[Senate Hearing 111-1150]
[From the U.S. Government Publishing Office]


                                                          Hrg. 111-1150

 
  MINORITY ENTREPRENEURSHIP: EVALUATING SMALL BUSINESS RESOURCES AND 
                                PROGRAMS

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

                               ROUNDTABLE

                               BEFORE THE

            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               ----------                              

                           SEPTEMBER 24, 2009

                               ----------                              

    Printed for the Committee on Small Business and Entrepreneurship


         Available via the World Wide Web: http://www.fdsys.gov


  MINORITY ENTREPRENEURSHIP: EVALUATING SMALL BUSINESS RESOURCES AND 
                                PROGRAMS



                                                       S. Hrg. 111-1150

  MINORITY ENTREPRENEURSHIP: EVALUATING SMALL BUSINESS RESOURCES AND 
                                PROGRAMS

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

                               ROUNDTABLE

                               BEFORE THE

            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 24, 2009

                               __________

    Printed for the Committee on Small Business and Entrepreneurship


         Available via the World Wide Web: http://www.fdsys.gov


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            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                     ONE HUNDRED ELEVENTH CONGRESS

                              ----------                              
                   MARY L. LANDRIEU, Louisiana, Chair
                OLYMPIA J. SNOWE, Maine, Ranking Member
JOHN F. KERRY, Massachusetts         CHRISTOPHER S. BOND, Missouri
CARL LEVIN, Michigan                 DAVID VITTER, Louisiana
TOM HARKIN, Iowa                     JOHN THUNE, South Dakota
JOSEPH I. LIEBERMAN, Connecticut     MICHAEL B. ENZI, Wyoming
MARIA CANTWELL, Washington           JOHNNY ISAKSON, Georgia
EVAN BAYH, Indiana                   ROGER WICKER, Mississippi
MARK L. PRYOR, Arkansas              JAMES E. RISCH, Idaho
BENJAMIN L. CARDIN, Maryland
JEANNE SHAHEEN, New Hampshire
KAY HAGAN, North Carolina
           Donald R. Cravins, Jr., Democratic Staff Director
              Wallace K. Hsueh, Republican Staff Director


                            C O N T E N T S

                              ----------                              

                           Opening Statements

                                                                   Page

Landrieu, Hon. Mary L., Chair, and a U.S. Senator from Louisiana.     1

                               Witnesses

Hontz, Karen, Republican Government Contracting staff, Committee 
  on Small Business..............................................     3
Walker, Matt, Republican Deputy Staff Director, Committee on 
  Small Business.................................................     3
Reece, Adam, Republican Contracting staff, Committee on Small 
  Business.......................................................     3
Williams, Dr. Rube, President and CEO, Jet Learning Laboratory, 
  Inc............................................................     3
Wilkerson, Dwayne, President and Co-Owner, The Marrd Group, LLC..     3
Robinson, Anthony, President, Minority Business Enterprise Legal 
  Defense and Education Fund.....................................     3
Reid, Royalyn, President and Co-Founder, Consumer and Market 
  Insights.......................................................     3
Jordan, Joe, Associate Administrator, Government Contracting and 
  Business Development, U.S. Small Business Administration.......     3
Johnson-Pata, Jacqueline, Executive Director, National Congress 
  of American Indians............................................     4
Gatling, Denise, Director of Global Supplier, Diversity and 
  Business Development, GlaxoSmithKline..........................     4
Cotton, Walter, Managing Partner, MR-IT@GOV......................     4
Boston, Dr. Thomas ``Danny,'' Professor of Economics, Georgia 
  Tech, Atlanta, Georgia, and Director of Research and 
  Innovation, EUQUANT............................................     4
Bangs, Dr. Ralph, Associate Director, Center on Race and Social 
  Problems, School of Social Work, University of Pittsburgh......     4
Alford, Harry, President and CEO, National Black Chamber of 
  Commerce.......................................................     4
Willis, Greg, Democratic Procurement Counsel, Committee on Small 
  Business.......................................................     4
Denlinger, Stephen, President Latin American Management 
  Association....................................................     6
Burnell, Charlotte, President, Strategic Planning Associates, LLC    13
Cravins, Donald, Democratic Staff Director and Chief Counsel, 
  Committee on Small Business....................................    16

          Alphabetical Listing and Appendix Material Submitted

Alford, Harry
    Testimony....................................................     4
    Prepared statement...........................................    39
Asian American Institute
    Prepared statement...........................................    77
Bangs, Dr. Ralph
    Testimony....................................................     4
    Research summary.............................................    65
Boston, Dr. Thomas ``Danny''
    Testimony....................................................     4
    Executive Summary and Background of Business Development 
      Index......................................................    66
Burnell, Charlotte
    Testimony....................................................    13
Cotton, Walter
    Testimony....................................................     4
Cravins, Donald
    Testimony....................................................    16
Denlinger, Stephen
    Testimony....................................................     6
Gatling, Denise
    Testimony....................................................     4
Hontz, Karen
    Testimony....................................................     3
Jordan, Joe
    Testimony....................................................     3
    Information for the record...................................    38
Johnson-Pata, Jacqueline
    Testimony....................................................     4
Landrieu, Hon. Mary L.
    Testimony....................................................     1
The National Center for American Indian Enterprise Development
    Prepared statement...........................................    68
Reece, Adam
    Testimony....................................................     3
Reid, Royalyn
    Testimony....................................................     3
Robinson, Anthony
    Testimony....................................................     3
    Prepared statement...........................................    50
    Prepared statement dated May 22, 2007........................    58
Sumner, Michael
    Prepared statement...........................................    83
    Report: ``Free to Compete?''.................................    88
    Report: ``A Vision Fulfilled?''..............................   140
Wainwright, Jon S.
    Prepared statement...........................................   184
Walker, Matt
    Testimony....................................................     3
Wilkerson, Dwayne
    Testimony....................................................     3
Williams, Dr. Rube
    Testimony....................................................     3
Willis, Greg
    Testimony....................................................     4


  MINORITY ENTREPRENEURSHIP: EVALUATING SMALL BUSINESS RESOURCES AND 
                                PROGRAMS

                              ----------                              


                      THURSDAY, SEPTEMBER 24, 2009

                      United States Senate,
                        Committee on Small Business
                                      and Entrepreneurship,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:02 a.m., in 
Room SR-418, Russell Senate Office Building, Hon. Mary L. 
Landrieu (chair of the committee) presiding.
    Present: Senators Landrieu and Risch.
    Staff present: Donald Cravins, Gregory Willis, Karen Hontz, 
Matt Walker and Adam Reece.

 OPENING STATEMENT OF HON. MARY L. LANDRIEU, CHAIR, AND A U.S. 
                     SENATOR FROM LOUISIANA

    Chair Landrieu. Good morning, everyone.
    Thank you so much for joining me this morning for this 
roundtable on minority entrepreneurship during the 
Congressional Black Caucus week. We made a special effort to 
host this particular roundtable this week because of our many 
special guests in town.
    Before I begin, because I am going to ask all of our 
roundtable members to briefly introduce themselves, I want to 
take a point of personal privilege and welcome two special 
individuals from Louisiana.
    Dwayne Wilkerson, CEO of the Marrd Group in New Orleans, 
and Ms. Charlotte Burnell, owner of Strategic Planning 
Associates, from Metairie, Louisiana. I am grateful for both of 
them joining this national roundtable this morning.
    I want to thank all of you for taking the time to be here 
as we examine an important issue vital to the growth and 
development of our nation and how we support the minority 
community's efforts to open, own, and grow their own 
businesses. We know that entrepreneurship, particularly small 
business development, but large as well--because minority 
businesses--both large and small are going to have a great role 
to play in this nation coming out of this recession. I believe 
that the nation has not yet quite tapped into the strength and 
potential of this particular group.
    One of our nation's greatest assets is our diversity. Yes, 
it can be challenging. Yes, it can be complicated at times, but 
actually, it is a great strength that allows us today, and 
hopefully in the future, to be the most competitive nation in a 
growing global marketplace.
    We are literally the only nation that looks and speaks like 
every other nation on earth. We should be proud of that, and 
grab it and understand it as the strength that it is.
    The number of businesses in our minority communities 
continues to grow, adding to our competitive advantage. 
Minority business enterprises accounted for more than 50 
percent of the two million new businesses created in the last 
10 years.
    There are now more than four million minority-owned 
companies in the United States, with annual sales totaling 
nearly $700 billion. These businesses cross the entire 
industrial base from financial services and health care, to 
construction and transportation. While the numbers of minority-
owned businesses are a source of optimism, and hold promise for 
the future, much more needs to be done to encourage and 
strengthen the minority business communities.
    They make up 32 percent of the nation's population. 
Minority business owners, however, make up only 18 percent of 
firms. Non-minority firms bring in about $448,000 in annual 
sales, while minority firms are less than half of that. 
Clearly, the potential for small business growth and 
entrepreneurship, as I said, has not been fully tapped and 
there are barriers to entry that continue to exist despite our 
good efforts.
    Capital, including venture capital, can sometimes be a 
serious barrier. The Federal Government, which is the largest 
purchaser of goods and supplies and services in the world, 
sometimes there are barriers to entry there.
    The question today is, particularly to the SBA contracting 
and access to capital programs, how are these efforts through 
the SBA working to eliminate these barriers and how could they 
work better? I am looking forward to hearing from the experts 
on this panel today.
    We know there are some issues. For example, African 
Americans receive only about 5 percent of the loans from the 
SBA 7(a) program. A 2005 SBA report also found that African-
American and Hispanic firm owners face higher loan denials.
    Obtaining venture capital is even tougher for minorities as 
the venture capital world is still 77 percent white and male. 
Part of this is due to the networks that are developed. The 
peers, the mentors, and the social networks are not yet 
completely as open as they could be. That is a fact. It is not 
an excuse, and we need to work through it.
    So we want to open up opportunities, as best we can, using 
appropriately the power of the government not only for African-
Americans, but also for Hispanic, Asian, and women-owned firms.
    I am very proud of the team we have assembled here. I know 
that I am joined in many of these efforts, in spirit, by my 
ranking member, Olympia Snowe, the great Senator from Maine, 
who is not with us this morning, but is represented by her 
staff.
    She is actually marking up the health care bill in Finance. 
She told me yesterday she would much prefer to be with us. I 
think last night they were working well into the night and will 
be for the next couple of weeks, so I want to acknowledge 
Senator Snowe and her staff and thank them for cooperating with 
us in this effort.
    Let me begin, if I could, starting here with Karen. We will 
go around this way. Because these are rather informal 
roundtables and not official hearings, I would like to have you 
all introduce yourselves.
    Following introductions, I will start with a couple of 
questions. I am then going to turn the program over to Greg 
Willis, who is the Chief Contracting staff member on the Small 
Business Committee, and to Don Cravins, who is our Staff 
Director, who will continue the questioning. I will not be able 
to stay the whole time, but I will be here for the first part.
    So, Karen, why don't we start with you? Just introduce 
yourself and we will go around.
    Ms. Hontz. Thank you, Senator.
    I am Karen Hontz. I am the lead for government contracting 
on the Small Business Committee for Ranking Member Snowe.
    Mr. Walker. I am Matt Walker. I am Deputy Staff Director 
for the Republicans here on the Committee, and I just wanted to 
thank Chair Landrieu and her staff for working together with us 
in a bipartisan way over and over again on key issues that 
matter so much to Ranking Member Snowe.
    Thank you.
    Mr. Reece. Adam Reece. I am also on the contracting staff 
of the Small Business Committee for Senator Snowe.
    Dr. Williams. My name is Rube Williams. I am the President 
and CEO of Jet Learning Laboratory, an organization located in 
Houston. We were founded for scientific research, particularly 
nuclear and space systems, and also educational services 
related to mathematics and science.
    Chair Landrieu. Thank you.
    Mr. Wilkerson. My name is Dwayne Wilkerson. I am President 
and CEO of the Marrd Group, a small minority business in New 
Orleans, a contracting firm, and I am glad to be invited to 
this roundtable.
    Chair Landrieu. Thank you, Dwayne.
    Mr. Robinson. Good morning, Madam Chairwoman. Anthony 
Robinson. I am with the Minority Business Enterprise Legal 
Defense and Education Fund, a Washington-based legal advocacy 
organization on behalf of minority businesses and also 
representing the Unity Group, which is a coalition of minority 
and women-owned businesses who have organized themselves around 
the issue of establishing a federal predicate for minority 
business programs.
    Chair Landrieu. Thank you.
    Ms. Reid. Good morning. I am Royalyn Reid. I am the 
President of Consumer and Market Insights. We are a marketing, 
research, training, and event planning firm from Dallas, Texas. 
We are also 8(a), HUBZone, woman-owned and minority-owned.
    Chair Landrieu. All of her bases are covered.
    [Laughter.]
    Mr. Jordan. I am Joe Jordan. I am the Associate 
Administrator for Government Contracting and Business 
Development at the SBA. It is pleasure to be here, yet again 
this week, to talk about these really important issues. I am 
very excited to hear about how everybody on the panel is 
dealing with SBA programs.
    So thank you.
    Chair Landrieu. Thank you.
    Ms. Johnson-Pata. I am Jacqueline Johnson-Pata. I am the 
Executive Director of the National Congress of American 
Indians. We are located here in Washington, D.C. We are a group 
that represents the interests of the tribal governments in the 
country on all issues, including government contracting and 
economic development.
    Chair Landrieu. Thank you
    Ms. Gatling. I am Denise Jane Gatling. I am the Director of 
Global Supplier Diversity and Business Development for 
GlaxoSmithKline, a research-based pharmaceutical company.
    Our mission challenges us to enable people to do more, feel 
better and live longer; and one of the ways we feel we can do 
this is through our inclusion of diverse suppliers.
    So thank you very much for having us here today.
    Chair Landrieu. Thank you.
    Mr. Cotton. My name is Walter Cotton, the Managing Partner 
of MR-IT. We provide staff orientation, expert consulting 
services and community communication solutions. We are an 8(a), 
veteran-owned small business and always look forward to finding 
some good partners.
    Chair Landrieu. Thank you.
    Dr. Boston. Good morning, Senator. My name is Danny Boston. 
I am a Professor of Economics at Georgia Tech, in Atlanta, and 
I am also a business owner of EUQUANT, which is a consulting 
company which does economic and statistical research, focusing 
specifically on minority businesses.
    Chair Landrieu. Thank you.
    Dr. Bangs. I am Ralph Bangs, Associate Director of the 
Center on Race and Social Problems at the University of 
Pittsburgh, and I do research on discriminatory actions by 
local government against qualified minority businesses and 
women-owned businesses for contract opportunities.
    Chair Landrieu. Thank you.
    Mr. Alford. I am Harry Alford, Cofounder, President, and 
CEO of the National Black Chamber of Commerce. We have a reach 
to over 100,000 businesses. We have 151 chapters in the United 
States and 80 chapters offshore. We are the largest black 
business association in the world.
    Chair Landrieu. Thank you, Harry.
    Mr. Willis. My name is Greg Willis. I am the procurement 
counsel for Senator Landrieu, who is Chair of the Senate Small 
Business Committee.
    Chair Landrieu. Thank you all so much, and again the 
audience, for joining us.
    The record of the Committee will be open for two weeks. We 
will be happy to receive testimony for those invited to 
participate in the roundtable as well as for others who are 
here this morning or listening to this roundtable.
    Again, the intent is to bring ideas to the table, to help 
strengthen the SBA's work as the lead advocacy agency of the 
Federal Government, to open contracting opportunities, to help 
enforce the laws that are already on the books, and to identify 
what barriers there may be in minority, women-owned businesses 
participating in government contracting.
    The Federal Government is the largest purchaser of goods 
and services in the world. We want to focus on this. One of the 
major efforts of this Administration, and underway now, is the 
stimulation of this economy through additional federal spending 
and investments. It is a major priority of this Administration.
    I would like to begin by asking for you all to comment. 
What are you hearing from your organizations or what are you 
experiencing yourself in terms of participating in the 
expenditure of stimulus dollars that were invested in many 
infrastructure projects, educational opportunities, services, 
et cetera?
    We want to hear from minority businesses about what you are 
hearing and what you are experiencing, so we can focus on what 
we could potentially do better in that regard during the next 
couple of months.
    If you want to speak, please take your name plate and stand 
it up like this, and I will recognize you as we can. I do not 
know who wants to start.
    Ms. Reid, why don't we start with you?
    Ms. Reid. Senator, I am very involved in the Dallas, Texas, 
area. I am involved with the Dallas-Fort Worth Minority 
Business Council, as well as the Women's Business Council 
Southwest, in which I am active and on the board.
    What I have observed in our area is that everyone is very 
interested. There are so many small businesses that are 
desperate. You see new businesses forming everyday from those 
that are being laid off.
    We hear about the stimulus money, but I have been to events 
that the word is not getting out and the right people are not 
communicating. You have some people up there speaking and they 
do not know anything.
    You see a lot of small businesses leaving even more 
frustrated and more confused. There must be some kind of way we 
can truly get that information down to the areas that really 
need it.
    I know that David Hansen mentioned this morning that they 
are focusing on the state and local levels, and that was 
encouraging because just what I have seen at the grassroots in 
that area is just not getting down to the people who really 
need it.
    Chair Landrieu. Mr. Robinson.
    Mr. Robinson. Prior to this morning, Madam Chairwoman, I 
would have stated emphatically that there was a great deal of 
frustration within the minority business community about the 
expenditures taking place with the stimulus funding.
    I had an occasion this morning, at a breakfast of the 
National Association of Minority Contractors, where an 
unscientific poll was taken of those members in that 
organization. I was surprised at the number of people 
participating who did raise their hand.
    What I would like to point out to the Committee is that 
because the stimulus money is governed by FAR, it has a 
fundamental flaw. You may be aware that under the federal 
acquisition streamlining and federal acquisition reform that 
took place in the 1990s. Many of the socioeconomic indexes that 
required participation by minority and women-owned firms were 
gutted. And a lot of what we are seeing with bundling and the 
lack of minority participation, has its root causes in FAR and 
what took place with federal acquisition reform and federal 
acquisition streamlining.
    So if we are going to have the infrastructure in place to 
assure that participation, Congress is going to have to address 
that issue once again in order to secure participation in those 
projects.
    Chair Landrieu. Again, that is the federal acquisition 
regulation and it was passed in?
    Mr. Robinson. I mean FAR has already been in place, but the 
streamlining and the reform took place in the mid-1990s.
    Chair Landrieu. In the mid-1990s.
    Would anybody else like to comment on that?
    Harry.
    Mr. Alford. Yes, ma'am. We have done surveys and polls. You 
could bring more feed to the trough; but if you got the same 
pigs at the trough, nothing new is happening. If African-
American firms are getting 1.1 percent of the Federal Highway 
Administration contracts and Hispanics are getting 1.6 percent, 
it is going to remain the same, as Tony just said, if it does 
not change. So nothing is changing on the formula related 
funding.
    We are going to hang in there and hopefully try to affect 
change on the discretionary fund. That is our hope for the 
coming year.
    The Indiana Legislative Black Caucus summoned me to Indiana 
to help them understand where the stimulus money was in 
Indiana. I had three staffers work a week trying to figure out, 
despite all the transparency on the website, to find it; and we 
found $4.3 billion in Indiana; and they did not have a clue of 
how to get it or if anyone was getting it.
    Chair Landrieu. Thank you for the comments.
    Mr. Denlinger.
    Mr. Denlinger. Thank you. Good morning, everyone. My name 
is Steve Denlinger. I am the President of LAMA. I am also the 
federal contracting advocate for the U.S. Hispanic Chamber of 
Commerce.
    I just got back from a week at the national convention of 
the U.S. Hispanic Chamber of Commerce and the overwhelming 
sense I get, and it is just widespread, is that they know there 
is lots of stimulus money out there but there is no systematic 
way to find out where it is being spent.
    More than anything, we need a systemic way of providing the 
minority business community with an understanding of where 
those projects are taking place. I think it is as simple as 
funding some of the major minority women-owned, and so forth, 
trade associations, to make sure that the word is getting out. 
The word is not getting out. The people do not know where the 
action is.
    Chair Landrieu. Go ahead.
    Ms. Johnson-Pata. I would just like to make a couple of 
recommendations. I totally agree that too many people are 
feeding from the top. I think the Department of Energy is a 
good example of a large amount of money going to existing 
contractors. I think the stimulus has tried to get the money 
out as quickly as possible. They are using the contracting 
vehicles that were in place. You see it across the country.
    But, it did not stipulate anything new particularly from 
the small business community. A couple of recommendations would 
be to do some kind of review of who is getting the contracts. I 
know there is already transparency about that, but some kind of 
analyzing of exactly how many are really going to small 
businesses through the subcontracting plans.
    We were hoping that even though big companies still got the 
contracts, that they would actually expand in subcontracting, 
but we have not yet seen that come to fruition.
    Also, one of the things that we did in Indian country, 
because we wanted to take advantage of our very first 
opportunity to be part of Recovery Act funds, was a number of 
webinars and other kinds of things on a regular basis. We had a 
place for information that people could go to who have 
questions.
    On everything else we have information. Every piece of the 
recovery except for the contracting. We have not been able to 
get, as everybody indicated, a clearinghouse basically of what 
is coming up and where the opportunities may potentially be.
    Chair Landrieu. Let's hear from Joe, who represents the 
SBA, and I know they are trying their very best. But I think 
that, Jacqueline, you raised an excellent point. I do not speak 
for the Obama Administration or for President Obama. I 
understand that part of their focus was getting the money out 
quickly because the nation needed that push, but you are right. 
Doing that, if the same contractors were in place, is sort of a 
counter effort to not take the time to try to expand. There is 
a little bit of tension there, but perhaps we could figure out 
a way to move through that.
    Mr. Jordan.
    Mr. Jordan. Absolutely. Thank you. I certainly hear the 
frustration. The Administration hears that quite a bit.
    I did want to just briefly present what people talk about 
and the things they have heard. I want to present a few of the 
facts that I have, which are all publicly available, and also 
talk a little bit about what the President and Vice President 
have asked the Secretary of Commerce and Administrator Mills to 
do about the stakeholder outreach initiative. I have heard over 
and over, within this room and outside of it, about word not 
getting out.
    We certainly want to address that issue, and to the extent 
possible, enlist all of your help in addressing that.
    In terms of the SBA loan programs, the Recovery Act 
provided $375 million in funds to support the SBA loan 
programs. That has supported about $10.7 billion in small 
business lending across the country. It is over indexed in 
minority and women groups.
    Minority-owned businesses have received 20 percent of 
Recovery Act-based SBA loans and women-owned small businesses 
have received 19 percent. Mr. Cotton, and others, would be 
interested to know that veteran-owned businesses received 9 
percent.
    We are here to talk about contracts, what has been going on 
with federal contracting and federal Recovery Act contracts. As 
you all know, we have a goal. The Federal Government has a goal 
that at least 23 percent of Federal contracts should go to 
small businesses.
    Through the Recovery Act, thus far, we are just at that 23 
percent, and I am cautiously optimistic that will continue. If 
you look at the trend, it has been moving up and then staying 
in that range right around the goal.
    Small disadvantaged businesses, which include the 8(a) 
companies, are at 10.6 percent, more than twice the goal. 
Women-owned businesses, unfortunately, have no tool the 
contracting officers currently use. We certainly are working on 
that. They are at 3.6 percent.
    Service-disabled veteran-owned businesses are at 3.7 
percent. It would be great if we could exceed that goal. And 
minority-owned businesses, of all sizes, are at 14 percent of 
Recovery Act contracting dollars.
    And then lastly HUBZone, Historically Unrealized Business 
Zone companies, have a 3 percent goal, and they are running at 
more than twice that, at 6 percent.
    At the federal level, the contracts certainly are getting 
into the hands of the people that we all want them to. It is 
not just the same group of contractors.
    There are three challenges that I see. One, assuring that 
happens at the state and local level, and as MBDA Director 
Hansen referred to, we are working hard to talk about that. 
Chair Landrieu and Ranking Member Snowe, as well as 
Administrator Mills, have all written letters to the nation's 
governors urging them to use small businesses and disadvantage 
small businesses with their state Recovery Act contracts.
    We also need to ensure that these numbers that I listed at 
the federal level will continue. Then, we need to make sure 
that any successes we see here in the stimulus, apply to the 
regular $500 plus billion in annual federal contracting.
    The speed with which these funds are being dispersed is a 
challenge, but it is also a real opportunity. It is an 
opportunity to have that transparency and accountability, and 
prove which approaches worked and which ones were less 
effective.
    With the stakeholder outreach initiative, I will just 
briefly say that what we are trying to do is host and 
participate in all federal agencies, host and participate in a 
number of events around the country to get the word out on 
federal contracting, and state and local contracting.
    Also, on SBA.gov, there is now the ``How to Win Recovery 
Act Contracts'' with free training available to all businesses 
primarily focusing small businesses, especially those who may 
not have previously contracted with the Federal Government.
    We are trying to bring in new companies. We understand that 
many small businesses have had their commercial buyer base 
recede during these tough times, and we want to help them 
understand how to contract with the Federal Government.
    So there are a number of things we are doing. To the extent 
that we can do more, myself, the Administrator and our team, 
are absolutely willing to listen and discuss with you all the 
ideas that you have because we want to get this right.
    Chair Landrieu. Thank you, Mr. Jordan.
    One minute, Harry.
    Mr. Jordan, thank you so much for your enthusiasm and for 
leaning forward. I have had several conversations with the 
Administration, and particularly Ms. Mills, about this and I 
know that she is committed.
    But one of the issues that came up yesterday, and I am 
going to get to those who want to ask questions, are laws on 
the books for all the different agencies, the goals, the 23 
percent, et cetera.
    And, as we talked the day before yesterday, about some of 
the larger companies bidding for federal work and indicating on 
those bids that they are using small business subcontractors, 
we also identified that just because the bid says that they are 
going to be using small business contractors, does not mean 
that in the execution of the work they actually did.
    We are finding that with the gap, we are looking for ideas 
and suggestions to do more monitoring and really tough 
evaluation. I have had several small businesses from Louisiana, 
who are trying to do work with the Federal Government, who have 
said to me, ``Senator, we are part of the bid. That is not the 
problem. The problem is when the contract is let, we are not a 
part of the work, so we are not actually participating in a 
real way.''
    I do not know if some of you have had that experience, but 
it would be a good time to speak now, if that has been your 
experience, or if you have had a different experience. Please 
share.
    Dr. Boston.
    Dr. Boston. Yes, Senator. I want to just really reenforce, 
particularly, the last point which you made. It is true that 
both at the federal level and particularly at the state level 
there are often contracts that let individual vendors indicate 
that they will be used, and then if there is no monitoring 
process to ensure that happens, often it does not happen. That 
is one of the problems.
    I was delighted to hear the figures that were cited by Mr. 
Jordan. The other problem is that there is, really an endemic 
problem, regulatory problem in the SBA, as it relates to small 
disadvantaged businesses because it constrains their ability to 
grow and that would allow them to get the larger contracts.
    It is primarily related to the whole issue of personal net 
worth. I have some comments on that. I will not take up the 
time right now, but there are a number of problems with that.
    Even with the money, and if the money is reaching minority 
businesses particularly through the SDB program, what you have 
are businesses that are restricted because of the capacity that 
they can attain and thereby fostering a continuing relatively 
small group of firms, and not firms that ultimately break out 
and grow in scale, capacity to be mainstream players in 
society.
    Chair Landrieu. Thank you. That issue has come up before 
and we are evaluating it. In your written comments to the 
Committee, you could go into more detail. We thank you so much.
    Harry, go ahead.
    Mr. Alford. Madam Chair, could we get a detailed report of 
that 10 percent? It started to sound like Katrina to me. 
Congresswoman Barbara Lee got a report from the Corps of 
Engineers, and here is their minority report on ANC companies. 
No blacks, whatsoever, had to go to the White House to get it 
changed around.
    And to hear hurry, hurry, hurry. Just like Katrina. Please 
send me that report so that we can verify that and then see 
what the real numbers are or support your claim.
    Mr. Jordan. All these numbers are publicly available on the 
Federal Procurement Data System, FPDS NJ.
    Mr. Alford. Just send me the report please.
    Chair Landrieu. Yes. We will get a copy to everyone here.
    And, Joe, thank you for making that available on the 
website.
    However, Mr. Alford has hit on the same point. We not only 
want to make sure that agencies say these are the minority 
companies they are working with, but instead, that the large 
contractors are actually doing that. The Corps of Engineers is 
one of the agencies, Harry, that I hear some complaints about. 
So thank you for raising that.
    Mr. Denlinger and then Mr. Cotton.
    Mr. Denlinger. Just a couple of quick follow-ups. On the 
point you just made about the subcontracting opportunities 
disappearing, that is nothing new. That has been the 
circumstance of the last----
    Chair Landrieu. Please speak into your mic if you would.
    Mr. Denlinger [continuing]. Yes. The issue of vanishing 
subcontracts, is, of course, long-term, chronic, and an issue 
that I was going to address in my remarks later on with respect 
to the need for subcontract reform.
    The missing ingredient is a contract. If there is not a 
contract between the subcontractor and the prime contractor, by 
the time the prime contractor gets the contract, he forgets 
about the subs that he was purportedly going to use to fulfill 
the minority subcontracting plan.
    With respect to subcontracting reform, we need a contract 
between the prime contractor and the subcontractor at the time 
the prime contractor submits his bid.
    The other item is a barometer. There are certain things you 
can use as a barometer to get a sense of how effective the 
outreach is with respect to stimulus and other programs.
    One barometer is the extent to which associations, like 
LAMA, receive outreach information from the federal agencies 
and the SBA and so forth.
    LAMA has been around for 35 years. Everybody knows who it 
is and what it reaches. I have not received one item from any 
federal agency about any stimulus funding, period. If the 
agencies are not reaching us, how, in God's green earth, am I 
going to believe that they are reaching our members across the 
country. It just is not happening.
    The outreach mechanism is missing. The heart is good. The 
heart is sound. We are very happy with the tone and the 
disposition of this Administration. But the mechanism is 
missing.
    Chair Landrieu. Thank you very much. I am going to ask the 
staff to really work on that specific issue today because it is 
something that our committee can do to help put a database 
together. We have access to it. Thank you for that suggestion.
    Mr. Cotton.
    Mr. Cotton. Thank you, Madam Chairman.
    One of the critical issues that often is overlooked in this 
area of large business subcontracting is the need for us to 
influence the spirit of subcontracting. Absent an enforcement 
mechanism that allows us to change the behavior of these large 
prime contractors is not going to change because we have a 
subcontracting intention which is incongruent to their 
fiduciary responsibility and to their shareholders, which is to 
increase their value.
    So as long as prime contractors are not, and I do not want 
to use the word ``punished,'' but I think we are talking 
behavior modification here. They have to understand the 
interdependent nature of the request that we are making to help 
subsidize the viability of our small business community.
    Until we put a mechanism in place, that either holds them 
accountable for not meeting their stated subcontracting plan 
irrespective of whether they do it with the small businesses 
that they won the bid with or not, the fact that they have done 
it, is a vehicle that impacts their ability to acquire future 
contracts because of their poor performance against those 
goals. We are going to continue to chase this issue around and 
around.
    We need a--I do not want to use the word ``punitive.'' But 
we need a behavior modification vehicle put in place.
    Chair Landrieu. Thank you for being so tactful. A very good 
suggestion.
    Ms. Gatling, you represent a large company.
    Ms. Gatling. Yes.
    Chair Landrieu. One of the largest in the world. Could you 
comment about what your company has done to change behavior, to 
refocus, and some of the strategies that you are using or have 
used that could be helpful?
    Ms. Gatling. Yes, Madam Chair.
    Contract consolidations and utilization of major suppliers 
is something that a major corporation like GSK, because we are 
global, has to do. And we have to have the capacity of the 
small business in order to do work on that large scale.
    What we have done is bring in a large supplier and asked 
that they come to us with their diversity strategy. When they 
are bidding on the work with us, they have to bring the 
strategy to us. It has to be a strategy that we know is going 
to work for that community.
    We also listen to the small business community to find out 
what are some of the issues in working with a prime supplier. A 
lot of the messages are that they are not getting the 
contracts, so the work is not funneling there.
    So what we do is monitor. When we give the contract to the 
prime supplier, we monitor their usage of those small 
businesses. We ask that they report their numbers into a 
reporting system that we monitor. Then it becomes part of their 
evaluation when we evaluate them on a yearly basis.
    Monitoring is very key in this instance.
    Chair Landrieu. One of the strategies the staff could 
consider is looking at what some of the largest companies in 
the world are doing, and seeing how that compares to what the 
Federal Government and state governments are doing. While one 
is a business and one is a government, they are structured in 
much the same way. These companies are procuring lots of goods 
and services, and they are huge, but not as large as the 
Federal Government.
    I think we could look to practices in the private sector 
and see how the private sector potentially is going. I am not 
saying everyone does it well, but there has to be somebody out 
there that is doing a good job. We can see what it is they are 
doing, how they are enforcing it, what they are suggesting and 
maybe bring some of those best practices to the government.
    Ms. Reid and then Mr. Jordan.
    Ms. Reid. And one thing, Senator, thank you so much for 
acknowledging the checks and balances because I do agree that 
is very important.
    I personally understand that challenge, because even being 
a small business, I am committed to do those numbers as well. I 
know once we get contracts, you really have to work at it. But 
we are committed to do that as well.
    One thing I have noticed, even with our successes and lack 
of success in that area, was a correlation between the firms as 
well as government agencies that have strong minority, women 
business enterprise programs or omnibus programs.
    I think that would be important too to look at. Those who 
are successful, not only in size, can look at some of those 
agencies within the government that are doing well. We hear a 
lot about those that are not, but there are some that have 
strong programs which have been part of our success story as 
well.
    I do not want to get us off course, but I would like to go 
back and just add some anecdotal information to the issue that 
was discussed with Mr. Jordan.
    Of course, I do appreciate all that SBA is doing and has 
done. But one thing that we are seeing with those programs and 
even with those numbers are, first of all, challenging to even 
get through because of the red tape to get to that program.
    You have a lot of small businesses falling off. My company 
does a lot better because we are an 8(a). We are used to all of 
that. We considered one of the SBA programs for the stimulus 
package that was being overseen by the bank. As a matter of 
fact, once I visited my SBA office, I knew more than the bank.
    Even at that time the people who were operating it did not 
even have that information or knowledge, so they were learning 
along the way. I just took the initiative with my local SBA 
because I knew more.
    I think that is one thing we really need to look at of what 
is going on.
    Then, looking at some of the requirements. For $30,000, it 
was stringent on what you could spend it on. You could only 
spend it on passed bills that have shown a pattern. We have to 
look to try to see what bills could get up to that $30,000 to 
qualify. Sometimes you even have to look at some of those 
details.
    I do appreciate SBA working to be a good steward of checks 
and balances. But they are so stringent that you cannot even 
pass, even from the grassroots level. We look at what is going 
on with big businesses all the time. Then we see all of the 
hoops we have to jump through.
    Chair Landrieu. To access some of the stimulus funding is 
very difficult.
    Ms. Reid. Yes.
    Chair Landrieu. We have been joined by Senator Risch from 
the State of Idaho. We are very happy to have the Senator join 
us for just a few minutes.
    Let me go on.
    Dr. Bangs.
    Dr. Bangs. Yes. Thank you.
    In terms of the point that was mentioned earlier, that 
local governments can be a major bottleneck to getting stimulus 
spending to minority and women firms, our research on 
discriminatory practices by local government strongly supports 
that view because there are a lot of actions out there that are 
inhibiting or excluding qualified minority and women businesses 
from local government prime contracts.
    The problem is not just the subcontracting that is not 
getting from the prime contractors to the subcontractors. The 
problem in local government as well as the federal governments 
often is that they are not having equal opportunity for 
qualified firms for the prime contracts.
    Those exclusionary practices include continued bundling, 
not breaking contracts into smaller sizes so that different 
sizes of firms can compete, having slow-pay systems so that 
small firms cannot get the money in time for these projects and 
so they cannot survive, or even apply for projects because they 
know that many local governments are not paying on time.
    Those are just a couple of the mechanisms that exclude 
small businesses, and in particular, minority and women 
businesses.
    Chair Landrieu. Thank you for raising another issue that 
comes up from small businesses, the prompt payment from the 
Federal Government, that sometimes, at the local, state, or 
Federal levels do not pay promptly. It can literally bankrupt a 
small business because you do not have the staying power that 
large businesses might have, such as the strength of credit.
    It is important for governments to pay promptly. That in 
itself can be a barrier that small businesses just cannot take 
in terms of doing business with someone that is not going to 
pay them for six months or a year.
    Mr. Robinson.
    Mr. Robinson. Madam Chairman, as you know, the Congress 
passed the Prompt Pay Act, but there is a fundamental flaw in 
that much of the transportation money does not apply because 
the Prompt Pay Act flows through state governments.
    Congress might want to consider revisiting that Prompt Pay 
Act, to make it apply to all federal monies that flow, even 
indirectly through state and local governments, where much of 
the problem exists relative to that.
    Chair Landrieu. Thank you. That is an excellent suggestion.
    We have been joined by Ms. Burnell. Thank you very much for 
being here from Jefferson Parish. We really appreciate it. I 
know you have your name plate up, so do you want to introduce 
yourself and then make a comment?
    Ms. Burnell. Yes. First of all, I would like to introduce 
myself. I am Charlotte Burnell, and I am a small business and 
8(a) business in the Senator's district.
    We have had a lot of money, besides stimulus money. We have 
been dealing with recovery projects which have really had a 
tremendous impact economically in our area.
    However, just as several of you have said, we have had 
strong subcontracting plans and outreach programs. But because 
there is not strong compliance and monitoring, the dollars 
never get to the small businesses that are in the 
subcontracting plans.
    That enforcement mechanism is very important. I know in 
some of the Corps of Engineers contracts that have been done in 
New Orleans, they have actually assessed some financial 
penalties. But nobody is monitoring it to enforce the financial 
penalties.
    The language looks good. It is just not being enforced. 
Monitoring of who is being hired and where the dollars are 
going, beyond the subcontracting plans, and the actual dollars 
that are reported to Congress that are getting to the small 
businesses, I think, would be an important issue to all of us.
    Chair Landrieu. Thank you.
    Ms. Pata and I will come back to Mr. Alford.
    Ms. Johnson-Pata. I wanted to follow up on the 
subcontracting plans, and certainly, we support improvement of 
subcontracting plans. In fact, one of our recommendations that 
we put forward is having to monitor. I think the monitoring 
should go one step further than the subcontracting plans.
    I think the details should be in the contracts and that 
there should be follow-up with monitoring and compliance. I 
think it also follows up with joint ventures and mentor 
protege. We should improve the goals and the monitoring of 
those goals because I think even small businesses and joint 
ventures of the small businesses and mentor protege, also get 
left off the table when it comes to really delivering the goods 
and services for the dollar amounts.
    I have some specific recommendations about maybe some items 
that could be monitored or reported, on a regular basis so that 
they could be reviewed.
    The other recommendation I wanted to put on the table when 
talking about these subcontracting plans, and when you 
mentioned it earlier, Mr. Cotton, on perhaps making that be 
part of the original contract. It seems the strengthening of 
teaming arrangements might be a good opportunity for us.
    One of the recommendations we put forward was just a pilot 
program on teaming which would require that the Federal 
Government look for contracts earlier in advance so you could 
put the right teams together.
    But if you could pool together a group of small businesses 
to be eligible as a team, you have to make some changes in 
legislation to make them eligible collectively, so that they 
could team, some of these larger contracts or midlevel 
contracts that small businesses are not eligible for.
    I think that might be something interesting to explore, 
too, because there are a lot of small businesses, as we have 
heard here today, that would like to pool together.
    Chair Landrieu. That is an excellent suggestion. I am going 
to call on Mr. Boston now and I am going to turn the panel over 
to Don Cravins and Greg Willis. The Senator may want to add a 
few comments or questions himself, but this has been a very 
informal, very open Senate roundtable. I have found these to be 
very effective and they are really helping us to understand 
what some of the barriers are, and how our laws, while they may 
be well-intentioned, are not working as well as we would like 
in order to get some changes.
    Let me call on Mr. Cotton, and I am going to turn it over 
to Don Cravins. Thank you all so much, and again the record 
will be open for two weeks. This roundtable will continue 
probably until about 11:15 or 11:30. Thank you so much.
    Go ahead, Mr. Cotton.
    Mr. Cotton. One of the points that I want to follow up on 
that you made is relative to that issue. I think for many 
years, time has been used to keep small businesses out of the 
contracting pool. And that is the available pool of capacity 
that only teams of small businesses could meet in terms of the 
needs of consolidated or bundled contracts.
    My study of the Code of Federal Regulations, and my study 
of the FAR, indicates that there are already authorities, 
mechanisms in place, that empower the small business community 
to utilize strategies like alliances, joint venturing (as 
probably the most dominant), to put together teams that could 
attack a number of opportunities within their size for their 
industry.
    But there are other vehicles out there, like the 
utilization of the SBA Business Development Mentor Program, 
which is underutilized as a capacity generator and that would 
allow small businesses to put themselves in a position to, and 
since we are keeping this informal, I am going to use a little 
vernacular here, change the game.
    Allow them to put themselves in a position to bring a 
response to any requirement that comes out that would be on par 
with those that are delivered by the individuals that are 
always feeding at the trough.
    The point that you made, which is very relevant and 
resonated with me, is the fact that we have to get a lot better 
about being proactive and utilizing resources, like our PCRs, 
to bring opportunities to the visibility of the small business 
community at the requirement phase of the acquisition cycle 
which would give the small business community enough time to 
build capable teams to respond to them.
    This I think is consistent with the statement that the 
young lady on the end made a little bit earlier when she said, 
``Once I sat down and studied the regulations, I was smarter 
than the people who were responsible for the program I went for 
lending.''
    We have to collectively, as a group, make the commitment to 
getting ourselves approved, understanding these programs and 
regulations that are available to us, and then constructing 
solutions that are going to be in the best interest of our 
economy as a whole.
    So as we sit oftentimes, and I am going to say this 
directly to my brothers and sisters that are small business 
owners, as we sit oftentimes and point a single finger at the 
Federal Government or at the large contractor that is not 
letting a subcontract to us, we have to be assured that we have 
covered these three fingers that are pointing back at us.
    We have to be assured that we have left no stone unturned, 
that we have utilized joint venturing, tried to find a mentor 
who could augment our capacity, and put us in a position to 
allow the intention of the Small Business Act to be realized, 
which is the maximum practicable opportunity to participate in 
federal contracting.
    That is the enormous language that we have underutilized 
because we as a collective, and I am talking about the 
government in concert with the small businesses, have not 
developed a strategy to pursue. I will stop there.
    Mr. Cravins. Thank you, Mr. Cotton.
    I am going to call on some of the others. Keep your 
comments as brief as you can because I want to get Senator 
Snowe's staff involved so they can ask some questions as well.
    Dr. Williams, I know you have had your name plate turned up 
for awhile.
    Dr. Williams. Thank you, Mr. Cravins. I wanted to make a 
comment concerning the lines of monitoring. A few years ago, I 
was part of a team to develop a proposal with a very large firm 
to do some work in what we call ``the second line of defense'' 
where you install radiation detectors and such in places like 
Russia, Ukraine, places like that.
    This is work I have done and have helped to get the 
contract over into the 8(a) bucket. All right. When we put the 
first team together that was possible for getting it over to 
the bucket, and then decided to join a large firm, they 
systematically began to reduce our influence on that contract.
    I am talking about inside of the technology parts. I did 
not see anyone in that organization that was particularly more 
knowledgeable about technology than myself. And I know that is 
just the tendency for the way things go.
    When we got toward the end, I was beginning to decide not 
to put too much effort toward the end, and they did not 
actually get the contract. But the fact is that in this 
business of bait and switch, you can kind of see it coming.
    One thing I do not really see as practical is to have 
monitors. Then you have to monitor this and monitor that. 
Someone has to monitor the monitors.
    I think one thing is that there is a belief system and 
there is this need, to maximize profit. A belief system is 
sometimes habit. We can do this. We want to do this ourselves.
    Also, you know that you do something, you develop the 
capability; and if you let someone else do it, they develop the 
capability. That is really kind of against the competitiveness.
    You have to expect large businesses are going to cut us out 
because, unless you are vital, you just have to have them.
    I think, though, that some of this could change. I was in 
an aerospace conference last week. They made it very clear that 
it looks like an impossible task to be able to have the input 
of personnel in the next 20, 30, 40 years that are technical 
and are able.
    One thing, I think is we may be able to use, national 
responsibility, this thing about national health. For national 
health, many industries, and most industries, know that they 
cannot get the people they are going to need as far as 
technical folks for the future. They are just not there. If you 
just project and you do your best and you rebuild all the 
schools, it is still not there. So you have a problem.
    A part of that problem could be facilitated in the right 
direction if you think about the fact that income correlates 
with educational successes.
    When minority businesses are funded, you are going to have 
a lot better spread of wealth in minority communities. I know 
it is not something that people have well considered and it may 
not be something that folks want to consider, but I think that 
if you look at it from this standpoint, it is sort of a 
national emergency. It is national health. It is national 
security.
    I think if you could get a little bit of esprit de corps in 
these larger organizations, that are not going to be 
functioning well, they are going to be giving up on their work 
to other countries because the people are not being trained.
    And by funding small businesses, you are going to increase 
the numbers of folks. People have a hard time dealing with the 
delay. We are talking about a 10- to 20-year delay, but it is 
like global climate change. If it hits you, you are dead. You 
are done.
    So you have to get ahead. I just wanted to put out there 
that not just monitoring, but maybe the cause du jour, may be 
by spreading. I know people do not like the idea of spreading 
the wealth, but you want to spread the technological 
capability.
    The main thing people do not give you contracts for is 
because you instantly create a competitor. If you can do that, 
you are going to sustain something that is going to fall off 
here in the near future.
    Mr. Cravins. Thank you, Dr. Williams.
    We are going to move to Dr. Boston. I told Greg in the 
interim, doc, that when you put a lot of lawyers and PhDs on a 
panel, it is dangerous. Go ahead, Dr. Boston.
    [Laughter.]
    Dr. Boston. I will try not to live up to that reputation.
    I want to make a couple of very quick points. One about the 
issue of prompt payment. Prompt payment has to be monitored 
down at all levels, not just the first level. For example, in 
North Carolina, the Department of Transportation has a payment 
system whereby if you submit an invoice, they pay you 
immediately.
    But if you talk to subcontractors, they are complaining 
about not getting paid. The prime is paid immediately, but the 
subcontractors are not. It has to be monitored.
    Secondly, there are a number of ways of monitoring. You do 
not just have to monitor with physical individuals. You can 
also set up appropriate data systems to do the monitoring. And 
if you are tracking with appropriate data systems, then you can 
also determine whether or not there is compliance.
    In regard to the SBA, one of the gaps in terms of data 
systems that really needs to be addressed is subcontracting 
data, particularly, that come from corporations that do 
business with the government.
    We have the FPDS that tracks absolutely perfectly, but we 
do not know what is going on underneath that.
    Just two more very quick points. One is the contract issue. 
There needs to be a letter of intent. I do not think you can 
have a contractor, beforehand, execute a contract without a 
letter of intent. That has to be monitored.
    Then finally on the mentor-protege relationship. I think 
Ms. Gatling can talk to this. One of the problems that major 
corporations are having is that when they engage in mentor-
protege relationships and are able to grow corporations in 
partnership to get into the value aspect of their supply chain, 
they are no longer eligible to participate in the SDB program. 
That is a real problem.
    Mr. Cravins. Mr. Alford.
    Mr. Alford. A strong bid language precludes all of that. We 
write bid specifications for some municipalities. You put in 
the bid specification that must support the documentation of 
minority business subcontracting. If there is a change, you 
must report that change. And if a minority falls off, he must 
be replaced by another minority. If you do not do that, you are 
in breach of contract. There are remedies to that, fines, 
removal from the contract.
    Remember, Tony, we got Hunt Construction banned for five 
years from doing any work for the State of Indiana for that 
same business. Then we got them knocked off the short list of a 
basketball arena in St. Louis and off the short list of a 
baseball stadium in San Francisco. The CEO of Hunt Construction 
came and made peace, and they have been a good little angel 
ever since.
    Janet Reno took Peter Kiewit to the wall, fined him 
$700,000 and carted some of the fronts off to jail. We need the 
Justice Department to get involved in this to set some 
examples. Just a couple of examples and everybody gets the 
message.
    Mr. Cravins. Thank you, Mr. Alford.
    At this time I will turn it over to my colleagues from 
Senator Snowe's staff. Ms. Hontz.
    Ms. Hontz. Thanks, Don.
    We managed to cover a lot of issues on the agenda. I wanted 
to remind you as well that the record will be open. I know we 
could talk for days on all of these issues, but we are really 
looking to set a base and get some information for legislation 
that we would hope to be developing shortly after we conclude 
these roundtables. I encourage you to submit information.
    We touched on net worth, but I want to go to something that 
is somewhat related, which is size standards. In Tuesday's 
Roundtable, we heard pros and cons. If you raise standards for 
procurement, which some agreed is important, you may be hurting 
those small businesses that are just trying to get into the 
government contracting arena; therefore, I would like to have a 
few comments on the record about size standards. I understand 
that Joe is caught in the middle of these issues but he needs 
to hear your comments as well because size standards fall under 
his purview.
    Mr. Robinson, I believe you were the first one to have your 
name plate up.
    Mr. Robinson. Yes. I have been a proponent of reforming 
size standards for a few years because they have not been 
changed, the bulk of them have not been changed, as I said 
before. There were some tweaks on some subindustries, but there 
has not been a real overhaul of size standards to see whether 
or not they are still consistent with what would be considered 
small, and other than small, in today's industries.
    I would think that a serious, and I think the last 
Administration had begun to take a major look at that, would 
encourage to continue.
    I would also like to take this opportunity to make sure 
that we do not miss the 800-pound gorilla in the room. As we 
look at these various issues to tweak and make programs, 
improve the programs' delivery and make them better, and speak 
to the congressional mandate that these programs developed 
competitively viable companies, that we also appreciate the 
fact that the courts are looking at these programs as we are. 
As Congress is.
    If we have not established a robust predicate for these 
programs, the courts will do as it just did the DOD program 
this past November. It is absolutely critical that this 
Committee, as it looks at these program modifications and 
changes, also establishes a robust predicate to make sure that 
as the courts review these programs, that they are preserved.
    Ms. Hontz. I just wanted to point out Constitutional issues 
are on the agenda; and we are going to have discussion for the 
record.
    Mr. Denlinger.
    Mr. Denlinger. Coming in on size standards, size standards 
present some of the most difficult issues that our companies 
confront. I am going to focus on a relatively small slice of 
the size standard issue.
    There are number of codes wherein the size standards are so 
small, that we push companies out of the size standard 
classification into competition that is unsustainable in the 
open world.
    SDB has a responsibility for helping develop small business 
so they can compete once they are no longer small. Let me give 
you the example. And we are talking about base maintenance. We 
are talking about certain aspects of environmental remediation, 
range operations, certain elements of information technology 
such as systems integration and so forth.
    Focusing on systems integration in the IT world for a 
moment, the present size standard to graduate out of the small 
business category, companies need sales of $23 million, a 
three-year average of $23 million.
    If you take a company that has $23 million, or a little bit 
over that three-year average, and put them out there to compete 
against the Lockheed Martins and the Northrop Grummans, it is 
insane, just absolutely insane.
    It is a complete abrogation of SBA's responsibility to 
protect and support small business. We need a rational, logical 
look, at certain industries where we are graduating companies 
out of the small business category prematurely.
    Think for a moment. What does it take, for a company to be 
able to compete in the systems integration business, once they 
are no longer small? That is probably a company that is maybe 
1/10 of the size of the very largest companies or the dominant 
companies in the industry.
    That ought to be somewhere along the lines of the formula 
used for determining when companies should graduate. That is a 
whole different number than the way it is today.
    We see a serious and sustained look at size standards based 
on some, particularly, those industries where we know 
instinctively and we have known for years, that the size 
standard is too small.
    We need to be careful that we do not injure smaller 
companies. It might be a case where there are no $5 million 
size companies that are going to be competing for systems 
integration contracts.
    We are not competing against. We are not putting large 
small businesses against small small businesses.
    There are some protections that could be built in, but I 
think we really need to address this issue seriously. We will 
have some recommendations on that point.
    Ms. Hontz. Thank you.
    Dr. Boston.
    Dr. Boston. Yes. I agree completely. If you could imagine 
how the size standards constraint small businesses in regards 
to them graduating out of the program, it is even more onerous 
when you consider minority businesses in the SDB program 
because they graduated unrelated to size, but related to 
personal net worth.
    But the other issue with size standards is that there is 
no, as I understand it and I have looked, and my company is 
currently researching that, we do not understand the guidelines 
as to how those size standards are formed.
    They are adjusted, but they are only adjusted on the basis 
of inflation and so that they can tend to just increase very 
very incrementally. For example, in professional services, the 
size standard for a company is about $6 million.
    I have talked to diversity directors at major corporations. 
For example, one major corporation says that, in order for a 
minority firm to operate in our program, they have to have $25 
million in revenue. There is another financial services company 
that says we have a minimum of $10 million. Size standards are 
really unrelated to industry criteria and they are an 
impediment.
    Again, the size standards obviously have been there, but I 
agree that they need to be related to industry criteria such 
as, for example, the concentration in industry and 
construction. What is the required on-average bonding capacity? 
Those kinds of things are important and not just by an 
inflation adjustment.
    Ms. Hontz. Thank you.
    Mr. Wilkinson.
    Mr. Wilkerson. Yes. I want to touch on something and Dr. 
Boston brought it up just now about the bonding capacity. I am 
from New Orleans, and as you know, Mr. Cravins, we have some 
special challenges down there.
    One of the challenges that we have as a small minority 
business subbing underneath these big contractors is our 
bonding.
    We are not able to come up with this bonding. When you talk 
about the subcontracting plan that big contractors put in place 
and they say ``Okay, we are going to use this minority and that 
minority,'' when it comes out, they are not using that 
minority.
    One of the reasons why is because he may come to me and 
say, ``Okay, Dwayne, we have $5 million that we are going to 
send to you all,'' and all of a sudden he sends us the $5 
million and we do not have the capacity to get the bonding 
because of us being a new company in New Orleans.
    So then he turns around, he goes back and he says, ``Well, 
we cannot come up with this bonding that we need.''
    He goes back to whoever he has to report to, whatever 
regulatory person that he has to see and says, ``Well, we 
reached out and they were not able to make their bonding.''
    What we need from the SBA is for the government to come in 
and work with us on the surety bonds, put something in place to 
say, ``We are going to help assist you all with this bonding,'' 
because as a small company, if we are liquid, say we have a 
half a million dollars liquid, and we need a $5 million bond, 
and the people tell us, ``You need to put that half a million 
dollars up on this bond,'' how are we going to pay the payroll?
    Essentially, just like with the feds not getting paid 
enough. Any misstep with a small company down there, with us, 
you say, ``There is a 60-day turnaround for us to get paid.'' 
Any misstep for us and we are bankrupt two weeks after that 
because we are leveraged all the way to the hilt.
    I think that our problem down there is, basically in order 
for us to get to the next level for SBA, the government needs 
to step in and help put a surety bond, some type of thing in 
place, to help the businesses down there.
    Mr. Walker. If I could just go on with that for a second. 
One of the things that some members of this Committee worked on 
in the stimulus, specifically Chair Landrieu, Ranking Member 
Snowe and Senator Cardin, was to increase surety bonding for 
small businesses from the current level, which was $2 million, 
up to a new level of $5 million.
    I just wanted to find out, if word on the street, was that 
the SBA had implemented that change and if that is being worked 
in a manner that is helpful and useful, and whether people are 
able to take advantage of the new increased bonding limits.
    Mr. Wilkerson. Okay. I am hearing it from around the table 
here right now, but I have never heard of it. It is not getting 
out. Where do I go to see this? I mean I am online everyday. I 
am looking for anything. I am looking for all kinds of help 
down in New Orleans to try to build. I am from New Orleans. We 
are rebuilding this city, and this is our chance. I do not know 
where to go.
    Where do we go to find that?
    Mr. Walker. What I would suggest doing--Mr. Jordan could 
probably speak to this issue a little better--is to contact the 
SBA to find out more details on what they are doing to 
implement the provision.
    The SBA will certainly be the first line of contact but 
also feel free to call our office as well and we would be 
pleased to put you in contact with the right people.
    Ms. Hontz. Mr. Jordan, it is your turn.
    Mr. Jordan. Thank you. Briefly on the surety bonding, I 
would encourage you to do the same thing that I would tell you 
to do for any contracting or SBA program you were interested in 
or wanted to learn more about which is in your district office.
    New Orleans has a great district office. They will be happy 
to give you all the information. We have certainly increased 
the Recovery Act surety bond limits to $5 million as Matt said.
    What I have heard has been very positive. I would encourage 
all of you to look into it and let me know if there are other 
things that you can do.
    With regard to the size standards, I just briefly want to 
address this. That is certainly something I hear quite a bit 
about. While it was around this forum, it sounded like the vast 
majority of people were recommending an increase. I hear just 
as many people come to me and say, ``No, no, they are too high 
as they are.''
    In fact, subsequent to the roundtable that was held on 
Tuesday where this issue was discussed, I walked off and the 
first person who came running up to me was a woman who said, 
``Don't you dare raise the size standards.''
    It is common, when Mr. Denlinger talked about the $23 
million example, and how it is very difficult for the business 
once it exceeds the size standard, to compete as an other than 
small entity. It is often, from what we hear, that it is 
difficult for a new business who is just entering that industry 
to compete with a $23 million business.
    So we are very sensitive to this issue, and we want to get 
to the right answer. What are we doing about that?
    We are undergoing a comprehensive size standards review. 
Several people have talked about different thoughts on the 
methodology that we would use and that is very exciting to me, 
because we hope to soon put out for public comment the 
methodology that we are proposing to use as well as several 
different industries to which we have recommended an adjustment 
to the size standard.
    There are a few things that we are looking to do here. One, 
get the level right so that small business growth continues to 
happen within that small business industry. Also, as many 
people have pointed out, once a small business starts to 
approach a size standard, it does not feel constrained. Rather, 
it continues to grow when it is other than small.
    We also want to limit confusion. Size standards are 
actually indexed to inflation for that very reason, among 
others, but that is a big reason we do not want them constantly 
changing and for there to be confusion.
    We do absolutely understand that there is a need to review 
the size standards, and we are doing that. I know that is 
something that this Committee--for all of you who may not know, 
has been very diligent about pursuing. The Administrator and 
Administration are absolutely pursuing it.
    Ms. Hontz. In the interest of time, the constitutional 
issues are something on which we really want to spend some 
time.
    Mr. Denlinger and Ms. Gatling, if you could submit whatever 
you were going to say for the record, I would appreciate it.
    Don, do you want to continue?
    Mr. Cravins. One of the things that Senator Landrieu asked 
me to do, and I did not do was to take a point of personal 
privilege and welcome two good friends of mine. I had the 
pleasure of serving with these two ladies in the Louisiana 
legislature.
    They are here. Representative Regina Barrow, who is the 
Chair of the Louisiana Black Caucus and a champion of small 
business in her own right, from the great city of Baton Rouge.
    And Representative Pat Smith, who I got a chance to serve 
with for a brief time in the Louisiana legislature, also from 
Baton Rouge and a champion of small business.
    Welcome to the Committee.
    [Applause.]
    Mr. Cravins. I know Greg wants to talk about 8(a) which I 
know is a very important issue to many of you at this table.
    So Greg.
    Mr. Willis. We are going to try to move fairly quickly to 
get to the constitutional issues as quickly as possible, but 
one of the things that I have heard and the Committee has heard 
for a number of years, is the constraints that the 8(a) program 
places on minority small business owners, or socially and 
economically disadvantaged business owners as they try to grow. 
One of the major issues has been the net worth threshold.
    We want to hear from folks about what their thoughts are on 
where the dollar limit is now, ways to change it, ways to 
improve the environment for small business owners, so that once 
they get into the program, they have the ability to grow and be 
viable after they exit the program.
    So Dr. Boston.
    Dr. Boston. Right. I think, above all other problems that 
have to be addressed, is the problem of personal net worth. 
Clearly, in order for the program to be constitutional, there 
has to be some type of parameters which define eligibility to 
the program so that you do not restrict certain businesses, 
only businesses of certain characteristics. But personal net 
worth is not that.
    It is unrelated to any industry criteria. There is no 
understanding of why it was that, where it was set. It has not 
been changed in 10 years, so $750,000 today, is actually worth 
a half million dollars. And personal net worth is closely 
related to firm revenues. So if you cap one, you cap the other.
    More importantly, personal net worth is related to bonding 
capacity. If personal net worth is too low, your ability to get 
bonding is too low.
    It is related to your ability to raise finance and capital. 
It is unrelated to, for example, if I have a company in the 
manufacturing industry or in a service industry or in a 
construction industry--I have the same personal net worth 
threshold and it is unrelated to the capital requirements of 
those different industries. It just does not make sense.
    It needs to be either eliminated altogether or supplemented 
with something else. We have been working with an alliance to 
come up with an alternative that we call ``a business 
development index'' that relates more specifically to industry 
criteria, some of the kinds of things that he was talking 
about.
    How much concentration in the industry, what is the average 
revenue, bonding requirement? Those kinds of things as a 
criteria for entry into the 8(a) program and the SDB program. 
But not personal net worth.
    It will continue to make, particularly minority businesses 
will continue to make them small. And I will just stop. I know 
I am running on and on.
    In Georgia there was an audit done of businesses in the DBE 
program and that audit indicated that 17 of those firms that 
were doing business with the Georgia Department of 
Transportation had to be graduated because their owners' 
personal net worth exceeded the limit.
    We tracked those companies on a month-to-month basis, and 
six months after they were graduated, their revenues fell by 45 
percent.
    Those companies were having all kinds of problems. That has 
to really be changed. It works counter to what the SBA really 
wants to do, and that is to grow these companies and give them 
opportunities. Personal net worth is actually working counter 
to that.
    And again I have talked to Ms. Gatling a great deal about 
that, and she has brought a lot of these issues to my attention 
particularly on the corporate sector.
    Mr. Willis. Mr. Denlinger and then Ms. Gatling.
    Mr. Denlinger. You hit the point right on the head. Your 
points are so well taken. Net worth is built into the statute 
because the statute requires that the companies prove socio and 
economic disadvantage.
    But we forget that the point was to achieve entry into the 
program, not for participation in the program. That is 
punitive. That is contrary to common business sense to limit 
net worth.
    On the entry our position for years has been the $250,000 
net worth that encourages only the smaller, least-capable 
companies coming into the program. We need companies that are 
strong. But once they are in the program, we need them to 
develop their net worth to the maximum extent possible.
    Why? So that they are bankable. So that they can get the 
capital to finance the growth of their business. When they go 
to the bank, what do the banks ask for? For the owner's net 
worth.
    The same thing for bonding. The points are very well taken. 
We need to eliminate net worth during program participation and 
go back to the original concept which is a criteria for entry 
into the program, not for continued participation in the 
program.
    Mr. Willis. Ms. Gatling.
    Ms. Gatling. Yes. From a corporate perspective, many 
corporate organizations have objectives with the SBA. What we 
are finding with the small disadvantaged business category, if 
you cap that net worth, you are looking at a small pool of 
suppliers that are eligible to assist corporate America. I mean 
all corporations.
    If you take a look at a number of these companies, they do 
not really have what we need in order to meet those objectives.
    I do agree that we need to take a look at the net worth 
cap. I am not sure what that number should be, but I believe 
that we should also look at the success of a business' 
characteristics because we have some categories that I know 
that corporate America is responsible for procuring in, such as 
women-owned businesses or HUBZones or veteran-owned businesses 
that do not have a net worth cap.
    We are finding that those companies are successful based on 
business characteristics. I think that we should look more at 
business characteristics versus a net worth cap.
    Mr. Willis. Mr. Alford.
    Mr. Alford. Mr. Wilkerson, I present to you Mr. David Kay. 
Dave, raise your hand. If you need some bonding, see Mr. Kay. 
He is a magician.
    Mr. Wilkerson. I am definitely going to go see him.
    Mr. Alford. I put my word on it.
    Small disadvantaged business they do not certify that any 
more. Does it exist actually or has it become self-
certification?
    Mr. Willis. It is self-certification.
    Mr. Alford. So it is fraud basically, right? If you self-
certify----
    Mr. Willis. There is the potential for fraud, but there is 
not necessarily fraud.
    Mr. Alford. On this net worth business in 8(a), Russell 
Kelly, please raise your hand.
    This man lost everything in Katrina. He went to apply for 
8(a) and they told him he is too rich. Lost everything. He is 
going to reapply.
    Mr. Willis. Okay.
    Mr. Alford. That is all I have to say.
    Mr. Willis. Dr. Boston.
    Dr. Boston. Just one last point. The other problem is that 
by restricting access to those programs to businesses whose 
owners fall under the personal net worth, what you end up doing 
is also having businesses that, when corporations use them, are 
using the low value chain. If, for example, an auto parts 
company or some other type of manufacturing company really 
wants a parts manufacturer, well, if they found a parts 
manufacturer, that owner's personal net worth is likely to be 
above the threshold.
    What they do, because they are obligated to meet certain 
utilization goals, they go and they might get a minority firm 
to do maintenance work or something else. So they are not in 
the real high value chain or the high value section of the 
supply chain.
    Mr. Willis. Thank you.
    Mr. Robinson.
    Mr. Robinson. I would just want to remind everyone that 
Congress is the cornerstone legislation for these programs, the 
8(a) program, 95-507. The purpose of the program is to develop 
competitively valuable companies. That is the purpose.
    I think we have lost sight of that, and one way in which 
that sight has been lost, I would suggest, is in the personal 
net worth category.
    Mr. Willis. Thank you. I will turn it over to Karen quickly 
and then we will move on to the last issue on the docket.
    Ms. Hontz. Thanks, Greg.
    Actually I am going to turn it over to Matt Walker. But 
Senator Snowe is very concerned about some of the recent GAO 
decisions that created a super preference for HUBZones.
    HUBZones, I might add, are important to Maine because Maine 
is very rural. But she feels very strongly that programs should 
not be pitted against one another, that we need to increase the 
pie for small businesses, and not fight among ourselves but get 
out there and get more business.
    There is $500 billion or more that the Federal Government 
buys in products and services every year. In fiscal year 2008, 
small businesses got about $90 billion of that. There is room 
for growth.
    Matt, would you like to expound upon that?
    Mr. Walker. Yes. I think my colleague led into it well and 
I just wanted to follow up on that. Senator Snowe worked very 
closely with Chair Landrieu as well on this provision, and as 
Karen says, it is a provision that is difficult.
    Senator Snowe realizes the importance of true parity among 
the programs and the detriment of fighting amongst the 
programs.
    One of the provisions Senator Snowe included, in addition 
to the others, would try to achieve more parity by allowing all 
of the programs to have a mentor-protege component.
    We are interested in hearing about the benefits of the 
mentor-protege program, specifically how it has worked, how it 
has not worked, and how it can be an effective tool.
    In the interest of time I am not going to dwell on this 
because I know there are other issues to get on to.
    Mr. Cotton, you and I have spoken about this in the past 
and you have spoken very eloquently to the benefits of the 
program as well as its potential. Again, while recognizing the 
limited time, maybe you can say a few brief words on this for 
the record.
    Mr. Cotton. I think that the mentor-protege program that 
the SBA, their business development mentor-protege program, is 
an excellent tool to cause capacity creation for the small 
business community, and I think it was a stroke of genius to 
offer that as a possibility through the amendment to the other 
socioeconomic groups.
    But I want to speak to that issue of parity that you 
addressed that is also a part of the amendment and address a 
question that Ms. Hontz asked earlier. What kind of solutions 
can we offer that they can consider for legislation as we move 
forward to address the problem?
    One area that I think that we should consider is taking the 
contracting authority that exists under the 8(a) program which 
resides with the SBA. The SBA becomes the contractor of record 
between the agency and allows the other programs to enjoy that 
benefit as well. It allows the small disadvantaged business 
program, women-owned business program, and the veteran business 
program to enjoy that ability.
    What that would do is produce an organic vehicle that gives 
a complete advantage to these groups because in some instances, 
it would allow them to operate at a contracting level that is 
above the commercial product tier, the commercial product buy, 
Part 8 of the FAR, and move that group, that entire population, 
out of the competitive pool where large businesses are taking 
advantage of them. I will give you more details on that in 
writing, but I think that is a good suggestion.
    Mr. Walker. Thank you very much. Again, unfortunately, we 
have got to move on.
    Mr. Denlinger. I just want to say that we very very 
strongly support that leveling of the playing field and true 
parity across the programs.
    The decision as to which program to use, in any given 
requirement is something that should reside in the contracting 
office if the contracting officer is sitting there saying I 
have goals to meet with these various programs. I am doing 
really well with 8(a). So I am going to go with HUBZone on this 
one. Or the same thing with women's preference or the veteran-
owned preference. So we really strongly support this.
    Mr. Walker. Thank you.
    Mr. Robinson. On Mr. Cotton's point relative to the 
delegation, part of the problem existing now is that SBA has 
delegated a lot of that authority to the agencies, and it no 
longer resides within SBA itself, and part of the problem when 
it was with SBA, was that it was not exercised.
    There would have to be a major overhaul in both attitude 
and personnel for that to be effectively implemented.
    Mr. Walker. Thank you.
    Greg.
    Mr. Willis. Thanks, Matt. I appreciate it.
    We are going to move pretty quickly now. One of the issues 
that has come to the forefront in the last two years has been 
the issue of building the predicate for the benefit of these 
race-conscious programs.
    I wanted to allow folks to talk about where we are with 
respect to building that predicate in response to the Rothe 
decision from last November. I also wanted to talk about some 
of the statistical evidence that can be presented concerning 
discrimination contracting, in general.
    So we will start with Mr. Alford.
    Mr. Alford. That is so overrated. Any person who just 
passed the bar exam can look at the numbers and see the 
disparate impact. The numbers I put there for federal highways 
for black contractors, some states do not even do business at 
all with federal funds.
    1.1 percent black, 1.6 percent Hispanic. Back in the mid-
1980s we were doing 8 percent. Now we are doing 1.1. And I 
think Mr. Jenkins, who is my numbers cruncher, can present data 
that would justify these programs.
    It is pretty simple if we had a Justice Department that 
would just argue for it. The data is there.
    But let me say, and Tony brought up a point about 
personnel, when the National Black Chamber of Commerce started 
in 1993, the SBA had 5,000 employees and a budget of over $900 
million. Today, they have 1,700 employees with a budget of less 
than $400 million.
    It is like Eisenhower going into a concentration camp after 
World War II. It was a mess, worse than we thought. When this 
Administration comes in, we need to get funding and build back 
the personnel who can provide good technical assistance to our 
people in the field.
    You talk about SBA in New Orleans. Is there an SBA in New 
Orleans? Three or four people maybe. It used to be 30 
something.
    Mr. Willis. Dr. Bangs.
    Dr. Bangs. In terms of local government, some of the data 
are there and some are not. In local government, our research 
finds that many local governments do not have data that they 
report on minority and women shares of contracts; and if they 
have data on minority and women shares, it is often 
exaggerated. It is inaccurate.
    Mr. Alford. We are talking Federal Government?
    Dr. Bangs. Well, yeah, but when it comes down from the 
federal and state government to local government, in terms of 
the problem at local government, a fair amount of federal money 
is spent.
    Mr. Alford. May I? If they are not keeping the data they 
are in violation of Title VI of the Civil Rights Act and should 
not receive federal funds.
    Show me a city that is not keeping the data. I will show 
you a city I would like to go see.
    Dr. Bangs. Part of the problem is that there is no federal 
monitoring investigation. There is very little federal 
monitoring investigation and enforcement of the constitutional 
laws----
    Mr. Alford. Violating the Civil Rights Act.
    Dr. Bangs. The Civil Rights Act and so on. We need a larger 
federal role in order to address the local government problem 
which is huge. The market for contracts is large at the local 
level, and minority and women businesses are getting very small 
shares and we know that because we go collect the data and 
verify the data.
    There is a huge problem. We need a larger federal role in 
addressing this problem.
    Mr. Willis. Thank you.
    Dr. Boston.
    Dr. Boston. Yes. In regards to the issue of a factual 
predicate, the first thing is, I have been an advocate for many 
many years that there should be some type of, for lack of a 
better word, a congressional commission on factual predicate 
standards because local and state governments are spending 
literally millions and millions of dollars to commission 
disparity studies, all of which do not conform to any real 
standard, and once they are done, it is no guarantee they will 
not be overruled.
    There is too much variation in the standards and 
expectations in regard to predicates.
    The second point is that with regard to the Rothe decision, 
that decision was related to the Department of Defense's 
program. I have submitted in earlier testimony, a report that 
was done that indicated using Federal Government data, that is, 
the small business data, records on 43,000 contractors with the 
Federal Government that indicated that firms that participate 
in the SDB program still encounter discrimination, that is, 
that if they were compensated based on their attributes, the 
industry that they operate in, the years that they had been in 
business and so on and so forth, if they were compensated at 
the same rate at which non-SDB firms are compensated, that 
their revenue would be $900,000 greater than it is.
    Mr. Willis. Per firm?
    Dr. Boston. Per firm, on average, it would be $900,000 
greater. That has already been submitted to the record.
    Mr. Willis. Can you resubmit that for this Congress?
    Dr. Boston. I can. I will.
    Mr. Willis. Thank you.
    Mr. Robinson. In the testimony that I will be presenting 
today, we will provide anecdotes of individual testimonies of 
discrimination in the marketplace, specifically around access 
to capital, the SBA's Special Small Business Investment 
Corporation, the lack of minority participation in that, and 
what we believe to be the exclusion of minorities from 
participation in that program.
    The issue of discrimination is absolutely imperative and 
should be established on the record. We will get that 
information.
    Mr. Willis. Can you speak a little bit more about, one of 
the issues that keeps coming up regarding access to long term 
capital for minority and women-owned firms? We held a hearing 
last Congress and I have come to the belief that access to that 
kind of mezzanine financing is the difference between 
businesses dying, and them really exploding, and what SBA had 
this morning with the SBIC program. I am going to ask Mr. 
Jordan to speak to that as well.
    But, Mr. Robinson, can you talk about that?
    Mr. Robinson. I believe that the way to get that capital to 
minority firms is through using minority firms. They tend to 
have the relationships. They tend to understand the community, 
the challenges of that community. And the problem that I have 
with SBA's program is the lack of minority participation that 
could leverage five, ten to one, the capital that those firms 
have available to them, to get out to minority communities.
    Until we have greater participation of minority firms in 
programs, in venture capital, the mezzanine capital market is 
the way you get that capital to those communities by having 
those firms who are managed and controlled by minorities 
participating in those programs.
    Mr. Willis. Mr. Jordan, a series of quick questions about 
that. The SBIC program, as I understand it, licenses firms who 
raise private capital and then leverage that capital to 
disburse to different companies. How many of those licenses are 
held by women and minorities?
    And my understanding is also, and correct me if I am wrong, 
that once someone is licensed, they have to come back and get 
approval for disbursal of capital.
    First, how many minorities and women have licenses? Second, 
how often do they get to disburse capital from the program? If 
you do not have that information right now, we want you to 
submit it for the record before the two weeks is out.
    Mr. Jordan. Sure. As you know, Mr. Willis, the SBIC does 
not fall under my personal purview but I did bring some 
statistics that specifically speak to the first part of your 
question. But I will certainly supplement those with the 
entirety of the answer.
    I brought fiscal year 2007 and 2008 data. In fiscal year 
2007, there were 2,057 businesses in the SBIC program. 
Businesses financed through the SBIC program, and 247 of them 
were minority-owned so that is 12 percent.
    In fiscal year 2008 of the 1,905 firms, 219 were minority-
owned so that is 11.5 percent. And I was told to keep in mind 
that very few businesses in the SBIC program are 50 percent 
owned by any individual.
    Since I have the microphone for just a minute, can I 
quickly speak about the 8(a) program? I will say it very 
briefly. I did not have a chance during that entire 
conversation.
    I did want to say we are extremely proud of the progress 
the 8(a) business development program has made in delivering 
true business development, growth and assistance to socially 
and economically disadvantaged small businesses.
    Over the last five years, every single socially 
disadvantaged group has seen tremendous growth in their 
participation with 8(a) contracts. It is not just one 
particular sector, but across the board.
    The 7(j) training and management assistance is something 
that we are very proud of, but we are also putting a lot of 
focus on going forward to ensure that this program, as several 
of you said, meets its mission of being a true business 
development program.
    I know the net worth issue is one that is quite contentious 
and there are certainly people on both sides of that.
    One thing that was not mentioned is that $700,000 net worth 
cap does not include equity in your home, does not include 
equity in your business.
    We are looking at changes to the 8(a) program. We hope to 
have some potential regulations out for public comment quite 
soon as well.
    Certainly all of you would be very excited to have you 
engage in that public comment process. I did just want to say 
that.
    Mr. Willis. No problem. Just as a follow-up, of the number 
of companies that were financed through the SBIC program, what 
was the average size of the deal that they do versus the size 
of non-minority firms?
    Mr. Jordan. I do not have that with me. As with the 
disbursal of capital, I get that.
    Mr. Willis. Disbursal of capital, and overall what was the 
percentage of dollars that went to minority firms? Eleven or 12 
percent of the companies were but the actual dollars that were 
disbursed to those companies.
    Mr. Jordan. Sure. I will get you those for women as well.
    Mr. Alford. Mr. Chair, while you are at it, that 12 percent 
minority, how many were black?
    Mr. Willis. We would like the breakdown of ethnic and 
racial groups as well as women.
    Mr. Denlinger.
    Mr. Denlinger. I want to kind of backup and suggest it is 
time to take a look at the broad perspective and this is 
probably a very good time to do that.
    One of the things that I see across the government is this 
chronic, knee-jerk built-in preference for large business. We 
have not broken that mentality. That culture pervades the 
Federal Government, the federal buying activity.
    Why, for example, should over 50 percent of the federal IT 
dollars go to just ten large businesses. Why? That should 
scream out to be addressed in some fashion.
    We need size standards reform so that small businesses can 
actually compete for some of that effectively. We need larger 
small businesses to be able to back up those monopolies.
    Let me talk, just a moment or two, about the ``rule of 
two.'' The ``rule of two'' is a very powerful, underutilized 
resource. The ``rule of two'' basically says that if there are 
two or more small businesses that are ready, willing, able, and 
capable of bidding out a requirement, it has to be set aside 
for small business competition.
    But between that law, in the FARs, and the actuality, a lot 
of stuff falls through the cracks. We need a bigger focus on 
fully implementing the ``rule of two.'' Let me give you an 
example.
    The Air Force in 2008 missed its small business goal of 23 
percent by seven points, achieving only slightly we will just 
say 16 percent. That is a huge deficit. That is a loss of 
billions in contracting to the small business community.
    At the same time, the Air Force is considering 
consolidation actions that take small business requirements to 
the tune of $449 million. Lump them into a large bundled 
contract that only large businesses are going to be able to 
participate in.
    So in addition to missing the goal, the Air Force is taking 
actions that will dramatically result in the reduction of the 
small business participation.
    The SBA, through one of its PCRs, procurement center 
representatives, in California said to the Air Force, not so 
fast. We see what you are doing. We know you want to 
consolidate this.
    We are going to go out there and take a look at the 
capability in the small business community so that we can 
satisfy ourselves as to whether or not there is sufficient 
capability in the small business community to keep that range 
of operation, which is $440 million in the small business 
arena. It was performed successfully by a small business over 
the period of the last contract.
    We need a sharper focus on full implementation of the 
``rule of two.'' We need size standards that enable us to break 
the large business monopoly, and we need a philosophical 
change. This Committee can lead in that regard, to break the 
monopoly of large business.
    We think about a 23 percent goal. It sounds really good. 
But the flip side of that you are saying 77 percent of the 
federal procurement dollar is the province of large business.
    Why? It makes no sense. We have agencies in the Federal 
Government that are achieving 40 and 50 percent small business 
contracting. That goal needs to be increased to at least 40 
percent.
    I hear people saying, ``It should be 25 percent or why 
bother?'' It needs to be substantially more, and we need to 
think about that in terms of breaking the monopolies that large 
businesses have. This culture that pervades our procurement 
offices all across the country is large business preference. 
Thanks.
    Mr. Willis. Dr. Boston.
    Dr. Boston. For the record I just want to let Mr. Jordan 
know the comments that I offer were not comments that were 
designed to condemn the 8(a) program.
    In fact, as a part of the same study that I will submit to 
the record, one of the things we did was to look at the 
contribution that the 8(a) and SDBs make annually to the 
economy.
    We did ask, using the methods that we use statistically, 
what is added to the economy by virtue of having these roughly 
7,000 firms participate in the program?
    We found that on an annual basis, about $6 billion and 
created about 123,000 jobs, would not be there but for that 
program. They were creating jobs in overwhelmingly high poverty 
areas of central cities. So the program is very important. In 
fact, it is why we are so interested in making sure that it 
becomes even more effective.
    The last point is that the very importance of the program 
relates to the fact that, because there are still 
discriminatory barriers in society as a whole, minority firms 
generally tend to pursue government contracts in a much larger 
percentage than is there representation among the general 
population.
    If you look at all the small business contractors, what you 
will find is that minority firms represent about 39 percent of 
all small business federal contractors, where only 18 percent 
represent society as a whole.
    The Federal Government, local, and state governments really 
become the first point of market entry. So again it was in that 
spirit that we are offering ways, we think, that would actually 
make the programs much more effective even than they are right 
now.
    Mr. Willis. Mr. Alford.
    Mr. Alford. To tie in with Dr. Boston, when the National 
Black Chamber of Commerce was incorporated in 1993, there were 
300,000 black-owned businesses doing $30 billion a year. Today 
there are over a million black-owned businesses doing over $80 
billion per year.
    Despite the growth, despite the increase in capacity and 
businesses that are ready, willing, and able, our share of the 
federal procurement dollar is shrinking year by year despite 
our continual growth.
    I want this Administration to understand that things are 
bad, and it is not your fault. These were not your numbers. You 
do not have to be defensive. We want to work with you. Do not 
think we are coming to criticize you. We know it is bad. Let us 
work as a team and turn it around.
    Mr. Willis. Mr. Robinson.
    Mr. Robinson. It is always hard coming behind Harry. One 
area that we have not touched on in the entire morning that I 
would like to get at least on the table represents another SBA 
program. That is the SBIR and STTR program, the research and 
development component of the program, and the lack of minority 
participation in that program as well.
    I would like to suggest to SBA, and I would like to talk 
with them about this, ways in which the Federal Government 
spends over $300 billion annually in research and development.
    As technology becomes an increasing important driver in the 
economy, it is going to be increasingly important that minority 
firms participate, in a significant way, in technology 
development and deployment.
    The SBIR and STTR program is not addressing that at all. I 
would suggest that some out-of-the-box thinking relative to the 
participation of minority institutions and historically black 
colleges and universities, may represent a clear platform to 
get the involvement of the minority business community involved 
in research and development at the Federal Government.
    Of all of the federal labs that are associated with 
academic institutions, no federal lab is associated with a 
historically black college or minority institution in this 
country, and thus we are out of the cycle of the research and 
development that takes place that is driving the economy.
    So I would suggest that the Committee and SBA take a very 
strong look at that issue and how we get that turned around.
    Mr. Willis. Mr. Cotton.
    Mr. Cotton. Yes. I have one thought that I think we want to 
add to the record and that is the fact that we need to start a 
dialogue on how we create a mechanism that teaches our small 
business communities how to access the market of the 21st 
century, which we know, is going to be increasingly a global 
marketplace. It is going to require a skill set which our small 
business community is demonstrating a woeful deficit in and 
that is the skill set or ability to use alliances, joint 
ventures, strategic partnerships to overcome regulatory, 
geographic barriers, cultural barriers.
    I think that we might want to talk at some point or add to 
the dialogue how we create a mechanism that is going to educate 
our small business community on preparing themselves to access 
the market of the 21st century.
    Mr. Willis. Ms. Gatling, I was about to call on you.
    Ms. Gatling. Yes. What I would like to say about that is 
that in corporate America, we have realized that there is a 
need to have more globalization with the suppliers. And one of 
the organizations that many of us belong to is the National 
Minority Supplier Development Council.
    One of the things that they have is a global link 
initiative where they have gone into other countries to 
duplicate the NMSDC model, and we found that that is working 
very well.
    As we embark on this solution, I think it is very very 
important that you bring corporate America to the table. We do 
have a Corporate Advisory Council that has been set up through 
the supplier business initiative that was started a couple of 
years ago with the Congressional Black Caucus Foundation.
    I would encourage you to tap into that. We will be happy to 
assist with bringing the right corporate partners to the table 
to get the solutions because you definitely need to have our 
input on that.
    Mr. Cotton. One last follow-on thought to this idea of 
preparing ourselves for the 21st century. One of the things 
that we also need to take a look at is that portion that the 
governments spend, that is exempt from the small business 
goaling requirements because it is that portion of the spending 
which would be a good incubator. It would be a good learning 
environment for our small business to acquire a globalization.
    Mr. Willis. Are you talking about those contracts below 
$100,000 or are you talking about overseas----
    Ms. Gatling. Designated overseas. It is in our 
recommendations.
    Mr. Cotton. Designated oversees.
    Mr. Willis. I think I have one last question for Dr. 
Boston. I have one question for SBA. But, Dr. Boston, I will 
give you the last comment before that.
    Dr. Boston. I just wanted to emphasize. We have been 
talking about small businesses. There was a U.S. Commission on 
Small Business Innovation in 2005. That commission found that 
small businesses were three times more innovative than large 
businesses and their innovations had 13 times the impact as did 
the innovations of large businesses.
    So small businesses really become the driving force of our 
economy as we go forward. Some of the figures that have been 
cited here in this panel indicate the growing importance of 
minority businesses among all small businesses.
    While we look at how many economists, and we look at 
changes that take place demographically in the workforce and do 
the projections to 2050, if you did those same kind of 
projections for the business sector, what you would find is the 
demographics of the small business sector are changing even 
more rapidly than in the workforce where minority business are 
becoming an increasingly important part of the health and 
vitality of the country.
    It really mandates that we focus on program strategies and 
policies that will be designed to create a more open, diverse 
society and a platform that all business owners can fulfill 
their potential.
    Mr. Willis. One of the issues that we have also heard a lot 
about, at least the Committee has, from small business owners 
is the lack of technical assistance from SBA's side. They 
really have had a difficult time getting the kind of management 
training and those kind of things that are supposed to be part 
of the SBA's 8(a) program, and generally, it would be nice to 
have all small businesses particularly minority small 
businesses.
    Section 4(b)(1) of the Small Business Act gives the 
Administrator the authority to appoint an Associate 
Administrator for minority small business and capital ownership 
development.
    According to the Act, the Associate Administrator shall be 
an employee of the agency but shall basically formulate and 
execute the 8(a) program and the 7(j) program.
    Is that position currently filled? Have you ever heard of 
that position?
    Mr. Jordan. Yes, it is currently filled. Joe Lodo is the 
Associate Administrator.
    Mr. Willis. We would love to hear more from him about what 
he is doing under your auspices to improve the 8(a) program.
    Mr. Jordan. Yes, absolutely, and the 7(j) training program 
as well. As you know, the President's budget included an 
increase in the 7(j) funding because we really do believe that 
effectively delivering the training and management technical 
assistance is vitally important to the true business 
development nature of the 8(a) program.
    Mr. Willis. That is good to hear. I mean we have had a 
number of complaints about the technical assistance part of the 
8(a) program, that people really are receiving it.
    Ms. Burnell.
    Ms. Burnell. Greg, to further what you were saying, part of 
the problem I see as an 8(a) business, those staff levels in 
the SBA offices, these people are working as hard as they 
possibly can. They have programs, but they just do not have the 
time or the people to get them out to us.
    We made note in the New Orleans office. I had a meeting 
with the SBA people before I came up here. In 1985 or 1986 
there were over 100 people in the office. Today they have 
seven.
    Now they are being asked to do things with HUBZones and go 
out and do site visits and verify payrolls. All of these 
programs are great, but you need people to help implement them, 
not just putting them on paper and handing it to the SBA 
because those same seven people that we work with in New 
Orleans, cannot deliver all the products.
    So that is why you get complaints. Some of the programs are 
there. There is just nobody to implement them.
    Mr. Willis. In our budget we definitely have asked for 
increases, and we will continue to do that.
    Royalyn, and then I am going to turn to Karen and then we 
will close.
    Ms. Reid. Mine is very quick. I just want to say in my 
area, in the Dallas-Fort Worth, Texas, area, we experienced the 
exact same problem that Ms. Burnell mentioned.
    Mr. Alford. In the field there is no SBA literally. In 
effect, I should say there is no SBA in the field.
    Ms. Hontz. Since I get the last word, I really want to 
thank all of you for coming today and spending the time and for 
all of your preparation. I look forward to your submissions and 
additional suggestions for the record that we can study.
    We know the old problems. You have brought up some new 
problems. We would like some new solutions to these problems.
    Again thank you so much for your time.
    Mr. Willis. As a reminder, the record will be open for two 
weeks. Please submit any documents by then, by close of 
business on Thursday, October 8.
    Thank you for your participation.
    [Whereupon, at 11:58 a.m., the Committee was adjourned.]


                      APPENDIX MATERIAL SUBMITTED

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