[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]


 
  PROFESSIONAL SERVICES: PROPOSED CHANGES TO THE SMALL BUSINESS SIZE 
                               STANDARDS

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

                                HEARING

                               before the

        SUBCOMMITTEE ON ECONOMIC GROWTH, CAPITAL ACCESS AND TAX

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                              MAY 5, 2011

                               __________



                                [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               


            Small Business Committee Document Number 112-012
          Available via the GPO Website: http://www.fdsys.gov




                  U.S. GOVERNMENT PRINTING OFFICE
66-748                    WASHINGTON : 2011
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202ï¿½09512ï¿½091800, or 866ï¿½09512ï¿½091800 (toll-free). E-mail, [email protected].  

                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                       ROSCOE BARTLETT, Maryland
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                      CHUCK FLEISCHMANN, Tennessee
                         JEFF LANDRY, Louisiana
                   JAIME HERRERA BEUTLER, Washington
                          ALLEN WEST, Florida
                     RENEE ELLMERS, North Carolina
                          JOE WALSH, Illinois
                       LOU BARLETTA, Pennsylvania
                        RICHARD HANNA, New York
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        MARK CRITZ, Pennsylvania
                      JASON ALTMIRE, Pennsylvania
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                     DAVID CICILLINE, Rhode Island
                       CEDRIC RICHMOND, Louisiana
                         GARY PETERS, Michigan
                          BILL OWENS, New York
                      BILL KEATING, Massachusetts

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page

                           OPENING STATEMENTS

Hon. Joe Walsh...................................................     1
Hon. Kurt Schrader...............................................     3

                               WITNESSES

Mr. Walter J. Hainsfurther, FAIA, President, Kurtz Associates 
  Architects, Des Plaines, IL....................................     5
Mr. John Woods, Woods Peacock Engineering Consultants, 
  Alexandria, Virginia...........................................    13
Mr. Roger Jordan, Vice President, Professional Services Council, 
  Arlington, Virginia............................................    25
Mr. Odysseus Lanier, Partner, McConnell Jones Lanier & Murphy 
  LLP, Houston, TX...............................................    35

                                APPENDIX

Question for the Record:
    Hon. Yvette Clarke...........................................    55

Responses for the Record:
    Mr. Walter J. Hainsfurther, FAIA, President, Kurtz Associates 
      Architects, Des Plaines, IL................................    61
    Mr. John Woods, Woods Peacock Engineering Consultants, 
      Alexandria, Virginia.......................................    56
    Mr. Roger Jordan, Vice President, Professional Services 
      Council, Arlington, Virginia...............................    59
    Mr. Odysseus Lanier, Partner, McConnell Jones Lanier & Murphy 
      LLP, Houston, TX...........................................    60

Statements for the Record:
    American Institute of CPAs Firm Segment Revenues Letter......    44
    American Society of Landscape Architects.....................    63

Additional Materials for the Record:
    Chairman Walsh letter to Dr. Khem R. Sharma, Chief of the 
      Size Standards Division of the U.S. Small Business 
      Administration.............................................    67


    HEARING ON PROFESSIONAL SERVICES: PROPOSED CHANGES TO THE SMALL 
                        BUSINESS SIZE STANDARDS

                              ----------                              


                         THURSDAY, MAY 5, 2011

              House of Representatives,    
                   Committee on Small Business,    
                   Subcommittee on Economic Growth,
                                    Capital Access and Tax,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2360, Rayburn House Office Building. Hon. Joe Walsh 
[chairman of the Subcommittee].
    Present: Representatives Walsh, Schrader, Clarke, Chu, 
Cicilline, Mulvaney.
    Chairman Walsh. Okay. Good morning, everyone. Thank you for 
joining us. The hearing will now come to order. Welcome.
    The issue before the Subcommittee this morning lies at the 
core of small business issues. Who exactly is a small business? 
The answer determines whether a company is eligible for capital 
or entrepreneurial assistance from the SBA and whether the 
company can compete as a small business in the $500 billion 
government contracts market. SBA is trying to take an objective 
and analytical approach to this question and is revising all of 
its size standards over the next five years.
    Today we are looking at the size standards SBA is proposing 
for the scientific, technical, and professional services 
industries. These include the legal services, accounting, and 
tax preparation services; architectural and engineering 
services; computer systems; related services; management 
services; and advertising today. There is a joke that if you 
ask any business, they will tell you that they are definitely 
small but that their next largest competitor is clearly large. 
The difference between being small and large in the government 
contracting market has very real consequences.
    In 2010, over $150 billion in federal prime contracts were 
awarded in the professional services industries, over a quarter 
of all federal contracts. Over 32 billion of these dollars went 
to small businesses. That is nearly one-third of the $109 
billion in prime contracts awarded to small businesses that 
year.
    Clearly, determining who a small business is in these 
industries is very important. SBA's proposed rule would 
increase the number of small businesses in this category by 
9,450 firms, which represents 1.2 percent of total firms in the 
affected industries. While this may seem like a small number in 
some industries, such as architecture, over 98 percent of 
businesses would qualify as small. Indeed, some small 
businesses would see their size standard increase by 400 
percent. That is massive growth.
    It is my understanding that some of our witnesses today are 
going to talk about what that will mean to their industry. In 
contrast, firms in the computer systems design industries are 
only seeing an increase of two percent, even though those 
industries have seen major changes in the past few years. I am 
looking forward to our witnesses' comments on these issues as 
well.
    Another topic I hope our witnesses will address is whether 
the SBA should proceed with its proposal to reduce the number 
of size standards. Currently, SBA has 41 size standards based 
on receipts, number of employees or other industry-specific 
factors. Thirty of the current standards, including the 
standards we are discussing today, are receipt-based. When the 
SBA proposes a size standard, it looks at industry factors, 
such as average firm size, start-up costs, entry barriers, 
industry competition, distribution of firms by size, and 
success in the government contracting marketplace. The 
resulting number then would become one of its size standards.
    SBA is now proposing that there only be eight receipt-based 
standards and that each industry be put in the closest 
appropriate standard. These new standards would range from $5 
million up to $35.5 million. Since the old standards started at 
$755,000 and went to 35.5 million, I am curious as to whether 
the new standards really fit all of the industries as well as 
the old size standards did. We seem to have cut out the truly 
small size standards. Will limiting the number of size 
standards simplify the size standard process or will it unduly 
constrain SBA and keep them from developing industry-specific 
size standards? If moving to a set number of size standards is 
a good idea, are these the appropriate standards? Likewise, SBA 
is proposing grouping related industries into common size 
standards.
    I know that two of our witnesses today, being architects, 
would now be sharing a size standard along with seven other 
industries. Does this make your life simpler? Presumably, 
smaller businesses are less likely to participate in more than 
one industry so such a proposal might favor larger businesses. 
However, given that the industries are so closely related, 
removing the confusion as to which code is appropriate may 
assist small businesses attempting to identify federal 
contracting opportunities. Additionally, a single industry 
standard would not allow contracting officers to choose a code 
in order to include or exclude certain companies. So this would 
reduce the number of protests filed over the incorrect NAICS 
code being used.
    Finally, I want to hear how changes are being managed in 
the size standard program. I know that SBA is required by law 
to review all of its size standards in the next five years, but 
I do not want to see changes rushed at the expense of small 
businesses. I understand that some of the witnesses here today 
believe they need more time to study the effects of this 
proposed rule and I would like to learn more about that.
    I look forward to hearing from our witnesses today. I am 
especially pleased to welcome another Illinoisan, Walter 
Hainsfurther of Kurtz Associates Architects, who is testifying 
on behalf of the American Institute of Architects.
    I also want to welcome John Woods of Woods Peacock 
Engineering Consultants, testifying on behalf of the American 
Council of Engineering Companies. And Roger Jordan, vice 
president, the Professional Services Council. I am certain you 
will help us all have a better understanding of these issues.
    I now would like to recognize Ranking Member Schrader for 
his opening statement.
    Mr. Schrader. Thank you, Mr. Chairman. I appreciate it.
    Comprising the vast majority of employer firms and creating 
two-thirds of new jobs, small businesses are critical to our 
United States economy. Recognizing the importance of small 
firms' growth and job creation, Congress has created a lot of 
programs--federal programs, set-asides, tax preferences, and 
SBA loan programs--to help these small businesses succeed. 
However, as a result of that it has led to a very heated debate 
over what actually constitutes a small business. What is the 
appropriate size as the chair indicated?
    The federal benefits at stake are substantial. Last year, 
small business firms accessed over $15 billion in capital 
through the SBA's loan programs. Many entrepreneurs used these 
loan proceeds to keep their doors open in these tough times, 
retain employees, and hopefully, start to create some new jobs. 
The SBIR and STTR programs provide billions to small firms 
involved in cutting edge research to develop the next new 
innovative technology for our great country.
    The SBA's entrepreneurial programs and other technical 
assistance can help firms develop a business plan and hopefully 
find some new customers. How we define a small business even 
affects the regulatory process and what they are subject to. 
The Regulatory Flexibility Act requires agencies to assess 
whether the rule they are contemplating would have significant 
economic impact on a substantial number of small entities. If a 
business is not considered small, agencies are under no 
requirement to review the impact that regulatory changes would 
have on small firms.
    Since SBA's inception, it has struggled to find a numerical 
definition for small businesses on an industry-by-industry 
basis. On five separate occasions, as the chair alluded to, 
between 1980 and 2008, the Agency has proposed a comprehensive 
revision of its size standards. However, these proposals were 
never fully implemented due to concerns that the changes would 
unfairly strip many small businesses of their eligibility. In 
these budget-limited times, perhaps we have a different 
problem.
    So the result has been a confusing, sometimes unfair, 
patchwork of regulations. The current system consisting of the 
42 different levels covering over 1,000 different industries is 
complex. Thirty-one of these size levels are based on average 
annual receipts, eight count a firm's number of employees, 
while three rely on other metrics altogether. In addition, the 
SBA has established 11 other size standards for its financial 
and procurement programs. Multiple industry groups have raised 
concerns that the complexity of the current size standards 
result in legitimate small businesses losing federal 
opportunities. I think again in these budget-limited times with 
less dollars available probably in the SBA budget it is time to 
revisit the issue.
    Under the authority of the Small Business Jobs Act of 2010 
passed in the last Congress, the SBA has issued proposed 
standards changes for a number of industries in the 
professional services, architect, and engineering section. In 
the proposal, the SBA has taken a number of steps to streamline 
and simplify the standards, theoretically to help firms and 
federal agencies determine who qualifies for a small business 
loan accurately and quickly. These changes include reducing 
number and size limits from 31 to 8. The proposal also groups 
industries, as the chair said, under a common size standard. 
And while there is a lot of consensus on improving the system, 
the question is are these the right ways to improve it?
    Today we will examine how current size standards are 
applied in the real world, hopefully as a result of this panel. 
We will also hear from industries that will be directly 
affected by SBA's proposed changes and help guide our 
decisions. It is my hope the SBA has learned from past failures 
and taken industry as well as congressional concerns into 
account when drafting the proposal. And I imagine I will hear 
that here.
    In advance of the testimony I want to thank all the 
witnesses who have traveled here for their participation and 
insights on this important topic.

STATEMENTS OF WALTER HAINSFURTHER, PRESIDENT, KURTZ ASSOCIATES 
 ARCHITECTS ON BEHALF OF THE AMERICAN INSTITUTE OF ARCHITECTS; 
 JOHN WOODS, OWNER, WOODS PEACOCK ENGINEERING CONSULTANTS, ON 
BEHALF OF THE AMERICAN COUNCIL OF ENGINEERING COMPANIES; ROGER 
JORDAN, VICE PRESIDENT, PROFESSIONAL SERVICES COUNCIL; ODYSSEUS 
  LANIER, PARTNER, MCCONNELL JONES LANIER AND MURPHY, LLC, ON 
     BEHALF OF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC 
                          ACCOUNTANTS

    Mr. Schrader. And do you want me to introduce the other 
witness at this time, Mr. Chair?
    Chairman Walsh. Yes, do. But let me also say how pleased I 
am to have Mr. Lanier here, as well.
    Mr. Schrader. It was my job to introduce you, Mr. Lanier. 
The chair did not forget you.
    Chairman Walsh. We both want to introduce you. And you can 
when we get to him.
    If Committee members have an opening statement prepared, I 
ask that they be submitted for the record. You will each have 
five minutes to testify. Do your best to keep it to five 
minutes, though I will be as lenient as I can be. So welcome to 
all four of you.
    We will begin with our first witness, again, Mr. 
Hainsfurther, who is testifying on behalf of the American 
Institute of Architects. He is the president of Associates 
Architects, a seven-person firm based in Des Plains, Illinois, 
and former national vice president of the American Institute of 
Architects.
    Mr. Hainsfurther, I look forward to your testimony.

                STATEMENT OF WALTER HAINSFURTHER

    Mr. Hainsfurther. Thank you, Mr. Chairman.
    Chairman Walsh, Ranking Member Schrader, and members of the 
Committee. My name is Walter J. Hainsfurther, FAIA. I am 
president of Kurtz Associates Architects, a seven-person 
architectural firm based in Des Plains, Illinois, and a former 
national vice president of the American Institute of 
Architects.
    As I mentioned to the chair on the way in, I have also over 
my 30 years of practice done a number of projects not only in 
the chairman's district but throughout the Chicago area. I want 
to thank you for the opportunity today to testify on behalf of 
my firm and the 76,000 members of the American Institute of 
Architects.
    The current economic crisis has affected every American but 
as this Committee knows all too well, it has hit small 
businesses, like mine, particularly hard. Billings at my 
company are down 80 percent from two years ago. I have gone 
from a firm of 25 architects five years ago down to five 
architects today. I personally have not taken a salary in two 
years so that I can keep the lights on and pay my employees.
    Architects are, by and large, small business people. 
Ninety-five percent of U.S. architecture firms employ 50 people 
or less. In fact, the vast majority practice in one or two 
person firms. They are truly the engine that drives the design 
and construction industry.
    The AIA wants to work together with the SBA to help 
American small businesses come out of this recession. When the 
SBA makes changes to its small business standards, AIA members 
pay attention. The SBA's goal is to ease the administrative 
oversight by limiting the number of exemptions from standards 
and reduce the number of levels that they have for small 
business. The SBA also wants to increase the number of 
businesses that qualify as a small business and has proposed to 
increase the size standards accordingly. Their analysis states 
that it will increase the number of businesses that qualify for 
SBA programs from 35 percent to 41 percent, but for our members 
it has a far different effect.
    The AIA estimates that over 91 percent of architecture 
firms fall under the current $4.5 million standard. If the 
standard is raised to $19 million, over 97 percent of the firms 
will qualify as a small business. The proposed standard is 
being increased 322 percent, which would encompass not just a 
majority but almost every architectural firm in this country. 
In short, the SBA is asking firms that have five employees, 
like mine, to compete against those that have over 50. As you 
can see, the SBA's goal of increasing participation in the 
architectural market is too broad and their proposal has 
overreached.
    The consensus is clear among AIA members that the proposed 
increase in the threshold is high. The AIA is continuing to 
gather comments from our members on the proper recommendation 
to make to the SBA. However, the AIA represents over 76,000 
architects, intern architects, and allied professionals, and 
many will be impacted by these changes. To find the best 
recommendation for SBA, we ask the Committee to join with us in 
encouraging the SBA to extend the response period. We would 
appreciate at least another 60 days to continue to gather and 
compile information from our members so that the SBA can make 
the best decision using the most accurate data possible.
    We have two requests outside of the size standards for the 
Committee. The first is the review of the revenue calculation 
for architecture firms. In the past, AIA members have stated 
that over 50 percent of their gross revenue can be attributed 
to payments that flow through to subcontractors. Those payments 
affect the firm's gross revenue number but are not actually 
part of the firm's revenue. The second issue is whether SBA's 
use of receipts is appropriate for architecture firms.
    As you can tell, architecture firms can be extremely small, 
and in fact, in the recession, more small firms are created 
instead of consolidating. As people lose their jobs, they hang 
out their shingles. Net receipts may not accurately represent 
this situation as well as the number of employees. We believe 
that net receipts for these two reasons may not be the best 
metric to determine small businesses sizes. We ask the 
Committee for further review.
    In conclusion, I would like to thank Chairman Walsh, 
Ranking Member Schrader, and the members of the Committee for 
giving me the opportunity to testify before you today. I want 
to commend you for your dedication to the problems that small 
businesses face in this economy and for your leadership in 
advancing legislation that helps small businesses drive the 
economy. The challenges that we as small business people face 
are serious, but so is our commitment to play a leading role in 
rebuilding and renewing our country. Thank you very much.
    [The statement of Mr. Hainsfurther follows:]

    [GRAPHIC] [TIFF OMITTED] T6748A.001
    
    [GRAPHIC] [TIFF OMITTED] T6748A.002
    
    [GRAPHIC] [TIFF OMITTED] T6748A.003
    
    [GRAPHIC] [TIFF OMITTED] T6748A.004
    
    [GRAPHIC] [TIFF OMITTED] T6748A.005
    
    [GRAPHIC] [TIFF OMITTED] T6748A.006
    
    Chairman Walsh. Thank you, Mr. Hainsfurther.
    Our second witness is John Woods, testifying on behalf of 
the American Council of Engineering Companies. Mr. Woods is the 
founder and principal of Woods Peacock Engineering Consultants, 
Inc., a service-disabled veteran-owned small business that 
provides structural engineering services in Alexandria, 
Virginia.
    Welcome, Mr. Woods. I look forward to your testimony.

                    STATEMENT OF JOHN WOODS

    Mr. Woods. Thank you, Chairman Walsh, Ranking Member 
Schrader, and members of the Subcommittee. I appreciate the 
opportunity to testify before you today about the changes to 
small business size standards, particularly the unique 
considerations of A&E services. I will also address factors 
that must be considered when SBA proposes changing the small 
business size standard by 400 percent.
    I represent the American Council of Engineering Companies, 
the voice of America's engineering industry, with almost 6,000 
member firms employing more than 500,000 engineers and other 
professionals responsible for $500 billion of private and 
public works annually. Over 70 percent of these 6,000 firms are 
small businesses with less than 30 employees.
    As ACEC members are working as we speak to better 
understand the rationale behind the SBA proposal, it has become 
very apparent that we need an extension of more than the 
present two months and the comment period identified by SBA. We 
must review their 16-month analysis to develop alternative 
approaches and consider the effects on future competition, QBS 
use, and current small firm finances and contracting 
opportunities.
    ACEC asks for your consideration and support of a September 
30, 2011, extension. We would like to draw your attention to a 
number of key issues. First, the actual use of engineering 
firms of varying sizes is unknown. If the proposed rule is put 
into place using the demographics of ACEC membership, more than 
90 percent of the nation's engineering industry, up from 70 
percent from now, would be classified as small business. Data 
needs to be collected to better aggregate firms of various 
sizes doing responsible work based on many requirements, 
including licensure, regardless of contracting tier.
    A second key point, the size standard, ACEC policies of 
encouraging small firm participation in the federal sector 
should reflect the fact that small firms are an integral part 
of teams submitting on federal work and selected under QBS for 
their capabilities. The qualifications and responsibilities of 
each firm member are clearly delineated in the proposal they 
submit to the Agency when competing for contracts.
    A&E firms provide services in the very technical 
disciplines of architecture, mechanical, electrical, civil, 
structural, and other engineering. All states require 
professional licenses for the individuals performing this work, 
as well as for their firm. Like my Commonwealth of Virginia, 
the majority ownership of the firm must be licensed in the 
Commonwealth.
    Firm size and capabilities are also controlled by the 
interests of professionals and their firm business model as by 
the opportunities available to them. Many firms remained 
specialized and small for decades by intent. Selection boards 
consider all capabilities of all team member firms like ours 
when ranking firms under the qualifications selection. The team 
selected is required to perform the work with the proposed team 
individuals under contract.
    A third key point, these responsible roles are not 
reflected in small business goal achievement by federal 
agencies and revenue data is not available to SBA for assessing 
government small business utilization when analyzing size 
standards, for engineering services, team formation, and 
responsible roles go far beyond tracking prime contract awards 
with only census data. The size standard discussion is 
influenced by the impact of increased costs and pass-through 
revenues for small firms serving federal clients. The SBA 
proposal also does not take into account small business size 
standards under other regulations, such as labor, family leave, 
health insurance, defense contracting auditing, to name a few.
    A fourth key point, more effective small business 
utilization would be achieved through the development and 
retention of a contracting work force that understands A&E's 
services and procurement rules. The insufficient number of 
contracting personnel often without experiencing in procuring 
A&E services or the industry has created a basis for large 
contracts that require full service, large national firms to 
win and perform the work.
    Finally, the current small business program establishes 
subcontract goals for small businesses based on a percent of 
work subcontracted. A better approach would be to establish the 
business subcontracting goals based on a percentage of funded 
prime contract dollar value, which would keep the proposed 
roles and easily resolve usage if all roles were not used. The 
change would eliminate the absorption of functions by the prime 
contractor resulting in no work for the tier small contractor.
    I thank the Subcommittee for the privilege and opportunity 
to address the A&E industries with the proposed size standards 
and I welcome any questions.
    [The statement of Mr. Woods follows:] 

    [GRAPHIC] [TIFF OMITTED] T6748A.007
    
    [GRAPHIC] [TIFF OMITTED] T6748A.008
    
    [GRAPHIC] [TIFF OMITTED] T6748A.009
    
    [GRAPHIC] [TIFF OMITTED] T6748A.010
    
    [GRAPHIC] [TIFF OMITTED] T6748A.011
    
    [GRAPHIC] [TIFF OMITTED] T6748A.012
    
    [GRAPHIC] [TIFF OMITTED] T6748A.013
    
    [GRAPHIC] [TIFF OMITTED] T6748A.014
    
    [GRAPHIC] [TIFF OMITTED] T6748A.015
    
    [GRAPHIC] [TIFF OMITTED] T6748A.016
    
    Chairman Walsh. Thank you, Mr. Woods.
    Our third witness is Roger Jordan of the Professional 
Services Council. The Professional Services Council is the 
national trade association of the government professional and 
technical services industry.
    Mr. Jordan, we look forward to your testimony.

                   STATEMENT OF ROGER JORDAN

    Mr. Jordan. Chairman Walsh, Ranking Member Schrader, and 
members of the Subcommittee, thank you for the invitation to 
testify and the opportunity to discuss small business size 
standards today.
    When debates about industry size standards occur, often 
there is very little agreement. Very small businesses tend to 
advocate for lower size standards, companies operating in the 
middle of their industry size standards tend to advocate for 
status quo, and companies that are approaching are slightly 
above their size standard seek a higher level.
    The reason for the varied opinions is simple. Companies 
have a keen interest in maximizing their ability to compete for 
and win federal contracts that are exclusively set aside for 
small business competition. Given the significant increase in 
federal spending on services over the past decade there is much 
to be gained competitively from qualifying as a small business. 
Adding fuel to the debate around size standards is the fact 
that the federal government lacks policies regarding 
contractors operating in the mid-tier. That is, firms that were 
once eligible to receive small business set-asides but whose 
revenues now exceed the size standard if even by only one 
dollar. If SBA policy is not only to create federal contracting 
opportunities for small businesses but also to ensure long-term 
success and a sustainable growth pattern, then the plight of 
small businesses that graduate from their industry size 
standard should not be ignored and Congress should explore 
operations that will alleviate this binary approach and 
incentivize contracting opportunities for mid-tier businesses.
    During its evaluation, SBA relied on five equally weighted 
major factors to determine the proposed size standards, one of 
which is the impact on federal contracting and SBA loan 
programs. However, PSC recommends that greater weight should be 
given to the impact on federal contracting. In addition, SBA 
should broaden its evaluation of the federal contracting market 
to examine barriers to entry into the federal marketplace, not 
just the commercial space. This, in fact, might encourage SBA 
to reconsider the merits of adopting separate size standards 
for the purposes of federal contracting. The adverse impact on 
small businesses of a single size standard that covers federal 
procurement and all other SBA programs is documented in SBA's 
own methodology in which it acknowledges that the disparity 
between small business federal market share and industry-wide 
share may be attributed to a variety of reasons, such as 
extensive administrative and compliance requirements associated 
with federal procurement, the different skill sets required by 
federal contracts, and the size specific contractor 
requirements of federal customers.
    That said, our members have not widely reported significant 
heartburn with many of the proposed increases to the size 
standards as many size standards were increased from 7 to 
either 10 or 14 million, which will provide much needed 
flexibility for small firms to mature. There are, however, 
proposals for two areas, architectural engineering services and 
computer-related services, that require greater scrutiny.
    As my fellow panelists have already highlighted, the 
proposed size standard for A&E ballooned, which begs the 
question of what has changed so dramatically in that specific 
industry over the years to warrant a quadrupling of the size 
standard. In contrast, computer-related services have undergone 
significant changes over the last 20 years, yet SBA proposed 
raising size standards for those categories only by $500,000. 
In addition, SBA established common size standards for 
industries that share similar characteristics. According to the 
SBA, these common size standards reflect cases where many of 
the same businesses operate in multiple industries. This led 
SBA to establish a common size standard for a number of 
computer-related industries, even though the industry data 
supported a distinct size standard for each industry. For 
example, SBA analysis shows the computer facilities management 
services had a calculated industry-specific size standard of 
35.5 million. Yet, by establishing a common size standard 
containing this category and other computer-related categories 
at a level of 25.5 million, SBA has eliminated legitimate small 
businesses from being able to qualify.
    In summary, PSC recommends the following. With specific 
regard to the size standard proposal, PSC recommends that SBA 
give more weight to the impact on federal contracting factor 
and broaden its analysis with specific federal market dynamics 
that distinguish the federal market from the commercial space. 
Taking this recommendation further, SBA should consider 
creating a completely separate set of size standards to be used 
for federal procurement purposes only. In addition, SBA should 
review its policies regarding the creation of common size 
standards. Under the proposed rule, the use of common size 
standards will eliminate small businesses from competition; 
whereas if the individual industry size standard had been 
adopted, then all small businesses would be able to compete.
    Beyond the common rulemaking process, SBA and Congress 
should support new and ongoing initiatives to incentivize 
contracting opportunities from mid-tier businesses to ensure 
that growing small businesses are provided at minimum some 
protection before having to always compete with large 
businesses.
    Lastly, Congress should provide a necessary oversight of 
SBA to ensure that it is abiding by the provisions enacted in 
last year's Small Business Jobs Creation Act that require SBA 
to review and update the size standards every five years at 
minimum.
    Mr. Chairman, this concludes my testimony. Thank you for 
inviting PSC to testify today and for your attention to this 
important matter. I would be happy to answer any questions that 
you may have.
    [The statement of Mr. Jordan follows:] 

    [GRAPHIC] [TIFF OMITTED] T6748A.017
    
    [GRAPHIC] [TIFF OMITTED] T6748A.018
    
    [GRAPHIC] [TIFF OMITTED] T6748A.019
    
    [GRAPHIC] [TIFF OMITTED] T6748A.020
    
    [GRAPHIC] [TIFF OMITTED] T6748A.021
    
    [GRAPHIC] [TIFF OMITTED] T6748A.022
    
    [GRAPHIC] [TIFF OMITTED] T6748A.023
    
    [GRAPHIC] [TIFF OMITTED] T6748A.024
    
    Chairman Walsh. Thank you, Mr. Jordan.
    I now yield to Ranking Member Schrader, who will introduce 
our next witness.
    Mr. Schrader. Thank you, Mr. Chairman.
    It is my pleasure to introduce Mr. Odysseus Lanier, one of 
the four founding partners in McConnell Jones Lanier and 
Murphy, LLP. Over 180 full-time employees. That is great. Three 
office locations. Mr. Lanier's firm is the third largest 
African-American-owned accounting and consulting firm in the 
United States. Mr. Lanier also--I hope I am getting the name 
correct. Am I close enough?
    Mr. Lanier. You are correct.
    Mr. Schrader. Thank you. I hate to keep repeating the wrong 
name.
    Mr. Lanier. You are okay. You are okay.
    Mr. Schrader. Mr. Lanier leads the firm's Federal Services 
Group, which specializes in working with federal, state, and 
local government agencies, much needed service by providing 
strategic planning, financial management, and operations review 
and support services. With more than 33 years of professional 
experience, he has extensive knowledge of federal, state, and 
local procurement policy, procurement strategies, contracting 
processes, and process improvement projects. So we look forward 
to your comments in particular. Welcome, Mr. Lanier.

                  STATEMENT OF ODYSSEUS LANIER

    Mr. Lanier. Thank you very much. Good morning, Chairman 
Walsh, Ranking Member Schrader, and members of the 
Subcommittee.
    Thank you for the opportunity to appear at today's hearing. 
My name is Odysseus Lanier and I am a CPA. I am a partner with 
the firm of McConnell Jones Lanier and Murphy, located in 
Houston, Texas. As Ranking Member Schrader has stated, there 
are 180 professionals in my firm and we have annual revenues of 
$17 million. I lead my firm's Federal Services Group and 
specialize, as you said, in working with federal, state, and 
local government.
    I am here--I am pleased today to be testifying on behalf of 
the American Institute of Certified Public Accountants, of 
which I am a member. I am specifically here though to discuss a 
suitable small business size standard for NAICS's 541211, 
Offices of Certified Public Accountants, and 541219, Other 
Accounting Services, as they most directly affect the work 
performed for the federal government by CPA firms.
    We comment the SBA for undertaking a comprehensive review 
of the existing small business size standards and 
thoughtfully--I want to emphasize thoughtfully--applying a 
statistically valid methodology which would raise the current 
standard from $8.5 million to $14 million in receipts.
    During a recent meeting I attended with representatives of 
the AICPA, other CPAs, and the SBA Size Standard team, it 
became evident that the data used by the SBA did not adequately 
reflect the accounting profession. As a result of that meeting, 
the American Institute of CPAs provided the SBA alternative 
data compiled from surveys of CPA firms conducted by the AICPA 
and an industry publication. Taking the AICPA's data and using 
the SBA's size standard methodology, I calculated that a more 
appropriate standard would be at a minimum $19 million in 
receipts.
    Beyond these objective data-driven calculations warranting 
an increase from $14 million to $19 million, the AICPA proposes 
increasing the small business size standard to $25.5 million to 
compensate for other secondary factors in the middle market 
that affect the ability of small accounting firms to 
effectively compete for contracts in the federal marketplace. 
Importantly, two of those factors are primarily driven by 
discussions and suggested changes over the years in federal 
government procurement policy, an acquisition policy to reduce 
the number of vendors and increase the size of federal 
procurements. As you know, we are talking about reducing 
government.
    And also, the current use of the sources sought and request 
for information notices to literally determine if contractors 
are qualified prior to issuing an RFP as part of an acquisition 
planning strategy. Importantly, to fully capture the small 
accounting firms that have the adequate resources in 
infrastructure, personnel, and cash flow to properly perform 
services in the federal arena reserved for just small business 
contractors, we believe the size limit would need to be raised 
to $25.5 million. This higher limit is necessary to promote 
growth of these small accounting firms and to avoid this 
arbitrary cutoff in the middle of the market segment where a 
firm would quickly outgrow a lower size standard and be forced 
to compete most likely and most unsuccessfully with the largest 
firms. And the nuance in our business is the largest firms are 
the big four, which average about $6.8 billion in revenue. 
Seventeen million dollars does not compete with 6 billion 
dollars when you classify it as large.
    Let me talk a moment about my own firm as an illustration. 
When my partners and I formed our firm in 1999, having begun 
our businesses on the proverbial kitchen tables several years 
earlier, we had 28 full-time employees, no federal contracts, 
and a single-minded focus to build one of the largest African-
American-owned accounting and consulting firms in the United 
States. In 2003, we were awarded our first federal contract, 
had 42 employees, and only $4.5 million in revenue. Over that 
time, we have not taken money out. We have made substantial 
investments in business development and back office 
infrastructure and technology, and proudly serve the federal, 
state, and local government markets.
    But, by 2008, we exceeded the SBA's $8.5 million size 
standard limit. Since then we have had to complete for federal 
contracts as a large business and have not been nearly as 
successful because the infrastructure required to support our 
$14 to $16 million in revenues pales in comparison to the 
infrastructure of our competitors; firms, who have from $358 
million to $10 billion in revenue and are 20 to 500 times 
larger than we are. Not surprisingly, our firm and other small 
firms like ours are finding it virtually impossible to compete 
in a federal market unless the SBA implements a significantly 
larger small business size standard.
    I encourage the Subcommittee to urge the SBA to revisit the 
small business size standard for NAICS 541211, Offices of 
Certified Public Accountants, and 541219, Other Accounting 
Services, and consider the factors I have discussed. It is 
widely recognized, as we all know, that small business is an 
important component in the economic health of our country. It 
is the engine that drives this economy. Why would you want to 
cut out a segment of the industry that would be able to provide 
value to the federal government as a small business? An 
increase in the small business size standard to $25.5 million 
will result in more opportunities for small accounting firms to 
provide federal agencies with high quality, value-added 
services, while at the same time fueling our economy.
    Thank you again for the opportunity to come and testify at 
today's hearing. And I look forward to your questions.
    [The statement of Mr. Lanier follows:]

    [GRAPHIC] [TIFF OMITTED] T6748A.025
    
    [GRAPHIC] [TIFF OMITTED] T6748A.026
    
    [GRAPHIC] [TIFF OMITTED] T6748A.027
    
    [GRAPHIC] [TIFF OMITTED] T6748A.028
    
    [GRAPHIC] [TIFF OMITTED] T6748A.029
    
    [GRAPHIC] [TIFF OMITTED] T6748A.030
    
    [GRAPHIC] [TIFF OMITTED] T6748A.031
    
    [GRAPHIC] [TIFF OMITTED] T6748A.032
    
    [GRAPHIC] [TIFF OMITTED] T6748A.033
    
    Chairman Walsh. Thank you, Mr. Lanier. We are actually 
going to have to go run and vote on the floor. It looks like 
about--it looks like a couple votes. So why do not we adjourn 
for about 30 minutes and we will reconvene after the votes.
    [Recess.]
    Chairman Walsh. Okay. We are back. We just voted to save 
the world. Now we are back. The Committee will reconvene. I 
will begin my five minutes of questioning and then I will yield 
to the ranking member.
    My first question is really directed to the entire panel. 
This is a complicated issue and each of your industries has 
unique issues and problems. Give me your sense, as you have 
been approaching these issues, as to how the SBA has been to 
work with. Have they been receptive to your concerns, your 
comments?
    Mr. Lanier, let us start with you and we will work our way 
down.
    Mr. Lanier. Okay. I will be glad to answer that question.
    You know, in my testimony I indicated that we had had a 
meeting with the SBA Size Standard office, and I will tell you 
they have been receptive to our comments. And in fact, 
encouraged us to follow the entire rule-making process and make 
sure that we got them back the data concerns that we had. 
Because the primary issue that we had was that the census data 
did not reflect the industry standards and publications that we 
use to determine exactly what the size of firms are in our 
industry, as well as the dispersion within our industry. So 
they have been very receptive to that, and quite frankly, I 
have--it has been a pleasure working with them to this point. I 
can personally vouch for that myself.
    Chairman Walsh. Mr. Jordan.
    Mr. Jordan. Yeah. I would sort of echo those comments. I 
mean, this is an extremely big challenge and the SBA is in the 
unenviable position of no matter where they set the size 
standards there are going to be certain groups that are going 
to be unhappy.
    SBA has had an open door policy as far as we are concerned. 
They have come out and spoken with us. They have asked us for 
more information. I thought that that was a very transparent 
process by publishing the methodology well in advance. In 
addition, they outline a number of questions directly related 
to their proposals in which they are seeking specific industry 
feedback, and I think that in a lot of cases they hit on the 
right questions.
    Chairman Walsh. Great. Mr. Woods.
    Mr. Woods. I cannot add a whole lot to that. The problem is 
from my industry, we are engineers; not economists and 
statisticians. SBA gave us, in fact, advance warning. Gave us a 
schedule of everything. Every time they changed it. But it took 
them 16 months to figure this out and they are asking us to 
figure it out as engineers in two. So that is the only issue.
    Chairman Walsh. Mr. Hainsfurther.
    Mr. Hainsfurther. I would agree with that.
    AIA has a longstanding, positive relationship with the SBA. 
You know, for instance, a few years ago we had a major issue 
with retainage on contracts and the SBA actually championed 
that issue in getting the rules changed. So we appreciate that. 
And we are happy to note that Major Clarke is here today, and I 
believe also one of the gentlemen in charge of the standards is 
here today from the SBA. So we know they are open to comment 
and working with us. We just need a little more time to 
increase that collaboration and make the standards work for 
everybody concerned.
    Chairman Walsh. Great. Mr. Woods, let me ask you a quick 
question. In your statement, you referred to the various 
disciplines encompassed by engineering firms, such as 
mechanical, electrical, civil, structural, etcetera. The 
current size standards do not distinguish between these. And in 
the proposed new size standards these would be wrapped up into 
the combined architectural and engineering services size 
standard. Given the different characteristics, do you think the 
SBA should propose individual size standards for each 
engineering subspecialty?
    Mr. Woods. No. Very simply. It works well to group those 
together.
    Chairman Walsh. Okay.
    Mr. Woods. Our problem with the engineering thing is the 
statistics that are being used, because they are very, very 
large firms. And I will say somebody like Boeing or Lockheed-
Martin provide engineering services. And if they provide them 
in the same NAICS code that I provide structural engineering 
services in, that is a real misnomer as to who is doing the 
work.
    Chairman Walsh. Great. Let me ask one more quick question 
at this point and then I will yield to my ranking member.
    Mr. Jordan, for the computer facilities management services 
you pointed out that the calculated industry-specific size 
standard is 35.5 million. Before SBA adopts the common size 
standard and reduces it to 25.5 million, can you explain to the 
Committee what this will mean for a business with average 
receipts of 30 million?
    Mr. Jordan. Absolutely. Simply put, they will be shut out 
from small business competition. It stems from the problem of 
creating these common size standards in which they want to keep 
like industries grouped together. In certain cases it makes 
sense, but where the size standards differ significantly, they 
ought to consider breaking those up, or at the very least they 
have got to go with the higher size standard to avoid 
eliminating small businesses from being able to compete.
    Chairman Walsh. Okay. Great. Let me stop right there and I 
will yield to Mr. Schrader for his questions.
    Mr. Schrader. Thank you, Mr. Chairman.
    I guess I am concerned a little. There is this balance 
going on out there about how we do this but let us start with 
hopefully a fairly easy question. I guess each panelist just 
respond. And the goal has been to decrease the number of 
categories--one of the goals has been to decrease the number of 
categories, i.e., make it simpler. I assume that means not just 
simpler for SBA but simpler for different businesses to figure 
out do they qualify or not. Is the general consensus here that 
it is good to reduce the number of different categories? Mr. 
Lanier.
    Mr. Lanier. Yeah. Let me take a stab and answer that 
question.
    I think it is because--I will use my firm as an example. 
When we got sized out of the small business arena with the 
federal government, we had to make a strategic business 
decision to move into what we call related categories. Related 
NAICS codes. Okay? And we moved into some related NAICS codes 
that were potentially horizontally integrated into our 
business. So we created a weapon systems engineering and 
logistics business underneath our consulting group in the 
accounting firm. Had we not done that, we would be on the 
street right now because we could not compete in our core 
competency. And our core competency stretches across industry 
codes. It is 541611 as well. That size standard down there is 
$14 million. That is consulting services. Okay? 541219, that is 
Other Accounting. 541211, that is CPA. We cut across all those 
and it makes sense to group the like industries together based 
on the way your industry does business and how you provide 
these services to the various sectors of the economy.
    Chairman Walsh. Mr. Jordan.
    Mr. Jordan. Yeah, I think again, it comes down to what the 
actual numbers attributed to each of those categories are. Take 
engineering and architecture, for example. Those numbers are 
vastly different, and so grouping them together just does not 
make a whole lot of sense.
    Chairman Walsh. Okay. Mr. Woods.
    Mr. Woods. I agree with it. Yeah, I think that, you know, 
size standards can be confusing. Obviously, oftentimes simpler 
is better but you have to look at whether the correct 
standards, not just the size and, you know, as Mr. Jordan 
pointed out, I think that perhaps we are going a little too 
far. What we need is more time, really, to give it an honest 
answer about that.
    Chairman Walsh. It sounds like everyone agrees on that.
    I am a little concerned in that we, in this budget-limited 
environment that we are in, it is likely the SBA is going to 
have probably less money rather than more money to work with in 
terms of backing loans and what have you. And with that in 
mind, one of the ways to look at this is with less money you 
should be decreasing the size of small businesses available to 
compete. And while that is not necessarily a great thing for 
those mid-size companies, how should we respond to that? Are a 
Congress and we are facing a situation of very little money. 
Who really should be getting the money? Should we create a mid-
size type of category? Not all small businesses are small and 
there has been a lot of discussion about it is not the very 
small businesses that create the jobs that pull us out of this 
recession. So I am sensitive to both sides of the discussion. 
And we are going to have very little money going forward, and 
who should we be targeting? The small businesses or the mid-
size businesses given that? Let us go this way. Mr. 
Hainsfurther.
    Mr. Hainsfurther. Ranking Member Schrader, obviously, we 
are all small businessmen, and in our practices almost all of 
the firms within architecture, more than 80 percent of them are 
under five employees. And so we have a very different 
perspective I would say because architects, you know, they 
generate, I think, about eight additional jobs for every 
architect job in the world. So we need that capital focused on 
truly small practices because that is our world and that is the 
vehicle that we live in.
    Obviously, let us say if I was a contractor, my size would 
be tremendously different because the needs to perform that 
work are different. The capital needs are more intensive. So we 
get by with very little capital, you know, pen and paper 
basically and a computer. So I think that it is going to depend 
on what industry you are in and it is going to vary all over 
the place.
    Mr. Schrader. I am assuming that we still have different 
categories, obviously, with different size or employee receipt 
size standards involved. So given that, you know, with less 
money what should we do?
    Mr. Hainsfurther. Well, as I said, most of our members, you 
know, what is happening is they are becoming more small firms. 
So that need is even greater. Access to capital, obviously, if 
you do not have a track record, is very hard to come by.
    Mr. Schrader. Sure.
    Mr. Hainsfurther. So as the smaller firms start to blossom, 
because they will, we know that, they need the access to 
capital as opposed to a mid-size firm which has got a track 
record, they have built a record of success, and they will have 
better access to capital. And so if the purpose of a SBA loan 
or a small business set-aside is to start moving these smaller 
firms to make them more successful, it really needs to be 
targeted for that purpose if that is the purpose that you are 
trying to achieve.
    Mr. Schrader. Thank you.
    Mr. Woods. I made the statement that part of the issue is I 
am very sympathetic to the mid-size firms because in the 
architectural engineering business we are a specialized group 
and we are selected on the QBS, which is very important. 
Therefore, we end up needing the most qualified team members. 
But if the contract says that we have got to subcontract out 35 
percent of it and leave 65 percent to the prime, that is very 
difficult in many cases for a mid-size firm to participate.
    If you did it on the basis of--and it would not take 35 
percent, but if we had a $10 million contract and it was based 
on awarded dollars that the small business had to receive 10 
percent of it, a million dollars, and that is the criteria, 
then it would not make any difference to the mid-size firms. 
You could have two or three mid-size firms that could team and 
perhaps be qualified.
    It works very well. The Metropolitan Washington Airport 
Authority actually uses the percentage of dollars rather than 
the percentage of subcontracted out. So nobody in our business 
wants to outgrow small. And I have got colleagues who have done 
that but they have returned to small business because they 
could not get any work as a mid-size.
    Mr. Schrader. Interesting.
    Mr. Jordan. With regards to the loan programs, SBA did an 
analysis and its current revision. When they looked at the 
impact on the loan programs, they determined that in the 54 
category it was only the micro firms that were applying for 
those types of loans. Therefore, an increase in the size was 
not really having an impact on those loan programs.
    With regard to the mid-tier, you know, I do not know that 
we need to create a separate category, but certainly we need to 
explore ways and potential opportunities to provide them with 
some opportunities.
    Mr. Schrader. As they grow.
    Mr. Jordan. Absolutely.
    Mr. Schrader. Yeah.
    Mr. Lanier. From my perspective, the nuances of the 
accounting industry are totally different. The barriers to 
entry are very, very low. You do not have to have a lot of 
capital. I venture to say right now if you look at the SBA loan 
programs, you have very few, if many at all, CPA firms that go 
and apply for loans, except at the micro-level that Mr. Jordan 
is talking about here.
    So I think that we need to have the ability for capital for 
that sector, but when you get to the mid-size, yes, you need to 
take a look at that as well because if you cannot get access to 
the capital by normal means in the capital markets, such as 
going to your banks and having your past performance to do 
that, there may need to be some look at that to see if there 
are loan programs that could potentially help those firms. But 
at the same time, a broad program, it would really affect only 
the smallest businesses in our sector for sure.
    Mr. Schrader. Very good. Thank you. I yield back, Mr. 
Chair.
    Chairman Walsh. Thank you. Let me recognize my colleague 
from California, Ms. Chu, for some questioning.
    Ms. Chu. Thank you, Mr. Chair.
    Mr. Woods, in your testimony you pointed out that the same 
size firms operating in states or localities within high cost 
of living may show inflated revenues which could cause them to 
be penalized in a size standard definition. Since I represent 
the Los Angeles area, my ears perked up when I heard that. This 
issue is of importance to contractors in my district, 
obviously, and so how could we develop fair standards for 
businesses in areas where there is a high cost of living 
without creating more bureaucracy and confusion in the system?
    Mr. Woods. Well, that is one of the reasons that ACC is, 
quite frankly, not opposed to raising the size standard for our 
industry $8 to $10 million. I am very appreciative of your 
constituents. I know some of them well. We actually have the 
same problem in the Metropolitan Washington area as they do in 
New York City and perhaps even in Chicago.
    If you looked at it though from my firm, if you use 30 
people in a firm and you used revenue--because all we sell is 
time and expertise--if the revenue per employee was $200,000 
per employee, for a 30-person firm you would be talking about a 
$6 million size standard. If you increase that to $10 million, 
then you provide not only for some subcontracting pass-through 
but you also provide some additional leverage for higher cost 
areas.
    Ms. Chu. Very good. Thank you.
    Mr. Lanier, your firm exceeded the small business size 
standard for accounting and consulting firms. As you stated in 
your testimony, your $14 to $17 million in revenue pales in 
comparison to the firm's $358 million to $10 billion in revenue 
and so you find yourself competing with firms that are 20 to 
500 times larger than yours.
    Other than continuously adjusting the size standards to 
accommodate firms that are growing and therefore, ineligible 
for small business contract opportunities, what are things that 
the SBA and Congress can do to support the mid-tier firms who 
have outgrown the small business definition so that they can 
continue to grow?
    Mr. Lanier. Yeah. I think the first step is to make sure 
that we continue to level the playing field by making sure that 
the size standards continue to be reviewed on an ongoing basis. 
I think the Senate put some legislation out through Senator 
Landrieu's committee that requires those standards to be 
reviewed on a continuing basis.
    Now, the other thing that we can do is look at federal 
procurement policy at the same time. If you are going to look 
at mid-tier firms, allow us to go up to a level so that we will 
not be squeezed out of the middle market and then restrict some 
of the contract bundling exercises that some of the agencies do 
to try to constrict the number of contracts out there. I am 
sorry, constrict the number of vendors and then increase the 
size of the contracts. So you have to take a look at all those 
variables at that mid-market level to make sure the 
opportunities are still there for the mid-tier small 
businesses.
    Ms. Chu. Mr. Jordan, do you have any thoughts on this?
    Mr. Jordan. No. I would largely agree. And on his last 
comment, we have seen instances where you are seeing rather 
large contracts being set aside for small businesses. And that 
has some real implications. It presents real risk to the small 
businesses to be able to perform that work. And really what we 
ought to be advocating for is that the federal acquisition 
workforce is rightsizing contracts for companies of all sizes 
so they each have their individual opportunities.
    Ms. Chu. Yes, Mr.----
    Mr. Lanier. Could I come back and follow up with that for 
one second? One of the things that I think we need to look at 
is, is this entire infrastructure issue associated with being 
able to support those size contracts? If you are going to have 
the large contracts and you have an acquisition policy that 
qualifies the House--and I mean qualifies the House, doing 
procurement planning--the acquisition professionals tend to 
send out sources sought notices and RFIs that ask for the 
capability and the capacity to be able to do those--perform 
those large contracts.
    If you do not move the standard up such that mid-tier firms 
can demonstrate the ability to handle that work, you have a 
procurement official that manages three kinds of risk. They 
manage cost risk, schedule risk, and technical risk. All of us 
come from a profit-oriented environment, but the government 
manages risk.
    And when you are managing technical risk, the first thing 
you are looking at is capacity and past performance. And if you 
do not have the ability to demonstrate that you have handled 
some of those larger procurements, and you cannot do that at 
$8.5 million where we are right now, you are completely shut 
out and the first thing an acquisition official will do is 
take--is mitigate that risk by putting that procurement in full 
and open competition. And that is a double-edged sword because 
it hurts the industry, I mean, the Agency for Mitsubishi to be 
able to get that 23 percent small business goal. And it hurts 
those of us who have to end up competing now with the Big Four 
firms and the firms who are, like I said, you know, 20 to 500 
times larger than we are. So that is the area that we really 
need to focus on here because that discussion has been going on 
for the last 10 years. And what you need to do is it is time 
address that at this point.
    Ms. Chu. Thank you. I yield back.
    Chairman Walsh. Mr. Hainsfurther.
    Mr. Hainsfurther. Could I just add something to that? 
Obviously, in architecture and engineering it is a slightly 
different process because it is a qualification-based selection 
process. But they still look for that track record in that, you 
know, I would disagree slightly with the term managing risk. 
They are almost trying to avoid risk in many cases. And so they 
are looking for the firms that have a big track record, which 
many times a small firm does not necessarily have to do--have 
behind him.
    But, for instance, I would not want to go compete and let 
us say, submit qualifications for a federal office building, 
you know, in downtown Chicago but I very well would like to do 
the OSHA office that is right next door to my office in my 
suburban office building. So we have to maintain that kind of 
perspective I would say, that qualification-based selection 
does not necessarily mean what I would call quantity-based 
selection, which means I have done 100 of them just like this, 
but that I have that ability to do it and to do it correctly is 
very important. And so, you know, as long as you try and 
maintain those opportunities, I think it levels that playing 
field as Mr. Lanier mentioned.
    Thank you.
    Chairman Walsh. Thank you Mr. Hainsfurther. Thank you to my 
colleague from California.
    I only have two other real quick questions, actually coming 
right back at you, Mr. Hainsfurther. You stated that for the 
average AIA member, over 50 percent of their representative can 
be attributed to payments that flow through to subcontractors. 
What does this mean in terms of a receipts-based size standard? 
And how would you like SBA to address this issue when creating 
that size standard.
    Mr. Hainsfurther. Currently, the SBA does account for pass-
throughs. And that is going to subconsultants, like Mr. Woods's 
firm and his members. It goes to vendors that supply us with 
printing and other resources. So the issue with that as far as 
we are concerned is that if they continue to maintain that 
pass-through and recognize, that would be just fine with us 
because it is not a clear picture of what the revenue really 
is. The other opportunity, of course, is to look at net revenue 
and see what is actually flowing directly into the aspect of 
the firm.
    Chairman Walsh. Great. Thank you. Mr. Lanier.
    Mr. Lanier. Yes, sir.
    Chairman Walsh. Given that the definition of a small 
business according to the Small Business Act is one that is 
independently owned and operated and which is not dominant in 
its field of operation, do you feel that this proposed rule 
adequately considers dominance in the field of operations?
    Mr. Lanier. I am going to make that industry-specific to 
the accounting industry.
    Chairman Walsh. Please do.
    Mr. Lanier. It does not consider dominance--it does 
consider dominance in the field but it considers dominance in 
the field using data from a source that is not industry 
recognized in terms of who is our oligopoly. Who constitutes 
our oligopoly? Our oligopoly is constituted by four firms. If 
you look at the census data that the SBA used in the 
calculation for 2007, that says those firms have $5.2 billion 
average revenues. Okay? Well, when you look at the data from 
Accounting Today, which is our publication that lists the top 
100 firms every year in our industry, that number is $6.8 
billion average among those four.
    Now, let us talk about that for a second. Okay? The two 
most sensitive variables in the primary factors for calculating 
size standards represent, number one, the four firm 
concentration ratio that is in the industry dominance category, 
and number two, the distribution of firms by size. X-number of 
firms by classification have X-number of receipts in the 
industry. Those are the two most sensitive variables in the 
calculation. So if you use data that is not reflective of the 
industry, your numbers are skewed. So, yes, I do believe that 
industry dominance is taken into effect, but you just have to 
have the correct data.
    Chairman Walsh. Thank you.
    Mr. Lanier. Okay.
    Chairman Walsh. I am through with my questioning. Mr. 
Schrader.
    Mr. Schrader. I have no more.
    Chairman Walsh. Great. Thank you all for participating 
today. As this Committee continues to focus on creating 
opportunities for small businesses, we will keep working on the 
issues of who is a small business.
    Following today's hearing I will be sending a letter to the 
Small Business Administration to share what we have heard 
today, and I will request that the SBA keep the rule-making 
open longer so that small businesses can provide substantive 
comments. We will ensure that your voice is heard and will 
support policies to help you create jobs and spur investment.
    I ask unanimous consent that members have five legislative 
days to submit statements and supporting materials for the 
record. Without objection, so ordered.
    Thank you again all very much. The hearing is now 
adjourned.
    [Whereupon, at 11:05 a.m., the subcommittee was adjourned.]

    [GRAPHIC] [TIFF OMITTED] T6748A.034
    
    [GRAPHIC] [TIFF OMITTED] T6748A.036
    
    [GRAPHIC] [TIFF OMITTED] T6748A.037
    
    [GRAPHIC] [TIFF OMITTED] T6748A.038
    
    [GRAPHIC] [TIFF OMITTED] T6748A.035
    
    [GRAPHIC] [TIFF OMITTED] T6748A.039
    
    [GRAPHIC] [TIFF OMITTED] T6748A.040
    
    [GRAPHIC] [TIFF OMITTED] T6748A.041
    
    [GRAPHIC] [TIFF OMITTED] T6748A.042
    
    [GRAPHIC] [TIFF OMITTED] T6748A.043
    
    [GRAPHIC] [TIFF OMITTED] T6748A.044
    
    [GRAPHIC] [TIFF OMITTED] T6748A.045
    
    [GRAPHIC] [TIFF OMITTED] T6748A.046
    
    [GRAPHIC] [TIFF OMITTED] T6748A.047
    
