[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

                               __________





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                                [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            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

                              ----------                              

                           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

                              ----------                              


                       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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