and 
regulations regarding acquisition plans also require a discussion of 
market research and identification of small business opportunities for 
subsystems, components, and services at the first tier subcontracting 
level. Additionally, while the Federal Acquisition Regulations 
regarding subcontracting plans does not require identification of SBIR 
technologies to be used in the performance of the contract, DOD 
policies require that the use of SBIR technologies be addressed in 
acquisition planning.
    If there is work that can be subcontracted, prime contractors 
(unless they are small businesses) are required to have a portion of 
their subcontracted work to small businesses. However, there is nothing 
in the current policy that requires the small businesses to be Small 
Business Innovation Research (SBIR) Firms.
    Ms. Sanchez. You mentioned areas where you are seeking to improve 
either the government acquisition process or the SBIR program, could 
you provide the committee more detail on key initiatives? Does it 
involve adding dollars to seed the initiative? Do you need additional 
authorities? Will you change or cancel failing redundant initiatives?
    Ms. Oliver. We are proud of our successful initiative to motivate 
program managers (PMs) to consider SBIR technology. As a result of our 
efforts, DOD Instruction 5000.02 Operation of the Defense Acquisition 
System has been updated to include the following statement: ``PMs shall 
consider the use of technologies developed under the Small Business 
Innovation Research (SBIR) program, and give favorable consideration to 
successful SBIR technologies.''
    Another initiative to improve the program is our ongoing effort to 
improve and update a Defense Acquisition University (DAU) course on 
integrating SBIR projects through a specific training module. In 
addition to this effort that is intended to increase understanding of 
the program for DOD program managers, we host special training for DOD 
acquisition personnel at the Annual DOD SBIR Training Workshop. 
Additional training is provided to industry and the academic community 
at the Annual DOD SBIR Beyond Phase II Conference.
    My office also leads a DOD SBIR program managers working group. The 
group identifies, evaluates, and shares best practices and 
efficiencies. The DOD SBIR Program is evaluated for best practices and 
efficiencies on a regular basis.
                                 ______
                                 
                   QUESTIONS SUBMITTED BY MR. JOHNSON
    Mr. Johnson. Numerous studies that have been placed before Congress 
have demonstrated that minority- and women-owned firms continue to face 
numerous barriers in the marketplace that non-minority and male-owned 
firms do not confront. These barriers include denial of the capital 
that is essential to forming or expanding a business; higher interest 
rates for loans that minority- and women-owned businesses are able to 
obtain; exclusion from contracting opportunities by prime contractors; 
inflated pricing by suppliers; and inability to obtain bonding. 
Hearings held during this Congress and previous Congresses make clear 
that there is substantial evidence that these barriers are the result 
of discrimination against minorities and women and that they would be 
exacerbated in the absence of government programs to level the playing 
field. This is why programs like the 8(a) program are so critical: they 
are the government's means to assure that it will not perpetuate prior 
discrimination or allow the federal contracting process to be infected 
by market discrimination. Do you agree that these are important goals 
for the government to achieve?
    Ms. Oliver. Yes. The Department of Defense (DOD) believes strongly 
in the SBA's 8(a) program and continues to use it in our procurement 
activities.
    Mr. Johnson. The Department of Defense has the largest volume of 
contracts of any agency of the government. Its actions therefore have 
significant impact on the opportunities available for minority- and 
women-owned firms to participate in federal contracting.
    a. What percentage of contract dollars did the Department award to 
minority and women-owned firms in FY 2009 and (if the data is 
available) FY 2010? Please make clear whether the answer includes all 
Defense Department contract dollars, including those spent on contracts 
that were not let competitively. If this percentage does not include 
all contract dollars, please explain which contracts are included in 
your calculation.
    b. What percentage of contract dollars awarded to minority-owned 
contractors were awarded through the 8(a) program in FY 2009 and (if 
the data is available) FY 2010? Please make clear whether the answer 
includes all Defense Department contract dollars, including those spent 
on contracts that were not let competitively and were not restricted to 
small businesses. If the percentage does not include all contract 
dollars, please explain which contracts are included in your 
calculation.
    Ms. Oliver. For the purposes of answering questions a and b, we 
have equated ``small disadvantaged businesses'' with minority-owned 
small businesses because the two terms are often used interchangeably. 
However, it is possible for a small disadvantaged business to be owned 
by someone who is not a minority and it is possible for a minority to 
own a small business but not be disadvantaged. In FY 2009, the 
Department of Defense obligated 7.2% ($21.7B) of its dollars on 
contracts awarded to small disadvantaged businesses. It obligated 3.4% 
($10.2B) on contracts awarded to small businesses owned and controlled 
by women. That Fiscal year, the Department obligated on contracts 
$302.4B dollars, including those spent on contracts that were not let 
competitively and were not restricted to small businesses.
    According to the dynamic Small Business Goaling Report, in FY 2010 
the Department obligated 7.2% ($21.0B) of its dollars on contracts with 
small disadvantaged businesses. It obligated 3.6% ($10.5B) on contracts 
awarded to small businesses owned and controlled by women. That Fiscal 
year, the Department obligated $290.1B dollars. The FY 2010 figures are 
still preliminary, unofficial, and may change. The Small Business 
Administration (SBA) determines small business achievements by removing 
certain categories of contracts from a base of appropriated dollars. 
Typical examples are: contracts awarded to sheltered workshops and 
similar non-profit organizations, foreign military sales, utilities, 
and leases.
    A more exhaustive list of exclusions can be found in the Appendix 
to the Small Business Goal Report at www.fpds.gov/Reports/manage/html/
preview_Small_Business_Goaling_Report.html. Except for the adjustments 
made by SBA, the answers to question b include all DOD contract 
dollars. In FY 2009, 60.39% of DOD dollars awarded by contract to small 
disadvantaged businesses were awarded through the 8(a) program. 
Preliminary figures for FY-2010 indicate that approximately 56.5% of 
the dollars were awarded through the 8(a) program.
    Mr. Johnson. What percentage of contract dollars goes to minority-
owned firms through subcontracting? Please make clear whether the 
answer includes all Defense Department contract dollars, including 
those spent on contracts that were not let competitively and were not 
restricted to small businesses. If the percentage does not include all 
contract dollars, please explain which contracts are included in your 
calculation.
    Ms. Oliver. In FY 2009, 4.1% ($6.0B) of the subcontracted dollars 
under DOD prime contracts were awarded to small disadvantaged 
businesses; the total dollars in FY 2009 was $144.5B. The FY 2010 
numbers have not yet been compiled. The source of the Department's 
subcontracting figures is the Electronic Subcontracting Reporting 
System. The system collects total dollars that are subcontracted as 
reported by prime contractors. The FY 2009 figure of $144.5B includes 
subcontracts to small businesses as well as subcontracts to other-than-
small entities.
    Mr. Johnson. Is the 8(a) program an important and necessary tool 
for providing minority- and women-owned firms a fair opportunity to 
compete for federal contracts?
    Ms. Oliver. Yes. The DOD continues to use the Small Business 
Administration's (SBA) 8(a) program as the primary means of providing 
contracting opportunities to small, disadvantaged businesses. The 
majority of contracts awarded to small and disadvantaged businesses in 
2009 and 2010 were let through the 8(a) program. The program is a 
critical means of helping small, disadvantaged businesses gain a 
foothold into the federal contracting arena, through which they can 
grow and become competitive firms in our economy. While the Section 
8(a) program does not include a presumption of social disadvantage for 
businesses owned and operated by non-minority female owners, non-
minority female business owners can, and do, participate in the program 
by demonstrating social disadvantage. The SBA has recently issued final 
regulations, implementing the Women-Owned Small Business Program that 
will provide women-owned businesses contracting benefits similar to 
those afforded by the SBA's 8(a) program.
    Mr. Johnson. What else could Congress do to further explore the 
barriers facing minority- and women-owned businesses in federal 
contracting?
    Ms. Oliver. The Department of Defense would prefer to have time to 
evaluate the effectiveness of the implementation of the new SBA rule 
pertaining to women-owned small businesses before making further 
recommendations.
    Mr. Johnson. Does the Department of Defense have in place the ideal 
set of tools authorized by Congress to address potential inequities in 
small business contracting?
    Ms. Oliver. No, there can always be improvement. For example, the 
authorization for the Department's SBIR program expired in 2008 and 
since then has been reauthorized in multiple small increments of time. 
A longer-term reauthorization of the SBIR program would ensure 
continuity of operations enabling the department to streamline the 
efficiency and effectiveness of the program.

                                  
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