[House Hearing, 111 Congress] [From the U.S. Government Publishing Office] MINORITY CONTRACTING: OPPORTUNITIES AND CHALLENGES FOR CURRENT AND FUTURE MINORITY-OWNED BUSINESSES ======================================================================= HEARING before the SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, ORGANIZATION, AND PROCUREMENT of the COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM HOUSE OF REPRESENTATIVES ONE HUNDRED ELEVENTH CONGRESS SECOND SESSION __________ SEPTEMBER 22, 2010 __________ Serial No. 111-148 __________ Printed for the use of the Committee on Oversight and Government Reform [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] Available via the World Wide Web: http://www.fdsys.gov http://www.house.gov/reform __________ U.S. GOVERNMENT PRINTING OFFICE 65-651 PDF WASHINGTON : 2011 _____________________________________________________________________________ For sale by the Superintendent of Documents, U.S. Government Printing Office, http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202-512-1800, or 866-512-1800 (toll-free). E-mail, [email protected]. COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM EDOLPHUS TOWNS, New York, Chairman PAUL E. KANJORSKI, Pennsylvania DARRELL E. ISSA, California CAROLYN B. MALONEY, New York DAN BURTON, Indiana ELIJAH E. CUMMINGS, Maryland JOHN L. MICA, Florida DENNIS J. KUCINICH, Ohio JOHN J. DUNCAN, Jr., Tennessee JOHN F. TIERNEY, Massachusetts MICHAEL R. TURNER, Ohio WM. LACY CLAY, Missouri LYNN A. WESTMORELAND, Georgia DIANE E. WATSON, California PATRICK T. McHENRY, North Carolina STEPHEN F. LYNCH, Massachusetts BRIAN P. BILBRAY, California JIM COOPER, Tennessee JIM JORDAN, Ohio GERALD E. CONNOLLY, Virginia JEFF FLAKE, Arizona MIKE QUIGLEY, Illinois JEFF FORTENBERRY, Nebraska MARCY KAPTUR, Ohio JASON CHAFFETZ, Utah ELEANOR HOLMES NORTON, District of AARON SCHOCK, Illinois Columbia BLAINE LUETKEMEYER, Missouri PATRICK J. KENNEDY, Rhode Island ANH ``JOSEPH'' CAO, Louisiana DANNY K. DAVIS, Illinois BILL SHUSTER, Pennsylvania CHRIS VAN HOLLEN, Maryland HENRY CUELLAR, Texas PAUL W. HODES, New Hampshire CHRISTOPHER S. MURPHY, Connecticut PETER WELCH, Vermont BILL FOSTER, Illinois JACKIE SPEIER, California STEVE DRIEHAUS, Ohio JUDY CHU, California Ron Stroman, Staff Director Michael McCarthy, Deputy Staff Director Carla Hultberg, Chief Clerk Larry Brady, Minority Staff Director Subcommittee on Government Management, Organization, and Procurement DIANE E. WATSON, California, Chairman PAUL E. KANJORSKI, Pennsylvania BRIAN P. BILBRAY, California JIM COOPER, Tennessee AARON SCHOCK, Illinois GERALD E. CONNOLLY, Virginia JOHN J. DUNCAN, Jr., Tennessee HENRY CUELLAR, Texas JEFF FLAKE, Arizona JACKIE SPEIER, California BLAINE LUETKEMEYER, Missouri PAUL W. HODES, New Hampshire CHRISTOPHER S. MURPHY, Connecticut MIKE QUIGLEY, Illinois Bert Hammond, Staff Director C O N T E N T S ---------- Page Hearing held on September 22, 2010............................... 1 Statement of: Hinson, David, Director, Minority Business Development Agency, U.S. Department of Commerce; Marie C. Johns, Deputy Administrator, U.S. Small Business Administration; Jiyoung Park, Associate Administrator for Small Business Utilization, General Services Administration; Linda Oliver, Acting Director, Office of Small Business Programs, U.S. Department of Defense; and Brandon Neal, Director, Office of Small and Disadvantaged Business Utilization, U.S. Department of Transportation............................... 15 Hinson, David............................................ 15 Johns, Marie C........................................... 27 Neal, Brandon............................................ 73 Oliver, Linda............................................ 62 Park, Jiyoung............................................ 56 Robinson, Anthony W., president, Minority Business Enterprise Legal Defense and Education Fund; Fernando V. Galaviz, president, the Centech Group, on behalf of the Mid-Tier Advocacy; Don O'Bannon, chairman, Airport Minority Advisory Council; Joel Zingeser, FAIA, director of corporate development, Grunley Construction Co., Inc.; and Michael Sumner, Discrimination Research Center, Thelton E. Henderson Center for Social Justice, UC Berkeley School of Law........................................................ 93 Galaviz, Fernando V...................................... 105 O'Bannon, Don............................................ 124 Robinson, Anthony W...................................... 93 Sumner, Michael.......................................... 148 Zingeser, Joel........................................... 142 Rush, Hon. Bobby L., a Representative in Congress from the State of Illinois.......................................... 5 Letters, statements, etc., submitted for the record by: Bilbray, Hon. Brian P., a Representative in Congress from the State of California, prepared statement of................. 3 Connolly, Hon. Gerald E., a Representative in Congress from the State of Virginia, prepared statement of............... 166 Galaviz, Fernando V., president, the Centech Group, on behalf of the Mid-Tier Advocacy, prepared statement of............ 107 Hinson, David, Director, Minority Business Development Agency, U.S. Department of Commerce, prepared statement of. 18 Johns, Marie C., Deputy Administrator, U.S. Small Business Administration, prepared statement of...................... 29 Neal, Brandon, Director, Office of Small and Disadvantaged Business Utilization, U.S. Department of Transportation, prepared statement of...................................... 75 O'Bannon, Don, chairman, Airport Minority Advisory Council, prepared statement of...................................... 126 Oliver, Linda, Acting Director, Office of Small Business Programs, U.S. Department of Defense, prepared statement of 64 Park, Jiyoung, Associate Administrator for Small Business Utilization, General Services Administration, prepared statement of............................................... 58 Robinson, Anthony W., president, Minority Business Enterprise Legal Defense and Education Fund, prepared statement of.... 96 Rush, Hon. Bobby L., a Representative in Congress from the State of Illinois, prepared statement of................... 8 Sumner, Michael, Discrimination Research Center, Thelton E. Henderson Center for Social Justice, UC Berkeley School of Law, prepared statement of................................. 150 Zingeser, Joel, FAIA, director of corporate development, Grunley Construction Co., Inc., prepared statement of...... 144 MINORITY CONTRACTING: OPPORTUNITIES AND CHALLENGES FOR CURRENT AND FUTURE MINORITY-OWNED BUSINESSES ---------- WEDNESDAY, SEPTEMBER 22, 2010 House of Representatives, Subcommittee on Government Management, Organization, and Procurement, Committee on Oversight and Government Reform, Washington, DC. The subcommittee met, pursuant to notice, at 10:07 a.m., in room 2203, Rayburn House Office Building, Hon. Diane E. Watson (chairwoman of the subcommittee) presiding. Present: Representatives Watson, Connolly, and Bilbray. Also present: Representative Chu. Staff present: Bert Hammond, staff director; Valerie Van Buren, clerk; and Adam Bordes and Deborah Mack, professional staff members. Ms. Watson. Good morning. The Subcommittee on Government Management, Organization, and Procurement of the Committee on Oversight and Government Reform will now come to order. Without objection, the Chair and ranking minority member will have 5 minutes to make opening statements, followed by opening statements not to exceed 3 minutes by any other Member who seeks recognition. Without objection, Members and witnesses may have 5 legislative days to submit a written statement or extraneous materials for the record. Let me just read an opening statement, and then I will yield to you, Congressman Rush. I want to welcome all of you today to the hearing that examines the status of Government-wide minority contracting programs and the efforts made to date by Federal agencies to comply with requirements for minority-owned business programs. In addition, the subcommittee will hear testimony from Congressman Bobby Rush regarding his legislation, which is H.R. 4343, the Minority Business Development Improvement Act of 2009. Programs to assist minority-owned businesses represent one of the several types of programs in place to promote the growth of small business entrepreneurs. Such programs, administered under Section 8(a) of the Small Business Act, provide agencies the authority to set aside contracts for small disadvantaged business [SDBs], and to make sole source awards to such firms. The Federal Government offers assistance to small businesses to make sure they get a fair proportion of Federal contracts and subcontract dollars. In fiscal year 2009, $29.3 billion, or 6.7 percent of all Federal contracts, were awarded to minority-owned businesses out of a total of $537 billion in goods and services purchased by Federal agencies. A portion of this funding was allocated as part of the American Recovery and Reinvestment Act [ARRA]. And as of July 16, 2010, the Federal Procurement Data System reported that about $3.6 billion, or 12.6 percent of the ARRA funds, had been awarded to small disadvantaged businesses. While minority contracting programs have proven rewarding to both contractors and the U.S. Government, I am aware that significant obstacles and barriers still confront minority contracts in their attempt to bid for and obtain Government contracts. Evidence of ongoing and persistent discrimination against minority contractors has been documented over the years. Structural barriers, including access to financing, bonding, and trade union resistence, continue to impede the performance and successful participation in minority contractors. Moreover, recent court decisions, such as Rossi, have impacted the scope and the purpose of minority contracting programs on a going forward basis. I am very interested in hearing more specifics from our private sector panelists on how documented instances of discrimination have prevented minority firms from advancing in the marketplace, particularly because I do understand that it is often difficult for minority contractors to speak openly about these issues out of their fear that they will be ostracized. If Congress is to address the shortcomings in our minority contract program, it must have a comprehensive understanding of the problems at hand in order to develop appropriate legislative remedies. It is my hope that this hearing today will make a significant contribution to the development of a meaningful legislative record on this important issue, and I welcome all the witnesses that are here today and we all look forward to your testimony. OK, now I will turn the mic over to our ranking minority member, Congressman Bilbray. Mr. Bilbray. Madam Chair, you will be pleased to hear that I have a written statement for the record and ask for unanimous consent it be included in the record. Ms. Watson. Without objection. Mr. Bilbray. I yield back to the Chair. [The prepared statement of Hon. Brian P. Bilbray follows:] [GRAPHIC] [TIFF OMITTED] T5561.001 [GRAPHIC] [TIFF OMITTED] T5561.002 Ms. Watson. Thank you. Now we are honored to have our guest panelist and my good friend, Congressman Bobby L. Rush. Congressman Rush was first selected to the U.S. House of Representatives in 1992 and is presently in his ninth term serving the people of Illinois' First Congressional District, and he is a senior member of the Energy and Commerce Committee, where he chairs the Subcommittee on Commerce, Trade, and Consumer Protection. Congressman Rush is a sponsor of H.R. 4343, the Minority Business Development Improvement Act of 2009. The legislation would establish a program providing technical assistance, loan guarantees, and contract assistance to qualifying minority businesses. Also, the program would broadly resemble existing Small Business Administration [SBA], programs for small businesses owned and controlled by socially and economically disadvantaged individuals, among others. But it would differ in its eligibility criteria in the loan guarantees and contract assistance provided. Specific eligibility criteria differences include, first, the size of firms allowed to participate; inclusion of certain groups presumed to be disadvantaged; three, higher economic and network thresholds for individuals seeking to participate; and, four, limited eligibility for group owners to participate. Congressman Rush, you may proceed with your statement. STATEMENT OF HON. BOBBY L. RUSH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS Mr. Rush. I want to thank you, Madam Chairperson, Madam Chairwoman, for your leadership on this committee and, I also say, in 1992. Congressman Bilbray, it is so good to be with you and before you this morning. I would also extend my note of you being one of the most successful Members of the House of Representatives. But it is good to see you, my friend. To all the members of the subcommittee, I am so delighted to be here. I want to thank you for inviting me to testify before your subcommittee on this important hearing on Minority Contracting: Opportunities and Challenges for Current and Future Minority-Owned Businesses. During the first half of 2009, Congress took extraordinary steps to turn the Nation's economy around and create jobs that would fuel our economic recovery. Many States have already begun to distribute contracts. However, across the country, minority-owned firms are being shut out of the process because of what I call artificial barriers that I believe that this Congress must simply break down. Also, on the outside of the Federal marketplace, minority- owned firms are struggling, literally, trying to stay afloat and finding the needed financial and technical assistance to continue their operations. In business, the metaphor of the level playing field comes to mind. But that metaphor doesn't quite describe the circumstances for minority-owned businesses. Far from being on the playing field, many minority businesses and business owners find themselves standing outside the stadium doors where the business games in America are being conducted, standing on the outside of the stadium, in a crowd, trying to raise their voices over the din and over the noise and over the clamber that is going on of business R&D inside the stadium and playing the American game of business. They are signaling with one voice as loud as they can, they are saying, we are here. Look at us. Recognize us. Acknowledge us. We are here and we want to participate in the American economy. Madam Chair, that is why I am here, because so many of these business persons in my community, in my district, in your district and districts like ours, they can't be here. Their voices won't be heard today, so I am here to speak for them in my own way. The question remains to be answered, and so many others that I represent here: Why are these companies continually shut out of a process that these men and women, who are also taxpayers, citizens of this Nation, veterans of wars of this Nation, why are they out of the process and how can we help fund and support them? Quite frankly, Madam Chair, I find that this situation is totally unacceptable, and I believe that all of you join me in this. Historically, minority-owned firms have long faced an uphill battle in gaining a foothold on the national economic scene. In 1997, a study by the Urban Institute identified several obstacles faced by minority-owned businesses. At the top of that list was the lack of access to financial capital, limited access to informal business networks, lesser skilled human capital, and limited access to non-minority markets. I am here today unequivocally saying that by building up minority firms we can begin to truly drive the economic recovery that Congress and the Obama administration has been so diligently working toward. I have spent some time looking for ways to assist minority-owned firms of all sizes, including all business sectors, in their efforts to succeed and prosper in their efforts to create jobs in our Nation. Minority businesses and business owners employ nearly 5 million Americans. I looked at the Minority Business Development Agency [MBDA] in my research. This agency is under the auspices of the Department of Commerce and it is the only Federal agency, the only one, the only Federal agency in the last 40 years that was created specifically to help minority-owned firms. This agency was created during the years of Richard Nixon and it has language in the Department of Commerce fighting to stay alive, really struggling against tremendous odds, trying to help minority businesses prosper, to gain a foothold in the American economy, with little to no help from the U.S. Congress; an ignored agency for the most part. Unfortunately, even today, it still currently lacks the resources it truly needs to bring about significant change, particularly in today's tough economic climate. If there ever was a time when this agency, given its mission of 40 years ago, needs to be strengthened, I say the time is now. There is no better time than now. Now is the time. To that end, I introduced my bill, H.R. 4343, the Minority Business Development Improvement Act of 2009. If adopted, this bill will establish a Minority Business Development Program to assist qualified minority businesses by providing technical assistance, loan guarantees, and contracting procurement assistance. The bill authorizes the director of the MBDA to certify any entity as a qualified minority business that satisfies each of the eight criteria outlined in the bill. The bill authorizes $200 million to the director to carry out the technical assistance program and $500 million for loan guarantees. The bill would also allow firms participating in the program to bid on select set-aside contracts for goods and services. Ladies and gentlemen, brothers and sisters of this committee, I believe that it is time to bring the Minority Business Development Agency to the forefront of our Nation's economic recovery, and I am sure that other witnesses at today's hearing will concur with me. I am also sure that each one of you have felt, in your own way, the desire to turn things around and to regain our economic footing for the people in our local communities and throughout the Nation. Madam Chair, I urge the members of this subcommittee to join me in an effort to create a viable platform for minority- owned business development. Again, I thank you for giving me this opportunity to address this auspicious and this very important committee of the U.S. House of Representatives, and I thank you again. I am available for any questions that you may have. [The prepared statement of Hon. Bobby L. Rush follows:] [GRAPHIC] [TIFF OMITTED] T5561.003 [GRAPHIC] [TIFF OMITTED] T5561.004 Ms. Watson. We want to thank you too for bringing this issue, being persistent on this issue over a period of time, to our attention. It is right for us to have a hearing and bring all the facts as we know them to the table so that we can start discussing how we can do remedies, as I said before. Based on the information from your constituents, and I know that you have a history of always being tuned in to the people in your constituency, and even out of your constituency, or whatever sources you might have been talking with, how has the recent recession affected the minority-owned firms seeking to obtain Government financing or Federal contracts? Mr. Rush. Madam Chair, thank you for that great question. As I expressed before, there are still great disparities. Ms. Watson. Do you have kind of a percentage? Let's just stick within your district. What would you say the percentages would be in terms of those receiving contracts? Mr. Rush. Well, it is very paltry. I say that during this era, the Recovery Act, less than 3 percent of the minority- owned businesses in my district have been affected, although we took initial steps. We had a number of seminars and forums; we brought Government officials out early on, when this was first proposed. We tried to get ahead of the tide, ahead of the program. We wanted to be associated with the mostest. However, as we see how these programs and these dollars are being spent, they have very little effect on my district. And one of the reasons why they have very little effect on my district is that there is not a singular entity that really can help address and deal with some of the difficulties that minority businesses have historically affected, and that is why I focus on, again, the President Nixon created program, Minority Business Development Agency. I looked at and said, well, this is what is sorely needed at this time. If we want to increase from 3 percent to 10 percent to 25 percent to 30 percent, then we have to have an advocate, a well armed, well financed, well intentioned focused advocate that will help minority businesses in my district and provide assistance. Madam Chair, I am astounded and I am ashamed to say this, but MBDA right now is the smallest Federal agency within the Federal Government. It has been flatlined in terms of its budget for over 40 years. Flatlined. Everything else has taken off, has soared. But the one agency that can make a significant difference in my community, other minority communities, the one agency whose mission it is to help engage my constituents, your constituents, in a robust manner in this Congress, that agency is moribund almost because of the lack of funding and resources that it has. Ms. Watson. Let me just say this. We are all, in this Congress, focusing on jobs, jobs, jobs. Mr. Rush. Yes. Ms. Watson. And when we cannot focus or train our awards to these companies, there are a great number of people without jobs, laid off. That is correct. What is the jobless rate, percentage-wise, in your constituency? Mr. Rush. Madam Chair, I thank you for that question. Let me just say the published rate is about 16 percent. That is the published rate. Now, the real rates are more like about 30, 35 percent. And that is just the ones who are considered unemployed and the ones who might be eligible for unemployment benefits. Those who have dropped out of the job market, I mean totally dropped out, then you would probably say it is somewhere around about 45 percent. If you want to include young people, then it is over 50 percent. So, I mean, if you are talking about a depression, I am not sure how the economists, how they identify employment of a depression, but I would just say that most of my district is beneath whatever the parameters in my district. Ms. Watson. These are depressed areas. Mr. Rush. Yes. Ms. Watson. In listening very closely to what you see as a remedy, I think it goes to the basis that the agency that was established to see that we had eligibility requirements that could be met by minority businesses is underfunded. Mr. Rush. Absolutely underfunded. And that is the foundation for the problem, that it is underfunded. Ms. Watson. So it really becomes a fiscal problem for us to see that we share with this agency a justifiable amount so that we can increase minority contract and put the people back to work. Is that a statement that would be verified by your bill? Mr. Rush. Madam Chairman, yes, it would be. It would be. And if we just want to look at, if we just extrapolate for one moment, if we invest in the beginning, at the outset, if we invest in minority businesses, invest in this agency, then the same--American taxpayer on the other end would mean 100 times greater, because if you invest in creating businesses, in creating jobs, and then your investment in the social program and the citizens. That investment on the back end would be less if we invest in a robust minority business program in order to help create jobs. By definition, jobs is still the standard for being productive in this society. Jobs are still the creator of the American dream and of the American economy. The real stimulus program that I think we need now is to disseminate minority businesses so that minority businesses can do its rightful and natural function of creating jobs for the American people. Ms. Watson. Thank you. I will now yield to Mr. Bilbray. Mr. Bilbray. Congressman, thank you for your kind words. Let me just say, as somebody who was born and raised in a working class neighborhood, one of the things that has frustrated me so often is, first of all, a lot of people come into our communities that are distressed and see the unemployment, see the redlining. I still remember this one company, this one bank that I caught when I was mayor of a small town and said that the 7- Eleven being built in my community, built at half the revenue and be twice as expensive as the same 7-Eleven being built in another community. Now, I can understand half the revenue or reduced revenue because of our economic situation, but twice as expensive? So that tricky little game you get into. So I have seen that and I am concerned that we approach, many times, what we think is the problem is a symptom of deeper problems, and we see things in isolation; we go in and say this unemployment is the problem, but in reality there is a bigger problem. One thing that I really want us to concentrate on is that the minority community does not operate in the business community in isolation; it is part of a broader network. Wouldn't you agree that if you were breaking down the businesses into three categories, large, medium, and small, there are very few minority-owned businesses in the large category? Big business tends to be exclusive. Medium you have some, but not much. But the overwhelming majority of minority-owned and disadvantaged is in the small category. And I think we have to understand that a lot of these barriers appear to be just race- based or social-economic, but, in reality, because of the way systems, especially in the Government, is operated, we favor the big guy so much that indirectly there is a discrimination that not only is based on the color of your skin but, more importantly, by the volume of your pocketbook And it happens that the minority and disadvantaged community tends to fall into that category, along with other groups. Have you looked at the fact that one of the biggest problems we have with this program is we tend to put the weight on that middle ground? That if you want to qualify, you must qualify to be one of those medium sized businesses, the initial hit. But if you are one of the smaller guys, you are not big enough to compete for those contracts; you are not able to fulfill those requirements; and the system tends to say, we don't care, medium guy, if all of your subcontractors are disadvantaged, we want you to be disadvantaged. So you don't have the incubator process. I mean, let's face it, the great majority of these non- minority businesses were not born big, were not born even medium; they grew from the small. But the incubator concept tends to be stifled right now when I look at Federal contracting. In fact, one of the biggest problems we have, I think, with fraud in the system is that a lot of middle and big business are creating the fraud to get this advantage, where the true disadvantaged business people are not gaining access because they are too small to compete in the existing Federal program, they are not big enough to be able to play the game and, thus, they de facto are cut out not because of who they are, but because of the size they are. But the result is the same, exactly the same. Mr. Rush. Mr. Bilbray, let me just say this. It seems to me that the problem that you are addressing, first of all, small businesses employ the majority of the American people across the board. Firms that employ less than 500 people are the main employers of the American people; not major corporations, it is the small businesses. And what I think, I do think that there is a fallacy and there is a fault line with, Federal Government, because they do favor large corporations. And I think that addresses why there is such a need for the MBDA, because we have to change the thinking pattern, the mind- set of the Federal procurement community so that they will go out of their way, rather than discriminating against small businesses, that they will switch the paradigm and--that small businesses should be a premium, should be the priority for Federal procurement. Now, it might be cumbersome in one extent, maybe in terms of the bureaucracy or paperwork, but in this age of computerization and technological innovation, I think that we are living in a new world, and I don't think the same competitiveness that existed 10, 20 years ago exists now in terms of how you manage having more contracts broken down, you know, smaller contracts, and thereby inviting more and more businesses. Mr. Bilbray. Let me kind of reinforce. One of the problems we have now is that if you have that middle business size, put a bid in, they do not get credit for the fact that all of their subcontractors, or a large percentage of the subcontractors, may be disadvantaged businesses. So what happens is there is not the incentive to help incubate and grow the small into the medium to where you have the ability to compete in there. It is like we look at whoever is the bidder and we don't look at where their supply chain is. And you and I know, from the employment point of view, just from the workers in your district, if they are hired by a subcontractor who is doing the Government project, that is just as good a job as if they are hired by the guy who got the contract originally. But we are not, right now, giving any credit to those middlemen, the guys who are getting the bid, of literally incorporating the small guy into it and making a special effort to go out and get those disadvantaged businesses into their proposal; and I really think that there is a real missing link to build this foundation. This kind of economic prosperity doesn't happen overnight. It is not just a political and a Government thing, it is a cultural thing of people getting in the habit of giving people a chance to bid and compete, and rewarding them for taking the effort to go do that. Right now I run into situations of frustration where a lot of guys are telling me I don't even get credit if I go out and recruit this on a lot of these contracts, and I think that is one of the things we have to be frank and open about. Just because it appears that we are playing a game by setting aside, the outcome doesn't reflect reality, and the outcome proves to us what we have been doing traditionally is not doing it right. And I think we should be willing to shake it up a little bit and try these new things of saying if you have a contractor who has done that outreach into the minority community and got subcontractors, he should get credit and be reflected in a benefit to him for going out and recruiting and incorporating and integrating those subcontractors into the process and empowering the disadvantaged businesses to start growing. And I think that is a critical component. I know it sounds like an abstract, but if we are going to create the jobs, you have to change the system. Mr. Rush. Mr. Bilbray, let's shake, rattle, and roll. Ms. Watson. I would like to introduce one of our colleagues, Judy Chu, of California, for sitting in with us this morning. You probably didn't hear the opening statement, but I know that you understand the subject matter. Would you like to make a comment? Ms. Chu. I am just happy to be here to pursue the issue of improving our minority contracting opportunities, and I am glad to hear the testimony, and I certainly support Congressmember Rush's efforts in doing so. Ms. Watson. Thank you so much for joining us this morning. And thank you, Bobby Rush, for being consistent and staying on us until we had this hearing. We appreciate it so much. Mr. Rush. Thank you very much. Ms. Watson. This will conclude the testimony for Congressman Rush. Thank you again. Mr. Rush. Thank you so much. Ms. Watson. I would like to invite our second panel. But before you come up will staff bring the chairs back? We will call up the second panel that is composed of David Hinson, the Honorable Marie C. Johns, Mr. Jiyoung Park, Linda Oliver, and Brandon Neal. [Pause.] Ms. Watson. It is the policy of the Committee on Oversight and Government Reform to swear in all witnesses before you testify, and I would like to ask you to please stand and raise your right hands. [Witnesses sworn.] Ms. Watson. With that, you may be seated, and let the record reflect that the witnesses answered in the affirmative. I will now introduce each one of you. Mr. David Hinson is the Director of the Minority Business Development Agency at the Department of Commerce. Mr. Hinson oversees five regional offices and a network of 48 minority business centers that provide services to promote the growth and competitiveness of minority businesses. Prior to this position, Mr. Hinson was president and CEO of the Wealth Management Network, Inc., a multimillion dollar independent financial advisory boutique. He also managed a 10-State sales region as director of advisory services for Investnet Asset Management, a $70 billion financial advisory firm. Ms. Marie Johns serves as the Deputy Administrator of the Small Business Administration. Prior to her appointment, Ms. Johns was the managing member of L&L Consulting, LLC, and she is also past president of Verizon in Washington, DC. At Verizon, Ms. Johns was responsible for 2,000 employees and over 800 customers, including many of the small businesses. Ms. Jiyoung Park serves as the Associate Administrator for Small Business Utilization at the General Services Administration, where she oversees the agency's small business policies and programs. Previously, Ms. Park worked at Touchstone Consulting, where she managed communications strategy and program management efforts for the U.S. Agency for International Development and National Science Foundation and the Small Business Administration. Ms. Linda Oliver is the Acting Director of the Office of Small Business Programs at the Department of Defense, where she implements DOD policies that encourage the Department to provide opportunities for small businesses to successfully compete for small business contracts. And, finally, Mr. Brandon Neal is the Director of the Office of Small and Disadvantaged Business Utilization at the Department of Transportation, where he advises the Secretary of Transportation on opportunities for small and disadvantaged businesses to participate in the Department's contracting process. Prior to this position, Mr. Neal worked as a financial director for African-American affairs with Obama for America, and he also worked for the Democratic Governors Association as deputy political director and later as director of extended affairs. I ask that each one of the witnesses of the panel now give a brief summary of their testimony and keep their summary under 5 minutes in duration, and I know you can do that, because your complete written statement will be included in the hearing record. So I would like to start with Mr. Hinson. Please proceed. STATEMENTS OF DAVID HINSON, DIRECTOR, MINORITY BUSINESS DEVELOPMENT AGENCY, U.S. DEPARTMENT OF COMMERCE; MARIE C. JOHNS, DEPUTY ADMINISTRATOR, U.S. SMALL BUSINESS ADMINISTRATION; JIYOUNG PARK, ASSOCIATE ADMINISTRATOR FOR SMALL BUSINESS UTILIZATION, GENERAL SERVICES ADMINISTRATION; LINDA OLIVER, ACTING DIRECTOR, OFFICE OF SMALL BUSINESS PROGRAMS, U.S. DEPARTMENT OF DEFENSE; AND BRANDON NEAL, DIRECTOR, OFFICE OF SMALL AND DISADVANTAGED BUSINESS UTILIZATION, U.S. DEPARTMENT OF TRANSPORTATION STATEMENT OF DAVID HINSON Mr. Hinson. Chairwoman Watson, Member Bilbray, and members of the subcommittee, thank you for inviting the Minority Business Development Agency to appear before this subcommittee. I request that my entire written statement, including attachments, be entered into the official hearing record. For over 40 years, MBDA has been working aggressively to expand the economic footprint of minority business enterprises [MBEs]. At the time of the Agency's creation in 1969, there were approximately 322,000 MBEs that generated $10.6 billion in annual gross receipts. Today, according to the recently released numbers by the U.S. Census Bureau, the number of MBEs stands at 5.8 million, generating $1 trillion in gross receipts. However, while the recent numbers are encouraging, there is still work left to be done. Discriminatory barriers continue to persist which impede the ability of MBEs to access the Federal marketplace on an equal footing with non-minority-owned and operated businesses. I am submitting for the record as Attachment A to my testimony a document entitled The Compelling Interest for Race and Gender Conscious Federal Contracting Programs, which details these barriers, as well as a number of disparity studies. MBDA is working to eliminate these barriers, acting as both an advocate and facilitator for minority-owned firms seeking to gain greater access to the marketplace, including, but not limited to, procurement opportunities with the Federal Government. A great deal of work takes place in MBDA business centers located across the country and in Puerto Rico. The centers provide technical assistance to improve MBE competitiveness at securing both public and private contracts, in addition to promoting joint ventures and teaming arrangements as we recognize some contracts are too large for one firm to compete for alone. In fiscal year 2009, MBDA helped generate $2.2 billion in contracts and helped create 3,858 new jobs. This exceeds the Agency's fiscal year 2009 goals of $900 million in contracts and 3,000 new jobs. We expect to surpass our 2009 performance in fiscal year 2010. MBDA also works to match MBEs with contracting opportunities that fit each firm's profile and capabilities. Two of the more prominent methods are our business-to-business linkage form and the Phoenix-Opportunity Data base. MBDA hosts B2Bs throughout the year, matching MBEs with the public and private contracts ready to be let. During the B2B, MBEs have an opportunity to meet one-on-one with interested contract officers from all levels of the Government and the private sector to examine the possibility of doing business together. For example, at this year's National Minority Enterprise Development Week Conference, MBDA presented more than $30 billion in public and private sector forecasted contract opportunities. The Phoenix-Opportunity Data base, which is linked to FedBizOpps, helps to connect MBEs with available contracting opportunities. Using this system, MBEs input their profiles into the system accessible on the MBDA Web site. Contracting officers throughout the Federal, State, and local government can use this system to upload notices of their Federal contracts into the MBDA Opportunity data base. The system then matches each opportunity with MBEs meeting the requirements of the solicitation. The lack of access to capital has often inhibited the ability of MBEs to compete for Federal contracts. In January 2010, MBDA released a report titled Disparities in Capital Access Between Minority and Non-Minority-Owned Businesses: The Troubling Reality of Capital Limitations Faced by MBEs. This report, which examines the issue of capital access, accompanies my testimony as Attachment B. Capital, in the form of surety bonds, is required for Federal construction contracts. However, as credit markets tighten, obtaining bonding has become even more difficult. MBDA is working on a Surety Bonding Initiative to alleviate this problem and help MBEs secure the bonding needed to meet the requirements of Federal contracts. On April 26th of this year, President Obama established the Interagency Task Force on Federal Contracting Opportunities for Small Businesses, of which MBDA was a member. The Task Force was charged with providing recommendations to the President to help ensure that small businesses, including minority-owned businesses, have fair access to Federal contracting dollars. These recommendations include addressing the issue of contract bundling, subcontract planning, and identifying ways to increase small business utilization in prime contracting. MBDA was honored to serve on this Task Force and work with our colleagues to implement the recommendations put forth. So in conclusion, MBDA will continue to take an active role in eliminating barriers faced by MBEs in our Federal marketplace. MBDA is creating a Government Contracting Unit under our Office of Business Development. This Unit will be comprised of experts focusing on assisting minority-owned firms in accessing contracting opportunities. We anticipate having this Unit operational in the near future. Also, the Agency is working closely with Secretary Locke in establishing a National Advisory Council on Minority Business Enterprise to advise the administration on issues pertaining to the growth in minority-owned firms, including access to Federal contracts. MBEs are a critical part of this country's economic infrastructure, and it in Federal contracting that many will find avenues for growth. MBDA looks forward to working with Congress to help create more entry points into the Federal marketplace for MBEs. Thank you, and I look forward to your questions. [The prepared statement of Mr. Hinson follows:] [GRAPHICS TIFF OMITTED] Ms. Watson. Thank you so much, Mr. Hinson. Ms. Johns, you may proceed. STATEMENT OF MARIE C. JOHNS Ms. Johns. Thank you, Chairwoman Watson, Ranking Member Bilbray, members of the subcommittee. I am honored to testify on this very important topic and I am honored to be in my role for a little over 2\1/2\ months now as the Deputy Administrator at the Small Business Administration. Minority business is something that I care deeply about, and it goes back to my family roots. My grandfather was a pioneering small business person in my home State of Indiana, my father, uncles have been in small business ownership as well, so I have seen firsthand the hard work, the commitment that it takes to own a business, and how important business ownership is to minority communities. So I am eager to work with you all and this subcommittee to hear your questions and to discuss how we best support minority small businesses. In these tough economic times, minority-owned small businesses have been especially hard hit. According to a study by the SBA's Office of Advocacy, on average, minority-owned firms have lower receipts and fewer employees, and are less likely to have access to capital than non-minority-owned firms. Minorities are 32 percent of the population, but make up 18 percent of business ownership. Meanwhile, for every dollar earned by a white-owned firm, Pacific Islander-owned firms made about 59 cents; Hispanic, Native American, and Asian firms made about 56 cents; and African-American-owned businesses made 43 cents. And, finally, survival rates of minority firms are significantly lower than those of white firms. Knowing this, it is clear that we must do all we can to support minority-owned businesses in a comprehensive way. Certainly, Federal procurement is a part of that, but also through increased access to capital and increased opportunities for technical assistance and counseling as well. As you know, Congress sets the goal of awarding 23 percent of all Federal contracting dollars to small businesses. Congress also created goals for women-owned business, service disabled veteran-owned small business, businesses in HUBZones, and socially and economically disadvantaged businesses [SDBs], which includes many of our minority firms. These goals, especially the SDB goal, reflect the capacity of minority-owned small businesses and help the Government to ensure that these companies have the opportunity to compete for and to win Federal contracts. We are proud that in fiscal year 2009, 7\1/2\ percent of contracts, or over $7 billion, went to SDBs. The 7\1/2\ percent exceeds the statutory goal of 5 percent. SDBs have also been successful in winning Recovery Act contracts. So far, nearly 12 percent of Recovery Act contracts, or $3.7 billion, has gone to SDBs. Moreover, SBA has programs in place that expand businesses' capacity, including minority-owned businesses, so that they can compete for and win Government contracts, and chief among these are the 8(a) program. The 8(a) program is a 9-year business development program for socially and economically disadvantaged businesses, the majority of which are minority owned. Participants receive business development, technical assistance, and the chance to work alongside larger firms in a mentor-protege relationship. The 8(a) program has helped thousands of businesses across the country. I would like to cite a couple of examples. In Jacksonville, Florida, A. Harold and Associates provides training, tech support, and project management for clients across the country. Owner, Andy Harold, created 24 new jobs after enrolling in the 8(a) program. In Los Angeles, J&P Construction saw their sales increase tenfold since entering the 8(a) program. The company recently graduated from the program and has agreed to come back as a mentor for new 8(a) firms. But, of course, despite the success of the 8(a) program, we have more work to do. Recently, our agency undertook the first ever comprehensive review of the 8(a) program, strengthening the rules to ensure that the benefits of the program flow to the businesses that need them, and we are very close to implementing these recommendations. Furthermore, SBA has made strong, robust oversight a top priority. We are working to root out fraud, waste, and abuse in our certification program for the three-step process: improving certification, strengthening our monitoring and oversight, and increasing enforcement. In addition, the President's Task Force on Government Contracting came back with a number of concrete actionable recommendations to address the challenges and barriers to success for small businesses seeking Federal contracts, and many of my colleagues on this morning's panel lent their expertise to that very important effort. I want to thank my colleagues, Director Hinson, Associate Administrator Park, Acting Director Oliver, and Director Neal, all of whom were involved in that very important effort. It is clear that this commitment to small business contracting spans the entire Federal Government. The Task Force identified three main areas of focus: to develop clearer and more comprehensive policies, provide a better trained Federal contracting work force, and to improve and better leverage technology. And this fall the SBA will be announcing its Advisory Council on Underserved Communities. I am excited to be leading this effort and our purpose will be working to develop strategies to promote business growth and entrepreneurship in traditionally underserved areas. Finally, minority contractors will be helped by resolving the issue of parity. A current court decision would give HUBZone businesses preferences above other set-aside programs, potentially redirecting millions of dollars away from 8(a) businesses. In closing, let me assure you that everyone at SBA is aware of the need to support minority businesses. We are proud of the programs we have in place, but we must work diligently and continue to improve. And I am looking forward to working with this committee and with Congress as a whole in partnership to enhance the tools that we provide currently and to continue to develop new ones as we go forward. Thank you. [The prepared statement of Ms. Johns follows:] [GRAPHICS TIFF OMITTED] Ms. Watson. Thank you, Ms. Johns. Ms. Park, you may proceed. STATEMENT OF JIYOUNG PARK Ms. Park. Good morning and thank you for the opportunity to appear before you. I am Jiyoung Park, Associate Administrator of the Office of Small Business Utilization with the U.S. General Services Administration. Minority business ownership is something I feel strongly about. Several family members, including my father, have owned local small businesses. I have seen how business ownership and hard work can lead to economic independence and prosperity among minority communities and among their broader communities. I look forward to hearing your questions today and discussing how we all can better support minority business success in Federal contracting. As Director Hinson referenced with the statistics, minority firms, without question, will continue to play a pivotal role in our economy, and we at GSA continue to support this ever- growing group of businesses, and we partner closely with the MBDA, SBA, and other agencies to do this. The Honorable Ms. Johns mentioned small business and small disadvantaged business goals Government-wide. GSA consistently exceeds these goals for our agency. To date, in 2010, we have awarded nearly $1.9 billion to small businesses, which is 28.7 percent of the eligible contract spending. We have awarded $829 million to small disadvantaged businesses, which represents 12.7 percent of our contracting so far this year. This achievement illustrates GSA's dedication to creating opportunities for minority businesses. More importantly, these numbers are a testament to the great achievement of minority businesses themselves. In 2009, GSA received $5.85 billion through the American Recovery and Reinvestment Act to convert Federal buildings into high-performing green spaces and to green the Federal fleet. This portfolio includes many large capital construction projects that were not best suited for small businesses. Despite this challenge, we are committed to minority businesses at both the prime and subcontract level. To date, GSA has awarded $452 million directly to minority firms of Recovery Act funds. One such recipient is Rios Associates, a Los Angeles-based Hispanic-owned firm who won $300,000 to develop sustainable landscapes for GSA buildings. OKE Thomas and Associates, an African-American-owned Missouri- based company, won $16 million for multiple GSA projects across the Midwest, ranging from carpet installation to roof upgrades using Energy Star materials. Finally, Epsalon System Solutions, an Asian-American firm in San Diego, won $350,000 to provide technical expertise for various GSA recovery projects. The list goes on. Awards like these across the country are helping minority firms make payroll, grow their business, contribute to the greening of our Federal buildings, and create green jobs for the future. The Recovery Act is only one part of GSA's overall portfolio. In a given year, nearly 17 percent of Federal contract dollars flow through GSA. We are fully committed to stewarding these funds to maximize small and minority business opportunities. One of the best ways we do this is through GSA's Multiple Award Schedules Program. Currently, 19,000 scheduled contracts are in place, of which nearly 15,000 are held by small businesses; 2,300 are held by small disadvantaged businesses. This fiscal year, as of the end of August, small disadvantaged businesses have received $2.8 billion through the Schedules Program, or 7.3 percent of program sales totaling $40 billion. Another way we level the playing field is GSA's Government- wide Acquisition Contracts that has been set aside exclusively for participants in SBA's 8(a) program. This contract is called 8(a) STARS. Nearly 200 8(a) firms participate in GSA's STARS, and since 2004 these firms have received $2.7 billion in orders. In addition to our contract vehicles, GSA provides a wealth of outreach and education to minority businesses. Last October, GSA launched a Mentor-Protege Program to help small and minority firms team subcontracts to other firms and compete on their own. To date, our Mentor-Protege Program has established 40 mentoring relationships, a third of which include small disadvantaged businesses. This program is just one of many resources that GSA has to help minority firms. We also host and participate in hundreds of outreach events across the country each year, including those listed by the SBA, MBDA and other Federal agencies. And we also work side-by-side with procurement teams to help create opportunities for minority businesses on from inside. In closing, we at GSA have a strong record with minority businesses. We are committed to increasing minority firms' access to contract opportunities and to building their capacity to succeed, while at the same time bringing the most innovative ideas and best industry expertise to the Government. I would be happy to answer any questions and provide any other information at the subcommittee's request. Thank you for your time. [The prepared statement of Ms. Park follows:] [GRAPHICS TIFF OMITTED] Ms. Watson. Thank you, Ms. Park, for your testimony. Ms. Oliver, you may proceed. STATEMENT OF LINDA OLIVER Ms. Oliver. Thank you, Chairwoman Watson, Ranking Member Bilbray, Mr. Connolly, Ms. Chu. It is nice to be here, but I have deadly boring testimony. It is all about numbers, so I will really summarize what the numbers tell us, and I will begin with a digression. Last night I had a telephone call from somebody who in theory was calling me because he wanted to know something about small businesses. This was a man in Los Angeles. I found out, as I talked to him, that the real reason he was calling me was because he thought I should take this chance to mention publicly, from many constituents, as I understand it, how much they have appreciated Ambassador, as he called her, Ambassador Watson's work. So I pass that along to you. Ms. Watson. It wasn't my brother, was it? [Laughter.] [Remarks made off mic.] Ms. Oliver. In developing testimony, we looked at the numbers in a general way and then in more specific ways, so it is a series of charts. The first chart tries to look at small disadvantaged businesses that do contracting with the Department of Defense. We looked at it over a 9-year period, and I am pleased to say that we have consistently, our contracting dollars that go to small disadvantaged businesses has consistently increased; and, in general, we have increased the percentages. In 2001 we were at 5.6 percent, which exceeds the goal, and in 2009 figures show that we are at 6.9 percent. So I am so happy to be talking about this area because this is an area where we are doing well. We also looked in more detail at the numbers for the last 3 years, 2007, 2008, and 2009, and I am pleased to say again that whether we break it down by 8(a) companies or by the small disadvantaged businesses that are not 8(a) companies, in both cases the Department of Defense shows an upward trend in dollars contracted, in numbers of contracts with small disadvantaged businesses, both categories, and we are very pleased by that. We have also been happy with our Recovery Act numbers. The Department of Defense received $7.4 billion under the Recovery Act, which actually is not very much for the Department of Defense. Ms. Watson. Let me just interrupt you for a moment. Ms. Oliver. Sure. Ms. Watson. The charts that Ms. Oliver is referring to, I understand, are in your statement on the table. Ms. Oliver. Yes, ma'am. Ms. Watson. Great. So that you can pick them up on your way out. Ms. Oliver. Yes. Ms. Watson. Thank you. Ms. Oliver. You bet. Where Recovery Act is concerned, right now approximately half of all our Recovery Act dollars are going to small businesses and 34.9 percent of our ARRA dollars are going to small disadvantaged businesses. Now, I am realistic enough to know that there are going to be some big purchases down the road that are planned, and those numbers will go down, but we are very pleased with where our numbers are. Finally, we took a look at the source of things that the small businesses and small disadvantaged businesses with whom we contract, with what they purchase, because we think that might help us in our plans. But there are four main areas that small disadvantaged businesses contract with us: manufacturing; construction; professional, scientific, and technical services; and administration and support accounts for 89, almost 90 percent of our small disadvantaged business contracts. Well, there is my quick summary. I have appreciated being able to come and tell you that Department of Defense is very happy with what we have done with small disadvantaged businesses, and through analysis we hope to continue on in this upward pattern. [The prepared statement of Ms. Oliver follows:] [GRAPHICS TIFF OMITTED] Ms. Watson. Thank you so much. I am sure there will be questions. Mr. Connolly, I know that you are concerned about the DOD, so we will get to questions in just a few minutes. You may proceed, Mr. Neal. STATEMENT OF BRANDON NEAL Mr. Neal. Good morning, Chairwoman Watson and Ranking Member Bilbray, and members of the committee. Thank you for inviting the U.S. Department of Transportation to discuss our efforts to comply with Government-wide contracting requirements for minority-owned businesses. My name is Brandon Neal, and I am the Director of the Office of Small and Disadvantaged Business Utilization. Under the leadership of Secretary Ray LaHood, DOT has been a strong advocate for ensuring the participation of small businesses and ensuring that opportunities created by our Nation's investments are shared by all Americans. DOT small business contracting opportunities are available through our direct Federal contracting program and through recipients of DOT financial assistance via the Disadvantaged Business Program [DBE]. In fiscal year 2009, DOT received an A scorecard rating from the U.S. Small Business Administration for meeting its direct contracting small business procurement goals. In fiscal year 2009, $752 million was awarded to small and disadvantaged businesses. The DBE Program is designed as a vehicle to increase the participation of DBEs in State and local procurements through our Federal Highway Administration, our Federal Transit Administration, and our Federal Aviation Administration. These are the three DOT operating administrations involved in the DOT program. The Department created a high level task force to take a look at the DBE program and develop a long- and short-term recommendation process to improve the administration of the DBE program. The task force is chaired by yours truly, and it is also comprised of the senior leadership of each operating administration. The Secretary and the Deputy Secretary have personally participated in many of the task force meetings. Secretary LaHood sent a letter to each Governor and State DOT administration indicating the Department's commitment to work together to provide small and disadvantaged businesses with an opportunity to participate in transportation projects. In a May 2010 Notice of Proposed Rulemaking, we proposed several important improvements to the DBE program: one, accountability for State DOT recipients; two, adjusting the personal net worth threshold; and, three, improvements with post-award oversight. We anticipate a final issuing within the next few months of the rulemaking. DOT quickly disbursed contracts funded through the Recovery Act and the projects are still continuing to provide contracting opportunities. Additionally, projects are now in the stage of providing subcontracting opportunities for small businesses. Our most recent data indicates we have awarded $24.9 billion in ARRA contracts, of which $2.08 billion have been awarded to DBEs. Additionally, we implemented a Bonding Education Program in collaboration with The Surety Fidelity Association of American to get small businesses bond ready. Becoming bondable is a major obstacle for many DBEs, and this pilot program aims to address the issue and help those businesses grow by becoming bond ready and to compete for larger contracts. Some examples of our outreach include over 180 outreach activities across this country this past year. The participation in the White House Interagency Task Force on Federal contracting opportunities for small businesses; in March 2010, DOT hosted the inaugural Small Business Summit entitled The Road to Recovery, attended by more than 700 small business leaders from across the country. Plans are currently underway for the second summit in 2011. Our short-term lending program continues to help small businesses gain access to financing. We have implemented a Pilot Entrepreneurial Training and Technical Assistance Women and Girls Program with Spelman College in Atlanta, Georgia. This program is a part of the broader effort led by the White House Council on Women and Girls. Last month, Secretary LaHood announced the award of $11.6 million in grants for minority- and women-owned businesses to provide Federal aid to State DOTs for DBE firms to improve their ability to compete for and fulfill Federal highway contracts. As demonstrated in the testimony of the Department and other witnesses on this subject before the House Transportation and Infrastructure Committee, the Department of Justice's compelling interracial narrative and the Department's own experience, race-conscious programs by the DBE program continue to be needed to address discrimination and its continuing efforts in transportation contracting. DOT is continuously looking for ways to increase small and minority business contracting. Thank you again for the opportunity to be here. [The prepared statement of Mr. Neal follows:] [GRAPHICS TIFF OMITTED] Ms. Watson. Thank you so much, Mr. Neal. I would like to start the questioning now, and I am going to go quickly so I can get to our ranking member, and then I will get to you, Mr. Connolly. Mr. Hinson, given that the Minority Business Development Agency now assists minority businesses of all sizes with their efforts to secure financing and other public and private sector contracts, what has your agency discovered regarding the issues confronting minority-owned businesses? Mr. Hinson. Thank you for that question. Certainly we have discovered, as was outlined in the testimony and in our reports, that minority firms suffer tremendously from a lack of access to capital. Our studies and our research has shown that they suffer from a lack of access to contracts and they suffer from access to new market opportunities. So those are the three areas where we found that minority-owned firms are, and continue to be, challenged. Ms. Watson. We are basing this hearing around H.R. 4343, and I think you heard the position. How would these programs that are proposed in that legislation affect the MBDA's current operations and what, if any, type of additional researches would the Agency require to implement these programs? Mr. Hinson. Thank you. To achieve our current mission right now, as it stands and as we are focused, we have adequate resources. These resources would expand our capabilities to go beyond where we are now. For example, we operate 46 business development centers around the country. These types of resources would quite naturally allow us to gain a broader footprint to help more firms grow to size and scale. But in terms of our current operation, our resources are sufficient to maintain the mission that we have now. Ms. Watson. If there is another area that seems to be uniquely depressed, how would they go about getting one of the centers? Mr. Hinson. Well, certainly it is in the purview of Congress to decide if they want to, a Congressperson or Congress in general to decide. Ms. Watson. Would we have to make that decision, or do you have the authority to make that decision? Mr. Hinson. We do not have the authority to make that decision beyond what is within the context of our budget. Ms. Watson. That is what I am really getting to. Can you open a new center if such an area exists and applies to you? Or do you have to come back to Congress? Mr. Hinson. We certainly have the ability, because the centers are public-private partnerships. So we go out and we actually bid these centers out. The centers we have are the number of cents that we can actually have in the marketplace given our resources. So, yes, it is within our power to expand that footprint, but, again, in that respect we are resource constrained. Ms. Watson. Let me give you a case in point. California could be three States. Central Valley is suffering, and these are the field workers and so on. Should they want to start a small business to enhance opportunities for jobs, other than picking our fruits and vegetables, would they come then to your center? And most of these are Hispanic workers and so on. Is your center authorized to start an opportunity there, in that area, if they applied? Mr. Hinson. Yes. Ms. Watson. Within your budget. Mr. Hinson. Well, again, we are within the context of our current resources. We have essentially maxed out on our capability to expand our center footprint. Ms. Watson. I see. Mr. Hinson. What we are doing is we are continuing to expand job growth by focusing on larger minority-owned and operated firms. Congressman Bilbray had an interesting point earlier, when he was speaking with Congressman Rush, about the power of size and scale. We partner and we work very closely with SBA. SBA has a tremendous number of programs that help firms start businesses of different sizes. Our target market is really geared toward, again, because of what we work with on the resource side, we are really geared toward providing services to those firms that $1 million or more in gross revenue. But at the same time we provide services to all minority firms of all sizes. Ms. Watson. Let me yield now to our ranking member. Mr. Bilbray. Thank you very much, Madam Chair. Let me just say I appreciate the comment. Ms. Oliver, I want to thank you for bringing up a comparison between the disadvantaged and the small. Some people may say, well, 50 percent may sound good, but when 60 percent of jobs are created by small, that looks 10 percent deficient. But in all fairness to you, I have to say I assume, though, that the 50 percent that go to the big guys, there are many subcontracts that are serving the small guys through the larger contracts, is that fair to say? Ms. Oliver. That is absolutely fair to say, and particularly with these funds, because many of them are construction, and construction is an area where there are virtually always lots of subcontracts. It is the way the industry operates. Mr. Bilbray. Right. I appreciate that. Ms. Johns, your reference and you made something that we do I think too often and, in all fairness to you, it just happens to be that we go down, we talk about the disadvantaged numbers. One thing I learned, I did a lot of work in environmental health, and that single component models are very, very deficient, if not delusionist. You have to have multi-faceted models to always make sure you cover the big ones. And I think you were pointing out there fairly on that about the return that businesses get based on the community or the ethnic background of the owner. Did you have with those data, too, the proportionality between the profit margin and the return that you get based on size and the inherent disadvantage of the little guy competing in the field? Ms. Johns. I don't have any specific data about that for this morning. Ranking Member Bilbray, I would be happy to come back or provide a specific response to any question you may have. What I would like to tell you, though, is that the SBA is undertaking a rigorous look at size standards. I have, even in my short time at the SBA, I have made it a strong priority to meet with minority business owners. In fact, I had roundtables with two sets of 8(a) business owners just last week, one with a national representation, the other was local; and the issue of size standards is something that comes up, and that is as companies grow to a certain size and their inability, once they size out of, so to speak, the small business category, but yet not sufficiently large to compete with really large companies, we know that is an issue that we have to pay close attention to. So that study is underway to do just that. Congressman Bilbray, if I may also just say a word about the notion of coverage and footprint and access to services to start small businesses. I appreciated Director Hinson's reference to the SBA because the agency does have a broad network throughout the country through our resource partners, the small business development centers, our affiliation with Score, our women business centers; that in a year's time we touched a little over 1 million individuals to provide counseling to them. So that is why partnership is so very important. MBDA has its area of expertise; the SBA is the place where a full complement of services particularly focus on small businesses that we strive to make available. And, again, we are looking at where we can improve our outreach and improve our-- -- Mr. Bilbray. Ms. Johns, I appreciate that. I think one of the things we have to admit, in fact, I guess the example totally separate from this was the RTB back in the 1980's, where the big guys, everything was grouped together; contractors grew up so huge that there were only a few people that could put together capital to manage that. The American taxpayer was absolutely ripped off because you go out to bid where only two or three people could bid. But because it was easier for the bureaucracy to manage these huge packages, rather than breaking them up into competitive market-based structures, because just inherently it is easier to handle one contract rather than 10 or 100. But the taxpayer and the small guy got totally cut out of the system. I want to make sure that we keep that in mind, because you can't isolate the disadvantaged business people from the impact of our policies on small businesses. De facto, it is always going to be the minority community that gets hit harder when the little guy gets hit, regardless. And I think the one thing that isn't talked about enough in polite company is the fact that just because it is a disadvantaged minority-owned business doesn't mean that people that do not fall into that ethnic crowd is not benefiting, because the employees aren't necessarily in one little group; the employees are very broad. And I don't think we talk enough about that, that a job is a job is a job, and that just because the boss happens to fall into one category doesn't mean the general community is not benefiting with real viable jobs. My question, though, is when we get down to this issue of subcontractors, are we frank and open to the fact that, like you point out, they get credit for recruiting those subcontractors, but being much more aggressive on that? Is that fair to say? Ms. Johns. May I comment on that? Mr. Bilbray. Yes. Ms. Johns. What we have done at the SBA is, I believe it was referenced earlier, we have a scorecard that we utilize to track what Federal Government agencies are doing in the area of small business utilization, and just recently the whole area of subcontracting was strengthened and more focus is being put there because, as you cite, Congressman Bilbray, the notion of larger contracts for longer terms, as the Government is looking to operate more efficiently, we have to make sure that even in that situation that the focus on small business opportunity is not lost. Mr. Bilbray. And competition in the long run is going to save us. I know I have burned up time, but the 900K really sticks out to me. There is 900K being spent on these centers, and my question to you is, to give you a chance to defend it, wouldn't that be better used going directly out to your target rather than creating this structure and this overhead of getting this directly out into the market and stimulate the private sector, rather than building this public sector infrastructure that is costing 900K? Mr. Hinson. I am sorry, 900K, what are you referring to? Mr. Bilbray. I am talking about hiring the development of the business centers and hiring the experts, consultants. Mr. Hinson. Right. The answer to that question, I would respectfully say, is no. Those business development centers create the conditions for minority-owned and operated firms to gain access to capital and access to contracts, the two key inputs if you want to grow a company. When you look at our operation, our ROI is over 100 times. In other words, for every dollar of taxpayer money that flows into our agency, we create over $100 of economic output. I would argue, sir, that it is the exact reverse. You would want to expand the footprint so you can touch more firms, help these firms grow to size and scale. And I might add, anecdotally, that minority-owned firms are twice as likely to export as non-minority-owned firms. This sector screams for investment and for support. So I would argue to you that, from where we sit, the dollars that are committed to these centers are critical to providing the conditions under which these firms can grow. Mr. Bilbray. Madam Chair, just for the record, California does not constitute three States. My county of San Diego is larger than 20 States, and your county is larger than 40 States. I yield back. Ms. Watson. Thank you for reminding us. I would like now to yield to Mr. Connolly. Mr. Connolly. I thank the Chair. And before my time starts counting, on a point of personal privilege, if I may just say, this may be one of your last hearings to chair, Congresswoman Watson, and I just want to say personally I have really appreciated your friendship and the civility and grace and thoughtfulness with which you comport yourself and bring to every debate and every issue. It is going to be something sorely missed. Ms. Watson. Thank you. Mr. Connolly. Thank you for your service. Let me start, if I may, as the Chair anticipated, Ms. Oliver, and, by the way, is there somebody from Pentagon Government Relations here with you? Ms. Oliver. I don't know. Mr. Connolly. OK, good. So I hope you take this back. You know I want to, first of all, thank you for your testimony and thanks for summarizing it and admitting a lot of it would have otherwise been boring. Thank you. [Laughter.] A refreshing change. And none of this is meant personally, but I want, since you are here and you are from the Pentagon, as you know, Secretary Gates announced a pullback of 10 percent of all outside Pentagon contracts for 3 years. Ten percent a year for 3 years. The Virginia delegation was recently briefed by Pentagon folks, and there was not a shred, not a scintilla of evidence to justify such an announcement. There was no analysis; there were no programs or priorities identified. It was just a number pulled out of a hat. And for this Member of Congress, and I think increasingly for colleagues on both sides of the aisle, that is unacceptable. And one of the concerns I got--by the way, this subcommittee has asked the Pentagon to testify on September 29th. I hope Government Relations takes it back. If you want to duck it, some of us will call it out for precisely that. But the concern I got, Ms. Oliver, and I want you to have a chance to comment, when you set an arbitrary goal like that, and what that means is people in the bureaucracy have to scramble to meet it on a date certain. Ten percent, oh my God. So what happens? Well, you are going to take the low hanging fruit. What is the easiest to pull back from outside contracting to meet that goal? And it ain't the big guys. The have big law firms; they can litigate, they can appeal. They know how to work the system, and there are lots of other big contracts at stake even the Pentagon may not want to upset. I think the earliest victims of such an arbitrary 10 percent pullback will be small and minority-owned businesses. It will be businesses owned by minorities, women, and disabled veterans, especially. And I wonder, No. 1, has your office at all been involved in any of the discussions about this incredible decision when we think about the money and the number of contracts potentially affected? And have you done any analysis of the potential impact and how to guard against that negative impact on all of the wonderful statistics you rightfully and pridefully shared with us this morning? Ms. Oliver. I would be so happy if you could tell me how to find those statistics. Yes, we have been. The Department of Defense has been asking itself internally how will we become more efficient particularly without harming small businesses. We are aware of the problem and I personally would so welcome any insight you might be able to give about how to quantify it. Mr. Connolly. I want to be real clear about your testimony. Are you testifying here that you were consulted before the announcement of a 10 percent pullback, 10 percent a year for 3 years, and that the concern was expressed to you we want, of course, to make sure that we shield or protect or there is not some disproportionate negative impact on small and minority- owned businesses? Ms. Oliver. No, I am not testifying to that. Mr. Connolly. That is what I thought. Have you been invited to any discussions, moving forward to the future, to talk about the implementation of such a sweeping goal? Ms. Oliver. Yes, I have been. Mr. Connolly. Are you aware of the fact that the Pentagon has been invited by this subcommittee to come and explain that goal and how it will be implemented? I understand you are not the spokesperson for the Pentagon but, unfortunately for you, you are here. Ms. Oliver. This happens all the time. Mr. Connolly. And even though we loved your testimony, we want to send you back with a message, because this is very serious business, and it doesn't just affect my district or my State; it is going to affect Mr. Bilbray's, it is going to affect Diane Watson's, it is going to affect Judy Chu's. There are contractors all over the country, especially for the Pentagon, and especially I worry that one of the unintended consequences, it certainly is not an intended consequence, is the very people you get paid to try to help, and the very firms you get paid to try to integrate into the opportunities of Federal contracting, will be hurt the first and the most; and that is the message I would like you to take back to the Pentagon. Thank you, Madam Chairman. Ms. Watson. Thank you so much for your concern, and we are planning to hold a private confidential hearing for you to raise those questions and get answers. We did not want to subpoena anyone from DOD at this hearing, but I think you can get the kind of information you need. We all represent constituencies that will be sorely affected, I mean, they are now. So that is one of the reasons why we are having this hearing. And in order to save the jobs, particularly those small firms and minority firms, that are really impacted greatly in this current economy, we would just like to know what the thinking that went in. So we are going to have a meeting. We hope to get some direct answers. With that, let me yield to Ms. Chu. Ms. Chu. Thank you so much, Madam Chair. I certainly embrace Congressmember Rush's bill, H.R. 4343, and certainly think that it is so important to improve the outreach to minority contractors for Federal contracts, and I am certainly alarmed that minority businesses make up 20 percent of all businesses, yet are lagging with regard to Federal contracts. I would like to direct this question to Mr. Hinson. As the Chair of the Economic Development Task Force for the Congressional Asian Pacific Caucus, I have been contacted by several Asian Pacific Islander groups, the Asian Pacific Islander Small Business Program, the Pacific Asian Consortium and Employment, the Search to Involve Filipino-Americans in the Asian Business Association, as well as the Asian Pacific Revolving Loan Fund, and they are very, very anxious to participate in MBDA and to partake of the technical assistance that is inherent in it. I was wondering what kind of outreach you would be doing to the API community, other than attending conferences or participating at roundtables? What kind of technical assistance is there to make these businesses actually succeed? Mr. Hinson. Thank you for that question. The API community is a critical community in this country. In fact, the API community produces $500 billion of the $1 trillion in gross receipts that the entire minority business community generates. Certainly, this community is critical to MBDA, and we continue to provide outreach and support to this community. We have found that, from an overall business standpoint, around 20 percent of our business activity is within API companies. Those companies and those individuals who are interested in participating have access to our centers just like any other company does; we continue to provide outreach to the various members of the community. In fact, I would say that, at your prodding, which I very much appreciate, with our new Web site we actually have bilingual capability so that various members of the API community who don't have English as their first language have the ability to access the information that MBDA provides in the language of their choice. So we continue to outreach to this community; we are aggressive about it. It is important to the administration that this community continue to receive support and service, and we continue to outreach and support this community. Ms. Chu. Well, I appreciate your translation of services on the Web site. In fact, I wanted to follow that up with a question about linguistically appropriate outreach. And I am concerned for the Hispanic community, as well as for the API community, where you do indeed have many high-end businesses where people may be primarily proficient in another language. So I am wondering what kind of incorporation in the grant program is there about linguistically appropriate services? I just want to make sure that those centers do indeed have the capability to address the linguistic needs of our communities. Mr. Hinson. And again I thank you for that question. Some of our centers certainly do have people that work in those centers that speak multiple languages. Our centers are in high dense communities, where you have a lot of businesses, where you have a lot o f languages being spoken, and you know as well as anyone that there is no one language that represents the API community; there are quite a number of languages. I won't sit here and say that on the ground we have the ability, we have the people that can actually speak each one of the individual languages. I can say that our experience has been, for the businesses that we serve, that they are very comfortable speaking English in their business transactions. I would tell you that many of them participate in our B2Bs. In fact, we partnered with SBA and DOT, as I mentioned, for the B2B event at our MED Week Conference, and there were quite a number of API companies that took advantage of the access to the $300 billion of contract opportunities that we provided. So I understand your point and I appreciate that point, and we will continue to do as much as we can do to make sure we meet the language requirements of the community. Ms. Chu. In fact, I did write a letter asking for a legal opinion on a linguistic and culturally appropriate services in the new round of Federal funding opportunities to operate in MBDA centers. Can you tell me what the status is of this legal opinion? Mr. Hinson. I cannot tell you now. I will certainly get back to you with an answer to that question. I will tell you that, as I indicated earlier, that all the centers are public- private partnerships. There is open bidding. We are in the process of going out with the new FFO to open up the bidding for these centers, and anybody who is interested in bidding, anybody from the API community who wants to bid, they have the right to bid, and they will be reviewed in competition with all the other bidders for those particular centers. Ms. Chu. That is great. I just would hope that there would be some encouragement for those bidders, especially those who might have linguistically appropriate capabilities. Mr. Hinson. Absolutely. Ms. Watson. Thank you so much. To conclude this panel, I would like to go to Mr. Neal, and if you can answer very quickly. I going to put two questions in one. DOT has received a considerable number of funds, stimulus funds. How much of these dollars have gone to DBE firms? And do you believe that discrimination continues to be a problem in the transportation industry? We are getting some feedback and there seems to be some contractors out there that are contacting us that they feel that they have been treated unfairly. So can you respond? Mr. Neal. Sure. Thank you, Madam Chairwoman. Under our Federal Highway Administration, $1.7 billion was committed to DBEs out of $24\1/2\ billion. Under our FTA, Federal Transit Administration, we had 13 percent go to DBEs and $2.3 billion funded, and $290 million was awarded to DBEs. And under our FAA, Federal Aviation Administration---- Ms. Watson. Can I just stop you there? Mr. Neal. Sure. Ms. Watson. Would you give us those statistics in writing to our committee? Mr. Neal. Absolutely. Ms. Watson. I would like to circulate them so we can have proof that we are using these funds to serve the purpose. Mr. Neal. Absolutely. And under our Federal Aviation Administration, we had $1.1 billion in recovery money, and $92 million went to DBEs and 8.4 percent were committed overall to DBEs. The Office of the Secretary, under the leadership of Secretary LaHood, has put together an Interagency Task Force solely focused on DBEs and accountability, and, of course, as I indicated in my remarks, that yours truly is the chair, and what we do is make sure that there is a lot of accountability and enforcement in making sure that the States who receive these moneys are now making sure that they are actually readily reaching out to DBEs and making sure that there is no form of discrimination. And through our Office of Civil Rights and through our Office of the General Counsel's Office, we have put together some extreme measures to make sure that there will be accountability for those contractors and for those companies who do not reach out to DBEs. Ms. Watson. If there are other questions that any Member might have, let's have them given to us, and we will submit them to you. We are really pushed for time now, so I want to thank this panel for your testimony. Everything you have presented to us has been recorded and your full statements are over there, and they will be part of the record. So any Members that want those charts that we referred to, please take the materials that are on the table. Thank you so much. We will adjourn this panel. The third panel will be composed of Mr. Anthony Robinson, Mr. Fernando V. Galaviz, Donald O'Bannon, Mr. Zingeser, Michael Sumner. [Pause.] Ms. Watson. I want to thank the panel for coming up quickly. Our time is growing short, so we are going to get started, and if the audience will quietly exit, those that are leaving, we can begin. As you know, it is the policy of the Committee on Oversight and Government Reform to swear in all witnesses before they testify, so I would like to ask you to stand and raise your right hands. [Witnesses sworn.] Ms. Watson. Let the record reflect that the witnesses answered in the affirmative. Now, I will take a moment to introduce each panelist. Mr. Anthony Robinson is the president of the Minority Business Enterprise Legal Defense and Education Fund, where he advocates on legislative and regulatory issues on behalf of the minority business community. Previously, Mr. Robinson, was a partner in the law firm of Singleton, Dashiell, and Robinson in Baltimore, and he also served as a commissioner with the Maryland Inmate Grievance Commission. Mr. Fernando V. Galaviz is the president and CEO of the CENTECH Group, Inc., and is here on behalf of the Mid-Tier Advocacy. The CENTECH Group, Inc., is a technology systems and solutions provider that has serviced Federal Government, civilians, and military agencies for more than 20 years. Mr. Galaviz also chairs the National Association of Small Business Federal Contractors, Inc., and previously he also worked as chief of industry trade and market development for the Minority Business Development Agency and as chief of the Contracting and Financial Systems Programs for the Office of the Secretary, U.S. Department of Transportation. Mr. Don O'Bannon is vice president of the Business Diversity and Development Department at the Dallas-Fort Worth International Airport. Mr. O'Bannon is currently serving his second term as chairman of the Board of Airport Minority Advisory Council [AMAC], and previously Mr. O'Bannon was a partner at the Dallas law firm of Vile & Hamilton, has also managed his own legal consulting firm, O'Bannon & Associates, P.C. Mr. Joel Zingeser is director of corporate development for Grunley Construction Co., Inc., and he leads the company's Strategic Planning, Business Development, and New Technology Programs, including sustainable design and construction. He has consulted with the World Bank and the U.S. Agency for International Development, and he is treasurer of the Washington Building Congress. And Mr. Michael Sumner, doctor, is research manager for the Henderson Center at UC Berkeley Law School, where he focuses on evaluating the effects of equal opportunity programs on both public contracting and public employment. Mr. Sumner has examined the impact of California's anti-affirmative action, Proposition 209, and has also led the Henderson Center's work on best practices in equal opportunity programs. Prior to his work with the Henderson Center, Mr. Sumner worked at the Discrimination Research Center, where he focused on language access rights to public institutions for speakers with limited English language skills. All right, I ask that each one of the witnesses now give a brief summary, a brief summary of your testimony, if you will, and keep this as much under 5 minutes, if you can. Your complete, as I said before, written statement will be included in the hearing record. Mr. Robinson, would you please proceed? STATEMENTS OF ANTHONY W. ROBINSON, PRESIDENT, MINORITY BUSINESS ENTERPRISE LEGAL DEFENSE AND EDUCATION FUND; FERNANDO V. GALAVIZ, PRESIDENT, THE CENTECH GROUP, ON BEHALF OF THE MID- TIER ADVOCACY; DON O'BANNON, CHAIRMAN, AIRPORT MINORITY ADVISORY COUNCIL; JOEL ZINGESER, FAIA, DIRECTOR OF CORPORATE DEVELOPMENT, GRUNLEY CONSTRUCTION CO., INC.; AND MICHAEL SUMNER, DISCRIMINATION RESEARCH CENTER, THELTON E. HENDERSON CENTER FOR SOCIAL JUSTICE, UC BERKELEY SCHOOL OF LAW STATEMENT OF ANTHONY W. ROBINSON Mr. Robinson. Thank you very much, Madam Chairwoman. I am, as you have noted, Anthony Robinson, with the Minority Business Legal Defense Fund. We are affectionately referred to as MBELDEF, and act as a legal advocate, founded by former Congressman Parren J. Mitchell in 1980, on behalf of the minority business community. We appreciate very much you holding this hearing. We think it is quite significant and appreciate your time and attention as it relates to this matter. Madam Congressman, it has been noted by a number of previous witnesses that growth in minority enterprise in exact numbers, but what has also been acknowledged is the issue of capacity on behalf of these firms to operate at a level at which the new market has emerged in reference to that. Discrimination remains a stark reality for minority businesses. In a recent survey that was conducted by an economic research firm, where they surveyed some 350 of the fastest growing minority-owned firms as it relates to the significance of discrimination in their industry, brought about the following results: 80 percent of the firms in communications and utilities, 46 percent in transportation, 57 percent in heavy construction, and 53 percent among general and specialty contractors considered discrimination a very significant, significant factor within their industry. And it impacts almost every aspect of their doing business, from business formation, access to contracts, access to credit and capital, to performance on the job. Recently, Madam Chairwoman, MBELDEF, along with the National Association of Minority Contractors Philadelphia Chapter, and the National Black Chamber of Commerce, conducted field hearings in some eight cities across the country, and we interviewed over 65 witnesses. I would ask that we be provided the opportunity to present the testimonies of these 65 witnesses at some later point to supplement our testimony. The consistent theme---- Ms. Watson. Let me just say you may give them to us and, without objection, we will accept them and put them into the record. Mr. Robinson. Thank you very much. As I said, minority business programs are important relative to speaking to the disparities that have been pervasive as a result of discrimination, and there has been an enormous amount of research that has been done, much of it noted. I would like to reference the fact that many of the disparity studies that my colleague on this panel, Mr. O'Bannon, will be putting in the record will speak to much of the private sector discrimination. As it relates to private sector discrimination, I would like to state that there is no affected policy to deal with private sector discrimination now in place, and we would ask this Congress to take a look at that. In addition, the disclusionary activities of the construction trade unions continue to have a pervasive impact on minority enterprise programs. And, of course, as you heard in reference to access to capital and access to bonding, there continues to be a persistent and pervasive problem. What I would like to do with the balance of my time before the committee is just to relate several of the individual experiences of minority businesses in the marketplace on the issue of discrimination, and among them would be a Louisiana concrete contractor. And we have deliberately maintained the anonymity of these contractors because of concerns about reprisal in the marketplace as it relates to this issue, and it is a very real issue, Madam Chairwoman. A Louisiana concrete contractor was rejected by six banks, despite the fact that he had worked for some of the largest real estate development firms in that region of the country on the issue of finance. He knew what banks were looking for and he knew many of the bankers personally. He had contract commitments from customers who were willing to go with him to the bank to verify their commitments. Nevertheless, he was forced to diversify his ownership to include a white minority partner before any bank would approve the loan. The only difference in his presentation to the banks before and after the loan approval was the presence of his white equity partner. The critical variable was not the financial strength of his presentation, because he has a wealthy Black football player that was willing to act as a credit backer, but still the bank rejected his loan application. Only when the white credit backer was presented did the banks approve, so the issue had to be the credit backer's race. His was an 8-year-old business with 45 employees, generating 25 percent annual growth during a recession, with $10 to $15 million in sales, and a $800 to $1 million in annual profits. He had three times the cash-flow needed to cover debt service on three new plants, but still he could not get a loan for a single new plant until he had the white equity backer. In spite of this creditworthiness, he faced the same challenges that a startup business would face. No matter how strong the business was, his secondary source for repayment, his loan application was disapproved by the banks. In another instance, an African-American contractor in Richmond, Virginia faced disparate treatment in his competition for construction, demolition, and disposal contracts. After his bid for a city demolition contract was determined to be the lowest, the contract was in fact split in half, resulting in a majority contractor receiving a portion of the contract as well. In other cases where he was the lowest bidder, the contract award was in fact split. I have many other anecdotes, Madam Chairwoman. I see my time has elapsed. Again, we would like to submit the balance of the 65 testimonies into the record. Thank you very much for this opportunity. [The prepared statement of Mr. Robinson follows:] [GRAPHICS TIFF OMITTED] STATEMENT OF FERNANDO V. GALAVIZ Mr. Galaviz. Madam Chairwoman, members of the committee, we definitely appreciate the opportunity for us to share information and basically seek your support. From the previous distinguished panel, I think it would be helpful, because if you listened, as I listened, as a businessman and as an advocate for the community, that panel basically more or less gave me the impression that everything is just great and fine. However, there was no mention about the many, many small minority businesses and small businesses that disappear from the Federal sector over the last 20 years. There is no mention of how many of those businesses, the only way to get out is to be acquired. And in that process, for example, I would like for the panel to ask the previous members how many of the awards they claim has gone to small businesses. There has been a GAO study and an SBA study that shows that agencies are reporting awards that have gone to large companies as small business awards. Also, when small businesses get acquired, for example, the recent acquisition of a company that had almost $200 million worth of business that used to be a small business, a good portion of that portfolio was small business awards, and yet the big company now has the contracts but yet is being counted as small business. Also, as it relates to Department of Defense, it would be important to us why is it that, Air Force contract, where originally we had a small business set-aside program, the Air Force eliminated the small business set-aside program. And why is it that many DOD, particularly the Army, allows for direct competition, they call it small business set-asides, but yet the small business community and the minority business community has to compete against the large companies? Basically, also SBA representative talked about coming up with a new study on size standards. Madam Chairman, both Congress and the SBA have been studying size standards now for 30 years, and still we are in the same place where we were 30 years ago. My written testimony that has been submitted to the committee has been reviewed by the Minority Roundtable organization, by Tony's organization, by the LAMA organization, the Latin American Management Association, and also, of course, by the organization that we represent here today, MTA. The minority and small business community has made significant contributions to our Nation, both in the Federal agencies, through its employees, and to the community. However, I will focus my limited time to a specific issue that it is important that all of us focus on, and that is the inability for small business and minority businesses to really compete due to the faulty policy on size standards. Basically, Madam Chairman, it comes to a very simple question. If you take, for example, a training company, the size standards of a training company is $7 million. For a facility management company, it is $25 million. Now, when a training company graduates from the $7 million size standard, how can a $7 million company compete against a $29 billion company? Take the five top integrators. Their other sales are $29 billion. Now, even if you multiple the size standards that are now in the books by four times, you still have to ask how can a $28 million company, if you take the $7 million size standard on training and you multiple it by four, how can a $28 million company compete against a $29 billion organization? The same thing on IT. The size standard for IT is $25 million. Multiple that times four, be generous. How can a $100 million company compete against a $29 billion firm? Now, basically, the large organizations, Northrop Grumman is $33 billion. Really, what it comes down to, Madam Chairman, over the years, mid-sized firms, and the reality is, Madam Chairman, is the mid-sized firms are really not the classical small businesses that have grown over the size standard; but it has been organizations like Booz Allen; CACI, $3.1 billion; Wiley, $1 billion; Unisys, $4 billion. Those firms themselves, if you look at their last 10 years records of growth, most of the growth has been through acquisition. So if those firms had difficulty in competing, how in the devil can we expect for the small business community that has grown out of the size standard to be able to survive? It is impossible. The one thing unfortunately, I must share with you, Madam Chairman, is that when I have had discussions with elected Members of the House and the Senate, and I ask them how does a small business, where do they pay for their business development and proposal development, quite frankly, it is sad for me over the years to find that those members do not know the answer. In order for a Government contract, there is a big difference between dealing with the private sector and the Federal Government. A big difference. And the way that a company can grow is how much can you build into your budget. And the only way you can have an increased budget in order to be able to afford to be competitive, you have to have a higher level of sales. But then if you become somewhat over the size standard, it really becomes impossible, and that is the reason you have so many casualties. So the basic solution--there is a solution, and that is to develop a tier effect of competition by the number of employees. We appreciate the opportunity, Madam Chairman, to provide our testimony. [The prepared statement of Mr. Galaviz follows:] [GRAPHICS TIFF OMITTED] STATEMENT OF DON O'BANNON Mr. O'Bannon. Madam Chairwoman, members of the subcommittee, thank you for inviting me here today. My name is Don O'Bannon, and I am Chair of the Airport Minority Advisory Counsel [AMAC]. AMAC is the only national nonprofit organization dedicated to creating success for minorities and women in the airport industry. While AMAC's primary focus is on airport-related business, AMAC members work on contracts funded by many different Federal agencies. AMAC is a strong advocate for Federal policies, like the DBE program, that address discrimination in Government contracting. As this subcommittee has heard and is well aware, racial and gender discrimination against minority and women business owners continues to be an ongoing problem. Minority women business owners experience discrimination in all aspects of public contracting, but DBE type programs do more than address discrimination. The DBE program is a significant source of the entrepreneurship, employment, and economic growth of the minority and women-owned business community. Minority and women-owned firms, when given a fair chance and a level playing field, are important engines of growth in our economy. Fortunately, various Federal, State, and local programs aimed at giving every entrepreneur a full and fair opportunity to succeed have begun to make some headway. Nevertheless, discrimination against minority and women-owned businesses continues to be persistent and pervasive. The evidence is compelling that the discrimination remains a problem and that programs like the DBE program are vital to address that discrimination. Testimonial from AMAC members detail the discrimination they have had to endure. These personal stories make it clear how difficult it is to run a business while enduring discrimination. To make matters worse, business owners are often fearful about reporting the discrimination. For this reason, we will report AMAC's members' experience without using their names. A female construction contractor reported aggressive sex discrimination. She has also repeatedly experienced harmful gender discrimination in supply pricing, bid shopping, and access to capital. One minority business expert has observed discrimination, including intimidation and retaliation against minority contractors; disproportionate punishment of minority contractors for minor infractions; and racially discriminatory remarks. A female Hispanic business owner developed a new airport concessions business. A majority-owned leasing company launched a whisper campaign intended to undermine her success and the retail lease by falsely claiming that she was not dedicated to her business and, instead, was focusing on being a mommy. An African-American business owner endured many instances of racial discrimination, including being charged 50 percent for certain supplies and being subject to racial slurs. The story of an African-American airport executive illustrates just how resistant majority primes can be to change. This executive was working to help identify business owners for concessions opportunities at Memphis Airport, but the prime was simple not committed to participation. The prime claimed that he could not find any qualified owners to open a barbecue restaurant at the airport in Memphis, TN. As our member said, I kid you not, this man looked at me in the face and told me he could not find a minority business that cooked barbecue in Memphis. With our testimony today, AMAC is submitting 24 disparity studies. We ask that these studies be included in the record. Madam Chair, may we offer these studies into the record? Ms. Watson. Yes. Without objection. Mr. O'Bannon. Through both quantitative and qualitative evidence, statistically they demonstrate the existence of serious discrimination against women and minorities in many different industries across the Nation. Each of the disparity studies provides significant quantitative evidence of discrimination against minority and women-owned businesses in both the public and private sector. In addition, the studies include numerous individual reports of discriminatory behavior similar to the examples I have given you from AMAC's membership. The accounts make it clear that minority and women entrepreneurs are subject to a broad range of discriminatory actions, including discrimination in lending and supply purchasing. They also reveal the use of racial slurs and other tactics aimed at intimidating minority and women-owned business owners. Overall, these studies provide strong evidence of serious discrimination against minorities and women. They also demonstrate that there is a compelling and continuing need for the DBE program and similar programs across the Federal contracting front dealing with public funds. For these same reasons, AMAC strongly supports final enactment of the FAA reauthorization bill and the improvements to the DBE program it contains. These changes are precisely the policy changes needed to ensure that the aviation system here in America remains the best in the world. Thank you. [The prepared statement of Mr. O'Bannon follows:] [GRAPHICS TIFF OMITTED] Ms. Watson. Thank you. Mr. Zingeser. STATEMENT OF JOEL ZINGESER Mr. Zingeser. Thank you, Madam Chairwoman and Ranking Member Bilbray. It is a pleasure to be here. My name is Joel Zingeser. I am with Grunley Construction of Rockville, Maryland. I come to you today on behalf of the Associated General Contractors of America. AGC strongly supports full and open competition for the many contracts necessary to construct improvements to real property. AGC supports procurement reform to improve delivery of Federal construction services. Reform of the Federal procurement process should recognize construction's unique melding of industry sectors, while ensuring the Government is using the most cost-effective method for procurement. AGC would like to discuss an issue of great concern to us that we believe, if addressed, would bring the greatest possible amount of transparency to Federal contracting, and specifically contracting with small and disadvantaged businesses nationwide. Current SBA rules require small business set-asides and establish small business goals be met by large businesses to assure that significant portions of Federal procurement dollars flow to small business firms. But the rules for keeping track and measuring the flow of dollars to small businesses do not take into account the actual amounts that flow down to small businesses below the first tier level of subcontracting. As you already heard today from others, the nature of the construction industry and how it operates is through subcontractors and second- and third-tier subcontractors. Within the construction industry, the bulk of the work is performed by subcontractors that specialize in specific expertise and, in turn, hire second- and third-tier firms to perform elements of the project. Under the current system, if an other than small business is included as a first-tier subcontractor, the prime contractor is not asked to report the flow of dollars that are going to small businesses hired below the first-tier subcontractor. This is because the contracting agency, those Federal agencies that are awarding the procurements, are not allowed to take credit for those dollars toward their goals. Allowing prime contractors to report small business subcontracting at all tiers would demonstrate true participation of small businesses on Federal contracts and would show more accurately how significantly the construction industry supports and is in fact dependent upon small businesses. In attempting to meet the various small business goals under the current system, prime contractors are often required to consider subcontractor choices for large projects that are beyond the capacity, especially bonding capacity, of small businesses. The present approach to keeping score puts pressure on small businesses to accept roles with larger firms operating under them in a way that is upside down, in an unnatural alignment. If credit for small business participation were allowed to be counted toward the goals when the small businesses are performing in their logical and most comfortable roles, the true benefits of small business to the construction industry will be measured, accounted for, and recognized for what they are, critical to the success of our industry. Moreover, such a system would allow small and emerging firms to grow in a natural manner that would force them not to become overextended, and ultimately this will make them more successful. Changing the scoring system will let prime contractors and small businesses determine together the best arrangement of large and small subcontractors according to capabilities, capacity, and availability. The ability to solve the reporting problem is available today. The shift to the Electronic Subcontractor Reporting System [eSRS], by the Federal Government provides the opportunity to simply and accurately gather the small business data at all tiers and thus correct the problem. The system has the capability to track and report small business subcontractors on multiple tiers, yet current rules do not encourage prime contractors and their subcontractors to account for total small business participation at all tiers. The Interagency Task Force on Federal Contracting Opportunities for Small Business recommends enhancing the Electronic Subcontractor Reporting System. Specifically, the Task Force recommends enhancing the eSRS to better capture subcontracting at all tiers. AGC recommends Congress direct a change to the system by amending the Federal Acquisition Regulations [FAR], through legislation to allow all parties to report and receive credit for the dollars flowing to all small businesses on Federal contracts. We have attached suggested language for the committee's consideration. I want to thank you for the opportunity to provide our views on working with the Federal market. We believe this market offers tremendous opportunities for both construction contractors and the Federal Government. AGC looks forward to continuing to work with the subcommittee on this critically important issue. [The prepared statement of Mr. Zingeser follows:] [GRAPHICS TIFF OMITTED] Ms. Watson. Thank you so much. Mr. Sumner. STATEMENT OF MICHAEL SUMNER Mr. Sumner. Chairwoman Watson, Ranking Member Bilbray, thank you for the opportunity to speak with you today regarding the challenges and opportunities for minority-owned businesses in contracting. My name is Michael Sumner, and I am the Research Manager at the Thelton E. Henderson Center for Social Justice at the University of California Berkeley School of Law. The Henderson Center is a training and research center that produces scholarship on issues of race, sex, and poverty. My colleagues and I research equal opportunity programs in public contracting. In a series of reports, we looked at the California Department of Transportation [Caltrans], which operates a program for disadvantaged business enterprises [DBEs]. DBEs are small businesses that are majority owned and operated by people of color and women of any race or ethnicity. In the mid-1990's, there was a successful effort to curtail equal opportunity programs in California, culminating in the passage of Proposition 209 in 1996. The DBE program was dismantled entirely for projects with only State funding, but continued for projects with Federal funding, as required by Federal law. We examined over 20 years of Federal awards and found that awards to DBEs doubled between the mid-1980's and the mid- 1990's, providing evidence for the success of the equal opportunity program. However, when equal opportunity programs were removed and scaled back, the percentage of awards to DBEs dropped by nearly 50 percent and continued to decline. In fact, rates have fallen from a high of 28 percent of awards going to DBEs in 1994 to only 2 percent of awards going to DBEs in 2008. It is important to note that we were unable to analyze awards for projects that only receive State funding, as CalTrans ceased collecting data for State awards. However, in a report commissioned by CalTrans, it was found that disparity for State awards was two to three times higher than for Federal awards. Therefore, the federally required DBE program might have been instrumental in reducing the level of disparity by at least half. We also collected anecdotal evidence via focus groups and interviews with DBE owners. Contractors said the DBE program helped them build relationships and encourage prime contractors to pick up the phone. However, after the DBE program ended, the phone stopped ringing. Contractors perceived being systematically excluded in part from the existence of an old boys network. When the anti-affirmative action, Proposition 209, was passed, it was perceived by DBE contractors as reinforcing a system of exclusion. For example, one female contractor that participated in our study reported that the day after Proposition 209 passed, the senior project manager walked up to me and said, hey, Prop. 209 passed and we don't have to use you anymore. I didn't say anything to him at first, but the next day I told him that I wanted to talk to him about what he had said to me. I said, did it occur to you that I have been working here for a number of years and that I have always finished on time or early? And how many letters do you have from my clients praising my cleanliness and professionalism? Well, he didn't care; he just looked at me and said, well, it's true, Prop. 209 passed and we don't have to use you anymore. Additionally, contractors discussed the challenges in securing loans, bonding, and insurance. One contractor shared a story of being asked to provide collateral for a $200,000 loan. His attorney said that similarly situated white male clients were able to secure loans of that size without being asked for collateral. In summary, our research found evidence that discrimination and disparity are still prevalent for minority and women-owned businesses; that equal opportunity programs can aid in leveling the playing field; removing or weakening equal opportunity programs can lead to dramatic reductions in the opportunity for minority and women-owned businesses to succeed; and the removal of equal opportunity programs can create a climate in which discrimination and disparity become more widespread. In order to promote equal opportunity in contracting, we recommend that programs should be championed by key leaders and organizations to counter discriminatory and isolated social networks. The programs should include help with securing bonding, financing, and insurance. The programs should minimize the burdens on entrepreneurs applying for certification, while being stringent enough to weed out false fronts. The programs should promote prompt payment, unbundled contracts, and increased lead times, elements that are race and gender neutral. The programs should include a data collection and analysis mandate to ensure the utilization of best practices. The research I mentioned today is available in more detail in our reports, which are freely available on our Web site and I have asked to be included in the record. Thank you very much for the opportunity to be here today. I would be happy to answer any questions you may have. [The prepared statement of Mr. Sumner follows:] [GRAPHICS TIFF OMITTED] Ms. Watson. Thank you so much. I was there on the fateful day that affirmative action was eliminated in front of the Board of Regents. Seated next to me was the president of UCLA; on the other side Jessie Jackson and another Member of the Senate. Tears came down the face of the president and he left the university at that time. The results of the passage of the bill to eliminate affirmative action resulted in not one Hispanic being admitted to the law school at UCLA, and only one African-American being admitted to Boalt Hall, and he chose not to go. So it has had a dire effect. Potentially very bright students who would have been able to come out and practice, started their own firms were just blackened with that one vote. And I have other things I want to say, but I am going to yield now to Mr. Bilbray. Mr. Bilbray. Thank you. First, may I advise maybe you two want to get together and work this thing out. I think that the goals of the program and the results, we get frustrated with a lack of results, but I think that the Association of General Contractors were pointing out the issue that I have run into, and it is not just in the construction trades. The fact is it is across the board and is something we need to talk about and make sure that we should follow the money, as we say. That is what really counts. I know it is tougher on the bureaucracy to do multi-tier evaluation assessment, but this is important enough. If it is really enough to have the program, then it is important enough to have the program operate appropriately and function the way its goals are, rather than just basically saying, look, we have done this, we have spent this money, and obviously we should pat ourselves on the back. Let me just say one thing, and I want to say it again and again. The biggest problem with Washington is not that we try new things. The biggest problem with Washington is not that we try new things and make mistakes. But when we make mistakes, we are not willing to go back and take care of it. And we love to take the credit when we sign a bill, but we have an obligation, and it is one of the things I enjoy being in Oversight about, is go back and fine-tune it. Any businessman knows that, because there is a real incentive to do that. Sadly, that incentive doesn't occur in Government, because if we go back and find problems, then we have to admit that our package wasn't perfect. But we should be proud to say, you are right, it wasn't perfect, but we care enough about it, this is our baby, and we ought to go back and, yeah, every once in a while we have to change the diapers for the bureaucracy and get this thing straightened, even if it is a messy process. But I think that we need to talk specifically about making sure that system of following the money reflects reality, not just some kind of easy accounting process. Look, there were some discussions here. There are certain characteristics that each one of your industries have on this issue. Would you point out in your industry what makes it more or less difficult for small disadvantaged businesses to enter the contracting process specifically to your industries? Mr. Robinson. I'm sorry, I didn't hear the question. Mr. Bilbray. The question is, every business has its pros and cons and whatever when it gets into it, but specifically from your industry's point of view, do you see the advantages or can you point out the advantages and disadvantages from your perception of your industry either gaining access or not being able to gain access into the Federal process? Mr. Robinson. First of all, Mr. Bilbray, I don't represent any particular industry. The nature of my organization is to be an advocate on behalf of minority businesses in the courts and in the legislative bodies. Mr. Bilbray. And I appreciate that and I apologize. I was trying to get down to those specific industries and, Mr. Robinson, it obviously wouldn't be a question to you, but it would be to some of the other members. Mr. Galaviz. If we take the information technology and engineering logistics and support contracting efforts in the Federal Government, we basically most contributed to minority business to enter into the Federal space has been over the last 30 years the 8(a) program. The 8(a) program has made a lot of significant contributions to startup the funds. The other is the small business set-aside program. And particularly during the Clinton administration, with the reform of the GWAC concepts, that also provided some added opportunities. However, the downside is that when those firms finally start developing some modest capability, then they are cut down at the knees, because I said earlier in the testimony the one question that all of you---- Mr. Bilbray. Success goes punished, basically, once you---- Mr. Galaviz. No, no. Mr. Bilbray [continuing]. You reach a certain level, a tier, and you start getting cutoff? Mr. Galaviz. Well, that is one interpretation, but the other is, to ask a simple question, how can a $7 million firm compete against a $29 billion firm? Or how can a $100 million firm compete against a $29 billion firm, or even a $300 million firm? And that is one thing, in the community, where we are working with antiquated policies that basically put us in the economic ghetto, because the one thing that every time you look in the paper about XYZ Co. being acquired by a large corporation, and look at the history of what has happened to those companies, a lot of them finally give up because their balance sheet has become so deteriorated because they keep losing competition. My firm alone, I have had years worth of successes. Now that I am in the so-called twilight zone market, first of all, I am not a mid-tier firm because I am not Booz Allen or I am not UniSys. Those are the guys are the mid-tier firm. I'm the small guy. Even though I outgrew the size standards, I am still a small guy. So what is going to happen, let's say, to most of us? Give us an accountability of what has happened, the Government has made an investment in developing these firms, particularly in operation support contracts. Let's be honest. The private sector hasn't made an investment on developing the staff of those contracts, because you have the concept in the Federal Government that operation support contract that when the new company picks up the same cases from the previous company, and the new company, regardless what was said in their proposal, because that is another thing the Congress has never looked at, and that is these companies get selected because of a competitive process, Lockheed Martin, IBM, anybody. And they say, well, the reason you won is because you had these strengths, because you are going to bring this added value. But yet, Madam Chairman, the Government never puts that in the contract. They do not put that in the contract. So then what does the new site management for that company do? He is hired to manage the contract according to what the Government signed on to, and the Government neglects to put down all the goodies that were in the proposal. Mr. Bilbray. That is absolutely fabulous testimony on that. It really is a good point. The fact is it is a proposal. If this is what the decision was made on this standard, on these proposals, then it should be almost automatic to transfer that in. And I know my time has expired, but from the AGC's point of view, let me kind of hit you with a counter on that. Do you have any reason why we would not take that proposal and basically say, here is your proposal, this is what you propose, this is what the bid was on; we are now going to include that in the contract that you sign? From the AGC's point of view, do you see a major problem with that? Mr. Zingeser. Generally speaking, I think any general contractor working with subcontractors is always looking at their proposal. In other words, we might write a scope of work of some sort, which is saying how we see the work that needs to be done. They come back in turn and either agree that is what they can and will do or come back with their scope and saying that they ``got it all.'' Mr. Bilbray. What if, right off the top, the proposal is put out there, and this is one of those things, don't offer if you are not willing to deliver, and this is a very good point that we may want to be talking about, and that is the fact is when a proposal uses certain terminologies used in certain proposals, that terminology from the proposal is incorporated, at least referred to in reference right in the contract. Mr. Zingeser. Yes. That is an automatic. Mr. Galaviz. Well, that is not quite so in the Federal sector. Mr. Bilbray. But that is what you are saying and I am saying, is if that was a goal that we were shooting for, you think that should be included in, sir. That is what I am talking about. Mr. Galaviz. Well, yes. In other words, if you are going to say, the evaluation committees, if they are being ethical and morally correct, they made a decision to hire this other company because they can do a better job, then those things, and probably I can give you some very interesting examples, and have those submitted to the committee. But the fact is that right now, we are going through a very dynamic, kind of stupid experience right now. Right now, because of the budget pressures, right now companies or agencies are just doing the following: as long as you pass the technical cut, then lowest price will prevail. So what really the Government now is doing is saying we really don't care about added value, we really don't care about innovation, OK? Right now we just care for you to show that you are a reasonably good contractor, that you have not been arrested over the last month, and, therefore, as long as you have the lowest cost. Now, what is happening? Now, how do these large companies get the lower cost? And what is happening today in the marketplace is what they are doing is they are using different call centers with different benefits package. So now the new employees are now basically having less benefits, less holiday. So guess what happens? Those folks are going to stay there as long as they can find another job. We have gone through this cycle before in Government over the last 40 years, OK, and then find that people get wise. Right now we know of three contracts that have been awarded just in the last 90 days in which a third of the incumbent employees either have left or are looking for a job because the new bidder won the contract in a totally different environment. So what is the Government really doing? You are creating sophisticated body shops. Mr. Bilbray. Thank you very much. And I appreciate the extended time. I think we have some opportunities here. I am sad to say that I don't have the opportunity to look forward to working with the Chairwoman. Hopefully, with the blessing of the voters, I will be around to work with whoever the democratic leadership chooses to work with me on this committee. But I think that there are some great opportunities here. I just have to say one thing about the budget process. You think it is tough now? Believe me, it is going to get very, very ugly. I mean, the Congressman from Virginia talked about a 10 percent cut across for the Department of Defense for contracts. I think we are going to see some real tough times coming down the pike and, believe me, when all of us go back to the district they are really looking at us; and coming from this committee, we get a lot of scrutiny. So I appreciate your testimony and, Madam Chair, I really appreciate the fact that you have jumped into this, and I know you have some questions. Ms. Watson. Thank you so much. Let me quickly just go down the line of panelists. I would like to start with you, Mr. Robinson. You are in the business of providing the legal defense and so on. In your opinion, how do minority-owned firms tend to view the various types of Federal assistance provided to them? And are some programs perceived as being more or less effective in offering assistance? Mr. Robinson. Madam Chairwoman, that is a very mixed bag. There are programs where the policies that are in place that Congress designed to develop companies, we have been talking a lot about capacity, and if you look at the statutes that Congress has passed as the goal of these programs to build competitively viable companies, and yet you look at how that policy is executed on the ground, it leaves a great deal to be desired. And I am specifically talking about, for example, the Department of Transportation. I think one of the things that they have instituted relative to accountability between State recipients and the Federal Government, and how they are accountable for the implementation of the program, begins to move us in the right direction, but there is a huge distance between what Congress has intended, or the Federal Government has intended, and how that is actually executed on the ground. And I think that, if you would poll many companies, they would indicate that those services designed to develop them are wholly inadequate. Ms. Watson. Assuming that the Federal courts will continue to eliminate these exclusive programs, including price evaluation adjustments and quotas, such as inclusive programs like technical assistance and outreach, how could the inclusive programs be made more effective? You know, we recognize there are some problems with the execution of these provisions. How can we make them more effective? Mr. Robinson. I would like to correct one observation, one point that you just made. There is no program that you can consider a quota. All of these programs are inclusive. The SDB program, which is questionable as to whether it is in fact operating right now, but all of the other programs eligibility is determined by socioeconomic criteria. And if you read that socioeconomic criteria, in most of these programs you can participate. So there are no what I would call exclusive programs in the Federal sector; most of these programs have general socioeconomic criteria by which you can in fact engage. The second part of your question as it relates, again, to the effectiveness of the program. Ms. Watson. Right. Mr. Robinson. I think the importance there is accountability, because most of this money flows through State and local actors, and to the degree that the Federal Government provides accountability, and for those who do not provide that accountability and do not implement these programs according to Federal law, the Federal Government has an obligation to cut out those funds to those agencies. Ms. Watson. That is why we are the Oversight Committee, and we are looking at how we hold the entities out there accountable. That is an excellent point, and I am so pleased that Mr. Bilbray is our ranking member, because you heard him commit to helping to work through some of these issues that you are raising today. Thank you so very much. Mr. Galaviz, what types of Government programs would help the mid-tier companies in obtaining financial or Government contracts, and what could be the downside of such assistance? Mr. Galaviz. Madam Chairman, thank you for that question. First, the reality of the environment of size standards is really a major, major hurdle, because it just practically, practically, it is difficult to answer that question, how can a $7 or $25 million company compete with a $29 billion company. So what we basically are proposing, to design a pilot program that would provide a tier type of competition, which, by the way, we implemented this and I helped part of design 20, 25 years ago, when the Department of Commerce introduced the comments program. And there have been several agencies that have used that tier effect, and right now we do have a couple of agencies looking at that, and the reason why they are looking at that, because there has been a significant number of investments made by the Federal Government in the development of some of these firms, and some of these firms have performed very, very well particularly because they know that on these mission-critical programs that are quite sophisticated and accomplished in technology, they know that when something goes haywire they can get the CEO of that company, of that small business, to come down and take care of it right away. They know they are not going to get the chairman or the CEO of Northrop Grumman to even say hello. But also, for example, another thing that has been important to us in support of this pilot program is the fact that the small business community, the one thing that has been very positive on the Federal level is that over the last 35 years the small business community and the minority business community have gained significant amounts of capability to give confidence, for example, to the Air Force, which is the most sophisticated range you find in the world, and, 5, 7 years ago, they decided to make that a small business set-aside, and they had a significant number of competition. A small business won the contract 5 years ago; they performed very well. And the other examples we can provide to the committee were the small business community has really demonstrated to be able to provide the services that are needed in complex, critical projects. So what we propose is basically to have the ability of collaboration to stop the bleeding that is happening in the marketplace by having a program that either SBA gets their act together and the Department of Commerce gets their act together of coming up with a realistic size standard program or develop a pilot program to show that indeed it can be a win-win situation, because in the proposal that we have, it would protect small emerging businesses. Now, one thing that we have to give credit to MBDA is that since President Nixon established the minorities agency, they have done tremendous excellent work throughout the country in small businesses; the small manufacturer, the barber shop, the little market. All that has created a lot of vitality of economic development. However, it is important to say that in the history of MBDA, as far as working with Federal contractors and really supporting Federal contractors, that has not been their strength. And SBA still has what we call the ghetto economic mentality. We hope that the proposal that we are saying on this pilot program, that should be considered, Madam Chairman. Ms. Watson. Thank you so much. We have other questions we would like to ask, but, for the sake of time, we are going to send you a letter with these questions, and you can respond in writing to us. Mr. Galaviz. Yes, ma'am. Ms. Watson. Mr. O'Bannon, you described a situation that we know all too well. Are you aware of any ongoing efforts by the Department of Transportation to ensure that airports are actively working to increase the contracting opportunities for minorities and women-owned businesses? What are they doing that you are aware of? Mr. O'Bannon. AMAC has worked extensively with some of our sister organizations, COMTO, with Tony's group and other organizations, to work directly with the Federal Aviation Administration and DOT on rulemaking, and some of the rules that have been proposed, such as the increase in personal net work for an adjustment for inflation are those types of efforts that will hopefully have a positive impact. In addition, there has been more of an emphasis on accountability, and there are some efforts being taken by the agencies in that regard in terms of increasing accountability. It just seems to me that, fundamentally, the issue has to be a recognition that there is a problem by these agencies, and it just seems to me, and, again, I am not a statistician, so when I go down this road, please don't ask me about the statistics of all of this, but many of these A&D studies look at a lot of factors, and at the end of the day, when they control for size, when they control for education, when they control for experience in the given industry, at the end of the day, a lot of these studies, when they find discrimination, it is race or gender, which is the motivating force that establishes that discrimination still exists, despite size, despite income. I hate to use an example, but when I was younger and I was driving through certain neighborhoods in North Texas, they didn't stop and ask me if I was in college, and they sure as heck, when I stop now, don't ask me if I am a lawyer or what the balance in my checkbook is. They stop me because I am African-American driving through a certain neighborhood after hours. And that is the reality that we have to keep in mind and continue to address. And I think fundamentally, as long as the agencies focus on that and then come up with specific policies to address that, then we can move forward. But until that happens we are not going to move forward. Ms. Watson. You used an example of asking about, is there anyone available who can set up a barbecue stand in the airport. That is just like saying there is no available sand on the Hawaii beaches, you know. Maybe we ought to establish this, this is what I did at the University of California when I went in to talk to the current president at that time, and there were several minorities, five of them, trying to get tenure, and he said they didn't do the kind of academic research; and I set up an example for him and he couldn't respond. But where I went with it, I said, well, why don't I supply you with a list of credible academicians in this country that will meet the standard that you set, because I know, right off hand, 10 of them? I would not let that excuse rise. So maybe we ought to be developing lists of people who meet those standards. Think about it. You don't need to respond. But I think if they can't find qualified contractors to fill this requirement or this need, we ought to some available. Mr. O'Bannon. Ms. Watson, I know we are in need of time, and I will be brief, but I just want to point out, again, I think the committee should keep in mind that if you analyze in sheer number, not size of contract, but sheer number of contracts, that a significant portion of those contracts are well within the capability of the majority of our minority and women-owned business community. Ms. Watson. Of course. And that is what I am saying. Maybe we better have, when we go in and raise these issues, a list of those that are qualified. Then they would have to tell us why they don't meet the standards. And I think they are illusional, as you have referred. Mr. Zingeser, how are other firms in the industry affected when minority-owned firms are unable to meet the bonding requirements for prime contractors and, instead, become subcontractors? You know, I have gone through this for decades, and I remember sitting on the school board in Los Angeles, the largest one in the State, really, the largest one in the country under one board, seven members, and there would be contracts, and minority contractors, of course, would come to me because I am the only one of color sitting there, and they would say they can't compete because the bonding was too high and they couldn't get bonded. And I said we are still in 2010, pointing up the same problem. Would you respond? Mr. Zingeser. Yes. It is a complex issue, but I will try and break it down into a couple of pieces. Ms. Watson. Please. Mr. Zingeser. First of all, in our industry, we have general contractors who are like systems integrators and putting all the pieces together, and then there are subcontractors, and those subcontractors on a large project, and by large I am talking about $100 million renovation of this building, they may, in turn, have large subcontracts, like the mechanical work might be $30 million. And then, in turn, their subcontractors look down at other smaller firms to do work that break down into the duct work or other parts of that trade. So there is general contracting and then trade work. General contracting does require, generally, a higher bonding capacity than work at a lower tier. The issues related to subcontracting for any general contractor, and I am not speaking necessarily for AGC, but I will speak for myself and our company, and I think it is similar. We are looking at two things, capability and capacity. Capability is to do the job. If it is painting, if it is installation of some specific system. And then capacity is ability to know that they are going to show up, they have the workers and they have the financial capacity to be there. There are programs for small businesses, whether they be minority businesses or not, such as the SBA 8(a) Mentor-Protege Program, which is an excellent program. We participate. We have a couple of proteges that we work with. It has been very successful from the mentor's point of view and I think from the protege's point of view. That process officially allows us to bond the work. We have the bonding capacity, where they may not. Their bonding capacity has grown because they have been more successful. We have been in this relationship for a few years now, so they are developing their bonding capacity. But because there is an entity that is blessed, we can bond that and we can help. We can help in that way. The issue that I pointed to in my testimony is really two points. One is very, very, very simple; it is that we can get the right data. We have the ability to know where the dollars go, as Mr. Bilbray said. We can do that easily. And we, the contractors, will give you that information; all you need to do is ask us for it. The Electronic Reporting System enables us to ask our subs, and they their subs, for this data. We can tell you how many dollars go to what types of entities. Now, the second part of the problem, though, is by not scoring that information or allowing it to be accounted for, we are forcing the subcontractors, who both logically and from a business model point of view don't necessarily want to be general contractors or don't want to work at a higher level, they do what they do; we are forcing them into situations where they are taking risks that they may not be comfortable with or creating some situations that I think are now being looked at, which I referred to as being upside down. That is where a small business gets in bed with a large business because the large business can provide the bonding. Well, the surety companies are not looking favorably on that and I don't think the Government is looking favorably on that. That is a business model that I suggest is not meeting the social economic goals of the program. I think it creates some businesses whose model is to operate in the scoring system, but not to hire employees to do work, to get out there, to increase productivity and contribute to the Nation as a whole. So if we simply do the right thing, which Mr. Bilbray, I think, suggested when we make a mistake perhaps we can correct it, if we properly account and let these businesses, whether they be minority or other specially characterized businesses, if we allow the businesses to operate at the level they want to operate at, the trade they provide, the service they provide, and we get the credit, everybody gets the credit, we will see what we are doing; they will grow, they will be more comfortable, they will do the things that the program is intended to do, not create some opportunity for other business models. So I am, as you can tell, pretty passionate about this. I think we have the answers to some part of it. It is an incremental problem. We can't solve all of the history of our country through some of these things, but we can do some things that will make a better environment for these programs to succeed. That is what we are trying to suggest. Ms. Watson. I appreciate your testimony. Finally, Mr. Sumner, in your testimony you cite the decrease in Federal contract awards given through CalTrans to disadvantaged business enterprises from 28 percent, that was 1994, to just 2 percent in 2008. How much of an impact has the Federal Government had in increasing contracting opportunities for minority-owned businesses? Mr. Sumner. Specifically from the Federal Government, the DBE program that was required, because it is a USDOT requirement if you receive Federal awards, I think was beneficial in the State of California because it continued some form of the DBE program. Although we weren't able to collect evidence on that ourselves, the CalTrans Availability and Disparity Study showed the level of disparity to be two to three times higher for State awards, which is where the program wasn't operating. And, on top of that, some of the things that were part of the Federal program would be things like mentorship opportunities, technical assistance opportunities. That would have a spillover effect on State awards. So it is possible that without the Federal program the State program might have shown even more disparity. So the Federal Government's DBE program has been a benefit, I think, in California. Ms. Watson. And given the influx of the American Recovery and Reinvestment Act funds to California, are you aware of an increase in opportunities for minority-owned businesses? Mr. Sumner. Obviously, there the potential of opportunity is there, since it was a large increase in construction dollars that were available. We haven't done any research on that nationally or in California. I know, anecdotally, that others have done research. I know that the Kirwan Institute has been tracking stimulus money by race and I believe by gender, but I would have to review what their findings were, and I could get back to you on that. Ms. Watson. I want to say to this panel we really appreciate your input. We are going to be back in touch with you to give us concrete suggestions as to how we can fix the programs that we put into place through legislation. Working with our ranking member, I think that we can take the bill that we have and add provisions to it that would have the outcomes that we intend for Federal funds to have. When we put them into a program, there is an outcome that we expect, and this hearing this morning and now into the afternoon has been about how do we cover minority- and women- owned businesses, and I think that all of you are on the track to helping us design the kind of policies that will reach our goal and have the outcomes. We are about fairness and justice. As you know, we are in an economic time that is very troublesome for most families, and certainly for those at the lower end of the socioeconomic scale. People of color, women, feel the brunt of it greater than other segments of our population. We need to address it. We can't create miracles, but we can identify the provisions that need to be applied and the oversight that we need to do to be sure we get the results we intend. So thank you so much, panel members there, and we will be extending to you more questions that we would like to have answered. We would appreciate your getting right back to us within 10 days, if you can. Thank you very much, and we will adjourn this panel. [Whereupon, at 1 p.m., the subcommittee was adjourned.] [The prepared statement of Hon. Gerald E. Connolly follows:] [GRAPHICS TIFF OMITTED]