[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
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Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform
__________
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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]