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



 
 SCHEDULING SUCCESS? ISSUES AND OPPORTUNITIES FOR SMALL BUSINESSES ON 
                           THE GSA SCHEDULES

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

                                HEARING

                               before the

               SUBCOMMITTEE ON CONTRACTING AND WORKFORCE

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                              JUNE 7, 2012

                               __________


                               [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            Small Business Committee Document Number 112-071
              Available via the GPO Website: www.fdsys.gov



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                   HOUSE COMMITTEE ON SMALL BUSINESS

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

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


                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hon. Mick Mulvaney...............................................     1
Hon. Judy Chu....................................................     2

                               WITNESSES

Thomas Jacobs, Principal, Krueck Sexton Architects, Chicago, IL..     4
Larry Allen, President, Allen Federal Business Partners, McLean, 
  VA.............................................................     5
Charles Forman, Executive Vice President, Independent Stationers, 
  Indianapolis, IN...............................................     8
Mike Tucker, Owner, George W. Allen Company, Beltsville, MD......     9
William T. Woods, Director, Acquisition and Sourcing Management, 
  Government Accountability Office, Washington, DC...............    22
Steven J. Kempf, Commissioner, Federal Acquisition Services, 
  General Services Administration, Washington, DC................    20

                                APPENDIX

Prepared Statements:
    Thomas Jacobs, Principal, Krueck Sexton Architects, Chicago, 
      IL.........................................................    35
    Larry Allen, President, Allen Federal Business Partners, 
      McLean, VA.................................................    42
    Charles Forman, Executive Vice President, Independent 
      Stationers, Indianapolis, IN...............................    51
    Mike Tucker, Owner, George W. Allen Company, Beltsville, MD..    54
    William T. Woods, Director, Acquisition and Sourcing 
      Management, Government Accountability Office, Washington, 
      DC.........................................................    58
    Steven J. Kempf, Commissioner, Federal Acquisition Services, 
      General Services Administration, Washington, DC............    71
Questions for the Record:
    Committee on Small Business Questions for Larry Allen........    79
    Committee on Small Business Questions for Bill Woods.........    81
    Committee on Small Business Questions for Charles Forman.....    82
Answers for the Record:
    Larry Allen Answers for the Record...........................    83
    William T. Woods Answers for the Record......................    94
    Charles Forman Answers for the Record........................    98
Additional Materials for the Record:
    Veterans' Entrepreneurship Task Force Written Testimony of 
      Mr. Robert Guy Hesser......................................   101
    National Association of Government Contractors Written 
      Testimony of J.R. Claeys...................................   106
    American Institute of Architects Letter for the Record.......   110
    Adams Marketing Associates, Inc. Letter for the Record.......   113


 SCHEDULING SUCCESS? ISSUES AND OPPORTUNITIES FOR SMALL BUSINESSES ON 
                           THE GSA SCHEDULES

                              ----------                              


                         THURSDAY, JUNE 7, 2012

                  House of Representatives,
                       Committee on Small Business,
                 Subcommittee on Contracting and Workforce,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 2:35 p.m., in 
room 2360, Rayburn House Office Building. Hon. Mick Mulvaney 
(chairman of the subcommittee) presiding.
    Present: Representatives Mulvaney, King, Coffman, Landry, 
West, Ellmers, Barletta, Chu, Schrader, Critz, and Richmond.
    Chairman Mulvaney. All right. We will go ahead and call 
this meeting to order. I apologize in advance for the brief 
delay in getting started. We had a couple of votes. We should 
not be interrupted, I think, again. This time we should be 
great. So with that, I have an opening statement. Thanks 
everybody for coming very much.
    Over the past few months, the Public Building Service of 
the General Services Administration has received a great deal 
of attention for its outrageous use of taxpayer dollars. 
However, in those discussions, it was easy to forget about the 
other side of the GSA. The Federal Acquisition Service serves 
as the core buying agency for the federal government. This 
division oversees the distinctive area of Multiple Award 
Schedules, or what we call Schedules, which is a program that 
poses unique challenges and opportunities for small businesses.
    As we are all aware, the federal government spends half a 
trillion dollars every single year through federal contracting. 
What most people do not realize is that one out of every 10 of 
those dollars is spent using these Schedules, and that amounts 
to roughly $50 billion per year. About 80 percent of the 19,000 
Schedule contractors are small businesses, and they receive 
about 35 percent of the money. This is no meager feat. GSA 
requires detailed records from a small business before awarding 
a Schedule. Many small businesses are forced to hire expensive 
outside proposal preparation services and invest in new record 
keeping systems in order to compete for Schedule contracts.
    Despite the expense associated with receiving an initial 
GSA award, many small businesses still feel it necessary to 
enter the federal procurement process. However, recent changes 
in law, budget challenges, and new initiatives are now changing 
how small businesses relate to the Schedules. This Subcommittee 
seeks to ensure that small companies who invested in GSA 
Schedules are not forgotten, and that those small businesses 
who may wish to participate in the future are not unfairly 
prejudiced. Today, we will examine four primary issues 
paramount to this discussion, including: The Brooks Act, 
strategic sourcing, voluntary set-asides, and the demand based 
efficiency model. Our questions will focus on ensuring that as 
the GSA advances in these areas, small business opportunities 
are preserved.
    In order to have an accurate understanding of these issues, 
our first panel is composed of small businesses, and our second 
panel will feature two government witnesses. We will hear 
testimony from small business owners who have felt both the 
benefits and the burdens of the GSA's change in contract awards 
under the Federal Strategic Sourcing Initiative (FSSI). We will 
also have industry experts testify on the effects of altering 
the Schedules to demand based efficiency and learn whether the 
GSA is truly complying with small business set-asides and the 
Brooks Act.
    I would like to thank everybody in advance for being here. 
We will get a chance to do that again before you leave, but I 
do appreciate your time. We look forward to everybody's 
testimony. And with that I will turn over to Mrs. Chu for her 
opening comments.
    Ms. Chu. Thank you, Chairman Mulvaney.
    I would like to thank you for calling this hearing today, 
and thank our two panels of witnesses for joining us to offer 
their insight, experience, and expertise on small business 
federal contracting and the GSA Schedules.
    As we noted, federal contracting is an important source of 
opportunities for small businesses and can often be a first 
step toward growth for many small businesses. When 
entrepreneurs are hired by the federal government, they bring 
on new employees, create opportunities in their industries and 
in their communities. For our economic recovery to continue, 
small businesses must continue getting customers through their 
doors, and that is why it is this Committee's responsibility 
and my personal priority to ensure that we do all that we can 
to help small businesses thrive. And that is why we are here 
today, to ensure that the General Service Administration's 
Multiple Award Schedule Program is in place for small 
businesses to succeed and grow.
    After all, according to SBA, getting a GSA Schedule 
contract is the lowest cost entry into government contracting 
and a great way for small businesses to achieve credibility in 
the federal contracting marketplace. Reforming and modernizing 
the Schedule is necessary to keep pace with changes in the 
economy, as well as the evolving needs of agencies and the GSA 
must lead by example. Initiatives that promote small business 
participation, increase efficiency and reduce waste are indeed 
critical, but we are here to examine some of the more recent 
and proposed changes to the GSA Schedules program just to 
ensure that they meet those vital goals.
    In particular, we need to review proposals that may reduce 
the participation of small firms on the GSA Schedule. Such an 
outcome would not only shortchange entrepreneurs but also 
government agencies who could benefit from more and not less 
competition for their businesses.
    GSA Schedules have been highly effective for small 
businesses, and they are growing rapidly. However, since the 
GSA Schedules are the only procurement program that does not 
require set-asides, it is critical that we ensure that small 
businesses are not at a disadvantage, especially as contract 
award vehicles are added or changed. We have seen over and over 
again that the federal government's commitment to small 
business has at times been disappointing. It fails to meet 
statutory benchmarks year after year, not just for small firms 
but also disadvantaged entrepreneurs like veterans, women, and 
minorities.
    As the GSA Schedule evolves, it is critical that small 
businesses are consulted and prioritized. Improving the GSA 
Schedule and empowering more small firms to grow with the 
government is vital to our economic recovery. Ultimately, the 
questions are simple. Are small businesses benefiting from the 
changes at the GSA? Is government maximizing small business 
participation even while streamlining processes and 
transitioning to a more cost-effective system? Does GSA need to 
make small business participation in the Schedule more of a 
priority?
    Well, the answers, of course, are not so simple, but I am 
eager to hear from our panelists and work with my colleagues to 
make sure that we tackle these challenges before us 
responsibly.
    Chairman Mulvaney. Thank you, Ms. Chu.

     STATEMENTS OF THOMAS JACOBS, PRINCIPAL, KRUECK SEXTON 
  ARCHITECTS, CHICAGO, IL, ON BEHALF OF AMERICAN INSTITUTE OF 
  ARCHITECTS; LARRY ALLEN, PRESIDENT, ALLEN FEDERAL BUSINESS 
PARTNERS, MCLEAN, VA; CHARLES FORMAN, EXECUTIVE VICE PRESIDENT, 
 INDEPENDENT STATIONERS, INDIANAPOLIS, IN; MIKE TUCKER, OWNER, 
   GEORGE W. ALLEN COMPANY, BELTSVILLE, MD, ON BEHALF OF THE 
               NATIONAL OFFICE PRODUCTS ALLIANCE

    Chairman Mulvaney. Now, the witnesses today, the first 
panel is usually our businesses. The first witness will be Mr. 
Thomas Jacobs, a principal with Krueck Sexton Architects, a 
small firm in Chicago. He is testifying on behalf of the 
American Institute of Architects, who last month awarded Mr. 
Jacobs their 2012 Young Architect award. Thank you, Mr. Jacobs, 
for being here.
    Next to him is Mr. Larry Allen. He started Microsoft? No, 
president of Allen Federal Business Partners, a small business 
in McLean, Virginia, that helps small and large businesses 
navigate the GSA Schedules. Mr. Allen has authored or co-
authored three books on the Schedules.
    The third witness is Mr. Charles Forman, executive vice 
president of Independent Stationers in Indianapolis, Indiana. 
His company holds a GSA office supply blanket purchase 
agreement or BPA that allows approximately 117 small businesses 
to participate in the Federal Strategic Sourcing Initiative. 
Welcome, Mr. Forman.
    And Ms. Chu will introduce our final witness.
    Ms. Chu. Yes. It is my pleasure to introduce Mr. Mike 
Tucker. Mr. Tucker serves as a chairman of the Independent 
Office Products and Furniture Dealers Association, which is a 
division of the National Office Products Alliance. And this 
represents over 900 businesses in the office products industry. 
He is also the owner of a small business, George W. Allen 
Company, located in Beltsville, Maryland. Welcome, Mr. Tucker.
    Chairman Mulvaney. Gentlemen, thank you. Here is how the 
housekeeping works. We have asked you to limit your statements 
to five minutes, although typically in the Subcommittee we will 
not enforce that rule very strictly. If you decide to go a few 
minutes over, that is fine. If you start hearing me tap very 
quietly on the desk that means make some effort to please wrap 
it up. But please do not feel constrained by the five minutes. 
We are here. Many of you have traveled a good ways to be here. 
We would rather hear what you have to say than arbitrarily 
enforce a five-minute rule.
    Secondly, what we will do is we will start with Mr. Jacobs, 
go down, and let all of you give your testimony first. Then, 
Ms. Chu will have an opportunity to ask questions. I will go 
last. And finally, and this is a little bit different in this 
Subcommittee. We usually do the businesses first and then the 
government witnesses second. But we welcome your questions of 
them. So if you have things that you want us to ask those 
folks, please let us know. And for the government witnesses, 
and I do not recognize their faces, please be aware that we may 
very well ask you questions based upon the opening testimony. 
So that is an opportunity that we afford you folks.
    Mr. Jacobs, please fire away and we will go to Mr. Allen 
when you have completed.

                   STATEMENT OF THOMAS JACOBS

    Mr. Jacobs. Chairman Mulvaney, Ranking Member Chu, and 
members of the Subcommittee, I am Thomas Jacobs, AIA, principal 
at Krueck Sexton Architects, an 11-person architectural firm 
based in Chicago. Illinois. I would like to thank you for the 
opportunity to testify today on behalf of my firm and the 
American Institute of Architects.
    The current economic crisis has affected every American, 
but it has hit small businesses particularly hard. Architects 
are, by and large, small business people. Ninety-five percent 
of U.S. architecture firms employ 50 or fewer staff. In fact, 
the vast majority practice in one or two person firms. Because 
of a lack of financing in the private market, public sector 
work has literally been a lifeline for many small design firms. 
However, working with GSA and other agencies can be challenging 
for small firms.
    Federal agencies are required to procure architectural 
services through qualifications-based selection under the 
Brooks Act. The Brooks Act does not mean that price is not a 
component of the negotiation. The price must be negotiated with 
the firm that best meets the qualifications for the project. 
This is similar to how private sector clients select architects 
for their projects.
    However, some agencies avoid using rooks Act by obtaining 
architects through the Federal Supply Service. To participate 
in the Federal Supply Service, the contractor provider must 
post a price list for agency use. The agency then determines 
the best value by reviewing prices and other optional criteria. 
This ``best value'' process is in direct conflict with the 
Brooks Act because it focuses almost entirely on price and not 
the qualifications needed to protect the health, safety, and 
welfare of the people who use the buildings. Moreover, in some 
states, architects are prohibited from competing on price. This 
puts architects in an untenable position of either violating 
ethical obligations or being locked out of the federal 
marketplace. GSA must cease to use the Federal Supply Service 
program for architecture as it violates the Brooks Act.
    Another issue small design firms face is in how GSA selects 
architects for design build projects. The rewards are high, but 
cost to compete is increasingly prohibitive for small firms. To 
prepare for a design build competition, an architecture firm 
spends an average $260,000 by creating plans, models, and other 
materials. In almost 87 percent of federal design build 
competitions, there are no stipends for the firm. Instead, the 
firm must hope that they win to make up the lost costs.
    Agencies have taken advantage of their purchasing power 
during the recession and have expanded the number of short-
listed teams. In the past, three finalists were typical, but 
now there may be as many as 8 to 10 teams on the final list. 
The odds of being selected have dropped significantly. Small 
firms also face competition from larger firms who can more 
easily absorb the cost. We ask the Committee to look at 
reducing the number of finalists on these types of projects so 
that all firms participate in this market.
    Finally, I ask, the Committee to urge GSA and other 
agencies to expand the participation of small firms in the GSA 
Design Excellence Program. My firm has been a successful 
participant in this program, which streamlines the selection 
process while stressing creativity in designing buildings which 
represent the dignity, vigor, strength, and enterprise of the 
U.S. government.
    When we were shortlisted for our project, we were the only 
small firm competing against five large architectural firms. 
Because we had the talent, the design, and we were a small 
business, we won. Once under contract, we designed a 475,000 
square foot new federal office building in record time with 
construction bids coming in below budget. Small firms are 
competitive.
    At a time when federal government is facing unprecedented 
deficits, we need to ensure that every taxpayer dollar is spent 
wisely. Ensuring that the most qualified designers are selected 
at the outset of the project reaps financial benefits and true 
value for years to come.
    In conclusion, I would like to thank the members of the 
Subcommittee for giving me the opportunity to testify today and 
for your dedication helping small business drive the recovery. 
I am happy to take any questions that the Subcommittee may 
have. Thank you.
    Chairman Mulvaney. Thank you, Mr. Jacobs. Again, we will do 
questions all together at the end. So, Mr. Allen.

                    STATEMENT OF LARRY ALLEN

    Mr. Allen. Thank you, Mr. Chairman, and good afternoon to 
you Madam Ranking Member and other members of the Subcommittee.
    It is an honor to have this opportunity to testify today 
before you on the GSA Schedules program. This is a program I 
have worked in for nearly 23 years. For 20 years I led the 
Coalition for Government Procurement, an association 
principally made up of small business GSA Schedule contract 
holders, as well as businesses of other sizes. I served on the 
Multiple Award Schedule Advisory Panel and continue to teach 
and advise companies on government business matters.
    The Multiple Award Schedule Program, in my view, is the 
single best avenue for small businesses to compete for and win 
government business in today's environment. Having a Scheduled 
contract allows small firms to win and compete against larger 
businesses every day. The thousands of successful small firms 
that hold GSA Scheduled contracts are a testament to the 
creativity, nimble solutions, and dedication to service that 
are emblematic of small businesses everywhere. For over 20 
years, small businesses have received between 30 and 33 percent 
of Schedule task orders. It is clear that small businesses have 
succeeded as the Schedules program has succeeded. No 
procurement program open to businesses of all sizes can match 
this consistent successful rate of small business success.
    Yet, even this percentage of direct contracting tells only 
part of the story. Thousands more small firms participate in 
the program as dealers or subcontractors. Whether a small firm 
holds its own contract or participates in a contract held by 
another, the Schedules program supports thousands of small 
businesses across the country and hundreds of thousands of 
jobs.
    Today, the Schedules program has new capabilities to 
further enhance the ability of small firms. New rules allow 
agencies to specifically set aside procurement for small 
business. Although this rule is only seven months old, I 
believe the data collected at the end of the fiscal year will 
show that small businesses have already realized a steady 
portion of Schedules-based work even at a time when Schedule 
sales overall may have declined.
    The current wording of this regulation, which may set aside 
procurements for small businesses, I believe is more beneficial 
than a must standard. Mandating set-asides on the Schedules 
program is not, I believe, in the best interest of the 
Schedules program or the small businesses that succeed on it. 
New mandates that make the Schedules program more difficult to 
use will drive buyers to other programs, many of which do not 
have anywhere near the successful small business track record 
of the Schedules program. Any mandate that hurts the Schedules 
program therefore will have a proportional, if not greater, 
negative impact on small firms.
    It is imperative that the Small Business Administration 
therefore more cautiously during its current round of 
rulemaking. It is always appropriate to look for ways to 
maximize small business participation but care is needed to 
ensure that there are not any unintended consequences from new 
rules. I recommend that the SBA examine other government 
contracts that did not already exceed the government's small 
business contracting goal by 10 percent.
    Today's hearing also covers the topic of GSA's Federal 
Strategic Sourcing Initiative for Office Supplies. I am well 
acquainted with this procurement and the varying opinions 
surrounding it. I believe that an entire hearing could be held 
to discuss this program. The harmonization of positive 
political and acquisition outcomes is often something difficult 
to achieve. My hope is that GSA FSSI managers will exercise 
sound business judgment when setting the future course for this 
program, and like many of my colleagues, I await eagerly what 
happened next with this acquisition.
    GSA's Schedule managers have recently proposed demand based 
changes that could affect small business Schedule contract 
holders. One is a proposal to shut down Schedule contracts or 
parts of Schedules. The other is to move more swiftly to remove 
companies from the program that have not recorded any sales. 
For a period of nearly 20 years, GSA consistently accepted new 
offers and created new special item numbers and never had to 
close the program. Over the last several years, however, they 
have elected to look at closing the Schedules program. And 
although unintended, there may be some opportunities here that 
GSA does not realize when it closes the program. These closures 
may assist GSA in managing its workload, but previously, when 
contracts were only one to maybe three years in duration, they 
could be justified as the closure time was typically short.
    Today, however, Schedule contracts are awarded for a five-
year base period with three five-year options, and the 
Schedules program finds itself in a highly competitive 
contracting arena. Hundreds of smaller IQ contracts exist, and 
some agencies openly talk about plans to set up their own 
strategic sourcing initiatives, and at least one agency has 
developed plans to create its own Schedules program. GSA should 
be looking for ways to make its Schedules program as 
competitive as possible and remain open to new offers in 
innovations.
    The issues surrounding GSA's desire to close part of its 
Schedules are real. The staffing issues are, in fact, acute and 
must be addressed by the agency. In the meantime, GSA leaders 
should have the flexibility to bring resources in from other 
parts of the agency. Periodic closings of your marquis 
procurement program should be a last option, not the first 
proposal out of the gate.
    GSA leaders estimate that many of their 18,000 Schedule 
contract holders record no Schedule sales. Schedule rules state 
that a contractor must have 25,000 in sales within the first 
two years to maintain that contract. While GSA is also 
technically liable to pay each contractor that records zero 
sales $2,500, I have never seen that happen in my 23 years in 
the business. GSA does have the right to cancel contracts that 
realize zero federal sales, and companies are told in writing 
that they have to achieve minimums. However, many companies 
obtained a Schedule contract because an executive with a state 
or local government asked them to obtain a Schedule contract to 
get it easier for them to do business with that state or local 
government, and this provides a benefit to the small 
businesses, at the same time posing a challenge to GSA.
    GSA must now deal with the reality of being the auxiliary 
arm of state government acquisition organizations. Businesses 
were told by an important customer of theirs to obtain a 
Schedule contract. GSA at the same time, however, must be 
allowed to recover the cost for performing this service. GSA 
should examine and Congress support if necessary the right of 
the agency to collect Schedule industrial funding fees from 
states that use local like contracts. Giving GSA the ability to 
reach out to states that already rely on its work will allow 
GSA to recover costs it is already incurring, and this approach 
would also allow the agency to hire and train additional 
contracting professionals and it will save hundreds, if not 
thousands of small business Schedule contracts and the related 
jobs tied to them.
    Mr. Chairman, Madam Ranking Member, members of the 
Subcommittee, I am a strong supporter of GSA and its Schedules 
program. I believe the program fulfills an important need in 
the acquisition system. While we may differ on specifics, I 
believe that today's management team wants to move the 
Schedules forward. With a little tweaking, the program's 
success and that of its small business partners will only get 
better. I appreciate this opportunity again to testify and look 
forward to your questions.
    Chairman Mulvaney. Mr. Allen, thank you very much.
    Mr. Forman.

                  STATEMENT OF CHARLES FORMAN

    Mr. Forman. Thank you, Chairman Mulvaney, Ranking Member 
Chu, and members of the Subcommittee. I am pleased to be 
testifying before you today about the Multiple Award Schedule 
Program specific to Schedule 75 and the Federal Strategic 
Sourcing Initiative Generation 2 Blanket Purchase Agreement.
    My name is Charles Forman and I am the executive vice 
president of Independent Stationers, and I have been in the 
office products industry for 23 years. Independent Stationers 
is structured as a dealer-owned cooperative headquartered in 
Indianapolis, Indiana, and has been in the office supplies and 
related industries since 1977. Our small business dealer-owners 
have varied tenure in the office products industry with some 
dating back to the early 1900s.
    Independent Stationers was certified as a small business by 
the SBA in 2003, and is comprised of 351 members and 
affiliates. Our dealer owners are small businesses and many 
hold other socioeconomic designations. Today, 117 of our 
members are certified and approved by GSA as participants of 
our federal sales program and as such can utilize our MAS 
Schedule 75 contract and related FSSI OS2 BPA.
    Our model is similar to other successful cooperative 
business models such as Ace Hardware, credit unions, and many 
of the other nearly 30,000 cooperatives in the United States. 
There are many different types of cooperatives, including 
agricultural, financial institution, health care, housing. 
However, some are formed for purchasing, which applies to 
Independent Stationers. The reason Independent Stationers is in 
existence is to give our small business dealer owners the tools 
and resources they need to level the playing field with their 
big box competitors. Like the federal government leverages its 
purchasing power, we aggregate volume from our small business 
dealer owners giving them lower cost of goods. The net result 
is Independent Stationers dealer owners have the most efficient 
re-supply operations model in the industry today allowing them 
to deliver the highest value to federal government customers. 
The independent dealer channel is the high-service, high-touch 
customer care solution for the federal government.
    In 2002, Independent Stationers was awarded a MAS 75 for 
office supplies. Independent Stationers, together with GSA, 
paved the way for federal government acceptance of GSA 
contracts awarded to industry consortiums. To our knowledge, 
this model was the first in the office products industry and 
has resulted in significant savings to federal government 
consumers and enabled more small businesses to sell in the 
federal government marketplace.
    In 2007, Independent Stationers was awarded under the first 
generation of strategic sourcing for office supplies in the 
categories of general office supplies and paper. Although the 
first generation BPA did not meet expectations, Independent 
Stationers took GSA at their word pertaining to the support 
that would be given for the second generation of the FSSI OS2 
BPA. In 2010, Independent Stationers submitted a proposal based 
upon our proven cooperative business model that had brought us 
and our small business dealer owners success over the previous 
eight years. Not only did Independent Stationers' proposal 
answer the desire for focus on socioeconomic factors, it was 
deemed competitive and valuable to the federal government as 
evidenced with the FSSI OS2 BPA award in Pool 1. In essence, 
the award to Independent Stationers was made to more than 100 
small businesses that would ultimately benefit, not just a 
single corporation.
    Since the FSSI OS2 BPA began in June 2010, Independent 
Stationers has enabled GSA and the commodity team members to 
meet their goals of achieving savings; capturing data; enabling 
achievement of socioeconomic goals; driving compliance with 
mandates, acts, and orders; conforming with agency business 
practice; and been easy to use.
    Independent Stationers' dealer owners have seen significant 
sales growth. In Calendar Year 2011, our participating small 
business members experienced a 302 percent increase in sales 
over Calendar Year 2010 in selling to the federal government. 
It is our estimate, through the Federal Strategic Sourcing 
Initiative OS2 BPA, that those sales represent a 36 percent 
savings as compared to our MAS 75 pricing.
    In summary, participation in a cooperative business model 
is beneficial to small business and the federal government 
through cost savings and through small business participation. 
We applaud GSA for recognizing the benefits our cooperative 
business model afford small businesses with their award to 
Independent Stationers. We understand and acknowledge the 
common complaints expressed by those small businesses not 
possessing an FSSI OS2 BPA, and we believe we are a solution 
for those small businesses that fit our dealer-owned 
cooperative model, to sell to the federal government agencies 
through the FSSI OS2 BPA purchasing vehicle.
    Thank you for the opportunity to testify.
    Chairman Mulvaney. Thank you for the testimony, Mr. Forman. 
We will come back to the questions in just a second after Mr. 
Tucker is finished.

                    STATEMENT OF MIKE TUCKER

    Mr. Tucker. Chairman Mulvaney, Ranking Member Chu, members 
of the Subcommittee, I am Mike Tucker, chairman of the 
Independent Office Products and Furniture Dealers Association, 
and an owner of the George W. Allen Company located in 
Beltsville, Maryland. I am here today representing one of the 
IOP FDA's two memberships, the National Office Products 
Alliance.
    The Independent Office Products and Furniture Dealers 
Association is a not-for-profit trade association established 
in 1904 that represents and serves more than 1,000 small, 
independent commercial dealers throughout the United States 
along with their key suppliers.
    I appreciate the opportunity to speak to the Subcommittee 
today about the need to ensure small businesses in our industry 
have fair, ongoing access to opportunities in the federal 
market. There have been a number of developments since 2010 
with respect to management of the GSA Schedule 75 program in 
general, and implementation of the second generation Federal 
Strategic Sourcing Initiative for office supplies in 
particular, that have broadly impacted our members. I will 
highlight these developments in my testimony today.
    First and foremost, NOPA is greatly concerned about the 
abrupt and widespread impact on small businesses in our 
industry due to the General Services Administration's 
implementation of the current FSSI program for office supplies. 
We acknowledge that the FSSI program has generated new 
opportunities for small businesses in our industry, including 
some of our very capable members. At the same time, there have 
been many other members who have invested with government 
encouragement in obtaining their own Schedule 75 contracts, 
only to see their current opportunity dramatically reduced as a 
result of the near-mandatory, government-wide implementation of 
this program.
    Given the government-wide scope of this FSSI and the large 
number of small businesses that were participating in this 
market in Fiscal Year 2010, NOPA was surprised that GSA did not 
undertake a small business impact study before launching its 
second generation FSSI for office supplies. It then went a step 
further and without any such study as required under the 
Regulatory Flexibility Act, published a proposed rule in June 
2010 that called for creation of a special reference for 
Federal Strategic Sourcing Initiatives within the FAR.
    As an association, we have worked to find the middle ground 
within our membership on this issue. We do not wish to impair 
the new opportunities of members who competed for and were 
awarded FSSI blanket purchase agreements. At the same time, we 
would be remiss if we did not highlight our concerns about FSSI 
has been implemented.
    After monitoring FSSI implementation for six to nine 
months, and seeing its far-reaching impacts, we agreed within 
the NOPA Board to urge GSA and the administration as a whole to 
issue a Statement of Administration Policy to clarify to 
federal agencies what our industry had been told by GSA and the 
administration just prior to the bid process: that FSSI would 
be implemented on a non-mandatory basis, allowing non-awarded 
GSA Schedule 75 holders to continue to compete for federal 
business. Since that time, it has become clear that FSSI volume 
and its share of total federal spending on office supplies 
would continue to grow as more and more major agencies issued 
guidance to buyers that FSSI use was mandatory except in 
unusual situations.
    NOPA has maintained a dialogue with GSA and the Office of 
Federal Procurement Policy on FSSI implementation since 2010 
and I am here today to urge this Committee, the full Congress, 
and the administration acknowledge and address the impact of 
strategic sourcing on our industry in a forthright way. The 
solution is simple and relies on allowing more competition and 
flexibility in purchasing as ways to achieve FSSI's goals and 
reduce job loss pressures in our industry.
    First, the administration needs to issue a very clear 
Statement of Administrative Policy that restores full 
competition within the federal market for our industry's 
products. This approach, if communicated and implemented 
broadly, will ensure genuine ongoing choice of procurement 
vehicles for agencies and will help the administration achieve 
the overall budgetary savings it hopes to achieve through the 
FSSI program. Mandatory implementation of FSSI on a government-
wide basis represents a massive form of contract bundling, 
which has and will continue to reduce the opportunities and the 
ultimate level of small business participation and healthy, 
long-term competition in federal markets.
    Second, there needs to be more flexibility to allow 
individual dealers with their own GSA Schedules to participate 
in FSSI as authorized participating dealers with dealers who 
have received awards. Authorized dealers should be subject to 
reasonable ground rules, but this should not mean they must 
give up their rights to compete for non-FSSI federal business 
opportunities using their regular GSA Schedule contracts. This 
is essential since APDs will need to bear significant 
administrative fees from GSA and their chosen FSSI BPA partner, 
as well as normal costs associated with properly servicing 
federal accounts. NOPA is in dialogue with GSA regarding the 
APD option, and we ask this Committee to strongly encourage 
them to work toward an expeditious and balanced conclusion.
    We hope that this Committee will reflect on the history of 
FSSI implementation in our industry and consider how the small 
business impacts can be mitigated in the future. At the end of 
Fiscal Year 2010 there were 550 mostly small companies and a 
few dealer-based organizations competing for federal business 
with one or more departments and agencies under the regular GSA 
Schedule 75 contract program who were using individual blanket 
purchase agreements. However, with the rapid and orchestrated 
push by GSA and OFPP for use of FSSI on a government-wide basis 
using just 2 large and 13 small vendors, the economic fallout 
has been swift and dramatic for most of the remaining Schedule 
75 contract holders.
    The office products industry is one where small businesses 
owned and operated by women, minorities, service disabled 
veterans and second and third generation entrepreneurial 
families have been well represented and highly successful 
against much larger national competitors. It is hard to 
understand how an FSSI program was implemented that did 
significantly more harm than good to this already fragile 
community of businesses.
    We do not believe that this result, a new economic loss for 
small business, is what Congress or the administration intended 
or is what our nation needs as our economy is showing uneven 
signs of recovery.
    More competition, not less, is the solution and can readily 
be restored in the federal market for office products by making 
the FSSI program truly one option, rather than a mandatory or 
quasi-mandatory option among those that have been in place and 
work ineffectively for some time.
    I ask that my testimony be made part of the official record 
of this hearing and thank you for inviting me to testify on 
behalf of NOPA.
    Chairman Mulvaney. Thank you, Mr. Tucker. And just a point 
to all of you, your testimony that you have prepared in advance 
is part of the record. As will the questions and answers. So as 
is my custom, I will defer to my ranking member and give her as 
much time as she wishes.
    Ms. Chu. Thank you, Mr. Chair.
    I would like to follow up with you, Mr. Tucker, in terms of 
the problems you talked about with regard to the Federal 
Strategic Sourcing Initiative. You mention in your testimony 
that despite GSA's assurance that FSSI would not be mandatory, 
that in reality it has become that, and that agency's issue 
guidance to buyers is that FSSI use is mandatory. I want you to 
talk about how it is communicated to the buyers that it is 
mandatory. And also, can you explain how mandatory FSSI has 
prejudiced buyers away from regular Schedule 75 vendors and to 
what degree this has impacted non-awarded small business?
    Mr. Tucker. It is varied by agency, but basically they put 
out an agency directive that you are required to use this 
program and these 13 small businesses and two large businesses 
for your office supplies. And if a cardholder wants to veer 
away from that they either have a very, you know, strenuous 
group of hurdles they have to go through to make that happen 
and with official language are threatened with losing their 
card because they are not following the guidelines of the 
agency. But it was a very strong-arm push. There was nothing 
non-mandatory about it. It was very strongly worded. I have 
samples of those letters from all the agencies if you would 
like to see copies of them.
    Ms. Chu. I am assuming then there was a dramatic drop in 
business for the other ones, for the other Schedule 75 vendors.
    Mr. Tucker. Well, we are Schedule holders, so our sales 
reps would show up at agencies that we had been doing business 
with for years and we would just be flat-out told, ``Sorry, we 
love you. Your pricing is good and your service is great, but 
we cannot do business with you anymore.'' And it had a dramatic 
impact on our business very quickly. Our sales are off 60 
percent from what they used to be and we have lost nine 
employees as a result of it.
    Ms. Chu. I have also heard that the award application 
process for the blanket purchase agreements is confusing and 
there are many restrictive requirements. And as a result, many 
of these small businesses were not able to apply for Schedule 
75 BPAs and that this drastically limited the pool of small 
businesses that could benefit from the opportunity. What would 
you say about this application process? And was it transparent? 
Why or why not?
    Mr. Tucker. I have done a lot of proposals and I have won a 
lot of BPAs over the years. This one was very different. I 
think I heard that somewhere in the neighborhood of maybe 50 
companies out of the 550 actually put proposals in. To Mr. 
Forman's point, there were consortiums that also put proposals 
in. His was the only one that was able to win it this time, but 
it was very price-based where in the past a lot of these 
solicitations have had a lot more technical requirements in 
terms of past performance and ability to deliver on a national 
basis and meet other technical requirements for reporting and 
computer systems. Those were very much minimized in the new 
bid. And it was primarily about price and then they also had a 
calculator at the end of the bid that was based on volume 
discounts that you would offer the government if you hit 
benchmarks of $25, $50, $75, or $100 million. And you could put 
a number in there. And most people, a responsible number might 
have been a 1, 2, or 3 percent. There were people that put 6, 
12, 18, 22 percent in those figures which made their bid 
package come in ridiculously low compared to a more responsible 
bid. But there was no accountability as to how you would get to 
those discounts if you ever did reach those sales but it did 
very much affect the award pool that came out of the 
solicitation.
    Ms. Chu. And let me ask also about the voluntary set-aside 
because GSA is one of the few agencies that does not have a 
mandatory set-aside for small business. And therefore, that 
would seem to also lessen the opportunities for small business. 
Have you participated in government contracting out of GSA 
where there is the mandatory set-aside? And do you see a 
difference here?
    Mr. Tucker. Only on the furniture side for me. We also have 
a furniture Schedule and we work with 8(a) partners or partners 
with other minority designations when primarily the military 
would have some kind of a set-aside where they had to spend a 
certain amount of dollars with those and we were able to work 
with a contracting partner on that. I really have not seen much 
of that on the supply side and because so much of the 
procurements are under the micro purchase threshold and its 
credit card transactions, I do not think it lends itself to a 
set-aside program. I know at some point they used to have set-
asides for under $25,000 if things were competed, but I think 
the business has gone to more of a credit card base with 
smaller pockets of business as opposed to supply rooms and 
large procurements for full agencies or departments.
    Ms. Chu. Mr. Allen, you talked about the $25,000 sales 
minimum threshold and the effect that canceling contracts with 
no sales will have on state governments that rely on GSA 
Schedules for selecting vendors for their state programs. There 
is this $25,000 minimum but canceling those particular 
contracts right now could have, of course, a very difficult 
effect. And in fact, in my own state of California, having a 
federal Schedule contract makes it easier for a business to get 
onto the state's own Schedule. But, you know, of course, being 
canceled would really have a deleterious effect. So what effect 
will GSA's enforcement of this contracting provision have on 
the ability of businesses to compete in federal and state 
markets?
    Mr. Allen. Well, Madam Ranking Member, I think that the 
process is GSA needs to look and see what businesses that 
record zero federal sales are actually doing on some of these 
state contracts and the example that you mention, the CMAS 
program is certainly one of the most visible state contracts 
that is based heavily on the federal program. And being able to 
see that there are businesses that are doing robust state 
government business and may very well have the intent but 
because they are small, lack the bandwidth to sell federally 
right now, is an important factor that needs to be considered 
before those contracts are canceled. Unlike somebody who may 
have gotten a Schedule contract four years ago to transaction 
one specific piece of business and has never done anything 
since, the types of contracts that are awarded that are 
essentially the backbone of a state government contract do have 
a purpose and I think that purpose needs to be investigated and 
realized before there are any cancelations that take place.
    Ms. Chu. And for anybody on the panel, the whole panel on 
this $25,000 minimum, have you experienced this or know small 
businesses that have had trouble meeting this annual minimum? 
Would it be particularly difficult for a small business to meet 
this threshold?
    Mr. Allen. Well, in my experience, Madam Ranking Member, I 
have seen small businesses that have struggled over a couple 
years to achieve $25,000 in sales. Usually the ones that have a 
dedicated or halfway dedicated federal program can achieve that 
level in a couple of years, maybe three years, and if they are 
showing good progress, historically GSA has been willing to 
allow that contract to continue in anticipation that they will 
build a base of business.
    GSA's enforcement of the $25,000 limit has not always been 
consistent over time. Now, I am speaking as somebody who has 23 
years of experience with the program. More recently, they have 
become a little bit more consistent about looking at companies 
that have no sales, but again, no sales really should mean no 
public sector sales and not just no sales to the federal 
government.
    Ms. Chu. Well, thank you. And I yield back.
    Chairman Mulvaney. Thank you, Ms. Chu. We now recognize the 
gentlelady from North Carolina, Ms. Ellmers.
    Ms. Ellmers. Thank you, Mr. Chairman. And thank you to our 
panel for being here today on this issue.
    Mr. Allen, my questions are for you. I have a couple of 
situations that I have run into with constituents, small 
businesses back in North Carolina, on basically the GSA 
scheduling issues. I would like to ask you about some of the or 
what the process is sometimes if there is the possibility of 
some of the abuses that could happen. One directly would be if 
a small business is deemed to be not a small business and 
something other than or larger than a small business but has 
received funding, what is the process that would happen if they 
have already received some funding? What is the process that 
should take place? How prevalent is this? And how are abuses 
like that monitored?
    Mr. Allen. Well, some of it is dependent upon the basis 
upon which the initial contract award was made. So if the 
initial contract award was made based on small business size 
standard and the business in question is no longer small, 
proper notifications should be given by the business to the 
government agency that it is no longer small and then it is up 
to the agency to decide whether they need to actually keep this 
as a set-aside piece of business, in which case they would at 
some point in the not too distant future after receiving that 
information, cancel the current contract and then go out and 
recompete among eligible small businesses. Contracting officers 
in the government as well have the ability to ask businesses of 
any size to recertify their size status at the time of any task 
order being issued against that contract, and small businesses 
have to answer.
    Your question, however, is a very good one because that is 
what is supposed to happen. In reality, there is not always the 
communication that should take place between the contractor and 
the buying agency, and the buying agency sometimes does not ask 
the questions that perhaps it should ask about a company's 
small business status. Typically, it is usually up to a 
competitor company to call attention to change in size status 
or some other issue with an existing contract and then again, 
it is up to the agency usually to decide, well, do we want to 
maintain this as a small business set-aside or are there other 
opportunities that we can do as small business set-asides and 
still continue to do business with a company that is no longer 
small but is meeting our needs?
    Ms. Chu. Just as a follow-up question to that, and this is 
a very specific situation, if the Small Business Administration 
had been the one to basically point out that that business was 
no longer considered small on more than one occasion, would you 
not feel that that was more than justification for that process 
to end?
    Mr. Allen. Yes, ma'am. There is no question. If the SBA 
says formally or even semi-formally that this business is no 
longer small, that should be the last word.
    Ms. Ellmers. Okay. Well, thank you so much, Mr. Allen. And 
I yield back the remainder of my time.
    Chairman Mulvaney. Thank you, Ms. Ellmers.
    Mr. Jacobs, a couple of questions for you. We talked--
because I have not had a chance to talk much about the Brooks 
Act--you talked about the qualification-based selection system 
where supposedly you are not competing on price, you compete on 
qualifications and then the government will negotiate with the 
most qualified provider. And I think you compared it to what we 
call the best value process. Did I get that right? Is that what 
they----
    Mr. Jacobs. I think in my testimony, best value was used in 
conjunction with the Federal Supply Service. But I think the 
definition of value has inherently to do with what I think we 
are trying to communicate.
    Chairman Mulvaney. My understanding of the Brooks Act, 
which is fairly limited, is that if we did that that would be 
in violation of the Brooks Act. Would it not?
    Mr. Jacobs. Correct. If Architectural Services are awarded 
based on the Federal Supply Schedule, that would be in 
violation of the Brooks Act because--and I think this has 
everything to do with the nature of architectural services as 
opposed to a physical commodity which I believe is the intent 
to be covered by the Federal Supply Service. So the 
professional services that we sell consist of time, experience, 
ingenuity, and we are, you know, we spend time with our 
clients, with agencies very early on in a process that 
frequently takes a number of years. And so I may be able to 
give you one example how I think we can affect cost control 
specifically much more accurately at the very upfront end of a 
job as opposed to, and even if you might have built your own 
house, the worst thing that can happen is two weeks before you 
want to move in something does not work and now you have to 
make changes. It is very cost prohibitive to do this because 
everybody is already onsite and now you have to order materials 
and so forth.
    If you compare that with the ability that we, as planners 
and problem solvers, have at the beginning of a multi-year 
process that it takes to design and engineer a building, we can 
run various scenarios that upfront can show which design or 
which approach can yield long-term savings. And so this is 
think fundamentally how the architectural profession sees its 
values or its value with regards to providing accurate 
information for decision makers. So if we do our job right, it 
puts the government in a position to make informed and the most 
accurate decisions, and those are the ones upfront that can 
actually save real dollars long term.
    Chairman Mulvaney. You also mentioned something, and I have 
done some work with architects in my previous life, but you 
mentioned something that I was not familiar with. Did I hear 
you say correctly that architects are prohibited in some states 
from competing on price?
    Mr. Jacobs. That is correct.
    Chairman Mulvaney. Give me an example. What states would 
that be?
    Mr. Jacobs. I would actually have to look that up. I am 
generally informed that out of the 50 states I think two, and I 
cannot point you to which ones they are, but two of those, that 
the statutes of the profession in those state prohibit people 
from just competing on price.
    Chairman Mulvaney. All right. Let us assume for the sake of 
this discussion that is correct. I have no reason to think that 
it is not. If the government is actually employing this best 
value process in either intentional or unintentional violation 
of the Brooks Act, would that not automatically disqualify 
every single architect in those two states from competing?
    Mr. Jacobs. I think based on professional ethics standards, 
yes, it would. But I think this is somewhat of a gray area in 
that it puts architects in this difficult position. As you 
know, the economic climate is such that I think firms in a case 
like that may have to--may be forced to make a decision in 
interpreting their professional ethics standards or basically 
still applying for federal work.
    Chairman Mulvaney. In your last comment, and I am going to 
ask each of you this before it is finished, in your last 
comment you urged the GSA to do something regarding expanding 
participation. I could not write as fast as you were speaking. 
Say that for me again because I am going to have the GSA come 
up in a second. I will be happy to pursue that topic with them.
    Mr. Jacobs. Yes. We would like the Committee to consider 
urging the GSA to expand the Design Excellent program. And this 
is the exact program that we were involved in in this federal 
office building that I described. And I think this is for 
probably three primary reasons. This Design Excellence program 
explicitly meets the intent of the Brooks Act in our opinion 
because it is a two-stage selection process. And actually, 
before you get to that process, all of these opportunities are 
posted on Fed Biz Ops, completely open and transparent and 
easily accessible to all. And then this two-stage selection 
process is first a broad qualification of experience and 
expertise. And based on that, the government then creates a 
short list. And typically, members of that short list get to an 
interview or in a competition mode where they literally are 
pitted against each other in terms of who is more experienced, 
innovative, and actually might have some real ideas with 
design.
    So because that process is literally set out to give the 
government sort of the benefits of the competitive environment 
we are in, we believe, and our experience is that that yields a 
very good result.
    Chairman Mulvaney. Thank you, Mr. Jacobs.
    Mr. Forman, a couple of questions for you. Walk me through 
the process. I ran a small business. I had some encounters with 
the SBA but I never did what you all are testifying about 
today. Walk me through the process by which you all won the OS2 
BPA, and tell me if you participated in any of the GSA outreach 
programs as they developed the requirements for that contract.
    Mr. Forman. Chairman Mulvaney, I will answer the second 
question first if that is all right. We did participate in some 
of the outreach meetings that GSA had, and we provided input 
and we worked many times with NOPA on providing that input and 
trying to affect change on those types of solicitations. In 
terms of responding to the bid, as I indicated in my testimony, 
we have been a Schedule 75 holder since 2002. We meet the 
requirements, and so when it came to responding to the 
technical requirements of the bid and the competitiveness of 
the bid in bidding on the market basket items and how that 
filters down to other items outside of just the market basket, 
I would state we were the third, I believe, lowest bidder on 
the market basket. So we competed both on a technical--from a 
technical standpoint met the requirements of reporting and 
whatnot and the socioeconomic, being a small business, and also 
price.
    Chairman Mulvaney. You mentioned in your testimony that the 
GSA had pledged to be more helpful to small business through 
this OS2 BPA process. How did they do, in fairness? Again, I am 
going to ask them the same question in a few minutes.
    Mr. Forman. Sure. I think to some degree numbers speak for 
themselves, and there is a higher degree of the overall spend 
going through small business today than there was in the past. 
But I think that it is a higher dollar--is a higher percentage 
of the spend to a fewer number of small businesses. So I would 
say that you would have to look at it both ways. Fewer number 
dealers are getting a bigger piece of the pie. And in the case 
of us, we are a, again, cooperative, viewed as a consortium of 
dealers by the federal government, and we have a number of 
dealers who never had any piece of that business in the past 
and have been able to participate in our program and share in 
some of the sales to the federal government.
    Chairman Mulvaney. Thank you, Mr. Forman.
    Mr. Allen, I have some questions for you, very similar to 
what Ms. Ellmers asked you, and in consideration of time I am 
instructed we are going to have votes in about 45 minutes, I am 
going to skip you now and go to Mr. Tucker.
    Mr. Tucker, very briefly, I take it you oppose the OS2 BPA 
process?
    Mr. Tucker. Not so much that I oppose the process as much 
as the way it was implemented and the way it limited the 
participation of eligible dealers who were qualified to perform 
under the program. And there were two other teaming agreements 
that were in place before the second FSSI that did not get 
awards. The group that I was running with had over 100 members. 
There was another group called AOPD with 50 or 60 members. 
Those two groups basically got washed out of the process and 
other GSA contract holders, either that did not participate or 
wanted to participate in the program, were given the 
restrictions of having to limit the products that they offered 
on their GSA Schedule as a condition of participation as a 
dealer in another program. So a company like mine, we would 
have had to basically wipe out the last 40 percent of our 
business with agencies that we had other agreements that we 
were still fulfilling in order to try and jump over and be a 
participating dealer with an awarded company.
    Chairman Mulvaney. And is the circumstance that you just 
described which you were referring to when you said that the 
FSSI process was sort of a de factor or in essence a form of 
contract bundling. Is that what you are talking about when you 
use those words?
    Mr. Tucker. That is how it appears to me that it came. 
Because you had 400, well, about 400 dealers competitively 
participating for the business. And especially in pocket 
markets. So you have small companies with a contract that maybe 
were outside a military base or next to a veterans hospital or 
something where getting a Schedule, you know, they had a great 
opportunity to do business. But they did not have the 
wherewithal to compete for a national contract or a national 
BPA like this, and as a result they got swept away by the wave 
when this came through. And even us being in the Washington, 
D.C. area and a veteran company by most measures, you know, we 
did not have a way to effectively get in the game even though 
we were right on the cusp of being qualified for an award.
    Chairman Mulvaney. All right. I am going to press you on 
something that actually was not in your presentation today but 
it is in your written testimony, which deals with the Statement 
of Administrative Policy, the SAP, because I think you are 
encouraging the GSA apply that instead of the traditional 
rulemaking. As a lawmaker, did I mischaracterize that?
    Mr. Tucker. No, I think, I mean, we represent a lot of 
companies and some got awards and some did not. We saw that as 
a compromise vehicle that could allow other companies to get 
in. If the guy outside the veterans hospital or the military 
base had something in writing from the administration that says 
FSSI is not mandatory, he may be able to use that to counter 
the written guidelines that that agency put in place that made 
FSSI mandatory.
    Chairman Mulvaney. And I will just ask you, Mr. Tucker, as 
a lawmaker, SAP does not appeal to me very much. You recognize, 
of course, number one, it does not have the force of law, so it 
may not be as powerful a tool as you think that it is. And 
perhaps more importantly, it does not provide for comment 
period input from the business community. It is sort of a fete 
accompli. It is a done deal once the administration issues it. 
So I guess I do not have a question for you but I just tell you 
there will be folks who will press you on that simply because 
we would like to participate in the process.
    Mr. Tucker. That was a compromise solution to try and come 
up with something that could help our members.
    Chairman Mulvaney. Thank you. Gentlemen, again, I am not 
trying to rush anybody through but they do tell me that we are 
operating under some loose time constraints. A quick question 
to each of you. Mr. Jacobs, I think I know the answer to what 
your question is, so I will start with Mr. Allen. Mr. Allen, in 
a few minutes here the GSA is going to come up and other folks 
from the government. Any questions you want me to put to them?
    Mr. Allen. I think the biggest question for GSA, Mr. 
Chairman, is what they are going to do in terms of these 
discussions that we talked about, the demand based changes. I 
think that on some level, an administrative level, I understand 
what they are trying to achieve but I do not know that the 
process that they are going to propose to go through is the 
best way. What other processes, what other alternatives are 
there that would allow them to manage their administrative 
challenges without causing this type of disruption to their 
overall business?
    Chairman Mulvaney. Thank you. That is one of the questions 
we had as well.
    Mr. Forman.
    Mr. Forman. If I were to ask a question it would be would 
there be additional consideration of the cooperative business 
model as a means to help GSA achieve some of its goal in terms 
of reducing administrative burden in terms of managing hundreds 
of contracts when it can utilize a cooperative and in essence 
support small business, numbers of small businesses through one 
contract?
    Chairman Mulvaney. Mr. Tucker.
    Mr. Tucker. Just that they would continue the dialogue with 
us and with a short-term solution in mind of trying to get more 
participation from companies that have held GSA contracts in 
the past and without any burdensome requirements.
    Chairman Mulvaney. Thank you, gentlemen. I thank all of you 
for your time, for your effort, for your input. I especially 
thank those of you who traveled today for this. And I will tell 
you what I tell everybody who comes to these things, because 
some folks come in and they say, Mr. Mulvaney, no one showed up 
for this. Was this a complete waste of time? I can assure you 
that it is not. I can assure you that this is where the 
dialogue starts on policymaking, on rulemaking, on everything.
    You might have made a comment today, Mr. Jacobs, regarding 
the Design Excellence Program that someone sitting in the back 
will pick up and write about in one of the local trades and it 
will end up being a discussion item at your next symposium and 
a year from now it will end up being a piece of legislation. We 
see that every single time. And so please do not be discouraged 
by the fact that there was not a lot of media, a lot of press. 
This is an extraordinarily helpful part of the process, and you 
gentlemen have contributed greatly to the dialogue today and I 
really appreciate your time. So thank you for coming in. With 
that we will excuse you and ask the next folks to come up.
    Chairman Mulvaney. Gentlemen, thank you. We will introduce 
you very briefly and go right to the testimony.

 STEVEN J. KEMPF, COMMISSIONER, FEDERAL ACQUISITIONS SERVICES, 
 GENERAL SERVICES ADMINISTRATION, WASHINGTON, D.C.; WILLIAM T. 
     WOODS, DIRECTOR, ACQUISITION AND SOURCING MANAGEMENT, 
       GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, D.C.

    Chairman Mulvaney. So for the record we know who you are, 
the first witness is Commissioner Kempf, Steve Kempf. He is the 
commissioner of GSA's Federal Acquisition Services, which 
manages and oversees the Schedules. While Mr. Kempf has been 
commissioner for about two years now, he has been with GSA 
since he started there as an intern in 1947. Is that what it 
says here? 1992. So am confident he will be able to answer the 
questions.
    Our second witness is Bill Woods, the director of 
Acquisition and Sourcing Management. That team is at the U.S. 
Government Accountability Office. He is responsible for 
providing overall direction for the GAO review of contracting 
activities at defense and civilian agencies. Last fall, under 
his direction, GAO issued a report on GSA's Federal Strategic 
Sourcing Initiative for office supplies.
    Gentlemen, thank you as always for being here. Commissioner 
Kempf, I think you are first.

                  STATEMENT OF STEVEN J. KEMPF

    Mr. Kempf. Good afternoon, Chairman Mulvaney, Ranking 
Member Chu, and members of the Committee staff.
    My name is Steven Kempf, and I am the commissioner of the 
United States General Services Administration's Federal 
Acquisition Service. I want to thank you for providing me the 
opportunity to discuss GSA's accomplishments and continued 
efforts to improve the efficiency and effectiveness of the 
Multiple Award Schedule's program (MAS). Over time, the 
Schedules have proven to be the most effective contracting 
vehicle for small business in the government marketplace.
    I would like to discuss three specific initiatives and have 
I addressed several related programs in my written testimony 
that operate to ensure the success of MAS and maximize the use 
of taxpayer dollars. These three things are: implementing the 
Small Business Jobs Act of 2010; the Federal Strategic Sourcing 
Initiative; and finally, the MAS Demand Based Model.
    The MAS is the most successful government contracting 
program in terms of creating opportunities for small 
businesses. The MAS program routinely exceeds the government-
wide business contracting goal of 23 percent. Specifically, 
more than 70 percent of all MAS vendors are small businesses, 
and approximately 34 percent of all dollars spent in the MAS go 
to small businesses. This success is not accidental; it is the 
result of robust programs and a commitment to the success of 
small businesses across our agency.
    Our expectation is that the full implementation of Section 
1331 of the Small Business Jobs Act of 2010 will drive even 
more market share to small businesses. Since promulgation of 
the FAR Rule in November of 2011, GSA has trained approximately 
1,700 members of the federal acquisition workforce.
    While we are pleased with our progress, we continue to 
identify additional ways to ensure that the authority continues 
to be a success. For example, in partnership with the Federal 
Acquisition Institute and Defense Acquisition University (DAU), 
FAS has launched a four-hour course on how to use the new 
authority, and we are in the process of working with the Office 
of Federal Procurement Policy (FAI) and DAU to make the case 
that MAS training, and as a consequence, training on Section 
1331, should be a required component of the federal acquisition 
certification. We look forward to continuing to work with you 
to ensure success of this program.
    Over the last few years, we have placed renewed effort in 
GSA on data collection, analysis, and enhanced competition. 
These are the things that allow us to make the best purchases 
at the best prices. Such leveraging of government spending is 
at the heart of the Federal Strategic Sourcing Initiative. FSSI 
is governed by the Office of Management and Budget in concert 
with the Chief Acquisition Officer Council's Strategic Sourcing 
Working Group. It is important to understand that price is only 
one of FSSI's key priorities. Socioeconomic goals, including 
small businesses, understanding the government's spending 
patterns, ease of use, and removing government cost drivers are 
other key goals. To accomplish these goals on each specific 
initiative, we work closely with other agencies to develop 
features and requirements, as well as obtain industry feedback 
and expertise. This thoughtful process has resulted in 
significant savings and smarter acquisitions in all of the 
initiatives we have undertaken.
    The MAS is a great acquisition tool. However, fundamental 
MAS business models have not changed since 1992, despite 
significant market changes since that time. The MAS model needs 
to change to address new realities, and we must ensure that our 
vendors are able to respond effectively and efficiently to 
market demands. This is why GSA is committed to implementing a 
new business model we call Demand Based Model. The MAS program, 
with limited exceptions, is perpetually open to qualified new 
offers. And while vibrant markets exist in some of our 
Schedules, we have reached the point of saturation in others. 
In some instances, well over 60 percent of the contract holders 
receive little or no business. Furthermore, competition that 
takes place in an oversaturated environment is often not 
effective.
    These concerns form the basis behind our Demand Based 
Model. This model allows us to focus our limited resources and 
capacity on the most critical areas.
    Over the last several years, the volume of MAS offers 
received has roughly doubled, and the number of modifications 
has nearly tripled. Much of this increase is the result of 
numerous contractors offering the same items at different price 
points. GSA projects that well over 50 percent of the MAS 
contracts awarded in 2011 will not have significant sales, and 
the government will spend over $20 million to support and 
manage low or no sales contracts. The current fiscal challenges 
facing agencies require GSA to refocus its acquisition 
professionals on helping agencies use the MAS program more 
effectively by bringing new solutions to the market faster, 
improving pricing and simplifying the buying process.
    Small businesses will only succeed if GSA is positioned and 
able to provide opportunities, respond quickly, and offer the 
technical assistance needed to navigate the procurement 
process. The Demand Based Model will increase our agility, 
provide agencies with faster and better access to emerging 
solutions, send clear signals to the marketplace so contractors 
can identify where the demand lies, and respond accordingly.
    On behalf of GSA's Federal Acquisition Service, I again 
thank you for this opportunity, and I would be happy to answer 
your questions.
    Chairman Mulvaney. Thank you, Commissioner.
    Director Woods.

                 STATEMENT OF WILLIAM T. WOODS

    Mr. Woods. Thank you, Mr. Chairman, Ranking Member Chu.
    I would like to cover three areas this afternoon. One is a 
GSA study on office products that they completed on behalf of 
the Appropriations Committee. Secondly, our observations on the 
conclusions in that study. And then thirdly, to talk about the 
Office Supplies II contract that we have heard about already 
this afternoon.
    The Appropriations Committee has heard, as have many 
others, that the prices on GSA Schedule contracts were not 
nearly as good as some agencies could obtain on the open 
market, and they asked GSA to conduct a study to either confirm 
or deny that. GSA spent about a year performing that study, and 
their conclusion was that about 58 percent of office supply 
purchases were made outside the Schedule. And when those 
purchases were made, the agencies were paying price premiums, a 
higher price buying off the Schedule than they would buying 
under the Schedule. Those price premiums were significant. 
Seventy-five percent higher prices paid off Schedule than they 
would have paid purchasing under the Schedule, and some 86 
percent higher making purchases off Schedule than they would 
under the OSII program.
    We spent time looking at the data that GSA had collected, 
as well as their methodologies, and we had some concerns about 
their findings. The finding on the amount of the price premium 
we thought was too high. And the reason is that they did not 
properly account for variations in quantities. Let me give you 
just one example. They used part numbers in order to be able to 
determine whether a purchase that was listed as a pen was a 
single item, a box of three items, or a box of a dozen or more. 
That simply was not a sound methodology to allow them to come 
to the conclusion that they did. We questioned the magnitude of 
the finding. We did not question the direction because we still 
believe that agencies can do better under the Schedule than 
they can do on an open market basis.
    Other studies confirmed our view and GSA's view that 
agencies could do better under the Schedule and through 
leveraged purchasing. We talked to the Air Force. We talked to 
the Department of Homeland Security. They had conducted their 
own studies and came to the same conclusion. But we were 
concerned about the magnitude of the cost savings that the GSA 
study found.
    The other thing I would like to mention in the time we have 
available is the Office Supplies II initiative that we have 
heard so much about this afternoon. That has tremendous 
benefits, and let me just list a few. Saving money is number 
one. GSA estimates that buyers save about eight percent when 
agencies use OSII versus using the Schedules program. They 
estimate that agencies in total have saved some $39 million so 
far just in the last couple of years by using OSII. Further 
savings are possible. This is a big market of about $1.8 
billion, so we can see that further savings are indeed 
possible. But there are other advantages as well. This is part 
of a Strategic Sourcing Initiative, and the essence of 
strategic sourcing is that entities, whether they are 
government agencies or private businesses, need to know where 
their money is going, how much they are spending, what they are 
spending it on, and who they are spending it with. And the 
Strategic Sourcing Initiative, by collecting data from vendors 
and doing that kind of market analysis, allows agencies to make 
very informed decisions.
    It also allows them to better manage their vendors. They 
can spot more quickly when vendors are failing to comply with 
their contractual requirements and they can take specific 
action. And we found, in fact, a number of instances where the 
General Services Administration had issued notices or, known as 
cure notices, to vendors that were not measuring up and 
demanding that they improve their performance.
    And then lastly, another advantage that we identified and 
the GSA is rightly very proud of is that when agencies make 
purchases using the purchase card, they do not have to identify 
themselves as making a purchase under OSII. That is automatic. 
If they use the purchase card, if the card gets swiped, they 
get the OSII price. They also get relief from state sales 
taxes, which is important. That in itself is an enormous 
saving.
    So we have concluded that there are benefits from the OSII 
initiative. It is not without problems. There are certainly 
some growing pains, but fundamentally, the government is better 
off using OSII than otherwise. Thank you.
    Chairman Mulvaney. Thank you, Director Woods.
    Ms. Chu.
    Ms. Chu. Commissioner, the Small Business Jobs Act allows 
agencies to voluntarily apply set-asides to Schedule orders. 
However, the GSA Schedule is the only procurement program that 
does not mandate set-asides. Why should the Schedule be exempt 
from these mandatory small business set-asides?
    Mr. Kempf. Well, I would focus on the results that we have 
shown thus far. I think that the program has exceeded almost 
any other measure that you might have in terms of results. And 
when we are talking about 34 percent results over to small 
businesses across the program, that is substantial. It is well 
above the targets that many, many agencies and programs do not 
meet.
    But I really want to focus in on what we have seen since we 
have implemented the discretionary set-asides. That happened 
last November. We were ready right out of the gate to help the 
agencies understand how to use it. We provided the training to 
them. We have, as one of the tools we offer as part of this 
Schedules program, something called eBuy, which is an 
electronic marketplace for ordering and doing RFQs. And in the 
last two months we have been able to track the number of 
procurements in eBuy where they have actually used the 
discretionary authority. And in the last two months, we saw 
1,776 actual set-asides being done by the agencies.
    So when you look at the uptake, and that is out of 12,000 
actual procurements that were actually put into eBuy, and that 
is not the entirety of what happens on the Schedules program. 
So when you look at the amount of uptake and as quickly as it 
occurred.
    Additionally, when we have been out to train, I have a 
couple of anecdotal responses that we saw at the agencies. At 
the Air Force we saw them move a full and open procurement to 
the Schedules and use as a set-aside a $40 million procurement. 
Additionally, when training the Energy department, we saw them 
move or set-aside, expect a set-aside a $200 million and a $50 
million procurement. These are not small procurements. They are 
having the opportunity to actually really impact their numbers, 
and those are two agencies that have struggled. And it is tough 
for them because of what they buy to actually meet their small 
business goals. So I think, you know, as we are seeing the 
voluntary or discretionary set-aside, we are seeing real impact 
on the program. And what we expect and hope is that it drives 
that number up from 30, 33, 34 into the higher 30s.
    Ms. Chu. I just wanted to have some idea of how long this 
program has been in effect and the kind of data that you have, 
like how many agencies are participating and how many orders 
have gone through the voluntary set-aside system versus the 
regular GSA Schedule system. So how long has this program been 
in effect? And also, how many orders have been placed through 
the voluntary set-asides?
    Mr. Kempf. Again, the discretionary authority was granted 
in I think it was November of last year. So we are talking from 
November through now. We have only actually been able to 
identify in the eBuy system the last two months. It took a 
while for us to change the system so that we could track those 
orders that were actually set-asides. It takes us a while. We 
have got some old systems that need help. So when we change 
things, it takes us a while to get them running. But again, 
over the last two months we have been able to track. Again, I 
do not know exactly what the percentage is, but 1,776 out of 
roughly 12,000. So you are seeing about 14 percent of the 
orders actually being set aside through the electronic system.
    Now, agencies, like I said, they do not all use eBuy when 
they do the purchases. But it is one indices that we are 
looking at where we are tracking and seeing that the agencies 
are actually picking up that discretionary and using it. Plus, 
you know, the number that we have been able to--the number of 
people we have been able to train, 1,700 across the federal 
government, and then again, we have seen about 7,000 hits on 
the webinars and the information that we have on our websites 
looking for the information on how to use.
    Ms. Chu. And how many small businesses are receiving orders 
through voluntary set-asides versus the regular Schedules? And 
what are the relative volumes of sales?
    Mr. Kempf. That I do not know that we can even track, at 
least at the moment. So I would have to defer on that. I just 
really do not know that.
    What I would really like to look and watch for is do we see 
a market increase in the amount of business actually going to 
small business by the end of the year? If we see that number 
moving and nothing else has really substantially changed, I 
think we can, you know, we will have a better indication of 
what kind of real impact it had to small businesses. And like I 
said, we are really expecting to see some of the impact coming 
by the end of the year. So I think we will know by the end of 
the year--expect to see some substantial impact.
    Ms. Chu. So, well, apparently you are putting the system in 
place to track the effect of the voluntary set-aside program, 
but can we get that data?
    Mr. Kempf. We would be able to see actually if the actual--
sometimes people use the eBuy system to do part of the 
procurement and then they finish it up in their own agency 
acquisition system. Sometimes they actually use the system to 
actually make the procurement. We would probably be able to 
tell the set-asides that were actually done in eBuy because we 
would be able to track that. So that data we would be able to 
tell. So those that use the eBuy system, we would be able to 
see which ones were actual set-asides. On the agencies, I do 
not know if we would be able to see that data in FPDS on set-
asides and FPDS NG. I just do not know enough to answer that.
    Ms. Chu. I am asking if you can look into that.
    Mr. Kempf. We will look into that and provide more 
information to you.
    Ms. Chu. On the Blanket Purchase Agreements, the BPAs have 
not raised complaints from small businesses in four out of the 
five GSA Schedules when they were introduced. But in the Office 
Supply Schedule, the Schedule 75, there were complaints as what 
you have heard today. So what is different about Schedule 75 
that caused the sales volume and opportunities to climb for 
small businesses that were not awarded the BPAs?
    Mr. Kempf. Well, most of the other areas where we have done 
the FSSI initiatives were generally large businesses, were 
players. So for instance, ground domestic delivery, as you can 
imagine, you are talking about the FedEx and UPSs of the world. 
So it has caused some concern for us. Whenever there are 
winners and losers there is always people who are disappointed 
and upset with the process when they do not win. And we have, 
of course, heard from that. And in all of the procurements that 
we have had, that is normal.
    But I think the problem here in the strategic sourcing 
around the office products is that this is an area that has 
been under a lot of intense market pressures generally. So this 
has been a very tough business to be in. I have a lot of 
empathy for those who are in this business, but we have--this 
is our second generation. We learned a lot from the first 
generation. I think Director Woods points to some of the 
lessons we applied that brought us some good results. I wish we 
were further along than we are. When I look at we are about 120 
million this year in a marketplace where the government will be 
spending well over a billion. So we are not capturing 
everything. The government is still spending more than they 
need to by not using FSSI OSII. So we are not even capturing a 
majority of the market.
    And there are agencies that are doing a great job. A lot of 
them are with us in Office Supplies I, so for them they had 
already instituted the discipline within their purchasing 
community to actually use this. So when we changed over to 
OSII, they moved over very quickly. Their people were already 
disciplined in doing that as part of their agency trying to 
save money. Others are just getting along.
    When you look at the way the government buys office 
supplies, it is probably one of the most distributed purchasing 
patterns in the entire federal government. So it is really hard 
to change buyer behavior when you have literally hundreds of 
thousands of people buying and with authority to buy.
    Ms. Chu. So is it true that you are mandating that the 
federal agencies purchase all goods within the BPA awarded 
vendors even if the goods and services are not part of the 
basket of goods covered by the BPA? Is this a mandate?
    Mr. Kempf. GSA is a non-mandatory source, so we provide the 
services, among them OSII. What agencies do within their own 
agencies and their authorities and how they direct their 
purchases to be made within their own agencies is up to them. 
Now, I know some agencies have done--they have said we are 
going to use this so if you are not going to use this you need 
an exception. Other agencies have said here it is, use it. 
Other agencies have tried something in between. So you have a 
lot of agencies doing different things. And for some of them it 
is about getting small business credits. For some of them it is 
about saving money. For some of them it is about getting the 
data that we provide so they know what they are spending and 
where it is going to.
    Ms. Chu. So you are saying that it is not a mandate?
    Mr. Kempf. Not from GSA.
    Ms. Chu. Because you heard the gentleman, Mr. Tucker?
    Mr. Kempf. Well, I think what he is responding to is agency 
mandates. So individual agencies have set up their own policies 
about how they buy, what they buy, what discretion the people 
in their agencies have. And like I said, some of them, for 
legitimate business reasons, have chosen to set up constraints 
around the buying within their agencies.
    Ms. Chu. Well, let me ask about the $25,000 annual sales 
minimum that small businesses have a hard time meeting. And you 
have heard Mr. Allen talk about that. While you are having 
success with this voluntary set-aside program, there are small 
businesses that will have a hard time meeting this $25,000 
minimum. Can you respond to what Mr. Allen said?
    Mr. Kempf. Sure. We have had, as part of the Schedules 
program for many, many years, a minimum sales clause as part of 
the agreement that we enter into with industry. And we have had 
over the years differing approaches to actually following 
through with enforcing that agreement. And what we have been 
looking at and what we have been seeing in some of our 
Schedules is just the enormous number of Schedule contractors. 
We are right now up to well over 19,000 contractors on the 
Schedules program just in the GSA portion of it. And we are 
seeing some things that cause us concern in terms of the 
numbers, not the least of which is what it is costing us to 
operate it. And then also what we are seeing with what is 
happening within the specific agencies.
    So at some level we have become a little bit more 
aggressive in enforcing the provisions of the agreement that we 
have with the vendors. We have never raised the $25,000 minimum 
sales guarantee. It has been the same for probably 20, 25 
years. When you consider that the average Schedule order is 
about 67,000, what we are asking them to do is get less than 
half of an average order in two years and then to continue that 
for the next three years.
    I understand that navigating the federal marketplace is 
very difficult, but we have done some things, too, that I think 
are helpful to industry. We have had a mentorship protege 
program. We have developed a business breakthrough program. 
There is online support to help industry understand how to 
market to the federal government. And one of the things we are 
trying to do is help industry understand upfront before they 
actually get into the program, that it is the right time for 
them to come. And what we have seen is that a lot of industry 
has been jumping into the program probably at the urging of 
folk who get paid for helping them into the program because it 
is a must do for them. And for some of them it is just not the 
right time to be in.
    At a recent GSA expo, I went to a session with our mentor 
proteges, and one of the proteges was there telling the story 
about he had his Schedule contract RFP in hand and his mentor 
said, ``Hang onto that. Hang onto that till you are ready.'' So 
he waited two years and he said it was the smartest thing he 
ever told me. I was not ready. I would not have sold anything. 
And it was not the right time.
    And so what we are asking industry to do before they get in 
is really look at where you are. Are you ready to come into the 
program? Are you going to be successful? We have a Pathways to 
Success course that we ask small businesses to take, I think we 
actually require at this point, before they come in. We want 
the right kind of people in, but we also want people who are 
going to be successful. We do not want people coming in having 
a bad experience and then leaving frustrated that they spent 
all this money to get in and then it just did not go anywhere 
for them.
    The other thing that I would like to say is that we use a 
lot of discretion. Typically, when people are at that point 
where we have to make a decision, oftentimes the industry comes 
to us and says, ``I am getting there. I have got three 
procurements that I am waiting to hear from.'' We extend for 
them. But on the other hand, we have a lot of people who have 
just turned off to GSA. They are just not even participating 
anymore. And I think it is time to sort of cull the numbers 
down. They are not really participating and they are costing 
the government money. The users do not really need them around 
so they will send them an RFQ and nothing comes back.
    Ms. Chu. Well, I am wondering about this discretion. So you 
are saying that a business could intervene before their 
contract is ended? Because in my state of California, a GSA 
Schedule contract is a prerequisite for state level 
contracting.
    Mr. Kempf. We reached out to both California and Texas and 
we talked to them. I think their discussion with us was that 
they use our Schedule as a marketing tool, a market research 
tool. So they use it to find price, but it was not actually a 
prerequisite for joining. And we reached out to both Texas and 
California because that is also what we understood, too, was 
you get on GSA's Schedule, then you get on California. And 
actually, when we reached out to both of them, they were both 
experiencing some of the same problems we had. They had a lot 
of vendors who had no sales and they had a lot more and the 
increase of the number of offers and modifications that they 
were doing was beginning to cause them problems as well.
    Ms. Chu. I see. Okay, thank you. I yield back.
    Chairman Mulvaney. Gentlemen, I have got some questions all 
over the place. I am going to go in no particular order, 
although I want to try to start with you, Director Woods. You 
heard Commissioner Kempf talk about his frustration at the 
participation rates as far as agencies using OS2. I hope I 
stated that correctly. And then you mentioned something that 
caught my attention regarding about 58 percent of purchases are 
made off the Schedules, which I assume in this circumstance 
means not using the Schedules.
    Mr. Woods. That is correct. At retail stores.
    Chairman Mulvaney. That number surprises me. Did it 
surprise you that it was that high?
    Mr. Woods. I personally was surprised it was that high. 
Yes. Because GSA goes to a lot of effort to make the Schedules 
available and they publicize the availability of Schedules and 
companies do a lot to sharpen their pencils to make sure that 
their prices are good. So that number did surprise me.
    Chairman Mulvaney. That is the whole concept here behind 
the Schedules, is that you all negotiate on behalf of the 
federal government as a whole, try to get the best possible 
price for our agencies, and our agencies take advantage of that 
work that you performed in order to buy products at the lowest 
possible price. That is the basic summation of the system. 
Right?
    Mr. Woods. That is exactly right.
    Chairman Mulvaney. And if we have 58 percent of purchases 
of office products--I guess that is office products. Is that 
what you are talking about?
    Mr. Woods. That is right. Just for office products.
    Chairman Mulvaney. So they are going down the corner to 
Office Depot? Not that I have anything against Office Depot, 
but it sort of defeats the purpose, does it not?
    Mr. Woods. That is right.
    Chairman Mulvaney. How can we fix that? I read the rule, by 
the way, and it is exactly, not surprisingly, as Commissioner 
Kempf said, that they are encouraged to use it but there is no 
requirement. How do we help fix this?
    Mr. Woods. We need to make it as easy as possible for the 
consumer, government agencies to be able to make purchases 
using the GSA Schedule.
    Chairman Mulvaney. Did you ask any of the folks why they 
were not using the Schedules?
    Mr. Woods. Convenience, I think, is probably a fair 
characterization of the reason. And that is why GSA needs to 
make every effort to make it as simple and easy as possible for 
agency users to use either the Schedule program or OSII.
    Chairman Mulvaney. And when you say convenience, give me a 
practical example. What does that mean? If I am the Air Force 
and I want to go out and buy pens, why do they say--and again, 
this is hypothetical--why would they say that it is not 
convenient to use the Schedules? Whereas, it is more convenient 
to go down the street?
    Mr. Woods. Well, delivery time is probably the best 
example. If a user just goes down the street they get it today. 
If they order off the Schedule, it is unlikely they are going 
to get same day delivery.
    Chairman Mulvaney. Could pressure on them to keep their 
inventories down because of costs contribute to this 
circumstance?
    Mr. Woods. That is possible. Agencies sometimes will 
inventory quantities of office supplies to make them available, 
and I know many organizations, both public and private are 
cutting back on inventories in order to streamline operations.
    Chairman Mulvaney. Thank you, Director Woods.
    Commissioner Kempf, a couple different questions for you. 
We have got some numbers about some of the set-asides which six 
months ago were at zero and in the last two months have 
actually picked up considerably, looking like 14.8 percent. Are 
you concerned that implementing DBEM right now may negatively 
impact that positive trend?
    Mr. Kempf. DBEM?
    Chairman Mulvaney. The Demand Based Efficiency.
    Mr. Kempf. Oh, Demand Based.
    Chairman Mulvaney. Did I get that wrong? DBEM. I am sorry. 
Just ask me an alphabet soup question.
    Mr. Kempf. It is now. I did not even recognize my own 
acronym.
    Here is what we are actually looking to do. We know that 
there are some Schedules that we manage that have enormous 
numbers of people who are not getting any business. Some of 
them upwards of 60 percent. We also know on some of them that 
the demand is going south. And in some cases substantially, 
like shipping and packing Schedule, photographic equipment, the 
people that sell typewriters. There is nothing that we are 
going to be able to do that is going to change that demand 
curve. However----
    Chairman Mulvaney. What is the harm in just leaving them 
there?
    Mr. Kempf [continuing]. Well, the harm in leaving them 
there is it costs us money to just leave them there. Well, 
actually, let us separate people who are not meeting their 
minimum sales guarantees and the Demand Based Efficiency Model. 
They are two different things.
    Chairman Mulvaney. Okay.
    Mr. Kempf. So Demand Based Efficiency Model, we have looked 
at some Schedules where we know we really do not need any more 
competitions. And when we looked at that, we have looked at 
areas where we know there is substantially no innovation going 
on. We have looked at areas--in many of these cases we have 400 
or 500 contractors on the Schedule already. One of the things 
we are hoping to do is just at least preserve the market for 
those that are already on. So people who have invested in 
getting on the Schedule, let us not divide that market up by 
adding 50 more people and divide the pie up just a little bit 
more.
    And we have talked to our customers. And our customers have 
told us if I have got 500 choices and I am not really buying 
that much, why are you wasting your time adding more people 
when you could be dropping the time it takes to get on the 
Schedules where I do have demand, where there is innovation, 
where I do need people? Also, they are saying to us can you go 
out and do some more of this Federal Strategic Sourcing 
Initiative? Or can you help us understand how to do Strategic 
Sourcing Initiative? Or for our industry partners, can you go 
out and train people how to use the Schedule better? Help them 
write difficult statements of work so that we can actually use 
GSA's Schedule better, much to what Director Woods is saying. 
Can you make yourself easier to do business with or help us 
understand how to do business? So you drive up the pie that is 
actually being spent under the Schedules program.
    We only have limited resources in the Federal Acquisition 
Service, and what we are looking to do is shift some of those 
resources, some to help industry and drive higher sales, some 
to work with our agency customers and develop secondary uses of 
the Schedule or help them understand how to use it. But in any 
case, what we have done is we have actually looked at--we 
expect that if we implement this as we are planning right now, 
we would only be impacting about 25 percent of the Schedule 
sales. So for 75 percent of the Schedules and 75 percent of the 
sales--and by the way, the growing part of those sales, it will 
be open and it will continue to be open.
    And one other benefit to industry, it identifies the dead-
ends. And it also identifies the opportunities. And I think 
this has some value for industry, which is basically this. 
Helping them understand where the government is not going to be 
buying, where it would be a waste of their time and money to 
come into the program. And we are not doing that right now. So 
we are just saying we are taking all comers. So in many ways, 
diluting some of the potential partners that once they get in--
and I get these calls from vendors. I just got in. I am so 
excited. And some of these areas I just know there is no 
business coming. So it is helpful to them.
    Chairman Mulvaney. And I cannot argue with the logic, 
although in this sea of paper I have on my desk now, staff just 
handed me something that said that the special item numbers 
that you all are proposing closing as part of DBEM, they 
represent over $8 billion in sales, or about 16 percent of all 
the GSA Schedule sales. Is that not a fairly--it does not sound 
to me like it is typewriters. Does it buy that many 
typewriters?
    Mr. Kempf. It is a lot of things. It is two whole Schedules 
and parts of, I think, 14 others. But again, we selected those 
special item numbers or SINs based on where the government--
where we have seen sales go down, where we know there is no 
innovation, and where we have, you know, in many of these areas 
we have looked and seen what the number of Schedule holders 
with low or no volume sales are. And in most of these areas it 
is upwards of 40 percent, and in many of them, upwards of 60 or 
80 percent.
    Chairman Mulvaney. Before we leave DBEM, one more question. 
The written testimony that you submitted claims that the GSA 
will save roughly $20 million using DBEM, but prior written 
materials provided by your office say that the savings have 
been scaled back to about $6 million. Is that apples to apples? 
Did something change? Tell me about the discrepancy between 
those two numbers.
    Mr. Kempf. I think the discrepancy between the two numbers 
had to do with when we first started this we were looking at 
actually closing a lot more SINs than we ended up. So after 
talking with stakeholders with OFPP and others, we pulled that 
number back to a smaller number of SINs being closed. 
Additionally, some of the numbers actually take into account 
both the savings from folks being--their Schedules being ended 
due to low or no volume sales, in addition to the DBEM model.
    Chairman Mulvaney. Let us transition now to the issue that 
Ranking Member Chu mentioned to you briefly and that I think 
Mr. Allen raised during the first panel discussion regarding 
the use in various states of these Schedules. And all I can 
tell you is that in our preparation for the research for this 
hearing, we reached out to Texas and talked to the Texas 
controller's office. That may have been the wrong person with 
whom to speak, but they said they never talked to anybody about 
GSA. So clearly there may be a misunderstanding at some point, 
and I would encourage you to reach out to both Texas and I 
suppose California, although you said you spoke with them as 
well because they are telling us that they anticipate if the 
vendors in year 3 or later of a contract that are not meeting 
the threshold and if removed it would affect nearly $25 million 
in state purchases or about 15 percent of the Texas Multiple 
Award Schedule purchases, almost all of whom are small 
businesses. I think Texas thinks there may be a problem. Texas 
may think there may be a negative effect, a pejorative effect 
on small business in that state because of what is going 
through. So I encourage you to reach out to them if you get a 
chance.
    But it raises a question for me which is coming back to the 
point about why not just leave these folks on the list? I think 
if I can sell my $25,000 worth of stuff every single year, I 
think I pay you $187, $200. Why not just charge me $250 to stay 
on the list?
    Mr. Kempf. Well, we looked at a lot of different things 
that we could do. We looked at closing them for a while. Right 
now we normally just look at the end of the five-year period 
and if they have not had any sales in five years we do not 
renew their option. We have looked at a lot of things but it 
does cost us money. And actually, oftentimes the 
nonparticipating Schedule holders are the ones that cause us 
the most cost because they are not really playing. So when we 
have mass mods--when I say mass mods, mods that everybody needs 
to do--we have a process for doing that. They do not respond, 
so we have to hunt them down and follow through with them. So 
oftentimes, they tend to be the ones that cause us the most. We 
also have contract administration duties that we have to do 
with all of our contract holders, whether they are making sales 
or not. So it is a costly thing for us.
    Chairman Mulvaney. I just encourage you as you go forward 
to consider the fact, as you know, because you know more about 
this than probably anybody, and certainly than I do, that there 
are folks that are using this, not for the purpose of selling 
to you folks or to us, but to selling to their various states. 
So maybe to figure out a way to allow them to continue to do 
that without prejudicing their ability to deal with the states.
    Mr. Kempf. Two things about that. We did talk to Texas. I 
believe we talked to the people that actually run the Texas 
Schedule, so there may be some perception. We will probably go 
back to them and make sure we have that right.
    The other thing is that state and local authorities do have 
the authority on some of our Schedules to actually buy directly 
from us. So on the IT Schedule, Schedule 84, the Security 
Schedule, and during times of emergency, most of them have the 
authority, or actually, all of them have the authority, at 
least from our perspective, to buy from us directly. And they 
do.
    Chairman Mulvaney. All right. And as I promised the first 
panelists I would, I will pass on their questions to the best 
of my ability. Mr. Jacobs raised the issue about the Design 
Excellence Program. I do not know to whom to address this, but 
tell me your thoughts about the program and whether or not you 
are exploring the possibility of expanding it.
    Mr. Kempf. Well, I do not think you have either of the 
people here who should be. That is actually part of the Public 
Building Service side of GSA.
    Chairman Mulvaney. Thank you.
    Mr. Kempf. So that would probably be directed best to them. 
I understand vaguely what it is but I am not competent to 
comment.
    Chairman Mulvaney. Now, the Brooks Act. You? Somebody else? 
Mr. Kempf?
    Mr. Kempf. I can tell you what we do with respect to the 
Brooks Act.
    Chairman Mulvaney. An allegation is not the right word but 
you heard what the concern was, which is that in some 
circumstances the GSA might not be following the Brooks Act to 
the letter and they may be looking at price instead of just 
qualifications. How would you respond to that?
    Mr. Kempf. We have for years highlighted on training, on 
our websites, in our direction to contracting officers who use 
the Schedule that work under the Brooks Act should not be 
purchased and cannot be purchased under the Schedules. It is 
outside the scope of the Schedules. And we have done some 
things in the last years to actually validate and verify that.
    Chairman Mulvaney. How do you do that? How do you enforce 
this?
    Mr. Kempf. We have industrial operations analysts, people 
who actually go out and sit with the contractors and say show 
me your files. What is going on? What are you selling? They do 
some scope reviews. In particular, they look for this once in a 
while. We have asked. There is a group called Cup Face that we 
have had discussions with over 13 years, and we have said if 
you see violations of this would you send them to us and we 
will follow them. In fact, one of them sent me one two weeks 
ago and we are running it down to see, in fact, if it really is 
or if it is an interpretation issue. We also have addressed 
this with Public Building Service, our sister service, who 
actually buys these kinds of things. And we have had their 
chief architect and others actually go through the files of the 
task orders that they have written under the Schedules to look 
to see if they feel that they have purchased anything that was 
really irrelevant under the Brooks Act, and they have come back 
empty-handed with that. And in fact, one of the individuals who 
looked at that to me said, ``I am surprised at what I found.'' 
And what he was saying to me was he was surprised at some of 
the work that the architectural engineering firms had done, 
which he indicated seemed to be an indication of the tough 
times that they had fallen on, that they were taking work well 
outside the typical architecture and engineering work and 
actually taking work that normally an architectural firm would 
not be doing if they could get architectural work. It just is 
not around.
    Chairman Mulvaney. Before I move on, I suppose if I have a 
question about the design build process and possible ways to 
make that more accessible to small business, that would be for 
the Public Building folks as well?
    Mr. Kempf. Certainly.
    Chairman Mulvaney. Okay. Mr. Forman asked a question about 
additional consideration of the Cooperative Business Model. 
Talk to me about that for a second.
    Mr. Kempf. I believe he is talking about--we have been in 
discussion with NOPA for quite some time about ways that people 
who are not or contractors that are not part of the OSII could 
actually be part of the program much like the other witness had 
spoken about where they have a consortium and there is a way 
that they could partner a team with the existing vendors. And 
we are actually working with them on that. I think he alluded 
to that fact that we are actually working with them and looking 
into that. We have not come to a conclusion yet; we are still 
in discussions with them.
    Chairman Mulvaney. Go back to the Brooks Act for just a 
second. If someone like Mr. Jacobs believed that he was 
prejudiced by a violation of that act, what would be the best 
steps for him to take?
    Mr. Kempf. If he would just send me something, we would 
look at it and see, in fact, if we felt there was an actual 
violation. We would work with the agency who had written the 
order to look at, you know.
    Chairman Mulvaney. Can you do that anonymously? Can you do 
it anonymously?
    Mr. Kempf. Well, one of the ways people have done that in 
the past, and not necessarily about the Brooks Act violation, 
but to a hotline complaint, to our IG. I have actually even 
gotten letters in the mail, unsigned, saying I think this is 
wrong. This happened. So sometimes it is not even the IG that 
gets it. We usually follow those up and see. As long as they 
seem reasonable.
    Chairman Mulvaney. I get my letters in the mail all the 
time. It is usually very interesting.
    Mr. Woods. Mr. Chairman.
    Chairman Mulvaney. Yes, sir.
    Mr. Woods. On the Brooks Act point, a couple of areas where 
the Government Accountability Office might be of assistance to 
Mr. Jacobson. One is that we have a bid protest function so 
that if any offeror or an interested party feels that the 
process was not followed properly, they have the option to file 
a bid protest with the Government Accountability Office and we 
will review that.
    Secondly, we are starting some work at the Department of 
Veterans Affairs looking at their construction procurement 
operation. And of course, that will involve A&E Services. And 
we can be on the lookout for instance where there might be 
possible misuse of the Schedules.
    Chairman Mulvaney. Thank you. Gentlemen, I appreciate your 
candor. I appreciate your participation. I especially 
appreciate your forthrightness. I think Ms. Chu and I both try 
and give the impression that we are not here to beat up 
anybody; we are actually pulling in the same direction on this. 
All we are interested in is making sure that small businesses 
are having every opportunity that we can give them. So I 
appreciate you doing that.
    That said, I understand that we are getting ready to vote 
very shortly on a fairly significant item that we will need to 
step out and prepare for. And I have a couple extra questions 
and what I would like to do is simply send them to you in 
writing. And if you could get back to us that would be greatly 
appreciated.
    Mr. Woods. Absolutely. We will be happy to receive those.
    Mr. Kempf. Absolutely.
    Chairman Mulvaney. With that, unless you have anything 
else?
    Ms. Chu. No.
    Chairman Mulvaney. Thank you all very much for coming. And 
thanks again everybody for participating. That will adjourn the 
meeting.
    [Whereupon, at 4:27 p.m., the Subcommittee was adjourned.]

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