[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
EXAMINING THE BARRIERS FOR SMALL BUSINESS CONTRACTORS AT THE DOD
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CONTRACTING AND WORKFORCE
of the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
HEARING HELD
NOVEMBER 8, 2011
__________
U.S. GOVERNMENT PRINTING OFFICE
72-176 WASHINGTON : 2011
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Small Business Committee Document Number 112-044
Available via the GPO Website: www.fdsys.gov
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
JEFF LANDRY, Louisiana
JAIME HERRERA BEUTLER, Washington
ALLEN WEST, Florida
RENEE ELLMERS, North Carolina
JOE WALSH, Illinois
LOU BARLETTA, Pennsylvania
RICHARD HANNA, New York
ROBERT SCHILLING, Illinois
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
JANICE HAHN, California
GARY PETERS, Michigan
BILL OWENS, New York
BILL KEATING, Massachusetts
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, General Counsel
Michael Day, Minority Staff Director
C O N T E N T S
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OPENING STATEMENTS
Page
Mulvaney, Hon. Mick.............................................. 1
WITNESSES
Mr. Robert Griffin, Assistant Commander for Acquisition, Navy
Facilities Engineering Command, Washington, DC................. 4
Ms. Jackie Robinson-Burnette, U.S. Army Corps of Engineers,
Associate Director of Small Business, Washington, DC........... 8
Mr. John Caporal, Secretary, U.S. Air Force Small Business
Programs Office, Washington, DC................................ 11
Mr. Bill Lynam, Owner, Lynam Construction, Sumter, SC............ 21
Mr. William ``Billy'' Aycock, President, Aycock Construction LLC,
Sumter, SC..................................................... 25
Mr. Scott H. Bellows, Program Manager, South Carolina PTAC, The
Moore School of Business Small Business Development Center,
Columbia, SC................................................... 28
APPENDIX
Prepared Statements:
Mr. Robert Griffin, Assistant Commander for Acquisition, Navy
Facilities Engineering Command, Washington, DC............. 37
Ms. Jackie Robinson-Burnette, U.S. Army Corps of Engineers,
Associate Director of Small Business, Washington, DC....... 48
Mr. John Caporal, Secretary, U.S. Air Force Small Business
Programs Office, Washington, DC............................ 58
Mr. Bill Lynam, Owner, Lynam Construction, Sumter, SC........ 62
Mr. William ``Billy'' Aycock, President, Aycock Construction
LLC, Sumter, SC............................................ 63
Mr. Scott H. Bellows, Program Manager, South Carolina PTAC,
The Moore School of Business Small Business Development
Center, Columbia, SC....................................... 65
Questions for the Record:
None
Answers for the Record:
None
Additional Materials for the Record:
ABC Statement for the Record................................. 67
EXAMINING THE BARRIERS FOR SMALL BUSINESS CONTRACTORS AT THE DOD
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TUESDAY, NOVEMBER 8, 2011
House of Representatives,
Subcommittee on Contracting and Workforce,
Committee on Small Business,
Washington, DC.
The Subcommittee met, pursuant to call, at 9:59 a.m., in
Sumter County Council's Chambers, 13 East Canal Street, Sumter,
South Carolina, Hon. Mick Mulvaney (chairman of the
Subcommittee) presiding.
Present: Representative Mulvaney.
Chairman Mulvaney. I'm Mick Mulvaney, 5th District
representative from South Carolina, and the chairman of the
Small Business Subcommittee on Contracting and Workforce. To my
right is Joe Hartz with the Small Business Committee in
Washington, D.C., and on the left is Natalie Binkholder,
legislative assistant in my office. I believe some of you all
have also met Eric Bettingbiel, the deputy chief.
It is not unusual to have these hearings with just one
member of Congress. The ranking member, who is a Democrat, is
entitled to be here. However, she is from California, so it is
not surprising she didn't make the trip. We also extended an
invitation to Mr. Clyburn's office, and we may see them come in
or come and go as the hearing goes.
So what I will do is go ahead and call the meeting to
order, which is a very fancy way of starting, and let's go over
some logistics first before I give my opening statement.
In front of you, you will see a timer. Typically, we ask
folks to keep their comments to 5 minutes, and I say typically
because a lot of times we will have 15 members and 20
witnesses, and if we don't limit the time, the meetings would
take 6 hours. We try to avoid that.
What you will see then in front of you is a timer that says
5 minutes. The green light will be on for the first 4 minutes,
then the yellow light will go on when there is 1 minute
remaining, and then once you go over 5 the red light goes on. I
encourage you to use that only as a guide today. Because of the
size of the hearing, and because of the relatively small number
of witnesses, I am going to encourage you to go ahead and take
your time, and if you need to go beyond the 5 minutes, that is
great. If we get to the point, if you have talked for 20
minutes, what you will hear me do is very quietly tap the end
of the gavel, and that would encourage you to please wrap up,
as we do have other folks who want to testify.
How I run the meetings is I will introduce each of the
witnesses, ask you all to give your testimony at one time, and
then I will ask questions at the end, and then we will start to
our second panel.
So with that, I will read an opening statement and then
introduce the first panel.
Thanks again for being here. I appreciate your willingness
to appear before the Subcommittee to talk about the barriers
small business contractors face when working with the
Department of Defense.
The Federal Government purchases nearly $500 billion in
goods annually. Because this is a significant amount of Federal
dollars, we owe it to the taxpayers to make sure we are using
those funds wisely and efficiently.
Government contracting offers a unique opportunity to
invest in small businesses while also stimulating our economy.
Small businesses play a critical role in our economy and job
growth, creating seven out of every ten jobs in the country.
With unemployment still stalled around 9 percent nationally, 11
percent in South Carolina, closer to 14 percent in this
district, it is more important than ever to invest in the small
firms that support our communities and create our jobs. It is
difficult to build a strong economy when its foundation,
America's small businesses, are not strong themselves.
Small business contractors are good for the government and
good for the economy. They increase competition, innovation,
create jobs, and save taxpayer dollars, which is why there is a
statutory goal that 23 percent of all prime contractor dollars
issued, spent by the United States Government, go to small
business.
Unfortunately, other than criticism from Congress, no
penalty exists for a failure by the Federal Government to meet
these goals, which is one of the reasons we have not only this
hearing today but all the hearings we have in Washington. In
addition to a lack of penalties, there are a number of other
barriers that prevent the Federal Government from maximizing
the use of small businesses in Federal procurement.
For instance, we should reduce the flawed practice of
contract bundling, which we will talk a little bit about today,
which occurs when the government consolidates smaller contracts
into bigger contracts that small businesses are not able to
perform, and it can virtually shut out small businesses from
the contracting process. Additionally, we must work to
strengthen the enforcement system. And finally, in light of the
President's executive order concerning the use of project labor
agreements, which we will touch on briefly again here today, we
must keep our eyes open to when such agreements are used and
whether those agreements have an adverse impact on small
businesses, especially here in South Carolina.
By addressing those and other problems that we hope to
examine today, we can help small businesses compete in the
national marketplace.
That is sort of a general background. What we are looking
to accomplish here today is to examine some of the problems and
the barriers, if there are any, that face small businesses when
working specifically with the Department of Defense. As most
everybody here knows, during the recent BRAC process, the
United States saw fit to move the 3rd Army from Fort McPherson,
Georgia, up here to Shaw Air Force Base. As part of the BRAC
process, several large construction projects were necessary for
facilities, housing, and infrastructure to accommodate the
approximately 1,000 additional soldiers, civilian employees,
and their families moving to this base.
In 2009, the Navy awarded the construction of 3rd Army
Headquarters. The Navy was actually responsible for the
building of an Army headquarters on an Air Force base, which I
thought was fascinating. The Navy gave that contract to a
company from Montgomery, Alabama; and while some of the
subcontracts of that general contract came to local businesses,
many did not.
By no means is this hearing today to lay blame on anybody.
This is a fact-finding mission. A lot of folks in this
community have reached out to me and said why didn't we get
more business locally. That is why we are here today, to find
out exactly what happened and why it happened. My experience in
the short time that I have been in office is fairly simple:
small businesses here want to work at Shaw Air Force Base. At
the same time, the folks who run Shaw Air Force Base want to
use small business.
So today we are going to find out more exactly about the
process by which 3rd Army was built and Shaw was improved. When
small businesses did get work, and some of those folks are here
today and will be testifying, we will find out why. We will
also hear from folks who didn't get work on that particular
project, and we are going to find out why as well. There could
be perfectly legitimate reasons why contracts went someplace
other than to local contractors.
Today's hearing is specifically designed to lay out on the
table the facts, not the rumors and the things that we hear in
the community, but the facts about why 3rd Army was built the
way that it was by the folks that it was.
Again, thank you all for participating in the process. We
are going to introduce the first panel. The first witness is
Robert Griffin, the Assistant Commander for Acquisition at the
Navy Facilities Engineering Command. He has nearly 30 years of
public service and was selected to the Navy's Senior Executive
Service in July of 2000. He is the Command's senior civilian
contracting official responsible for the contractual business
practices, policy and oversight for the Command's $10 billion
contract program.
He is a graduate of George Mason University in Virginia,
with a Bachelor of Science in Business Administration. His
awards include the President's Meritorious Executive Service
Award in 2004, the Department of Navy Superior Civilian Service
Award in 1998, and the Meritorious Civilian Service Award in
1996.
Mr. Griffin, thank you for being here.
Also on the first panel is Ms. Jackie Robinson-Burnette.
She is the Associate Director for the U.S. Army Corps of
Engineers' $6 billion Small Business Program. She is the
principal advisor to the Corps' commander and the Secretary of
the Army, the Director of Small Business Programs and all Corps
small business matters.
Ms. Robinson-Burnette oversees an integrated network of
over 70 contract specialists that serve as the Corps' small
business advisors throughout the country. She is the senior
authority on small business legislation and regulations, and
develops and implements training programs. She graduated from
the University of Maryland with a Bachelor's in Business
Management.
Thank you very much as well, Ms. Robinson-Burnette, for
being here.
Finally, rounding out the first panel is John Caporal. Did
I get that right?
Mr. Caporal. Yes, sir.
Chairman Mulvaney. Like ``corporal'' without the R?
Mr. Caporal. Yes.
Chairman Mulvaney. Acting Director of the Air Force Small
Business Programs Office, where he manages the execution of
small business programs for the Department of the Air Force. As
a member of the Air Force small business leadership since
November of 2004, he has helped transform, modernize, and
promote successful practices with respect to engaging small
business. Through his leadership, the Air Force has implemented
several innovative strategies to better align the small
business community with the mission and priorities of the Air
Force.
He has a Bachelor's degree in Secondary Education from
Miami University in Oxford, Ohio, and a Master's degree in
Public Administration from the University of Dayton. He
graduated from the Air Force Command and Staff College in 1987
while at Wright Patterson Air Force Base.
Welcome to all of you.
With that, we will begin. And I think if there is one thing
that is evident from those introductions is that these are the
exact folks, these are the folks who help make the decisions.
These are very high-ranking individuals, and I appreciate you
all taking time from your busy schedules to do that.
With that, Mr. Griffin, you have between 5 and 10 minutes,
so fire away.
STATEMENTS OF ROBERT GRIFFIN, ASSISTANT COMMANDER FOR
ACQUISITION, NAVY FACILITIES ENGINEERING COMMAND, WASHINGTON,
D.C.; JACKIE ROBINSON-BURNETTE, U.S. ARMY CORPS OF ENGINEERS,
ASSOCIATE DIRECTOR OF SMALL BUSINESS, WASHINGTON, D.C.; JOHN
CAPORAL, SECRETARY, U.S. AIR FORCE SMALL BUSINESS PROGRAMS
OFFICE, WASHINGTON, D.C.
STATEMENT OF ROBERT GRIFFIN
Mr. Griffin. Chairman Mulvaney, thank you for the
opportunity to testify before you and your constituents today
on the construction contract for the 3rd Army Headquarters
Complex at Shaw Air Force Base in Sumter, South Carolina, also
the process by which the Federal Government awards contracts
and the use of project labor agreements. I would also like to
confirm the Navy's commitment to increase the utilization of
small business firms. We view the key to successful contracting
as the health of the industrial base, and that begins with
small business firms.
The contract for construction of the 3rd Army Headquarters
Complex at Shaw Air Force Base is a negotiated, firm fixed
price, design-build construction contract. It was procured via
full and open competition, with the concurrence of the Small
Business Administration on September 16, 2008, and awarded by
the Navy on May 29, 2009 to Caddell Construction Company of
Montgomery, Alabama. The price at time of award was
$91,600,000. The scheduled completion date is November 14,
2011. Prior to the issuance of the solicitation, a market
survey was conducted to determine if a sufficient number of
capable small businesses existed to compete this procurement
among small business prime contractors only. However, no small
businesses capable of performing the work were identified.
According to the Small Business Administration's Table of
Small Business Size Standards, a company is considered a small
business if its average annual receipts for the past three
years is $33.5 million or less. Eighteen offerors responded to
the first phase of the solicitation. These offerors' proposals
were evaluated on experience, past performance, and past small
business utilization. The top four proposals were invited to
Phase 2 of the solicitation, where they submitted a price
proposal and a separate technical proposal.
The technical proposal consists of a small business
subcontracting plan, a management approach, and a technical
solution. The Caddell proposal was found to be the best value
since their technical proposal was the highest rated and their
price proposal was the lowest.
The Executive Order 13502 on Project Labor Agreements
issued on February 6, 2009 encourages executive agencies to
consider project labor agreements in connection with large-
scale construction projects greater than $25 million. When the
3rd Army Headquarters construction acquisition was solicited in
December 2008, the Executive Order 13502 was not in place, and
Executive Order 13202, dated February 17, 2001 actually
prohibited the use of project labor agreements. Accordingly, a
project labor agreement was not considered on this project and
had no impact on the award of this project.
I would also like to mention that the Navy is performing a
small business outreach event today in Sumter, South Carolina,
and thank you again for the opportunity to testify before you
today.
[The statement of Mr. Griffin follows on page 37.]
Chairman Mulvaney. Mr. Griffin, thank you very much.
Ordinarily what I do is let everybody go first, but I think
I will change that up a little bit today because my guess is
that each of you will have a lot of detail. You had a great
deal of detail in a very short period of time, so let me ask
you a couple of questions.
So one of the things that we have heard back home here is
that the project labor agreements were part of the process, and
what I am hearing from you today is that they were not.
Mr. Griffin. They were not.
Chairman Mulvaney. Can you please explain to folks what
project labor agreements are?
Mr. Griffin. Okay. A project labor agreement is an
agreement between the government and a contractor, and the
contractor and a workforce. Basically, the AFL-CIO, which
represents the Building and Trades Council, is the agent for
the local unions that represent the workers that would work in
a specific geographical area. Some areas have as many as 19
separate labor unions that are governed and coordinated by the
Building and Trades Council, which is the AFL-CIO.
Under a project labor agreement, either the contractor
would negotiate at arm's length in advance of submitting a
proposal with the AFL-CIO and establish the ground rules under
which labor matters would be managed in the contract, which
would include wage rates, would include benefits, would include
certain requirements for safety, it may include programs to
develop certain specific skills or sets of workers. They can
vary from point to point.
The Department of the Navy has not implemented a project
labor agreement to date in any of its projects. We have
evaluated consistent with the Executive Order all projects
since 2009 over $25 million using the criteria set forth in the
executive order. Specifically, we look to see if the project
requires multiple contractors and subcontractors, whether there
is a shortage of skilled workers in that area where the work is
to be performed, whether completion of the project will take an
extended time, and whether there is risk to completion maybe
based on certain environmental windows for purposes of
construction access, whether PLAs or project labor agreements
have been used for similar projects in the past and whether
they have been successful, whether the project labor agreement
would promote the long-term interests of the Department,
develop future skilled labor, and other factors that may come
into play in unique situations.
Chairman Mulvaney. Thank you. And my understanding is that
project labor agreements have been generally perceived as being
favorable to union labor over at-will labor. But my
understanding is exactly what you just laid out, which is that
3rd Army expansion at Shaw was not covered by a project labor
agreement because it was let before President Obama issued the
policy.
Mr. Griffin. Yes, sir.
Chairman Mulvaney. I guess it is fair to say that if there
was another project over $25 million that began today at Shaw
Air Force Base, it would be subject to the review that you have
just laid out, and it might fall under the project labor
agreement.
Mr. Griffin. Yes, sir.
Chairman Mulvaney. But that the work that was done out
there that was the subject of today's hearing for 3rd Army was
not done under the rules regarding project labor agreements.
Mr. Griffin. Yes, sir. That is correct.
Chairman Mulvaney. Tell me a little bit about design-build
and whether or not you perceive that as having any influence or
any impact on whether or not small businesses can participate
in a particular project.
Mr. Griffin. The decision to go design-build, the
Department has----
Chairman Mulvaney. Could you, for the record, give a little
summary of what design-build means?
Mr. Griffin. Certainly. There are two basic approaches to
constructing a building. You can hire an independent architect
engineering firm who in turn would design the facility and then
take that design and compete that design for purposes of the
award of the construction contract, or you can combine the
design aspects of the requirement and the construction and
award a single contract to a single entity, which normally
would be some type of joint venture or prime-sub relationship
between a construction firm and an architect engineering firm.
Depending on the complexity of the project, the Navy's
policy is to evaluate what we believe would be the most
effective and efficient approach. One benefit that we have
found from design-build is that we eliminate the finger
pointing if there's some type of error and omission during the
construction phase. So that single entity cannot come back and
blame an independent architect because the drawings may have
been mistaken, resulting in a construction change, which causes
a cost overrun. So we believe that there is great benefit in
certain types of construction. When we go into very complex
industrial type construction, kind of one off, it is not a
normal process, we still go back to our conventional design bid
build where the design is a separate component. So it is just
another technique for purposes of construction.
Chairman Mulvaney. What would you say to the criticism that
design-build projects tend, or at least might have the
tendency, to exclude small businesses on the design side, that
a small architectural firm, a small design firm might be
excluded because they don't have the ability to do the design-
build relationships?
Mr. Griffin. Well, I think there is some credibility to
that concern. I mean, the Naval Facilities Engineering Command
works very closely with the Society of American Military
Engineers, and also the Association of Independent Architects,
and we try to partner with them and the Association of General
Contractors to find the sweet spot between where we should be
doing stand-alone design and where we should be doing design-
build.
We also have to peel the layer back even more, a couple of
layers, so that we can see where we can have opportunities for
small business architect engineering firms, because normally
the dominant in a design-build scenario would be the
construction firm. So the architect engineering firm will
always be the sub because their proportion of the work is
usually 6 to 9 percent of the total construction price.
Chairman Mulvaney. And last question for this round. You
mention in your testimony that the Navy found that no small
businesses were capable of taking this contract. I believe this
is one of the contracts that was open to small business because
I think this is one of the contracts where small businesses,
had they been named as the prime contractor, would have been
allowed to delegate or subcontract out 85 percent of the work.
So they would only have to do 15 percent. There are different
levels for different contracts.
But on this one, small businesses would have been
appropriate to name a small business as a general contractor if
they could meet the requirements. You said you couldn't find
any small businesses that met those requirements.
Tell me about the process. Tell me how the Navy went
through the process of looking at small businesses that would
have applied to be the general contractor here.
Mr. Griffin. Oh. Yes, sir, I would be happy to. In
coordination with the Small Business Administration, we do a
market survey, and we basically advertise in Fed Biz Ops that
we intend to do a project of this size and scope at this
location; in this case, $90-plus million in Sumter, South
Carolina. We give the nature of the project and we request
qualifications from interested parties, and we evaluate those
qualifications.
We did have a half-a-dozen small businesses come in and
show interest in the project, and we evaluate each of those
independently, and we determined based on our own experience
that none of those, in our opinion, had a likelihood of
success. So we elected to go to the Small Business
Administration and ask that we advertise the project on an
unrestricted basis, which would allow large businesses to bid,
as well as small businesses.
One of the things we look at is the risk factor as well. So
as I explain in my testimony, the size standard for a small
business is $33.5 million a year based on average annual
receipts over three years. So to ask a small business who has
traditionally not done more than $33.5 million a year total
work to step up and do a single project almost three times that
value seems like it is a leap as far as size, and then they
have to get bonding capability.
Chairman Mulvaney. How big was the whole project?
Mr. Griffin. The project was----
Chairman Mulvaney. The whole contract?
Mr. Griffin. Total value after change orders was
$106,300,000. Those change orders for additional security work
and collateral equipment.
Chairman Mulvaney. Okay.
Mr. Griffin. So they would have to bond the original amount
of $91 million, and the bonding industry right now is extremely
tight, the surety industry. So they have problems getting
bonds. They probably would have working capital challenges
initially until the payment flow begins, and we could
theoretically harm them if we allow them to get into a project
as a prime that they have never done before at that size and
scope. We could bankrupt a company.
So we look at it very carefully. They still can bid the
project, and they would still be evaluated, and actually they
would have an advantage in one of the major factors, which is--
--
Chairman Mulvaney. And you say 15 small businesses bid this
project as a----
Mr. Griffin. No, no.
Chairman Mulvaney. How many was it?
Mr. Griffin. I said a half-a-dozen in the market analysis
said we were interested, and we had a total, I believe, of 18
people who bid the actual job in Phase 1, and I explained under
our process of Phase 1/Phase 2 we have criteria to short list,
and we did short list, and then none of the small businesses
made it to the second phase.
Chairman Mulvaney. Got you. Thank you, Mr. Griffin. We have
more when the other folks have finished.
Ms. Robinson-Burnette, would you like to present your
testimony, please?
STATEMENT OF JACKIE ROBINSON-BURNETTE
Ms. Robinson-Burnette. Mr. Chairman, thank you for the
opportunity to speak. It is one of my greatest passions to
educate small businesses. It is understandable why Congress is
heavily focused on the efforts of Federal agencies to award
contracts to small businesses, because small businesses play a
significant role in recovering our economy.
At the Corps of Engineers, we greatly depend on small
businesses to help us meet an array of diverse missions around
the world. Our missions include research and development,
managing valuable aquatic resources, building infrastructure,
providing engineering solutions to DOD and other Federal
agencies, international government agencies and non-
international government agencies in nearly 100 countries
around the world.
The small business goal for the Army is 25.3 percent, and
this past fiscal year the Corps exceeded that goal, achieving
42.5 percent, nearly $8 billion to small businesses, and 63
percent of our subcontracting dollars went to small businesses.
The Charleston District exceeded their goals for the last
three years. Charleston District is responsible for the State
of South Carolina. In fiscal year 2011, Charleston's small
business goal was 40 percent, and they are projecting
achievement at 84 percent of all dollars awarded to small
businesses. You can see that our commanders at every level in
the Corps are committed to giving small businesses contract
opportunities.
There are organizations like the Procurement Technical
Assistance Center and the Minority Business Development Center
that walk small businesses through the contracting process. It
is imperative that small businesses that have yet to receive
their first contract award contact these organizations so they
can focus their efforts in a way that would more clearly get
them to a contract award.
Each buying activity has small business advocates, and the
Federal Acquisition Regulation requires that all contract
actions under $150,000 are set aside exclusively and
automatically for small businesses. And for procurements over
$150,000, small business advocates sit side by side with
contracting officers and program managers to determine if there
is a reasonable expectation that two or more small businesses
will submit a competitive offer at a fair market price. This is
referred to as the Rule of Two. When market research validates
the Rule of Two, contracting officers are required to set aside
actions for small businesses over $150,000.
The Rule of Two is validated by several different methods
through market research. The most effective method is the
sources sought synopsis, which is posted on the Federal
Business Opportunities webpage. Typically, we ask small
businesses to respond to a handful of questions and list
information about their financial capability as well. Many
small businesses are unaware of the significance of the sources
sought synopsis and they don't respond, therefore missing their
opportunity to influence the acquisition. Of course, small
businesses may submit a proposal when the acquisition is
unrestricted, available for proposals from large and small
businesses, but they maximize their potential when the
procurements are set aside.
Small businesses have to be diligent about marketing their
experience, past performance, and financial capability. Our
customers are expecting us to minimize risk to their projects
by making the award to the most financially capable firm with
the most experience. Having 8(a) certification or small
business certification is definitely an advantage, but it never
takes precedence over capability to perform. Firms must clearly
understand what is in the requirement in order to submit a
winning solution. Small businesses must keep in mind that they
must provide their best possible technical proposal and best
possible price with the initial offer because they may not have
an opportunity to submit a revision.
Finally, small businesses must ask for debriefings. The
debriefings can provide critical information necessary to
improve future proposals. Our large businesses are also very
interested in supporting Federal small business programs
through subcontracting. They are engaged with firms, and
especially when small firms find the contracting opportunity
and focus their marketing efforts around those specific
opportunities. Large firms also prefer to hear about a firm's
capability, past performance and financial capability, and
establish relationships, more so than just the firm's size
standard.
Today we are prepared to talk to firms in the local
community about different projects that we have in the Corps of
Engineers. There are many small business projects projected for
set-aside to small firms. I want to list a few of them.
There is a competitive 8(a) design-build fire protection
multiple award task order contract. It is going to be valued--
the task orders will be valued between $75,000 and $1.5 million
over a five-year period.
We have Clouter Creek Ditching, which is a project that is
going to be between $500,000 and $1 million. It is going to be
in Berkeley County, South Carolina.
We have the Virginia Charleston New Post Traumatic Stress
Disorder/Mental Health Research Facility. It will cost between
$5 and $10 million in Charleston, South Carolina.
And then the Gantry Crane Rehab and Inspection
Certification at Stephen Power Plant, Stephen, South Carolina.
We look forward to talking to firms after this hearing
about those opportunities. They will be specifically set aside
for small businesses, and I look forward to any questions that
you have.
[The statement of Ms. Robinson-Burnette follows on page
48.]
Chairman Mulvaney. Thank you, Ms. Robinson-Burnette. And
that gives me the opportunity to go off the message here for a
little bit to remind everybody that after this meeting on the
way out, various departments will have information available on
projects that are available to small businesses in the area. So
thank you for doing that.
Ms. Robinson-Burnette. You're welcome.
Chairman Mulvaney. And before we got ready for this
meeting, I had no idea your numbers were what they were. I do
this a good bit. One of the things that we press the agencies
on, I mean from Treasury to Health and Human Services to the
Army Corps up in Washington, is on the percentage of their set
asides for small business. Those are the best numbers I have
ever heard.
Ms. Robinson-Burnette. Thank you, sir.
Chairman Mulvaney. So it makes me extraordinarily proud to
know that that is happening in South Carolina. Thank you for
doing that. Please keep up the good work. We need all the help
we can get.
Help a layman understand. Was the Army Corps involved with
the 3rd Army expansion at Shaw Air Force Base? Or was it the
Navy working with Caddell directly? Tell me what your role was,
if anything, on this project.
Ms. Robinson-Burnette. Sir, I don't have the full details
on that, but I believe that they independently awarded and
solicited for that contract.
Chairman Mulvaney. So the Army Corps of Engineers--the Navy
was in charge of this. I recognize that. But again, for a
layperson, was the Army Corps of Engineers involved in this
project?
Mr. Griffin. No. Title 10 identifies two organizations that
do military construction, the Army Corps of Engineers and the
Naval Facilities Engineering Command. The Air Force work is
distributed between the Army and the Navy based on geographic
basis. South Carolina happens to be a territory that the Naval
Facilities Engineering Command would do the MILCON for the Air
Force.
Chairman Mulvaney. Got you. Great. That helps. Thank you
very much.
Mr. Caporal, if you want to go ahead and begin, please?
STATEMENT OF JOHN CAPORAL
Mr. Caporal. Thank you, Congressman Mulvaney. Thank you for
the opportunity to discuss Air Force Small Business Program.
Our office reports directly to the Undersecretary of the Air
Force. We provide policy advice, guidance, training, and
innovative strategies to ensure quality solutions for Air Force
acquisition teams to maximize opportunities for small
businesses. Our vision is to ensure maximum practicable
opportunities for small businesses at the earliest stages of
acquisition planning and to make small business the solution of
choice to meet the needs of the Air Force mission.
We strive to promote a culture of shared responsibility
with our acquisition partners, recognizing the critical role
small businesses plays not only in advancing the mission but in
strengthening our nation's industrial base. We are more than
advocates for small business. We are advocates for the Air
Force mission using small business solutions.
In fiscal year 2010, the Air Force awarded $8.8 billion to
small businesses, or 15.4 percent of total procurement dollars.
In fiscal year 2011 the awarded amount dropped to $8.2 billion
or 14.5 percent. This is not official yet. We haven't verified
those numbers, but don't expect it to change too much. While
this represents a drop in dollars and percentages over the
previous year, 2011 saw an unprecedented level of commitment to
small business programs from our Air Force leaders at all
levels. Our fourth quarter numbers began to rise in conjunction
with the heightened attention. Despite a tough budget
environment, we believe this increased level of support of the
program, reflected in our future acquisition strategies, will
pay big dividends in the coming years.
Under our new director, Mr. Joseph M. McDade, we are
reinvigorating the role that small business plays at the prime
and subcontracting levels in all of our acquisitions. We are
developing a new plan that we believe will receive the
endorsement of our senior leaders, leading to a higher level of
achievement in the coming years.
Shaw Air Force Base, one of our most active operational
installations, has done a superb job of supporting the Air
Force Small Business program. They awarded over $78 million to
small businesses in fiscal year 2011. That is 86.6 percent of
their total spends, and that exceeded their goal, which was set
at 81 percent. Air Combat Command, Shaw Air Force Base's parent
command, also had a great year for small business awards. The
ACC awarded a total of $836 million or 41.8 percent to small
businesses. In fact, 11 of our 13 major commands awarded more
than the statutory goal of 23 percent, ranging from 25 percent
to 78 percent.
The challenge is with the product mix of our major weapons
system commands that obligate more than 70 percent of our
budget, yet award less than 10 percent of prime contract awards
to small businesses. One of our goals for 2012 is to increase
the market research and data analysis that is needed to
increase prime contract awards in these two MAJCOMS.
Our strategic goals in fiscal year 2012 include: finding
that right balance between enterprise buying strategies, known
as strategic sourcing, and making sure that our small
businesses are full partners in the process and are utilized to
the maximum extent; number two, focusing more intensely on
market analysis to identify additional opportunities for small
business in this time of declining budgets; and three, finding
the right acquisition strategies for small business when a
long-term contract is written. These include providing on-ramp
opportunities, which allow small businesses not selected
initially another opportunity to compete later on in the
ordering period, and also to encourage more teaming
arrangements between small businesses to allow them to compete
on longer, higher dollar contracts.
In closing, I would like to share a story about a small
business contractor who performs work here at Shaw Air Force
Base. ISPHI Information Technologies, Inc., a Mount Pleasant,
South Carolina small business, has provided over 25,000 hours
of logistical support for contingency operations, exercises,
war-readiness material pre-positioning, maintenance, and day-
to-day planning efforts in support of the contingency/deployed
personnel at the Air Force Central Command Area of
Responsibility. The invaluable work performed under this
contract demonstrates that while achieving Air Force small
business goals are important, it is the support provided to the
warfighter that showcases the true value of the program. We
need to develop strategies that ensure that companies like
ISHPI Information Technologies continue to thrive and grow. It
is the jobs provided to the local communities and the
innovation, agility, and value they provide to the taxpayer
that needs to be encouraged. Finding and helping small
businesses like ISHPI succeed and contribute to the mission is
what motivates all 145 of our small business specialists that
are located at every Air Force installation. There are success
stories like these at every installation. Our aim is to develop
more of those success stories.
Ms. Judith Cruxton, our small business specialist, and
Major Harris, who is our contracting commander, are also here
today and will be set up outside afterwards, and we will be
glad to talk to small businesses and help them learn more about
the opportunities that are here at Shaw Air Force Base.
So with that, I want to thank you for the opportunity to
address you today. I will be glad to take any questions you
might have.
[The statement of Mr. Caporal follows on page 58.]
Chairman Mulvaney. Let me ask you a question on the
logistics involved. You've got an Army base on an Air Force
base. Who is going to be responsible for the maintenance of the
Army side of the property? Will it be the Air Force, or will it
be the Army?
Mr. Caporal. Going back to my contracting days, lots of
times we would have a memorandum of agreement. Normally it is
the contracting organization that does the maintenance, or that
does the oversight. But a lot of times, if it is done by DCMA,
they don't come on an Air Force base or an installation. So
local agreements have to be made, and sometimes the folks at
the Air Force and the construction flight will take that
responsibility to come out and oversee the project.
It gets a little touchy sometimes because, you know,
manpower is short and they don't get any manpower credit
sometimes when they do that. But from what I recall, we have
worked out lots of successful agreements like that.
Chairman Mulvaney. Let's say that I am--pick a business--I
am an asphalt company, and I am here in Sumter, and I want to
know the next time that resurfacing the roads on part of the
base goes out to bid. If I talk to the Air Force small business
contact, or I talk to your contracting person, is that enough,
or do I need to also go over and talk to somebody on the Army
side of the base as well?
Mr. Caporal. Well, we do lots of local construction
projects. Title 10 is really for the big construction projects
that are done. We have a Center for Engineering and Environment
down at San Antonio at Lackland Air Force Base called AFCEE,
and they do projects for the Air Force that are some of the
larger ones. But besides that, we have lots of local small
construction projects that are handled locally at the base.
Chairman Mulvaney. Right, and that is what I am asking
about. I am not interested in doing work in San Antonio, Texas.
I am a local guy here. I do resurfacing, and I want to just
know the next time a project comes up at Shaw that I might be
able to qualify for, I might be able to bid on. If I have
reached out to the Air Force, have I covered all of my bases?
Will I know about all of the bids, the contracts that go out,
or do I also need to go talk to the Army as well?
Mr. Caporal. Probably need to talk to both, and probably
the small business person could advise whether that is going to
be a larger requirement that maybe the Army is going to handle.
Also, we have a forecast tool on our website. So sometimes it
is too late when you see the requirement, and it is 30 days to
close. But with our forecast tool, you can find out about these
requirements maybe six months to a year ahead of time.
Chairman Mulvaney. Ms. Robinson-Burnette, even though you
are not directly involved with Shaw, you have a lot of small
business experience. Tell me the one thing that small
businesses do that excludes them from getting contracts. What
is the biggest mistake that a small business makes when they
bid on a contract with the Army Corps of Engineers? If you
could waive a magic wand to fix it in order to allow more small
businesses to participate--I recognize you all are doing a
great job anyway but, generally speaking, what is the number-
one mistake that small businesses make when they bid for
government contract work?
Ms. Robinson-Burnette. Sir, I think the number-one mistake
is misunderstanding the requirements of the solicitation and
not understanding the limitations of the contracting officer
when there are mistakes. For example, contracting officers can
indicate that there is a page limitation for submitting the
technical proposal, and sometimes small businesses will give--
if the page limitation is 10, small businesses may add 12
pages, and they don't understand that after we get to the 10th
page, we are prohibited from reading and considering the
additional information, and a major portion of their technical
information could be on those additional pages.
Another thing that small businesses do, and I have learned
this from counseling with them, is after they propose, they
utilize the debriefing as a chance to challenge the contracting
officer's decision more so than gaining critical information
that they can use to make their next proposal more successful.
Quite often they may hold back a little bit from their
technical proposal and increase the price so they can submit
a--we used to call it best and final offer--revised proposal
that they believe will really push them a bit higher. And even
in the case with this award from Shaw, there wasn't an
opportunity for revised proposals. The government has the
opportunity to award on initial proposals.
Chairman Mulvaney. Mr. Griffin mentioned that as part of
the process, that there are two considerations. There could be
more than two, but the two major considerations are the--what
did you call it?--the abilities, and then also price. These
contracts are not bid just on price generally.
Mr. Griffin. Yes, sir. There are best value determinations
basically balancing the merit of their technical proposal and
their price proposal.
Chairman Mulvaney. Ms. Robinson-Burnette, what can small
businesses do--I think we all--I have been a small business. I
understand lowest price. This is pretty easy for me to get.
What about the best technical side? What can small businesses
do to better present the technical sides of their arguments, or
their bids?
Ms. Robinson-Burnette. I think it is important for small
businesses, when they look at the requirements of the
solicitation, to present solutions and not just repeat what is
in the solicitation but provide solutions that will show that
they are technically excellent and that they have strong
technical capabilities, and that they are providing additional
solutions. For instance, they could talk about green
initiatives in a project. That is just one thing that could
provide them an edge up on their proposal. But just clearly
looking at the requirements, and then making sure that they
respond adequately.
One of the things that large businesses do is they often
have proposal writers from another team that have not been
involved in that proposal that is being submitted to look and
review, and that way an objective team can take a look to see
if the proposal writers have answered the mail for that
acquisition.
Chairman Mulvaney. Before I go back to rebuilding the 3rd
Army, because I have a series of questions on that, I want to
ask you both, the two of you questions about in-sourcing. Have
you seen the impact of that?
For those of you who aren't familiar with it, there is a
new initiative with the current administration to take what are
deemed to be--I can't remember the exact bureaucratic term, but
essentially government functions----
Mr. Griffin. Inherently governmental functions.
Chairman Mulvaney. Inherently governmental functions, and
there is also ancillary----
Mr. Griffin. Close to, yeah.
Chairman Mulvaney. Close to. Tell me about what you have
seen generally with in-sourcing, which can be described as
government going off and not renewing contracts with private
small businesses especially, and effectively bringing the jobs
in-house, and if there is any experience you have here in South
Carolina on those, that would be helpful as well.
Mr. Griffin. I would be glad to answer that. We have seen
the effects of in-sourcing, and it seems like it has fallen
disproportionately on small businesses. A lot of the things
that were brought back in tended to be more of the low-hanging
fruit that small businesses could do, advisory and assistance
support contracts, those sorts of things. And it became a
double whammy for these businesses. Not only did they lose the
contract, but they also lost their workforce. The government
swooped right in and made these folks job offers, and if you
have 15 employees and you wind up losing 10 back to the
government, that can be a critical mass for trying to grow your
company in the future.
We don't have any really good figures on it, just a lot of
anecdotal evidence. A lot of the ones that were being
threatened or that were in the process, I think the Air Force
pulled back on some of those. They didn't really come to
fruition, but it still caused a lot of consternation. They
decided maybe they couldn't really find the cost savings. There
was a lot of subjectivity about the cost, as you can imagine,
about whether it is really least expensive for the contractor
or the government. And as a result of that, I think in some
cases they decided to leave the contracts in place, which
probably worked out well for our small businesses overall.
Chairman Mulvaney. Ms. Robinson-Burnette.
Ms. Robinson-Burnette. Yes. There are some in-sourcing that
is occurring, not a lot at the Corps. Some of the contracts
that we have attempted to in-source are focused merely on
contract support-type services, and some of those contracting
actions we still have small businesses working them, but we
have in-sourced some of the contracting functions. And part of
the acquisition, grow the acquisition workforce, we are
receiving new staff and personnel to take on those contracting
functions, and they are being in-sourced. I don't have specific
numbers for you today.
Chairman Mulvaney. We have heard some disturbing stories on
the committee. The one that sticks out in my mind was the
cartographer who showed up at his office one morning, and there
was a Department of Defense person there who had been
instructed to go in and essentially take this gentleman's
business from him. He said we have not renewed your contract,
we need you to abandon the building right now. And he said what
am I supposed to do about my employees? He said don't worry, we
have hired all of them and given them 20 percent raises. That
is in-sourcing. So I appreciate your insights on that. We will
continue to keep an eye on that in Washington.
Let's finish, Mr. Griffin. Let's go back to 3rd Army,
because that's really the real purpose that we are here today.
You mentioned something that I think is probably at the core of
the issue, which was the subcontracting plan that Caddell came
up with.
And full disclosure, by the way. We invited Caddell to come
today. They were very candid with us and said that everybody
who was involved with this project was overseas. We will
continue to reach out with them if we have any follow-up
questions. They have not been excluded from this meeting. They
simply chose not to participate.
Tell me about their subcontracting plan, and tell the folks
here why that is significant and what part of the process that
subcontracting plan plays.
Mr. Griffin. Okay. Subcontracting goes--there are two
phases in the acquisition. The first phase, we look at their
historical use of small business, have they had a positive
pattern of hiring and using small business, have they
maintained their commitment that they usually provide in their
proposal. In the second half, the Phase 2, they come in and
tell us specifically for this project what their subcontracting
strategy will be.
In this case, Caddell came in with a very aggressive
subcontracting plan, 71.5 percent of the dollars available they
wanted to subcontract out. They did a job fair initially when
the project was first awarded, and they identified 45 major
subcontracts that they planned to award. Of the 45 major
subcontracts, 23 were awarded to South Carolina firms, of which
5 were from Sumter. So we think that Caddell put the effort out
and really tried hard to meet its commitment locally to hire
small business firms.
They do have to balance cost as well. There were some
subcontracts awarded out-of-state for work that could have been
performed in-state because it was more cost effective to do so.
Chairman Mulvaney. Do you have any idea of the value of the
23 subcontracts and the 5 subcontracts specifically that were
in Sumter?
Mr. Griffin. Yes, sir. Let me see. I can tell you that the
small business value was $37,552,000.
Chairman Mulvaney. That was total, not----
Mr. Griffin. That is total small business. I do not have
the distribution for the South Carolina firms.
Chairman Mulvaney. If you could provide us with that at a
later date, that would be great, because that is really the
crux of the issue. You had a $100 billion contract.
Mr. Griffin. Yes, sir.
Chairman Mulvaney. So the question is what percentage of
that $100 billion--and then again, there is math that even
somebody with my degree can handle--what percentage of that
came to South Carolina firms, and what percentage of that came
specifically to Sumter firms? I think that would be helpful to
have.
Tell me about the process by which you all oversee the
execution of the subcontracting plan. How often do you all
touch base with a Caddell and say, look, have you let these
subcontracts? Who have they gone to? Do you ask them how those
subcontractors got the job? Tell me about how you all oversee
that particular part of the business.
Mr. Griffin. And I may have to defer the details to the two
to my right, who are smarter than I am on subcontracting
matters. But the contractor is required to report into a
database its subcontracting activity. The contracting officer
and the small business specialist are responsible for
overseeing that data and seeing how that data aligns with what
was promised initially in the proposal.
And if the contractor is meeting his goals, then things are
going well. If not, then the government has a responsibility to
inquire as to why. There may be a logical reason why the goal
was not obtainable. It may be that the asset was not available,
that the subcontractor was not available at the small business
level. But it is incumbent upon the government to enforce the
promises made by the contractor in the proposal.
Chairman Mulvaney. Are any records kept on subcontracts
that are not awarded? For example, is the information
available--we know that five Sumter businesses got subcontracts
under the Caddell contract. Is there a way to know how many
Sumter businesses bid on subcontracts?
Mr. Griffin. Okay, I will have to take that for the record
or pass it to one of the small business specialists.
Chairman Mulvaney. Are those records kept? If I run a small
business here, I run a landscaping company and I want to bid on
the clean-up for this contract during the construction, and I
don't get it, and there could be completely legitimate reasons
not to get it, is a record kept of my bid and my application
for that particular job?
Ms. Robinson-Burnette. Sir, we don't keep records of
subcontractors' proposals to the prime. The relationship
between the government is between the government and the prime,
and we don't have privity of contract to be able to see it.
Chairman Mulvaney. Great point. Is the prime obligated to
keep those records?
Mr. Griffin. One area I do understand. If the contractor
also does cost reimbursement work and the contractor seeks what
is deemed an approved purchasing system which is regulated by
the government, then they need to maintain those records
because the government has to go periodically and inspect their
purchasing process and determine if, in fact, they are
competing the work the way the government would otherwise
compete the work. So the larger firms tend to have that,
predominantly the ones that do cost reimbursement work. Fixed
price contractors that are not seeking to have an approved
purchasing system usually do not have the incentive to keep
those records and probably do not keep those records.
Chairman Mulvaney. Got you. But it is possible to know the
dollar amounts we talked about before?
Mr. Griffin. Yes, sir. I have got the data aggregated to
the 23 firms, so I would have the sub data, and I will provide
it within a couple of days.
Chairman Mulvaney. Okay. There are no geographic
preferences, are there, in any of these contracts? There is a
small business preference, and within that there could be
various disadvantaged groups. There could be Alaskan Indian-
owned groups. There could be women-owned or disabled veteran-
owned. But there are no geographic preferences at all in these
contracts?
Mr. Caporal. There is one exception to that, and that is in
the 8(a) program. In the 8(a) program, they need to draw from
that district.
Chairman Mulvaney. That's the business pub or the----
Mr. Caporal. The SBA district. That is the 8(a) Business
Development Program. These are firms that for nine years are in
a special status and can get sole-sourced contracts up to $4.5
million, $4 million for services and $6 million for
manufacturing.
Chairman Mulvaney. Are those the no-bid contracts?
Mr. Caporal. They can be awarded sole-source up to those
dollar amounts.
Chairman Mulvaney. I lose track. There is more than one
program to administer. I recognize that.
Mr. Caporal. Yes.
Chairman Mulvaney. And that is the one I think that the
Indian-owned companies are exempt from, right? They can go up
to a higher dollar amount?
Mr. Caporal. Yes.
Chairman Mulvaney. And they can go for longer than nine
years?
Ms. Robinson-Burnette. Yes, sir.
Chairman Mulvaney. Okay. Do you all keep records of 8(a) as
a subdivision, 8(a) companies as a subdivision of an overall
contract? I imagine you would, wouldn't you? If there were 8(a)
folks working at 3rd Army at Shaw, there would be a record of
it, right?
Ms. Robinson-Burnette. Yes, sir.
Chairman Mulvaney. Okay. And if they had applied and were
denied, there would be a record of that as well, wouldn't
there?
Ms. Robinson-Burnette. Yes, sir.
Chairman Mulvaney. Okay. Thank you.
Ms. Robinson-Burnette. Sir, I would like to add, in terms
of geographical programs, there is the Historically
Underutilized Business Zone Program, and Hubzone firms, we can
set aside an action for a Hubzone area, and the firm has to be
in that Hubzone and has to employ a specific number of folks
from the historically underutilized business zone.
Chairman Mulvaney. That did not apply to 3rd Army, did it?
Okay. And Sumter is not a Hubzone generally when it comes to
government contracts.
Mr. Griffin. I think in the case of this project, it was
just the size. It was too large when you did the market survey.
If the market survey would have shown that there were two
Hubzone contractors capable of performing the work, then we
would have considered a set-aside for a Hubzone.
Chairman Mulvaney. Got you.
Mr. Griffin. This one just was so large, it probably wasn't
feasible.
Chairman Mulvaney. Folks, I think that is all I have got.
Hold on just a second.
[Pause.]
Chairman Mulvaney. Thanks very much. That is it. Thank you.
Just one very quick follow-up.
Mr. Caporal, Ms. Robinson-Burnette was very helpful and
gave an idea of some of the jobs that were coming down the
pipeline in the area. Are you familiar with some of those that
the Air Force is having or might have in the near future as
well?
Mr. Caporal. We have got a list of those that is available
that can be passed out.
Chairman Mulvaney. Great, that would be great. I found that
one of the biggest challenges that we face in the Small
Business Administration, although I have been misquoted on
this, Mr. Griffin, is simply making the information available
to the small business community of the opportunities that are
out there.
Folks, I can't thank you enough for taking the time to do
this. I know that everybody is extraordinarily busy, and
especially in you all's position, as high up as you are, this
is a major sacrifice for you. I appreciate that.
I would appreciate getting the information. We will follow
up with your office separately on that. That would be
extraordinarily helpful to answer the questions here. One of
the questions is how much money stayed in Sumter, and I think
the folks here have a right to know that, and clearly that
information exists. It is not a secret, and we will get that
out and get that to everybody.
So I can't thank you enough, but I appreciate your time.
The next panel? If the next three folks could come up,
please, that would be great.
Mr. Griffin, if you wouldn't mind sticking around? I don't
know what your schedule is like, but some issues may come up in
the next panel. If you could stick around for another half-
hour, that would be great. Is that possible? Thank you.
We are going to go ahead and bring up the second panel. I
will introduce them very briefly, and then we will go through
the same process.
Mr. Lynam is first. Mr. Lynam is the owner of Lynam
Construction. It is Bill Lynam; I apologize. He started the
company here in Sumter in 1990. They specialize in the building
of commercial, industrial, school and church projects. The
company has been a certified Varco-Pruden Metals building
contractor for 23 years, and that enables them to design and
engineer metal buildings from small commercial to large
industrial projects.
Mr. Lynam has managed Sumter, South Carolina jobs such as
the St. James Lutheran Church, the Jehovah Missionary Baptist
Church, the Child Day Care Center, Kaydon Corporation, Jemison
Demsey, and the Hodge Warehouse. In addition to the Sumter
jobs, he has also managed the South Carolina Employment
Security Commission building in Columbia and a 20-story high-
rise in Fort Lauderdale, Florida.
He is a graduate of Clemson. That is okay.
[Laughter.]
Chairman Mulvaney. Where is my deputy chief? Yes, my deputy
chief is from Clemson.
He runs the company along with his son, Zeke.
Welcome, Mr. Lynam. Thank you for being here today.
The next witness is Billy Aycock, president of Aycock
Construction, also here in Sumter, 20 years of experience as a
general contractor and custom home builder in Sumter. They have
been involved in many premiere construction opportunities in
and around North and South Carolina, including projects such as
the construction of the West Acton High School, Lexington
Medical Office Building, the Fort Bragg barracks and parachute
facility, Toomey Hospital parking garage, and the renovation of
the governor's mansion.
Among Mr. Aycock's long list of credentials, he is proud to
be a member of the local and state homebuilders association and
was also Creative Homes winner in 2003, sponsored by the HPA.
As a former builder and member, I congratulate you on that.
He is also honored to be judge in the 2010 Columbia Tour of
Homes, and in 2010 he was elected by the Sumter and Clarendon
HPA as their president, and was reelected this year. He is also
a member of the State HPA Board of Directors for 2010 and 2011.
Mr. Aycock, it is a pleasure to have you.
Mr. Aycock. Thank you.
Chairman Mulvaney. Finishing up the second panel, Scott
Bellows. Scott is the South Carolina program manager for the
procurement and technical assistance center, or what we call
PTAC. You can't have a government meeting and not use at least
one acronym. He is embedded with the South Carolina Small
Business Development Center, SBDC, and focuses on assisting
businesses that are interested in selling their goods and
services to the government.
Mr. Bellows gained much of his contracting experience
during his 12 years with the U.S. Agency for International
Development, USAID. He has also worked in the private sector
with an emphasis on the integration of technology into schools
and small businesses. Prior to joining USAID, he worked with a
New York-based engineering firm where he worked primarily
overseas in Egypt.
He holds a Master's degree in International Affairs from
Columbia University in New York and an MBA from a school that
some people call USC, but it is in a different state, someplace
on the West Coast.
[Laughter.]
Chairman Mulvaney. So, Mr. Bellows, glad to have you here,
sir.
Mr. Bellows. Thank you.
Chairman Mulvaney. Mr. Lynam, fire away.
STATEMENTS OF BILL LYNAM, OWNER, LYNAM CONSTRUCTION, SUMTER,
SOUTH CAROLINA; WILLIAM ``BILLY'' AYCOCK, PRESIDENT, AYCOCK
CONSTRUCTION LLC, SUMTER, SOUTH CAROLINA; SCOTT H. BELLOWS,
PROGRAM MANAGER, SOUTH CAROLINA PTAC, THE MOORE SCHOOL OF
BUSINESS, SMALL BUSINESS DEVELOPMENT CENTER, COLUMBIA, SOUTH
CAROLINA
STATEMENT OF BILL LYNAM
Mr. Lynam. Okay. Congressman Mulvaney, I certainly
appreciate this opportunity. I was asked to come and testify,
and I was given the term and the one that you brought up, it
was ``barriers'' to working at Shaw Air Force Base. I want to
include a little bit on Fort Jackson, too, because we worked
there, and it is basically exactly the same.
When you all talked earlier about 3rd Army, I was involved
in the subcontractor selection process, and just to give a
comment on how that could be of more benefit to Sumter small
businesses, and I am strictly small business. In fact, we are
smaller now than we have been in a long time.
Chairman Mulvaney. Smaller than you want to be, I would
imagine.
Mr. Lynam. Yeah, a whole lot smaller. I started working at
Shaw Air Force Base in 1977 and have been off and on at Shaw
ever since. Of course, back then you sat around a table and you
cut the bids open, and the low man got the job. It is totally
different now.
The barriers to the 3rd Army for the local small business
is my perspective, and when I met with Caddell's
representatives, was the packages were too large. When I went
to--we separated at that meeting, and the person that we talked
with was the structural end of it, which we were looking at the
pre-engineered metal buildings and concrete. The pre-engineered
metal buildings had already been purchased. The concrete they
told us you would have to do the entire project. We couldn't
take one of the structures and do the concrete, which probably
on a $100 million project, probably is $10 million worth of
concrete, way out of our league, couldn't deal with it. So we
were pretty much ruled out of 3rd Army by the packages that
they presented.
Small business at Shaw, you brought up something at the
last panel right at the end, which is 8(a). 8(a) is now at Shaw
as construction in small business. I don't know about other
trades, but construction is pretty close to 100 percent. We
can't find anything that is not 8(a) out there. I don't qualify
for 8(a). I am a veteran of the 60s and the Army.
Chairman Mulvaney. But you are not disabled.
Mr. Lynam. No, it is not the same, and I have taken 27
months now to get that certified and still don't have it. That
is a barrier, I think, but there is no veteran contracting work
at Shaw that we know of, can't find any.
We worked for five contractors at Shaw. We don't work for
all five, but there are five. They are called MACC contractors
that are pre-selected, all 8(a) contractors. So anyone else is
fairly excluded. We would like to see that opened up a little
bit. We would like to see it opened up to veteran contractors.
Another--of those five MACC contractors, two are foreign
Americans.
Chairman Mulvaney. And ``MAC'' is M-A-C, sir?
Mr. Lynam. M-A-C-C.
Chairman Mulvaney. Okay.
Mr. Lynam. Multi-contract----
Chairman Mulvaney. What is it?
Mr. Bellows. Multiple Award Contracts, Construction
Contracts.
Chairman Mulvaney. Okay.
Mr. Lynam. The requirements for 8(a), when everybody talks
8(a), so many people don't realize that to qualify for 8(a) is
pretty broad. I have worked for Koreans, I have worked for
Chinese, I have worked for Hispanics, and to take--and they are
American citizens. But to take those contractors and put them
above our veterans to me is an injustice.
I was at a meeting similar to this one a few months ago
that Mr. Clyburn put on down at Santee, and there were two
individuals there from the SBA. One of them was a Mr. McLorhorn
from--I believe he was from Kentucky. And one of his comments
was that the veterans are the only people who have put their
lives on the line for this country. Why not move them up to the
front and give them opportunity to bid these jobs? It is not
happening.
There is a new bill, but it is pretty much restricted to
VA-funded projects.
The barriers that exist right now, and I confirmed this
this past Wednesday, working for the 8(a) contractors and in
talking to local contractors--now, I am strictly talking the
Sumter area, contractors that I know who there are a few in
this room tonight, today--is payment, payment from the general
contractor to the subcontractor. The government pays. That is
not a problem. But enforcing that payment from the contractor
to the subcontractor is a problem.
Right now, today, November the 8th, I am still waiting on
September money, and they say they haven't gotten their money.
The contracting officer says they have. The same thing with
other things like retainage. These are the barriers that
contractors in Sumter say I am not going out there.
We need to fix those things, and it would be simple enough
to do. But that is the biggest one that I hear locally is I am
not going to Shaw because you can't get paid. Well, you can. It
just takes a little time.
[The statement of Mr. Lynam follows on page 62.]
Chairman Mulvaney. Mr. Lynam, I don't mean to cut you off,
but this is a big topic in Washington right now because part of
the President's jobs bill--and despite what folks read in the
newspaper, there is actually many pieces of the President's
proposed jobs bill that members of my party agree with. There
is a long list of them, actually, and one of them or several of
them deal with small businesses, and one is the one you just
mentioned, which is that the President proposed and has
actually issued some executive orders, I believe, to start
paying subcontractors on 15 days instead of 30 days. Excuse me,
contractors on 15 days instead of 30 days.
Are you telling me that that hasn't been filtered down,
that the government is paying the contractors faster, or at
least is starting to do that, but the contractors are not
paying the subcontractors any faster?
Mr. Lynam. That is correct. If you look at the actual
regulations--now, I just signed a contract with another one out
there, and he did not put payment terms in his contract. He put
a FAR number. I looked that FAR number up on the Internet, and
it will kind of shock you what it says. The contractor got paid
in about 14 days, which is great, from the government. They are
supposed to pay the subs in 7, and they signed on----
Chairman Mulvaney. It is 7 after they get their money.
Mr. Lynam. After they get their money, and it is 7 calendar
days, not working days. They are not doing it.
Chairman Mulvaney. All right. What I may do before we are
finished here is call some of the first panelists up to address
some of those issues, because it is one of the things that
concerned us in Washington, was that we all agree with paying
subcontractors--excuse me, and I do that too often. We all
agree with the concept of paying contractors more quickly. We
understood what the flow of money through the system would do,
but we are concerned about the fact that might not be passed
from the contractors down to the subs, and it sounds like that
is happening.
Mr. Lynam. That is right.
Chairman Mulvaney. I didn't mean to cut you off, so please
continue, sir.
Mr. Lynam. As barriers go, and I am trying to use that word
``barrier,'' that is one of the largest ones that my friends,
people I know that are contractors in Sumter say I can't deal
with that. I don't have the money. We don't.
Chairman Mulvaney. Tell me about the process to become
qualified for the 8(a), because you say you are trying to.
By the way, 8(a), for those of you--please stop me if I am
wrong on this, because I do lose track of the programs. I
believe that is the one that, if you are 8(a) certified, you
have the right to bid for--excuse me, to do no-bid contracts.
There are certain set-asides in certain contracts up to a
certain amount of money. Is it $4.5 million? That was it? So it
is very advantageous to be certified as 8(a). Tell me about the
process you have gone through to try to get your company
certified for that.
Mr. Lynam. Well, I can't become 8(a). You have to be
African American, Native American, Alaskan American, and then
there is a list on the Internet of all the other countries.
Chairman Mulvaney. But there is a veteran--I am looking now
to the SBA people. Is there not a veteran 8(a) set-aside? I
thought it was a service disabled----
Mr. Aycock. No, sir. It primarily is for those in the past
who have been disadvantaged. That list, minority or anything,
it says those that are economically disadvantaged in the past,
and it kind of goes to what Mr. Lynam has said. Those are the
individuals--we do have, like, a white female in Charleston
that got 8(a) certified, but I think that is the only person in
the State of South Carolina----
Chairman Mulvaney. And my staffers are correctly pointing
out that I am confusing the 8(a) program with the Service
Disabled Veterans program.
Mr. Aycock. Two separate things.
Chairman Mulvaney. They are. So what you are saying is that
if 100 percent of the contracts in that particular area are
8(a) at Sumter, that you will never get a chance to bid on
those.
Mr. Lynam. That is correct.
Chairman Mulvaney. Because those are no-bid contracts.
Mr. Lynam. Well, I think those five did. We bid, too. We
bid the products that we sell, the metal buildings, the
concrete, the sheetrock, or whatever. We bid it to those five.
Usually at Shaw, when they come up with a project they are
going to do, it will go out to an invitation to those five
contractors to submit usually design-build type packages.
Chairman Mulvaney. Got you. Okay. Mr. Lynam, you talk about
the package as being too large, and I take it from your
testimony that deals with the size of the job itself, not the
physical size of the package in terms of the number of pages,
it is just too complicated, people don't want to do it.
Mr. Lynam. Right.
Chairman Mulvaney. But it is the size of the job.
Mr. Lynam. Right.
Chairman Mulvaney. Did you get the impression that the
contractor had bundled any of those? And by ``bundling'' I mean
maybe there was supposed to be a job for the concrete over here
and a job for the concrete over there and then the concrete in
a third location, and he just decided on his own to bundle
those together, to take it as one contract?
Mr. Lynam. I couldn't tell you what his motivation was to
do it. When we approached him about it, we asked him--we knew
very little about 3rd Army building. That was the first time we
had seen it, was in that meeting. They said--I asked him could
we bid the concrete on one of the buildings. He said no, you
have to take the entire project.
Chairman Mulvaney. And did they say why?
Mr. Lynam. Didn't say why.
Chairman Mulvaney. Okay. You said you were involved in the
subcontractor selection process. That is what you have been
describing.
Mr. Lynam. Yes.
Chairman Mulvaney. You weren't involved with Caddell in
picking subcontractors.
Mr. Lynam. No.
Chairman Mulvaney. You were trying to be a subcontractor.
Mr. Lynam. We were just trying to be one, right.
Chairman Mulvaney. All right. I am going to come back to a
couple of the other things when we are finished.
I am sorry, Mr. Lynam. I cut you off. Are you----
Mr. Lynam. No, I am finished.
Chairman Mulvaney. Mr. Aycock.
STATEMENT OF WILLIAM AYCOCK
Mr. Aycock. Yes, sir. I presented or prepared a brief
statement which you asked. Some questions in here have already
been answered by the first panel, but I am going to go ahead
and present it as I have it prepared today.
First of all, thank you for having me today. On behalf of
the Sumter-Clarendon Home Builders Association, I am grateful
for the opportunity to speak with you. I would also like to
thank the local businesses and the Sumter Board of Realtors
that have supported the growth of this community and the never-
ending support of Shaw Air Force Base. Together with these
organizations we have raised a great deal of money and local
support of Shaw Air Force Base and its growth through the
addition of the 3rd Army Campaign.
As this town will benefit greatly from the addition of new
friends and neighbors with a growing economy here, our local
builders and subcontractors are suffering from a dramatic
decrease in new construction sales. As our local HBA members
have declined by over 30 percent over the past 3 years, many of
us are asking the question: With the number of new homes on the
market now in our community, why is the government building
hundreds of new homes to further depress this market? That
isn't the question that we are here today. That is just a
statement.
The next question: If the homes are going to be built
nevertheless, why aren't we, the ones here supporting this base
and community, the ones building these homes?
This brings us to the concerns of this hearing today. Why
aren't small businesses receiving, at a minimum, the percentage
of business as described by this government? Let me say that it
is not because of the lack of local labor force but the lack of
the opportunity.
At a local meeting held by Hensel Phelps--and Hensel Phelps
was awarded this job, I believe, by Caddell. I believe that it
is the chain that--Forest City? Okay. It was awarded these
homes. They had a general meeting here, a local meeting here
looking for subcontractors. I saw over a hundred small business
owners from this community excited about going back to work. I
also had a few other contractors locally that spoke to me at
the meeting and after the meeting that said, made the
statement, we will never have a chance at this project. I later
found this to be true.
Hensel Phelps placed such stringent guidelines and
unrealistic expectations that it became obvious that this
meeting, in my opinion, was just a tool for the company to say
we offered opportunity. There were only three companies at this
meeting that I am aware of that may have the financial
resources to possibly meet their requirements. I would say at
least this would definitely deter our local small businesses
from ever receiving an opportunity to work on this project. I
personally registered at this meeting with my name and address,
expecting to receive a bid package that had several different
types of things they wanted, different people to bid on as far
as subcontractors and specific type jobs. I never received this
bid package.
I followed up with phone calls; was informed that Hensel
Phelps wanted companies that would commit to numerous bases, I
guess back to the bundling that you were speaking of earlier.
Knowing full well that my small business couldn't take on this
amount of work, I had to face the realization that my idea of
small business and theirs is two completely different things.
Two weeks ago I followed up again by phone and I was given
a company based in--given a name of a company based in West
Virginia to see if I could gain employment from them to work on
a base just minutes from my home. We here have locally
supported the base through the BRAC list just a few years ago.
I personally met hundreds of families from Fort McPherson who
have come to tour this town to try to gain them as neighbors
and friends, and I find it unfortunate that I have got to call
a company a few states over to see if I can gain employment of
a base right down the road.
This leaves me with the question: If the government sets
aside a percentage of business for small owners, who determines
the amount of the cap of the business? Who says it has got to
be worth $33.5 million? And that seems like a high number to
me. That is cutting out, weeding out a lot of small businesses
that can't exceed or can't reach the amount of work by bundling
or whatever type strategies they are using to basically just
overlook us. These seem to be obvious loopholes for these large
companies like Hensel Phelps to exclude the small businesses,
at least in this community.
[The statement of Mr. Aycock follows on page 63.]
Chairman Mulvaney. I think the $33 million deals with the
definition of a small business, and there is really no rhyme
nor reason to that. The definition of a small business varies
dramatically depending on the industry segment that the small
business is in. So I don't think it is accurate to say that
they didn't have to deal with anybody if they weren't at $33
million. I think the original testimony was that once you are
over $33 million, you are no longer a small business. But you
make some other excellent points.
The housing is really what got my attention on this, and
the building products, when we first got into this, because it
is one of the industries I understand. And I toured the base,
and they were rebuilding the apartments on the base and tearing
down some of the old housing and building some of the new
housing, and I can't remember what the numbers were, but the
dollars per unit on the apartments were way above what I could
have built them for, because I used to build those things.
And I recognize we get caught in this mental game where we
say, well, okay, if we are going to go and build some houses on
an Army base or an Air Force base or a Naval base, it has got
to be cheaper to find somebody to do all of it because there is
going to be economies of scale. And if they can do a job in
South Carolina and Florida and Arizona, then we are going to be
able to beat them down on price.
And housing has never been like that. Housing has always
been one of those things that is actually much more effective
or can be as effective on a small scale as it is on a large
scale. There are certain very limited exceptions, such as when
you buy your appliances and so forth.
But there was a reason that you go back before the last
crash and the top 10 largest home builders in the nation only
controlled 50 percent of the business. Home building has always
been a small business. It is an entrepreneurial business. It is
very efficient and cost effective at a very small level, and I
think it is one of the places where the Federal Government has
sort of lost track of that particular item.
I am disappointed to hear that Hensel Phelps, that part of
the process that gave them this contract was that they could
build on several different--and we will come back, Mr. Griffin,
and have you come up before we are over--disappointed that we
thought we would get a better deal as taxpayers by giving it to
a company that is far away in dealing with a huge project, as
opposed to doing exactly what you just described, which is home
builders in Sumter can build houses in Sumter probably cheaper
than anybody else.
I also share your concerns regarding the impact on the
overall market here. There were a lot of houses that were built
in anticipation of 3rd Army moving in without realization that
all this housing would be rehabbed on the base. So now we end
up with an over-supply of housing in Sumter without significant
immediate prospects for filling it with other industries. There
is some good news recently.
But really what we are talking about here when it comes to
housing on bases is the ultimate in in-sourcing. There is no
reason for the government to be building housing. There is a
huge private sector out there that can provide this in a cost-
effective manner, and effectively what we have done is taken it
away from small business. So I am extraordinarily sympathetic.
I want to go back to a couple of questions. Tell me about
the meetings. Tell me about the Hensel Phelps meetings. And am
I pronouncing that correctly? Tell me about those meetings.
Tell me about how they advertised it, how they ran the
meetings. I want to know. And I take it Hensel Phelps is a
large subcontract of--it is a separate contract, then, to do
the housing?
Mr. Griffin. Not to----
Chairman Mulvaney. Understood.
Mr. Griffin. Unfortunately, the housing component of the
Department of Defense moves to what is called public/private
venture housing under a new statute, and it is no longer
appropriated money. Basically, they have assigned 50-year
leases on the housing, and large management companies have
taken the inventory and then bond financed to raise the capital
that would be offset by the rental income. And those companies
like Forest City won those deals, and they are not governed by
the same rules and regulations----
Chairman Mulvaney. Fair enough. That is the way most
college dorms are built as well these days. I understand that.
Thank you for that insight.
Tell me about the meetings with Hensel Phelps. Tell me how
that went through the process.
Mr. Aycock. They contacted our local homebuilder's office
looking basically to hire our subcontractors, wanted some of
our subcontractors to come, bid. I went to a local meeting we
had at a building there at Swan Lake, which is a local area
here. They had a form there, wanted everybody to sign it and
fill it out, and they talked about how great the jobs were
going to be and how good this company is to work for, and they
may be.
Everybody who registered, I was under the impression that
we would all receive a bid package to bid on certain things
that they were requiring or they were needing. I know of a
couple of other people who got these packages who actually bid
on them who never were contacted back. One of them who was
contacted back said that they want him to commit to two other
bases, three in total, and he just wasn't aware, wasn't able to
do that, which if this doesn't fall under the guidelines, it is
tough for a small business to commit to that type of work. So
basically that is the only meeting that I went to that they had
and that I am aware of.
Chairman Mulvaney. Did any local builders get hired by
Hensel Phelps?
Mr. Aycock. Not to my knowledge.
Chairman Mulvaney. Any local subs?
Mr. Aycock. Not to my knowledge. No, sir.
Chairman Mulvaney. All right. We will come back.
Mr. Bellows, why don't you do your testimony? We will come
back to the questions.
STATEMENT OF SCOTT BELLOWS
Mr. Bellows. All right. Thank you for this opportunity to
present my views on matters relating to barriers for small
business contractors at the Department of Defense. In my role
as the South Carolina Procurement Technical Assistance Program
Manager, a Department of Defense initiative aimed at
maintaining America's industrial infrastructure and enhancing
competition in the procurement arena, I work with a broad
assortment of private sector firms, collaborate closely with
the Small Business Development Center network colleagues, and
interface often with various agency small business specialists.
Although our operations have helped our South Carolina clients
to secure over $1 billion in contract awards so far this year,
this work masks a number of fundamental problems that affect
our client base, especially the smaller of the small
businesses.
I believe that there is a general consensus that America's
small business community is what is going to revitalize our
economy. I think that there's also a quiet concern that with
the pending government belt tightening, the downward shift in
public sector work will align with a depressed private sector
economy to further complicate an already depressed economy. The
return of a large number of our troops in the coming months may
only accentuate the problem. In this context, I offer the
following four observations.
First, there are a number of forces at play in our economy
that are, for the time being, distorting what should be a
highly competitive market. Changes in banking regulations are
stifling loans, changes in the insurance industry are reducing
the ability of firms to reduce risk, and changes in labor laws
are causing firms not to add new employees.
The consequence of all this appears to be that the larger
firms are moving into a self-financing mode and in-sourcing
work where possible, medium-sized firms are contracting out
labor but are hesitant to actually bring on W-2 employees, and
small businesses are just working to survive. Most of our work
revolves around helping the small business community.
Second, the small business community is undercapitalized.
While the larger, less risky firms are finding ways to deal
with the economy, smaller businesses are finding this much more
difficult or impossible. Termination of the SBA's Community
Express Loan pilot program ended one of the few meaningful
options available to many of these small businesses. Similarly,
changes to the Export Express Loan Program that was made
permanent under the Jobs Act tightened the language in a way
that the funding could only be used for export-related
activities. For many small businesses whose domestic and export
functions are not as clear cut, this change ruled out yet
another option for many of the smaller, would-be exporters.
Third and compounding these problems, our well-intentioned
small business programs have evolved in a way that skews their
original intent. First, the plethora of small business
programs--8(a), Hubzone, SDVOSB, WOSB--has disenfranchised many
of those who are not eligible to the extent that they no longer
back the very programs they once were glad to support. Even
those set-aside programs don't really achieve what most think
that they do. It is not that the percentages are wrong, it is
just that many of the same contractors tend to get the work
time and time again, and those who want to break into
government contracting soon realize that it is a long, uphill
battle. Instead of asking how many dollars went to small
business contractors, if one asks how many unique vendor
contracts were awarded during a certain period of time, you
might just come away with a different impression of how these
programs are promoting small business development and helping
to revitalize our economy. Many of these small business
contracts are actually quite large, awarded for long periods of
time, and all but eliminate new opportunities for aspiring
government vendors. I have included a report generated from the
Federal Procurement Data System in support of this argument. In
all fairness to the contracting officers, these individuals
tend to be understaffed, have to consider the risk to taxpayer
money, and are cognizant of the need to meet small business
target numbers. Technically speaking, they are just playing by
the rules set before them. The prime contractors likewise are
helping to meet the small business targets while simultaneously
minimizing their risks by using subcontractors that they know
and trust. I would probably do the same thing if I were in
their position.
The fourth and final point that I would like to make is to
note that across all government sectors there seems to be an
emphasis on job creation. The best way to do this is to create
a policy environment that facilitates private sector growth. If
the government does this, I am confident that the private
sector can manage the creation of jobs.
Thank you for this opportunity.
[The statement of Mr. Bellows follows on page 65.]
Chairman Mulvaney. Mr. Bellows, it is interesting that you
mention the issue regarding the differentiation between the
amount of money that is contracted out and the number of unique
providers. In the hearing, the corresponding hearing to this
that we had out in California, one of the topics was how
difficult it has become to deal with small business programs,
not necessarily the Administration. The administration actually
gets very, very high marks for ease of dealing with. You would
almost rather deal with the SBA than any other Federal
bureaucracy. They are actually pretty good to work with.
But the process has become so difficult that it is
essentially a specialized sub-market, that SBA lending, which
was the subject of the hearing out in California, has become a
specialized sub-market where most banks now don't do SBA
lending, or many. That is an exaggeration. But it's such a
specialized business that large banks will hire entire teams
that come in and do nothing but SBA lending, and the concept of
our local neighborhood bank or credit union doing an SBA-backed
loan doesn't exist anymore. You have to go to the Wells Fargos
and the Bank of Americas of the world in order to get it.
Again, an over-generalization, but a general trend.
Similarly, I think that if we look into it, and I was
making a comment to Ms. Binkholder that we are going to do that
when we go back to D.C., I think what you will see is exactly
what you have mentioned, which is that government contracting,
at least within the SBA program, is becoming a specialty in and
of itself, that it is so complex to try to learn how to do it
that you actually have to go off and do just that. You can't be
what you all are and also be a small business, or a big-time
small business participant. It is either you are in or you are
out. It is simply too complex of a process. Again, over-
generalizations for sure, but certainly worth some inquiry.
Let me ask you, out of the four that you have mentioned, I
go back to D.C., and I should have asked this of all the
panelists. I will ask of the other two gentlemen before you
leave. What is the one thing I can do, what is the one issue
that I can raise back in Washington on this committee to try to
fix the problems that you have identified? Of those four, which
is the one that you would like to see me spend the most amount
of time on, recognizing that we can't fix everything but we can
fix some things?
Mr. Bellows. I think if you work on the assumption that
small business--and I am talking this kind of small business.
The SBA's definition of small business for many of my clients
is big business. But if you are looking at small business and
saying, yes, they are truly going to have an impact, they are
the ones that are going to really address a lot of the problems
in this economy, then they have to be included in the process.
And what has happened is if you go to a typical base--and
we are Shaw. My report focuses on Sumter County because I knew
that might be of interest to you. I think you can go across the
country. I don't think it is particular to Shaw. And I think
what you will find is you are a contracting officer, you have
got people telling you, look, we need to meet these targets, 25
percent for this, 5 percent for this and all that, you have got
taxpayer money at work. Heaven forbid that a contract go awry.
And there is a natural inclination when you are understaffed to
say, all right, we are going to bundle this thing because I
can't manage 10 small projects; I can manage one large project.
And I am going to put the burden on the prime contractor. I am
going to tell them I want to see that subcontracting plan. I
want to make sure that this work gets allocated.
Now, you have been a contractor. Put yourself in the
contractor's place. You have got people you have worked with
for the last 5 or 10 years. They know what they are doing. They
have built the same type of housing. They come in, boom, boom,
boom, you get the job done, the government is happy.
And people like this say what about me? That is risk. And
the government is not going to compensate you if one of these
guys goofs up. So you are stuck. And so they come in, they do
their job. They won it according to the rules that were set
before them. They didn't do anything wrong, and the job gets
done, and the targets are met, and almost everybody is happy.
Where it is really hard is for these people to break into
that, especially if they are not a certified program, given
some special advantages. It is really tough. That is all I can
say.
Chairman Mulvaney. How long does it take to become
certified generally? Do you know?
Mr. Bellows. Which program?
Chairman Mulvaney. 8(a).
Mr. Bellows. I work with a lot of firms becoming 8(a)
certified. I probably on an individual basis put in, I am
guessing, 10 hours at least of my time with each applicant.
There are firms--almost anybody that applies for 8(a) and,
frankly, a service disabled vet will tell you they get
contacted frequently by firms that charge anywhere from $3,000
to $8,000 to help them get certified and told that if you don't
do this, you are simply not going to get work.
Chairman Mulvaney. From start to finish, how long does the
process typically take in terms of weeks or months? Do you have
a feel for that?
Mr. Bellows. The 8(a) program has got--it used to be an 8-
month processing by the SBA. I understand it is down to 3 or 4
months, and about the same for Hubzone, and I believe the same
for service disabled vet, although yours may have taken longer.
Chairman Mulvaney. Your experience--and again, at this
level I have only anecdotal evidence so far. We are continuing
to try to pull some data. But if you are 8(a) certified, on
average what percentage of your business is thereafter 8(a)
work?
Mr. Bellows. As much as you can make it. I mean, that is my
impression, because there is--one of the previous speakers
mentioned there is a 9-year window, and that is your
opportunity to grow your firm, to do whatever you are going to
do. In a sense, if you digress too much from the government
focus, the time is going to tick by you. So you want to--the
objective--if I were an 8(a) firm, I would want to grow my firm
as quickly as I could, as big as I could, and then toward the
end of the 9-year period start to shift my focus into other
areas.
Chairman Mulvaney. And that is what we have seen, is that
the program--again, I wasn't around when the program was
created, but my expectations of the program would be that
gentlemen like this could use it, which is that they would run
their own business, and then if a government contracting
opportunity came up, they might go over and do the 8(a) program
as well. But that doesn't seem to be--again, I don't want to
over-generalize, but the anecdotal evidence is that once you
get that certification, you go off and do as much of that as
you possibly can to establish your business, and then at the
end of the 9 years you go off and you go back and do what these
gentlemen do, which is go back and be essentially private
sector.
Mr. Bellows. It is kind of a Catch-22, because even if you
look at the 8(a) firms, which are for socially and economically
disadvantaged firms, and there are ethnic groups that are
implied to be socially and economically disadvantaged, they get
a preference. They don't have to do the social disadvantaged
narrative in the application process.
Chairman Mulvaney. Right, and the best thing to be is a
Native American--excuse me--Native Alaskan Eskimo, I think. How
that happened--oh, I asked that question how that happened, by
the way. They said it was the same guy that did the Bridge To
Nowhere got that passed.
Mr. Bellows. Yeah, I know. If you look at the attachments,
you will see that a number of the contracts are exactly that.
Chairman Mulvaney. I have seen that, yes. It is amazing
what that can do. Thank you, Mr. Bellows.
Gentlemen, I am going to come back to your experience at
Shaw a little bit. One of the things that we have heard
regularly when small business people come to Washington to
testify--and again, we have had similar hearings to this in
Washington with folks all over the country on dealing with the
government. That is what this committee does. One of their
frustrations is they don't ever hear why they didn't get the
job. Have you ever had the opportunity to sit down with anybody
after you had bid a job? You didn't get a chance to bid it, Mr.
Aycock, so that doesn't really apply to you. But clearly, Mr.
Lynam, did you have a chance--were you satisfied--did you know
why you didn't get the work? It sounds like you may have in the
circumstance, with the job being too large. But is that
typical, or do you always get to get some feedback?
Mr. Lynam. We typically don't have the opportunity to bid
straight to the government, so we are bidding to contractors.
Chairman Mulvaney. Correct.
Mr. Lynam. Which they will tell you that you weren't cheap,
you weren't the best price. No, we don't have a problem with
that. They will generally tell you why you didn't get it.
Chairman Mulvaney. Okay. Did you ever not get a job because
of your qualifications?
Mr. Lynam. Yes.
Chairman Mulvaney. Tell me about that.
Mr. Lynam. Working on one right now that we are not going
to get.
Chairman Mulvaney. I have been there. We all know we put
bids in that we are not going to get.
Mr. Lynam. We get calls occasionally. I am working on my
third one right now, and I can't just turn it away, at Shawl,
by a user of a building, not contracting. They need a price. I
had to call this morning, wanting to hurry up and get my price
in. We know that the units, the users are not going to award
these contracts. They go through contracting. And I have had,
on the last two that we gave them a price--what we have to do--
apparently--I say apparently because I am not sure what they
are doing--they will take two or three contractors, a sergeant
or somebody from a unit, and get a price on what they are
doing. Then they submit it to contracting. Well, then
contracting, the last time it happened I got a call said are
you 8(a)? I said no. They say we are sorry. I did all the
design work and the whole works.
Chairman Mulvaney. They are using that to compare the 8(a)
bid, aren't they?
Mr. Lynam. That is correct. We have got to get one out
there today or tomorrow that I would almost bet the contracting
people here in this room don't know about, but they will as
soon as they get their prices in and they give them the data on
it, and we will have 20 or 30 hours worth of time in it.
Chairman Mulvaney. I'll generally ask you this and maybe
start to wrap up. We have taken some good testimony today on
some of the general issues facing small business. Thank you,
Mr. Bellows, for your input. It is extraordinarily helpful. And
thanks again to the first panel.
When we drill right down to home here, okay, I have not
seen--I have friends of members of Congress all over the
country, and I have yet to talk to any of them who have major
military installations in their area who have better relations
than Sumter has with Shaw. In fact, the exact opposite is
usually the case, that the community in which the military base
is located is at loggerheads so often with the communities that
they are in, and this is the exact opposite. We have a
tremendous relationship here between the civilian community and
the military community.
But that being said, what can we do to make it better? What
can we do, Mr. Aycock, to fix the situation? What can we do to
make sure, short of waving a magic wand and changing the SBA,
which I don't have the ability to do. But what are the things
that we can do locally? What are the things that you could do,
that I could do, that the folks in this room could do to make
it so that you all could get more business from this base? You
live it every single day. You all know more about it than I do,
all the time.
Mr. Aycock. Locally, I am not sure. I think that housing
should be subject to this 23 percent rule. I think that it
should, you know, and using small or local businesses with
that. When it is not, I think there definitely should be a
penalty in place to make sure this is policed and followed up
on. As far as locally, I am not sure. I don't think--they don't
really abide by local guidelines, government issued contracts
and things like that. So I don't know if locally there is
anything I can do about it, or we.
Chairman Mulvaney. Mr. Lynam.
Mr. Lynam. I would like to see the market opened up a
little bit, not so tightly restricted to five contractors,
again small business, and I am talking small business, not the
government's definition. We probably don't have a contractor in
Sumter that approaches that level, maybe one. And allow us to--
or support us with these contractors, one or the other. Now, I
have no problem with Shaw. You mentioned the relationship. I
worked at Shaw since '77 and have had a great relationship with
them. It is those people we are working for that I am having
the problem with.
Chairman Mulvaney. Right.
Mr. Lynam. And not getting a whole lot of support to help
me. That is the problem. I can't wait for money as long as we
wait for money, knowing that they have been paid, and then the
contracting officer tell me right fast they have been paid,
retainage, things like that. When the government is not holding
retainage on the contractor and they are holding it on us, that
is basically illegal, but they do it every day.
We need support to help us with those things, and it would
be a great opportunity.
Chairman Mulvaney. You know, the reason we do these
hearings, and folks ask me all the time after the meetings up
in D.C., out in California, here, they say was it worthwhile.
The reason we do these hearings, a couple of different reasons.
Number one, we are always looking for anecdotes. We are looking
for stories. The government is so large and it is so difficult
to get your hands around it, oftentimes telling a story such as
the one where you went to the meeting and they actually tried
to hire your subcontractors instead of hire you, that allows us
to explain very complex issues in a relatively simple fashion.
It allows me to understand it. It sort of crystallizes the
issue.
We also try to use these meetings to stir the debate.
Invariably the Sumter Item will publish some type of article
today. The Homebuilders Association may put it in their
journal, and it may end up in three other journals that you
have never read about. But with the Internet, it drives the
debate. The example that I give of that is the 3 percent
withholding rule that we just changed this year was something
that probably very few people outside of this room knew about
two or three years ago, but because Congress has been having
hearings, we continued those hearings this year, not only did
we actually get a bill passed that ended up in the President's
jobs package, and there is a good chance that 3 percent bill
will be passed out of the Senate this year. So we do it to
drive debate as well.
Personally, I do it for another reason, not a different
reason but another reason, which is I am looking for ideas. I
am looking for things that we can actually change. Again, the
big picture, very difficult to change Congress at this level.
But if a small group of people is interested in changing it at
small levels, there are actually opportunities to make
improvements.
One of the things we took out of the California meetings,
for example, was to try and work on changing micro-lending. It
is evidently just as difficult within the SBA world to lend
$15,000 as it is $5 million. As a result, nobody lends $15,000.
Why would you, if you were a bank, take all the time to fill
out this amount of paperwork to lend $15,000 and make a small
amount of money on that, versus the exact same time and
paperwork to lend a couple of million dollars that you can make
some money on? So as a result, nobody does micro-lending, yet
micro-lending is extraordinarily important. That was the one
idea we took out of California.
We have got two here today that I will tell you folks I
want to work on. The first one you mentioned at the very
outset--I am glad you did mention it--which is on the payment
times, because that is exactly what we were afraid would
happen, that this benefit--not benefit, but the additional
consideration given in trying to get payments out the door
faster--and thank the Lord there are enough people in
government who understood the importance of that, that there is
a difference in business if you get paid in 30 days versus 15
days. But we were concerned when those rules changed, or at
least they are starting to be implemented now, that it wouldn't
filter down, and that the benefit would be consumed at the
contract level and would not go down to the subcontract level.
For me, I am particularly concerned about the impact on small
business, and we are going to look into that, maybe have some
special hearings on that when we go back next year.
The other one is a little more subtle, but Mr. Aycock and
Mr. Griffin, your testimony together has brought my attention
to something I was not familiar with and probably nobody cares
about in Washington other than me as of today I sit here.
Changing the housing model has some unintended consequences.
What I imagine they tried to do is move to a system where the
government didn't have to pay for the housing. It is a great
deal for the taxpayers. But by moving to that model--and this
is the model that, again, many universities have switched to,
where instead of a university building a dorm, they will
contract with an outside company that builds the dorm, and then
the university will essentially force the students to live
there, and the company that has built the dorm can finance the
structure, make a little bit of money, make a profit. It is a
low-risk endeavor. It is the way that most university dorms are
built these days, and it sounds to me as if DOD has copied that
model.
And there is a perfectly legitimate reason for doing that,
because it takes it off the government books, the taxpayers
don't have to pay for it, it is privately funded. But when you
do it in the scale that it looks like they have done it, it
cuts this gentleman out of the process entirely. In fact, it
excludes most small businesses at all from running those
developments, not from being involved, because a small
contractor or subcontractor could still provide the concrete,
the brick, the electrical work for these houses, for that
particular building, but it prevents homebuilders from doing
what they do, which is build houses, because you are not
building one or two. You have got to build 600 at a time. In
fact, more than that. You probably have to build several
thousand at a time because you are doing five or six bases at a
time, and there are very few, even of the national builders,
who have the ability to do that.
And what we have done, in essence, is cut a huge part of
the private sector economy, in this area especially, out from
the process. The only people now who can afford to run the
projects to build housing on military bases are probably large
insurance companies or huge contracting firms, and that is
something that we need to take a look at. There is no reason to
do it that way, Mr. Aycock. There is no reason that we can't
simply allow the local homebuilders in Sumter to build a couple
of extra houses and let the military folks buy them if they
want to, rent them if they want to, or not buy them if they
want to, or not rent them if they want to. So maybe taking a
look at that housing model is something that is worthwhile and
in the long run will be helpful to our small businesses.
That is more than I usually like to talk at these things,
but since there is no other congressman here, I can do it for
all of them.
Listen, thank you all to everybody for participating.
Again, I know everybody walks out of here saying, gee, I don't
know if that was helpful. These things are very, very helpful.
You have no idea. This is how government works. We don't sit up
in Washington and sit on the sofa one day, watch TV and go,
wait a second, I wonder if my subcontractors are getting paid.
It is doing things like this that drive home the real world,
and in some sense maybe we should do this more often because we
don't get it enough inside the Beltway, perhaps.
With that, I am going to stick around for a little bit.
There will be organizations outside for the small businesses to
get involved. I know there is a representative here from the
SBA in South Carolina. Mr. Griffin is here, put on a tremendous
presentation here a couple of weeks ago to introduce small
businesses or folks interested in running a small business to
the services that are available to you. Again, the SBA, one of
the best--and it is not just me saying it--one of the best
Federal agencies with which to work. You heard, I think, the
process on 8(a) has come down from eight months to several
months. I have heard the same thing. That is not the story
across all Federal agencies, as you can probably imagine. In
fact, most of them are going the other way.
So again, thank you for your time. Thank you for your
effort. Thank you for your input.
And with that, we will adjourn the meeting.
[Whereupon, at 11:45 a.m., the Subcommittee was adjourned.]
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