[Senate Hearing 112-144]
[From the U.S. Government Publishing Office]
S. Hrg. 112-144
SMALL BUSINESS CONTRACTS:
HOW OVERSIGHT FAILURES AND REGULATORY
LOOPHOLES ALLOW LARGE BUSINESSES TO GET AND KEEP SMALL BUSINESS
CONTRACTS
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HEARING
before the
AD HOC SUBCOMMITTEE ON CONTRACTING OVERSIGHT
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
JULY 26, 2011
__________
Available via http://www.fdsys.gov
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri JOHN ENSIGN, Nevada
JON TESTER, Montana ROB PORTMAN, Ohio
MARK BEGICH, Alaska RAND PAUL, Kentucky
JERRY MORAN, Kansas
Michael L. Alexander, Staff Director
Nicholas A. Rossi, Minority Staff Director and Chief Counsel
Trina Driessnack Tyrer, Chief Clerk
Joyce Ward, Publications Clerk and GPO Detailee
AD HOC SUBCOMMITTEE ON CONTRACTING OVERSIGHT
CLAIRE McCASKILL, Chairman
THOMAS R. CARPER, Delaware ROB PORTMAN, Ohio
MARK L. PRYOR, Arkansas SUSAN M. COLLINS, Maine
JON TESTER, Montana JOHN McCAIN, Arizona
MARK BEGICH, Alaska JERRY MORAN, Kansas
Margaret Daum, Staff Director
Brian Callanan, Minority Staff Director
Kelsey Stroud, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator McCaskill............................................ 1
Senator Portman.............................................. 3
Senator Tester............................................... 5
WITNESSES
Tuesday, July 26, 2011
Joseph G. Jordan, Associate Administrator, Office of Government
Contracting and Business Development, U.S. Small Business
Administration................................................. 6
Mauricio P. Vera, Chair, Interagency Council of Federal Office of
Small and Disadvantaged Business Utilization Directors, and
Director, Office of Small and Disadvantaged Business
Utilization, U.S. Agency for International Development......... 8
Mindy Connolly, Ph.D., Chief Acquisition Officer, U.S. General
Services Administration........................................ 10
Alphabetical List of Witnesses
Connolly, Mindy, Ph.D.:
Testimony.................................................... 10
Prepared statement........................................... 43
Jordan, Joseph G.:
Testimony.................................................... 6
Prepared statement........................................... 31
Vera, Mauricio P.:
Testimony.................................................... 8
Prepared statement........................................... 39
APPENDIX
Scorecard referenced by Ms. Connolly............................. 49
Questions and Responses for the Record from:
Mr. Jordan................................................... 51
Mr. Vera..................................................... 61
Ms. Connolly................................................. 62
Statement from Congressman Bennie G. Thompson for the Record..... 69
SMALL BUSINESS CONTRACTS: HOW
OVERSIGHT FAILURES AND REGULATORY
LOOPHOLES ALLOW LARGE BUSINESSES TO GET AND KEEP SMALL BUSINESS
CONTRACTS
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TUESDAY, JULY 26, 2011
U.S. Senate,
Ad Hoc Subcommittee on Contracting Oversight,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:06 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. Claire
McCaskill, Chairman of the Subcommittee, presiding.
Present: Senators McCaskill, Tester, and Portman.
OPENING STATEMENT OF SENATOR MCCASKILL
Senator McCaskill. The hearing will now come to order. I
know that Senator Portman will be here, and I know he would
want us to go ahead and begin, and we will defer to him as soon
as he arrives. Let me begin with my opening statement.
This week Washington is focused on the debt ceiling and the
looming possibility that our country will default on our
obligations. This is a time for all of us here to take a hard
look at the way the government is doing business.
Today's hearing is about restoring honesty, transparency,
and accountability to one particular part of the government's
books: The way that the government awards and tracks small
business contracts.
Several decades ago, Congress passed legislation
establishing annual goals for small business contracting. The
goal is now set at 23 percent. Last year, the government
announced that it had reached 22.7 percent.
This is a laudable achievement. Unfortunately, as today's
hearing will show, it is also an empty achievement. Many of the
contracts that the government counts when it tallies the awards
it says have gone to small businesses are, in fact, performed
by large businesses. Today, we are going to examine how it is
that a system that should be helping small businesses is, in
fact, doing little more than helping the government play a
numbers game.
This is not the Subcommittee's first hearing on problems
with small business programs. Two years ago, the Subcommittee
held a hearing on the multiple preferences for Alaska Native
Corporations (ANCs) in the Small Business Administration's
(SBA's) 8(a) program for small and disadvantaged businesses. At
that hearing we examined how special preferences in the 8(a)
program allowed Alaska Native corporations--many of which are
very large businesses indeed, with revenues far in excess of
$100 million per year and multiple subsidiaries--to be
considered ``small'' businesses by the Federal Government.
Today we are going to look at some of the other ways that
the government's small business rules benefit large
corporations. Since 2005, the SBA Inspector General (IG) has
included in their list of the agency's top management
challenges the fact that many contract awards recorded as going
to small businesses are actually performed by large businesses.
In many cases this happens because the current regulations
allow contracts to be counted this way. In preparation for this
hearing, we looked closely at the ways that the size standards
for small businesses allow the government and contractors to
game the system to their advantage. The SBA sets size standards
for businesses for each of the more than 1,200 industries
defined under the North American Industrial Classification
System (NAICS), a business classification system maintained and
used by the U.S. Census Bureau for statistical purposes.
When the Federal Government awards a contract, the
contracting officer (CO) determines the North America
Industrial Classification System code to describe the product
or service being bought. NAICS is the acronym for this code,
the classification system. The size standard for the NAICS code
defines the size of business that can be counted as small for
the contract based on either a business' revenue or the number
of employees it has.
Yet even though the contracting officer should have the
ability to choose a NAICS code that best fits the contract, SBA
has created a special exception that swallows the whole rule.
Even if you do not make anything and you are just buying
products from a large business for resale to the government,
with a markup, you get to be considered a manufacturer. This
allows a bigger size standard to be used, which means that a
business that might be too large to qualify as small can get
the contract, and the government can count the dollars toward
meeting their small business goals.
For example, one contractor, immixTechnology, resells
commercially available information technology hardware and in
2009 had approximately $400 million in revenue and 150
employees. In 2010 immixTechnology received more than $18
million in new small business contracts for resale and
wholesale contracts. SBA generally limits wholesale companies
to a maximum size standard of 100 employees and retail
companies to a maximum revenue of approximately $7 million to
$30 million, depending on the industry, both standards that
immixTechnology far surpassed. But SBA has also created an
exception which requires the government to use the
classification for a manufacturing company for contracts like
this one, which sets the size standard at 500 employees. All of
a sudden, a big company like immixTechnology, for all intents
and purposes, is called ``small'' for the government's books.
In meetings in preparation for this hearing, the
Subcommittee learned that the NAICS system was not designed for
use as a government contracting tool. That disconnect may be at
the root of some of the abuses that we now see in small
business contracts. I am going to be asking our witnesses today
whether there is a more rational way of determining size.
I will also be asking questions today about all the
complicated ways that small businesses certify that they are
small and what happens when they grow large or get bought and
are not small anymore by anyone's standards.
My biggest concern here is that the system doesn't seem to
make sense. Small businesses are one of the most important
parts of the U.S. economy, and government contracts can be an
important economic opportunity for small businesses and an
effective way that the government can use its spending power to
help small businesses succeed. We need to make sure that the
system provides them the opportunities that they need to be
successful. We do not need to be spending taxpayer dollars to
prop up a system that allows the government to take credit and
large businesses to profit at the expense of the small
businesses that the system is meant to help.
I thank the witnesses for being here today, and I look
forward to their testimony. Senator Portman.
OPENING STATEMENT OF SENATOR PORTMAN
Senator Portman. Thank you, Madam Chairman. I appreciate
your holding this hearing. And as you just said, this is an
issue that this Subcommittee has looked at before, so I
appreciate your continued focus on it, and I am glad to be
joining you today to take it to the next step. I think it is
critical that this good work you have already started
continues.
This hearing on small business comes at a difficult time,
doesn't it? We are looking at high unemployment, over 9 percent
nationally, and when you really look at the numbers of people
who are not looking for work anymore or are underemployed, it
is closer to 16 percent in Ohio. Those are about our numbers.
We are looking at not just relatively high unemployment but
also people being unemployed for a long time. This is a record
number of folks being unemployed for 6 months or more. So we
have a lot of challenges in front of us, and small businesses
are being looked to pull us out of what is a very disappointing
recovery.
And that has always been true. When you look back in
history, whether it is the Great Depression or recessions we
have been in before, it is small businesses that tend to hire
first and tend to bring us out, and we are not seeing that in
the way that we should. I think there are a lot of reasons for
it. We are not creating the conditions for small businesses to
be able to grow and prosper. There is a lot of uncertainty out
there. I think we are talking about that on the floor of the
Senate and the House this week. Part of that uncertainty is
where we are going with the budget deficit and the taxes and
regulations and so on.
The Small Business Administration, of course, is supposed
to be helping to create more economic activity among the risk
takers and innovators and small businesses, so this is an
appropriate focus for us today.
I am told that over two-thirds of the new net jobs over the
past 15 years have been created by small businesses, by the
way. Those are SBA numbers.
I grew up in a small business, as did a lot of Americans.
My dad started a small business when he was 40 years old. He
left a job as a salesman, and he risked it all. He lost money
the first few years, but it finally caught on, and he went on
to be a successful small business person, as is my brother, who
still works at the company. And if we do not get these small
business entrepreneurs and innovators back in the game again,
creating jobs and opportunities, we are not going to be able to
get out of either the economic issues we are in or also to be
able to deal with our fiscal challenges because we need more
growth.
So this, again, is an appropriate hearing at a time when we
need to be focused on how do we get these businesses going.
By the way, U.S. Bank recently did a survey of small
businesses nationwide, and they reported that 75 percent of
small businesses have no plans to expand in the next 12 months.
So we need to do everything we can to try to help them expand.
One of the things that can be done is to ensure that any
Federal program that is designed to promote economic
development and promote small businesses is working, and
working efficiently and effectively and has measurable results
to help get us back on track.
The contracting set-aside programs that the Chair talked
about a moment ago created by the Small Business Act are among
the tools we can use to help small businesses. These programs
open the doors to procurement opportunities, and we are going
to hear a lot about that from the witnesses today, some of whom
have been doing this for a long time and can tell us whether it
is working or not. The Chair just talked about some of the
definitional problems. What is a small business? How often do
they have to report? Is once every 5 years adequate? What
happens when a small business becomes a big business? Should
they still get the same set-aside?
And, by the way, this is no small line item. In Fiscal Year
2010 the SBA reported that Federal agencies awarded nearly $98
billion of all prime contracts to small businesses. That is
just shy of that 23 percent yearly target that is established
by law, and we have to be sure that target is met and that it
is done, again, in a way that truly helps small businesses.
Oversight is important here, and, again, that is what this
hearing is about.
One of the perennial challenges has been the problem of
unqualified large businesses profiting from these small
business contracts. The SBA Inspector General has identified
this issue as a top management priority every year since 2005,
and it is appropriately, again, a focus of the hearing today.
More broadly, we have seen that the enticement of limited
competition has led to fraud and misrepresentation across
several small business contracting programs. For example, the
Government Accountability Office (GAO), reported last year that
it identified 14 firms that received set-side or sole-source
8(a) contracts worth $325 million through fraud, and, again,
this is an appropriate focus of this Subcommittee. These 14
firms then received another $1.2 billion in other Federal
obligations since entering the 8(a) program, including $17
million in awards through the 2009 stimulus bill.
So fraud and oversight failures like these are
unacceptable. We need to focus on them and figure out how to
stop them. They not only short-change the taxpayers but, of
course, those businesses that should be benefiting are injured.
I look forward to hearing from our good panel here today,
Madam Chairman, and, again, thank you for holding this hearing.
I look forward to a good conversation about the management and
oversight challenges in these small business contracting
programs.
Senator McCaskill. Thank you, Senator Portman.
Senator Tester, thanks for joining us this morning. Would
you like to make an opening statement?
OPENING STATEMENT OF SENATOR TESTER
Senator Tester. I would. Thank you, Madam Chairman, for
having this hearing, and I want to thank the witnesses for
being here today. We all understand how important it is
creating jobs. We also understand that there is no more proven
job creator than small businesses. Montana is no exception
where the vast, vast majority of our businesses are small.
Right now many of these businesses are struggling. The
uncertainty of a debt ceiling is probably part of the reason.
We need to do a better job of coming together here with
reasonable solutions, but these small businesses are not
looking for a bailout or a handout. They are looking for a
level playing field so that they can compete, and one thing
that we can do here is make sure that level playing field is,
in fact, level. And we should not allow the large businesses to
come in and elbow out the small ones to get those contracts
that are set aside for the small businesses.
This, quite frankly, from my perspective is going to be
something that saves the government money, and I think that the
Chairman talked about approaching the 23 percent, but, in fact,
that is not what has occurred at all. So we need to do a better
job making sure that the small business carveout actually does
go to small businesses, and I am eager to hear from the
witnesses how we can improve that process, how we can make it
better, how we can eliminate the loopholes, the waste, the
fraud, the abuse so that businesses truly do get a fair shake.
And so I want to thank you for that, Madam Chairman.
On a side note, I would say it is good to see that you
still have John LaBombard working on your staff. It is good to
see that he still has gainful employment.
Senator McCaskill. He has lasted a couple of weeks. It is
great.
This is an inside joke. I stole this staff member from
Senator Tester, so he is cranky about it. [Laughter.]
Senator Tester. Actually, I gave him a great
recommendation.
Senator McCaskill. You did. You did, in fact, and it is
great to have him.
Let me introduce our witnesses for today. Joseph Jordan was
appointed as Associate Administrator of Government Contracting
and Business Development at the United States Small Business
Administration in March 2009. Prior to joining SBA, Mr. Jordan
was an engagement manager with McKinsey & Company, a global
management consulting firm.
Mauricio Vera is the Director of the U.S. Agency for
International Development's (USAID) Office of Small and
Disadvantaged Business Utilization (OSDBU). Since October 2009,
Mr. Vera has served as Chair of the Federal Office of Small and
Disadvantaged Business Utilization Council. Before joining
USAID, Mr. Vera managed the small business program at the U.S.
Nuclear Regulatory Commission. Mr. Vera has also served as a
Senior Financial Analyst at the Small Business Administration.
Mindy Connolly was appointed to be the Chief Acquisition
Officer (CAO) of the General Services Administration (GSA) in
February 2011. Prior to joining GSA, Ms. Connolly was a Senior
Procurement Policy Analyst at the White House Office of Federal
Procurement Policy (OFPP). Before joining the Federal
Government, she worked in acquisition for Honeywell
International's Defense Division.
It is the custom of this Subcommittee to swear in all
witnesses that appear before us, so if you do not mind, I would
ask you to stand. Do you swear that the testimony you will give
before this Subcommittee will be the truth, the whole truth,
and nothing but the truth, so help you, God?
Mr. Jordan. I do.
Mr. Vera. I do.
Ms. Connolly. I do.
Senator McCaskill. Thank you very much.
We will begin our testimony this morning with Mr. Jordan.
Welcome and thank you for being here.
STATEMENT OF JOSEPH G. JORDAN,\1\ ASSOCIATE ADMINISTRATOR,
OFFICE OF GOVERNMENT CONTRACTING AND BUSINESS DEVELOPMENT, U.S.
SMALL BUSINESS ADMINISTRATION
Mr. Jordan. Thank you, Madam Chairman. Chairman McCaskill,
Senator Portman, and Senator Tester, thank you for inviting the
U.S. Small Business Administration to testify this morning. And
having been at the hearing 2 years ago that you referenced, it
is very nice to be back. My name is Joseph Jordan, and I am the
Associate Administrator for the SBA's Office of Government
Contracting and Business Development.
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\1\ The prepared statement of Mr. Jordan appears in the appendix on
page 31.
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My office works each day to ensure that small businesses
receive their fair share of over $400 billion in Federal
contracts. We are always looking for ways to increase small
business contracting opportunities, and I am proud to say that
in the 2\1/2\ years I have been in my position, we have made
significant improvements.
Today I would like to share with you three key initiatives
that my office has been focused on: One, the small business
procurement goaling process and scorecard; two, our three-
pronged approach to combating fraud, waste, and abuse; and,
three, the implementation of the Small Business Jobs Act (SBJA)
of 2010.
First I will discuss the small business procurement goaling
process and scorecard. SBA oversees the Federal Government's
efforts to meet the statutorily mandated small business goals,
including the goal of awarding 23 percent of prime contracting
dollars to small businesses.
The first part of the goaling process is working
collaboratively with all 24 CFO Act agencies to set small
business procurement goals for each of them using a fact-based
and data-driven approach.
The second part of the process is to continually monitor
progress toward these goals and to provide training and support
to agencies wherever needed.
The last and most public phase of the goaling process is
the publication of our annual scorecard. Last month we
published the Fiscal Year 2010 scorecards which showed that the
government awarded 22.7 percent of contracting dollars to small
businesses, marking the largest 2-year increase in over a
decade. While we will always push to do more, we are proud of
the improvement we have made in the scorecard process and
methodology. Two years ago we redesigned the methodology to
provide a clearer, more transparent report of small business
contracting performance and to ensure the scorecard would
incentivized the desire outcomes.
Additionally, although only the agency awarding a contract
may enter or modify its data, SBA has developed a robust data
quality review process to identify any potential anomalies. We
work closely with agencies to resolve these anomalies after
they have certified their data to the Office of Management and
Budget's (OMB's) Office of Federal Procurement Policy and GSA
and before we publish the scorecard.
It is also important to note that there are many legitimate
reasons for a small business contract to look like it was
awarded to a business that is other than small such as: If a
business grows out of being small during a multi-year contract,
regulations consider the recipient to be small for up to 5
years or the length of that contract, whichever is shorter.
Second, many firms operate in multiple industries and may
meet the size standard to be considered small for some of them
and not for others. We work closely with the Office of Federal
Procurement Policy, the Defense Acquisition University, and the
Federal Acquisition Institute to ensure contracting officers
have appropriate training on how to classify and report these
contracts.
I would now like to share our approach to combating fraud,
waste, and abuse in our contracting programs. We have no
tolerance for fraud, waste, or abuse in these programs and
have, therefore, implemented a comprehensive, three-pronged
strategy to identify, prevent, and pursue fraud across all
government contracting programs.
The first prong of our strategy is designed to ensure that
there are effective certification processes on the front end
and make sure only qualified eligible firms participate in
these programs.
The second prong is conducting continued surveillance and
monitoring on these firms once they are in our programs.
The last prong of the strategy is taking robust and timely
enforcement on any non-compliant or fraudulent firms.
We have made significant improvements in all three phases
and maintain our focus on ensuring benefits of small business
contracting programs only flow to the intended recipients.
Last, I would like to share our efforts to implement the
Small Business Jobs Act of 2010. We thank Congress for passing
this important piece of legislation which included 19
provisions related to small business contracting. We are in the
process of implementing these provisions and are excited about
the impact they will have not only on small businesses but also
in improving the contracting oversight process. These three
initiatives demonstrate the steps that SBA has taken to
strengthen our goaling process, data quality efforts, and
approach to combating fraud, waste, and abuse. These efforts
are critical in ensuring small businesses gain access to
Federal contracting opportunities.
While we have made significant progress, we continue to
look for ways to identify further opportunities for improvement
and maximizing small businesses' access to this important
source of revenue so that they can grow their businesses and
create jobs.
Thank you for allowing me to share SBA's views and
initiatives with you today, and I will be happy to answer any
questions that you may have.
Senator McCaskill. Thank you, Mr. Jordan. Mr. Vera.
STATEMENT OF MAURICIO P. VERA,\1\ CHAIR, INTERAGENCY COUNCIL OF
FEDERAL OFFICE OF SMALL AND DISADVANTAGED BUSINESS UTILIZATION
DIRECTORS, AND DIRECTOR, OFFICE OF SMALL AND DISADVANTAGED
BUSINESS UTILIZATION, U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT
Mr. Vera. Good morning. Chairman McCaskill, Senator
Portman, Senator Tester, thank you for inviting me to testify
this morning. My name is Mauricio Vera, and I am the Director
of the U.S. Agency for International Development's Office of
Small and Disadvantaged Business Utilization. I also currently
serve as the Chair of the Federal OSDBU Directors Interagency
Council, and it is in that capacity, not as a representative of
USAID, that I was invited to speak to you this morning.
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\1\ The prepared statement of Mr. Vera appears in the appendix on
page 39.
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Section 15(k) of the Small Business Act requires that all
Federal agencies with procurement powers establish an OSDBU.
OSDBU Directors are the primary small business advocates within
each Federal executive agency, responsible for promoting the
maximum practicable use of all designated small business
categories within the agency's Federal acquisition process.
OSDBU Directors are tasked with ensuring that their agency and
its prime contractors comply with Federal laws, regulations,
and policies related to the award of contracts and subcontracts
to small businesses. By law, OSDBU Directors shall report
directly to the agency head or the deputy. This is important
because it helps to ensure that OSDBU Directors have direct
access to their agency's top decisionmakers in order to
advocate effectively.
The Federal OSDBU Directors Interagency Council is an
informal organization of Federal small business program
officials that meets monthly to discuss issues that are
important to accomplishing our respective missions and share
best practices for the utilization of small businesses. The
Council is led by an Executive Committee that is elected
annually for 1-year terms by the voting membership. At the end
of September, I will complete my second year as the elected
Chair of the Council. Although the Chair is elected by the
group, he or she has no authority to speak for any of the
individual members of the Council. And while every Director
formally advocates for the priorities of his or her agency, the
Council does share some common goals, and these include:
Ensuring that information is disseminated to small businesses
so that they can be fully informed as to the Federal laws,
regulations, and programs that are relevant to their pursuit of
Federal prime and subcontracts; advocating Federal Government-
wide compliance with laws, regulations, and policies designed
to maximize the participation of small businesses; advocating
training of the Federal procurement workforce and community in
the principles and methodologies to maximize small business
utilization; and, most importantly, identifying best practices,
sharing ideas, and experiences among Federal agencies and
private industry that will help leverage resources and develop
solutions to more fully utilize small businesses in Federal
procurement.
Agencies are mandated to establish small business
procurement goals and negotiate these with the SBA prior to the
beginning of each fiscal year.
For the past several years, as Joe alluded to, the SBA has
also issued a Small Business Procurement Scorecard to, one,
measure how well agencies are meeting their small business;
two, provide accurate and transparent contracting data; and,
three, report agency-specific progress. Each agency's overall
grade is comprised of three quantitative measures: Prime
contract goal accomplishment, subcontracting goal
accomplishment, and progress plans for meeting its goals.
One of the measures in the progress plan section of the
scorecard is that agencies should ``demonstrate that small
business data is accurately reported in the Federal Procurement
Data System (FPDS).'' The Federal Acquisition Regulation (FAR)
and supplemental guidance from OMB's Office of Federal
Procurement Policy also require agencies to annually verify
that agency data captured in FPDS are complete and accurate.
OFPP policy letters require agencies to verify that agency
policies, procedures, and internal controls include regular
reviews of procurement data and that agencies are appropriately
sampling procurement records for accuracy on key data elements.
SBA provides each of the 24 agencies covered under the CFO
Act an individualized anomaly report for the previous year.
These anomalies are evaluated by the agency, and then the
agencies are instructed to review and investigate each of them
and either correct those that are in error or provide SBA with
an explanation of why the transaction should not be corrected.
A number of OSDBU Council member agencies are taking
concrete steps to mitigate the possibility of large businesses
obtaining contracts that are set aside for small businesses and
ensuring that their small business data are valid. Some of the
best practices at various agencies include: Adding
responsibility and accountability for data accuracy as an
element in contracting officers' and other contracting
officials' performance plans; mandating that contracting
professionals participate in training that emphasizes the
importance of accurate reporting; conducting random sampling of
procurement actions to determine if businesses are coded
correctly in FPDS and correcting those that have been
miscategorized; and, last, encouraging small businesses to
update their information in the Central Contractor Registration
(CCR) or Online Representations and Certifications Application
(ORCA) databases to accurately reflect size and socioeconomic
business status.
Thank you again for the opportunity to testify before your
Subcommittee. Members of the Federal OSDBU Directors
Interagency Council are committed to helping small businesses
get their fair share and that our acquisition systems produce
the good results that our taxpayers deserve. I welcome the
opportunity to seek your advice and counsel on this important
matter and am pleased to answer any questions you might have.
Thank you.
Senator McCaskill. Thank you, Mr. Vera. Ms. Connolly.
STATEMENT OF MINDY CONNOLLY, PH.D.,\1\ CHIEF ACQUISITION
OFFICER, U.S. GENERAL SERVICES ADMINISTRATION
Ms. Connolly. Good morning, Chairman McCaskill, Senator
Portman, Senator Tester, and Members of the Subcommittee on
Contracting Oversight. It is a pleasure to be here today to
testify on behalf of the General Services Administration. My
name is Mindy Connolly, and I am the Chief Acquisition Officer
of GSA. This morning I will provide a summary of my written
statement, which was submitted to the Subcommittee.
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\1\ The prepared statement of Ms. Connolly appears in the appendix
on page 43.
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GSA shares the perspective on small business contracting
and related data quality concerns in the findings of the
Presidential Interagency Taskforce on Federal Contracting
Opportunities for Small Business. We are working together with
our colleagues at SBA to implement the task force
recommendations while making progress to increase small
business awards and improve data quality within internal GSA
operations.
The task force identified three priority recommendations
for Federal contracting: First, providing Federal contractors
with stronger rules; second, developing a better equipped,
informed, and more accountable workforce; and, third, improving
outreach and making better use of data.
It is critical that these improvements be examined at the
intersection of policy systems, our acquisition workforce, and
business interests and behavior. Policy drives the regulations
and business rules around which our systems are managed. The
harmonization of policy and systems and training is needed to
ensure only small businesses are the beneficiaries of intended
contracting policy.
GSA recently received a grade of A from the SBA for our
Fiscal Year 2010 small business performance.\2\ Every member of
the GSA leadership team is proud of the acquisition workforce
across GSA that led to that success. In addition to meeting our
own goals, our Federal Acquisition Service (FAS) helps other
agencies accomplish their mission through our multiple award
schedule (MAS) contracts, governmentwide acquisition contracts,
and assisted acquisitions. Across the multiple award schedule
contracts, over one-third of the orders go to small businesses,
helping other agencies to meet or exceed their small business
goals.
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\2\ The scorecard referenced by Ms. Connolly appears in the
appendix on page 49.
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The first priority of the task force is to strengthen rules
and policies in order to promote contracting opportunities for
small businesses. Many steps toward strengthening the rules are
set forth in the Small Business Jobs Act of 2010, which, among
many changes, promotes the increased transparency in contract
awards to small businesses. SBA has the programmatic lead to
issue policy, implementing the changes mandated by the Jobs
Act. The FAR Council, of which GSA is a signatory agency, is
paying close attention or is involved in those discussions, and
I expect we will open a FAR case or cases to address the
revised SBA regulations.
One regulatory issue for attention is the snapshot in time
when a size determination is made to classify a business as
``small'' and thus eligible for the benefits reserved for small
businesses.
When acquisition policy changes, acquisition systems
changes must follow. Coordinating with the Chief Acquisition
Officers Council and the Acquisition Committee for Electronic
Government (ACE), GSA is the managing partner of the Integrated
Acquisition Environment (IAE). The IAE is a set of
governmentwide systems used by the Federal community and by
those who seek to do business with the government. To better
serve stakeholders, GSA is developing a new System for Award
Management (SAM), that will replace the current FPDS-NG system.
Once implemented, SAM will provide a single user-friendly
interface that will reduce burden and errors among contracting
officers and vendors alike. Reducing user error and duplicative
entry improves data quality. In turn, improved data quality
creates more accurate reporting and fosters improved
decisionmaking.
As we move forward, the entire acquisition workforce will
be critical to ensuring regulatory implementation achieves the
intended objectives. To assist in meeting this challenge, GSA's
Federal Acquisition Institute is developing a Small Business
Programs online continuous learning module, due to launch in
September 2011. This module helps members of the acquisition
workforce understand the current tools, processes, and
resources available to facilitate proper awards to small
businesses.
As Chief Acquisition Officer, I am committed to ensuring
GSA maintains acquisition excellence in all of our activities,
including small business contracting and reporting.
Chairman McCaskill, Senator Portman, Senator Tester, I am
glad to answer any questions of the Subcommittee. Thank you.
Senator McCaskill. Thank you all for being here.
We will try to do 7-minute rounds, and we will do as many
as we need to do to get everyone's questions.
Let me begin. There are many problems here, and some of it
is just a matter of complexity, but let me get at one of the
more simple issues, and that is, should a contract be counted
as small for the life of the contract? Let me give you an
example. There is a Virginia-based company called VSE
Corporation which now has over 2,800 employees and $363 million
in revenue. VSE is doing quite well and good for VSE. I am glad
they are. That is not the issue. VSE is no longer listed as a
small business, obviously. No casual observer would ever claim
that VSE is a small business. Nevertheless, the Defense
Department awarded a contract worth up to $2.6 billion in 2008
to VSE as a small business, and the dollars obligated to VSE
under that contract today are still counted by the Defense
Department toward its small business goals. The Department
likes it. SBA probably likes it. But I do not see how that
spurs the Department toward looking for small businesses in
Missouri or other places to fill annual small business
contracting goals. Today over $30 million--today, with this
company being the size that it is, over $30 million in task
orders under this contract are still counted toward small
business contracting goals.
Doesn't keeping this contract on the record books as a
small business contract skew the entire purpose behind keeping
track of small business contracts, Mr. Jordan?
Mr. Jordan. I do not believe so, Madam Chairman. I think
that, as you rightfully said, this company has recertified
their status, so any future awards that they would receive
would not be through small business set-asides, and those
dollars would not be counted as small.
I think what is behind the current regulations that say
before your sixth year of a contract--so the length of the
contract or 5 years, whichever is shorter--the agency may
continue to receive small business credit for those dollars is
intended to encourage agencies in an environment where we have
30,000 contracting officers trying to execute 5 million
contracts and contract actions annually to do that in an
effective and efficient way and find these multiple award
contract vehicles that they can get into the hands of small
businesses without penalizing that contracting officer and that
agency by then locking in all those dollars into their spend
base but not giving them any small business credit in the
numerator because they did such a good job finding these small
businesses that those small businesses grew and exceeded the
size standard.
So I think it would be wrong if that entity went out and
competed against other small businesses now and won any award,
but at the time of their offer for that contract they were
small. They received that contract--I do not know the
individual case, but this does happen, as you have noted, more
than just one time. They were right to receive that contract in
being a qualified small business, and then at the end of 5
years or the life of that contract, whichever is shorter, they
can no longer be counted as small.
Senator McCaskill. Well, I guess, I understand from your
perspective you do not want to penalize the agency or the
business that has grown. On the other hand, it inherently makes
the number really misleading because they are--I mean, this is
one example, but there are thousands of these examples where we
are continuing to count toward a small business goal companies
that are not small by anybody's measure.
So I guess what I am saying is by taking the position you
are taking, you are essentially saying to the public, ``By the
way, we are saying 22.7, but do not believe it.''
Mr. Jordan. Well, on that point, I think we all strive for
perfection, and we definitely want every single dollar that
says it is going to small businesses to be going to small
businesses, and we will do more to make sure that happens and
that we hit the 23 percent, there is no fraud, waste, and
abuse, small business contracts are going to small businesses.
When you look at it on a relative basis versus everything
that has ever happened before, not only is the greatest 2-year
increase in 10 years, but it is also done with the cleanest
data ever. So we are very proud of that. What we have done on
the specific issue is try to balance--keeping a level playing
field, as Senator Tester said, so at the time of competition
for a small business set-aside all those businesses are only
small; do incentivize contracting officers and agencies to get
contracts in the hands of small businesses; and then, balance
with things like when there is a merger or acquisition, then
they do have to recertify; they do have to go back and they
will not get small business credit for that anymore, and a lot
of contracting officers and agencies get frustrated because
they say, Joe, I found this great small business. I locked in a
5-year contract with them. I am very excited that we are going
to have all these small business dollars in our spend. But then
the next day, fill-in-the-blank household large business bought
them, and now I have locked that 5-year spend into my
denominator, but I am not going to get any credit for that. I
am going to, in fact, get penalized for it when you come out
with the scorecard and show in a transparent way how we have
done.
So we try to balance both sides of that to keep the
behaviors we want incentivized but also, make sure that we feel
we are confident that the small business contracting numbers we
report are accurate.
Senator McCaskill. Yes, well, they are not.
Let me quickly go through this other question, and I may go
over a little bit of the 7 because there is just a minute 31
left. But there are NAICS codes for manufacturing, and then
there are NAICS codes for retail trade. And there are codes for
wholesale trade, and there are codes for service. Yet SBA
directs contracting officials to not use the codes for retail
and wholesale and requires them to use manufacturing, which has
much higher size standards.
For example, if you are in the resale business, if you do
not make anything, you just buy and resell it, your size will
be determined, as the case with manufacturers, based on the
number of people you employ, not on your revenue, which allows
many companies to be counted as small that might not otherwise
qualify.
We looked at a number of examples and found some disturbing
ones. For example, one business was awarded a contract for
``other computer peripheral equipment manufacturing,'' which
lets businesses count up to 1,000 employees before it is no
longer considered small, even though the business was not
manufacturing a single thing. That business had a $3 million
contract to sell toner to the government. So all it was done
was performing a middleman function selling toner, printer
toner, to the government, and they were counted as
manufacturing under the much higher standard.
How can you justify that?
Mr. Jordan. So procurements are classified based on what
you buy, not who provides them. So wholesale and retail NAICS
codes, North American Industrial Classification System codes,
do not apply to government procurements. So for a supply
contract----
Senator McCaskill. Well, why not?
Mr. Jordan. Because, again, the procurements are classified
based on what is being purchased.
Senator McCaskill. Why? If they are performing a retail
function, why don't you use the code for retail? Because that
is what these guys are doing. They are not making anything.
Mr. Jordan. The theory is that we are trying to get, again,
small businesses on a level playing field to be able to compete
while not just having them either inappropriately participate
or act as a pass-through. So that is why we ask an agency for
supply contracts to assign the NAICS code. To be eligible for a
set-aside, the firm must manufacture the product of a small
business. But you are right. The non-manufacturer size standard
is 500 employees.
So it is an issue that we look at quite a bit. When do we
grant non-manufacturer waivers? How do we make sure that we
have small businesses in the process wherever they can compete
and provide the government the best value? But it is definitely
an issue that we continue to look at.
Senator McCaskill. Well, it does not make any sense. I
mean, these guys are just selling toner. They are just a pass-
through. Why in the world would you use the standard for
manufacturing that is much, much higher? There is no reason to
do that unless you are trying to pigeonhole people into a small
business category that really are not a small business
category. It seems to me that it is as plain as the nose on
your face that this does not work.
My time is up, and I want to turn it over to Senator
Portman, but I need a better answer than this is just the way
we do it, because all this does is, once again, skew the
numbers in a way that in the long run harms small businesses,
because everybody gets complacent and fat and happy that we are
making our 23-percent goal when in reality we have a monster-
size company that is just selling toner that is beating out a
whole lot of small businesses that might be able to sell that
toner for the same price. Senator Portman.
Senator Portman. Thank you, Madam Chairman.
Let me followup a little bit on the large business issue.
You talked, Mr. Jordan, about the 5-year certification, which
is current law. A simple question. Do you think there ought to
be a recertification as a small business more frequently than
the 5-year period?
Mr. Jordan. Well, yes. As the Small Business Jobs Act has
instructed us to do and we are now in the process--actually
those regulations are over at OMB, so we are really getting
them through the process pretty quickly on a relative basis.
That dictates that in the Online Representations and
Certifications Application, ORCA. This is the place that
contracting officers go look and say, ``Is this business small
or not?'' Small businesses must recertify now on an annual
basis.
Now, for the Chairman's question, that does not affect that
issue of if they were small at the time of offer and won that
award that the rule is still 5 years or the length of the
contract, whichever is shorter. But it will make sure that on
an annual basis they are updating--on a minimum of an annual
basis. If they exceed their size standard, they should do it
like that. If they are bought, they should do it like that. But
on a minimum of an annual basis, they are going into ORCA and
updating their certification of size.
It also instructs us to review all of the size standards,
which touches all of these issues within a 5-year period, and
we are undergoing that right now.
Senator Portman. I am not sure I understand why it doesn't
address the Chairman's question. It doesn't address it because
those are contracts that have already been entered into and
they would not be affected?
Mr. Jordan. Because the annual recertification of size will
ensure that when there is a small business set-aside when a
contract is being awarded, that those businesses that say they
are small are. If it a typical base-plus-4 option, 5-year
contract, that will still allow that agency to get small
business credit for having awarded that contract to a small
business for the life of that contract or 5 years, whichever is
shorter. But that entity will not be able to compete once it is
other than small for any small business set-aside contracts.
Senator Portman. How about in terms of your goal? Because
part of the Chairman's question was are these goals as reported
really accurate. In other words, does this annual
recertification affect the goals? Is this something that is
reported through your measurement of the percentage of small
businesses? I think the answer is no.
Mr. Jordan. It will affect it by ensuring that there is no
fraud, waste, or abuse in the system. That is what we are
pushing on. It will affect it from that way, but not to the
Chair's question, like you said, not for those types of
contracts.
Senator Portman. It does not change your reporting of the
small business goals? Shouldn't it?
Mr. Jordan. I think it is a fair discussion to have, but,
again, the law talks about maximum practicable opportunity, and
what I have done is, yes, look at what is the optimum way to
run these things going forward, but also we need some relative
comparisons. So looking backward, we are already measured
against a tougher stick. Up until 2006, 2007, if you got that
multi-year contract in the hands of a small business who was
then bought by a large business, that contract would still
count. Now that is no longer true. We have also taken
significant proactive steps to clean the data so the anomaly
reports that we generate for all the agencies took $3 billion
out of----
Senator Portman. I assume you support----
Mr. Jordan [continuing]. So I think the numbers are pretty
good. Sorry, sir?
Senator Portman. I assume you support all those things. The
objective here is to be sure that you are meeting whatever your
criteria area and----
Mr. Jordan. Yes, meet and exceed every single goal is what
we would like to do, absolutely.
Senator Portman. Yes. But you almost sound like you are
complaining about the fact that now you have better data. So,
anyway, I think if there is a recertification process, you
ought to be looking at it in terms of whether you are meeting
your goals; otherwise, there is not credibility to the 23
percent. Complexity is one thing that is often cited as a
reason. We have these set-asides for small businesses, that
they do not have the ability to deal with the complexity of
contracting that large businesses do. And I think that is
sensible. What concerns me is the fact that I am hearing from a
lot of small businesses that it is incredibly complex to go
through the process of certifying as a small business. And I do
not know, Ms. Connolly or Mr. Vera might want to jump in here,
too, but do you believe there are opportunities to simplify and
streamline the process for eligibility? Right now folks tell me
navigating the set-aside program is a whole other level of
complexity, requiring, for example, identifying the appropriate
industry code from a list of over 1,000 codes in the NAICS
classification system, and other complexities. Is there a way
to simplify and streamline it so that we are actually helping
small businesses who, after all, are being given this
opportunity in part because of the concerns about complexity?
Thoughts?
Mr. Jordan. I would just say quickly, absolutely, and that
is something we are using technology to push on. It is
something we heard a lot----
Senator Portman. Absolutely we should be doing even more?
Mr. Jordan. Yes, trying to streamline application
processes, help automate some of those checks. All these types
of things we are really pushing to do and are in the process
collaboratively of doing.
Mr. Vera. If I may, Senator Portman?
Senator Portman. Sure.
Mr. Vera. I would just add I agree wholeheartedly with my
colleague Joe Jordan in some of the things that the SBA is
doing in trying to streamline the processes, and certainly
having been in this business for quite some time, I think it is
a lot better than it used to be, and the use of technology has
improved things tremendously. I think the agencies, we all try
to do as much as we can with our limited resources, but
certainly I personally think the SBA is doing a very good job
in terms of educating--they did a tour--once the Jobs Act came
out, they did a tour, a national tour to try to educate small
businesses on some of the provisions of the Jobs Act, and I
think it is better. It is complex. I agree that it is complex.
But I think they try. On a daily basis they do a good job of
trying to simplify things for the small businesses.
Senator Portman. Going to the duplication issue for a
second, GAO, recently completed an examination of 80 economic
development programs of four different agencies, including SBA
and Department of Commerce. GSA was not one. But it assessed
the potential overlap and duplication in these programs, and 19
of these 80 were at SBA. I think this GAO report needs to be
responded to because it talks about how to create savings, how
to economize, and in this fiscal climate we are all looking for
ways to save money.
Can you provide the Subcommittee with any update on the
SBA's efforts here to identify opportunities for consolidation
of overlapping programs or cost-saving collaboration that comes
out of this GAO report?
Mr. Jordan. I can get back to you. I know that there have
been conversations. We are always striving to do everything we
can effectively and efficiently as well. But I would want to
give you the most up-to-date answer, so I will have to----
Senator Portman. I think any estimates on potential
savings, looking at what they have identified, is something
that the Subcommittee would be very interested in. Will you get
back to us on that?
Mr. Jordan. Yes, sir.
Senator Portman. One final one. My time is expiring here,
but this goes to the competition issue. Under the Small
Business Act, a set-aside is permitted if the contracting
officer determines there is a reasonable expectation that at
least two responsible small businesses will submit bids and a
fair market price can be secured, and we want to encourage
competition. But the Federal Acquisition Regulation permits a
contracting officer to proceed if only one bid is ultimately
received, effectively making it a no-bid contract or a sole-
source contract.
What percentage of contracts that are competed as a small
business set-aside result in a single offer or a no-bid or
sole-source?
Mr. Jordan. I am not sure what the exact percentage is, but
we can look it up. I can get that back to you.
Senator Portman. I think it is important for the
Subcommittee to know and also telling us what is your process
for evaluating why a single bid was submitted and correcting
whatever market research methods you need to get more bids,
because if, in fact, this set-aside program is becoming a sole-
source program, we would like to know that and talk about ways
to either re-solicit it or provide more opportunities and more
competition.
Mr. Jordan. And to that second point, Senator, that is
where we spend a lot of time on outreach, as Mauricio said, and
going around the country and making sure the small businesses
are aware of all the opportunities here, but also the training
through the Defense Acquisition University and Federal
Acquisition Institute that the Small Business Jobs Act empowers
us to now go out and make mandatory will be very helpful at the
contracting officer level as well. So getting both of those
folks into the room so that----
Senator Portman. Any sense of the percentage of non-
competed sole-source contracts, Ms. Connolly or Mr. Vera?
Mr. Vera. I do not have those numbers.
Senator Portman. Is it substantial?
Mr. Vera. In my experience, I can only speak for my agency.
I do not think there are very many where we actually only get
one bid on a contract that is a set-aside.
Senator Portman. Ms. Connolly.
Ms. Connolly. I agree with you colleagues. I do not have
the number available, but generally when we set aside for small
business, it is because we know that there are two or more
small businesses who can meet that requirement. OFPP has asked
us to reduce high-risk contracting, and although the FAR
actually currently States that we can consider a single bid in
an environment of competition. If all of the vendors thought
that they were submitting competitive bids, we do not currently
code that as a sole-source. It is presumed competition. But
OFPP and especially Dan Gordon has made that a highlight of
reducing our high-risk contracting, is that we should really
evaluate. And when we receive only one bid, we should be re-
looking at our solicitation, we should be looking at our
requirements and really analyzing what we have done as a
government to signal to industry that our requirements were not
open for all to bid on or they were not stated in such a way
that everyone understood them.
Senator Portman. Thank you.
Thank you, Madam Chairman.
Senator McCaskill. Thank you. Senator Tester.
Senator Tester. Thank you, Madam Chairman.
This is a question for Ms. Connolly. I just want to talk
about the bidding process overall. When a project is put out
for bid, is there a contingency available for cost overruns?
And is it a basic percentage or how does that work?
Ms. Connolly. Your question covers, I guess----
Senator Tester. Let us say it is a building project.
Ms. Connolly. Five to $6 million--a number of actions, but
a building project, I think it varies across agencies. One of
the fundamentals of project management is building in a
management reserve into your project management process.
Senator Tester. OK, but let us say, just to get right down
to it, if a person puts in a bid and there is a cost overrun,
is that generally accepted if it is under a certain percentage?
Ms. Connolly. I do not believe there is any provision for
that to be generally accepted.
Senator Tester. OK. So it is done with a change order or it
is not done at all? It is prohibited?
Ms. Connolly. I guess just to--at an award, I mean, the
bids would be submitted in a competitive environment, and so
there would not be a cost overrun at that point. Cost overruns
happen--hopefully not, but unfortunately too often after award.
And so, I mean, that is a first issue for the contracting
officer. The vendor has to support their cost increase, and
depending on the terms and conditions of the specific contract,
they will take certain actions. But generally they review that
and look at the role of the--compare that to what was actually
required by the contract versus what has happened by the
performance of the contractor.
Senator Tester. I got you. Generally speaking, are cost
overruns common? If it is bid at $100 million, do they usually
come in at $100 million when they are done, or is it usually
more than that?
Ms. Connolly. I do not have that----
Senator Tester. If you could get back to me on that, that
would be good.
Ms. Connolly. I would be glad to.
information for the record from ms. connolly
The difference between a bid amount, the award amount, and
the final payment amount on a very large contract can vary for
many reasons. Large cost type contracts often have multiple
simultaneous cost drivers. Reasons that there are differences
between what was awarded and the final price include: Potential
cost overruns by the vendor (which must be determined
allowable, allocable, and reasonable by the contracting
officer), the government changing its requirements based on
newly defined needs or due to fluctuations in anticipated
funding over the life of the contract.
Delays in a funding timeline can result in cost overruns
because GSA typically sequences a project by pursuing site and
design work in a single year and construction work in one or
more future fiscal years, depending on the size of the project.
When funding is not allocated in a given fiscal year, costs can
increase due to cost escalation or updated requirements.
Designs can also become obsolete over time, which could result
in costly redesigns. If the time lag is significant, costs
further increase. This can be contrasted with projects where
the full cost is provided in one fiscal year. For instance,
through the American Recovery and Reinvestment Act of 2009, GSA
was able to pursue over 260 major new construction and
modernization projects. With the full funding in one year, we
were able to use more efficient contracting methods to deliver
the projects faster and with significant savings.
Senator Tester. Best-value standard takes in the quality of
the overall packages, takes in price as a part of it, but it is
not the entire part of it. There was a bid granted in Montana,
a large firm outside the State, a large firm inside the State,
which is fine. The bid was given to the large firm outside the
State. The bid was $8 million higher on a project that was
considerably less than $100 million. And we were told that the
reason that bid was given to the other contractor was because
of best-quality standard, best-value standard.
It seems to me that large national firms have an advantage
over large local firms on Federal projects. Do you see it that
way? The reason is because it comes back, when the bid comes
back and they say, ``Senator Tester, we were low bidder on this
by $8 million. Tell me why we did not get the bid.'' And I can
get a hold of your agency, and you say it is because of best-
value standard. And we say, ``What is best-value standard?''
And they say, ``Well, it is the price that we believe to be the
best value, and we believe that $8 million higher''--which was
about 14 percent higher--``is a better value.'' Can you give me
any insight into any of that and how it works?
Ms. Connolly. I am not familiar with that particular
transaction, and I have not been----
Senator Tester. And I do not want to mention names.
Ms. Connolly. Having been a front-line CO and working many
source evaluation boards, best value is one of the most
challenging tasks that we do. I think we have across the
Federal Government, I think in some ways we have--it was a new
tool that was provided to us, and I think we have gone into
using it--we went from only having low-price, technically
acceptable to best value.
Senator Tester. Yes.
Ms. Connolly. And my personal opinion it is probably a tool
that we have overused and it is time to move back to the
center.
Senator Tester. Right. I will tell you, I will be the first
one to tell you that low bidder is sometimes low bidder for a
reason. You do not get the best value.
Ms. Connolly. Right.
Senator Tester. There needs to be better clarification on
what you are using. Now, if you are using a contractor that
does a lot of bids with the Federal Government that we are
pretty comfortable with doing and somebody wants to bid on that
project and we say, I would love to, but this guy, I am
comfortable with this company over here, and so we are going
with this even if it is 10 or 15 percent higher, that is a non-
starter in my book, and I do not care if it helps a Montana
company or hurts a Montana company. The fact is you need to
look at all of it. That is all. And so I would ask you to go
back and do just as you said, move it more to the middle,
because I think that it is important. And thank you for your
answer.
Mr. Jordan, I think this goes to the Chairman's question
about miscoding, improper classification of large businesses,
and some of those large businesses get small business
contracts. Let me lay out a scenario to you. You have a small
business that got a 5-year contract and in the process it
became a big business. And you said each year they recertify
online. While they are doing that small business contract for
that 5 years, are they still classified as a small business if,
in fact, online they have certified that they are bigger than a
small business?
Mr. Jordan. They are not classified as a small business for
any future award. The agency continues to get small business
credit for that contract that they received when they were
small.
Senator Tester. That is fine. And I do not know the
circumstance you talked about, Madam Chairman, with the
Department of Defense contract, but it appeared to me that they
were given a contract as a small business when actually they
were a big business when the contract was given. Or is that
incorrect?
Senator McCaskill. No, I think they were legitimately a
small business when the contract was given, but now they in a
short period of time have become a very big business, and their
number still is counted toward a small business goal.
Senator Tester. Yes, well, it appears to me that if we are
really going to utilize small businesses, if we are really
going to encourage them to be a part of the equation, be part
of that level paying field that you and I both agreed to, that
there would be no reason why you could not get more aggressive
then and move them back. And we all want businesses to grow,
but the fact is if they have grown because of that contract,
that is a good thing. And so we need to look for other small
businesses we can grow.
Is there a problem with that? Is it too much of a
bookkeeping headache or what?
Mr. Jordan. No, I think that the way that we perceive the
level playing field issue is that once they have grown to be
other than small, that they are not competing against small
businesses as if they were a small business themselves. And
that is not happening. Or that is not what the issue in this
case would be. The question is: Should that agency who found a
legitimate small business lock them in for multiple years and
then became somewhat a victim of their own success as that
small business did exactly what we hoped they would do--grow
their business and create jobs. Should that agency continue to
get small business credit for that contract that they did award
to a small business that has subsequently grown, that is the
question at hand, and clearly I think we should have some
followup conversations with the Committee because that seems to
be a hot topic. But that is the challenge: How do we incentive
the contracting officers?
Senator Tester. I got you. I mean, here is the deal from my
perspective, and maybe I oversimplify it, but we have tons of
technology out there, a small business becomes a big business
pretty quickly. And, by the way, the standards for small
businesses are pretty damn big, in my book anyway. But the
bottom line is I think you could easily do it. Then you can get
more aggressive and offer more small business contracts. That
is all.
I want to thank you all for your testimony. I appreciate
it. Thanks.
Senator McCaskill. Thank you, Senator Tester.
Let me make sure that I put on the record--I know the
answer to this question, but I want it in the record. The giant
ANCs that are huge and that are multinational corporations that
do not have to compete and can legally front, which means you
can hire an ANC to do anything for you and they get the no-
compete status even if the company doing the work is a big
multinational corporation--all of the money that the ANCs
contract with the government, they are all counted in this
small business total, too, are they not?
Mr. Jordan. I do not believe that is true, no. The ANCs who
are in the 8(a) program, those contracts are, but not every ANC
subsidiary is in that program. So I would need to confirm----
Senator McCaskill. Well, why would they not be in the
program? Because they get to stay forever. They do not age out.
Mr. Jordan. The parent is not in 8(a) program. It is that
their subsidiaries can be in that program. But those
subsidiaries are held to the same 9-year term that any other
participant is. It is just that they can put additional
subsidiaries through the program. So sometimes those
subsidiaries graduate, become other than small, and still
compete on full and open competitions and win contracts. I do
not believe those contracts are counted in the small business
numbers.
Senator McCaskill. OK. Well, if you would look at that----
Mr. Jordan. Absolutely.
Senator McCaskill [continuing]. Because there is no reason
for an ANC to ever graduate. They do not have to. They can just
hand off. They can just do tag team. It is a loophole so big
that this building could drive through it. And so, I want to
find out what percentage of the small business number, the 22.7
percent, is ANC contracts.
Why are we using the NAICS? Why are we using that code
classification? The Census Bureau people told staff in
preparation for this hearing that it was never intended to be a
contracting tool. So why are we using it? Isn't it complex and
clumsy and does not really--isn't there some shoe-horning going
on here? Anybody? This question is open to anybody. Why are we
using it?
Ms. Connolly. Senator McCaskill, I know that SBA has built
their size standards to the NAICS codes, and I will defer to my
colleagues for that question. But I think it is--if it is not
NAICS codes, it is necessary for us to have some framework to
define what the companies are offering. We have frameworks and,
unfortunately, they are often thousands of numbers that we have
to--somewhat give us these anomalies of what companies are
doing. And I do not know. If it were not NAICS codes, it seems
that we would need something equally as complex or equally
detailed. The detail gives us more granular ways to identify
the work that we are spending taxpayer dollars on.
Senator McCaskill. I get that, but, I mean, commonsense
here--I have now gotten into the weeds on this, and, frankly, I
have not really gotten into the weeds in this hearing because I
feel for the people in the audience. I mean, it is painful. Let
me give you just one formula here on how you determine small.
Sigma equals 414IISCR where S1 is greater than S2 greater
than S3 greater than S4, and that does not count the footnotes.
And there is a Four-Firm concentration ratio, a Gini
coefficient, the Herfindahl-Hirschman Index. Really? It seems
to me that somehow under the rubric of complexity and trying to
get to a granular level, commonsense is taking a vacation. And
as we talked about before, we are not even using the NAICS
codes because we are saying everybody, if they are selling
stuff, is a manufacturer whether they manufacture anything.
So it seems to me that we could just step back from this
and go, OK, if you are retail, this is small; if you are
manufacturing, this is small. Maybe two classifications for
manufacturing. I agree that manufacturing widgets is different
than manufacturing airplanes. And if you are wholesaling, there
is this. And if it is professional services, it is this. And
maybe you classify within professional services some broad
categories of professional services.
And, you could sit around a room with good acquisition
personnel and say, OK, we are going to forget---because,
honestly, I think that the small businesses have to spend a lot
of time and energy navigating this whole code situation and
figuring out the formulas and figuring out the computation on
the formulas. And I think everybody is so used to using it in
your world that you do not realize how nuts it is and that
nobody is willing to tackle it because it just seems
overwhelming.
Am I off the mark here?
Mr. Jordan. I do not think so. I think that Dr. Connolly
appropriately raises the challenge, which is how do we
separate--where do you draw the line between the various
industries for which you are setting individual standards? The
Office of Size Standards that sends these reports up to me--and
I can assure you not being a Ph.D. economist that learning
about the Gini coefficient and the Four-Firm concentration
ratios and those types of things, that we do to set the one
line--and that is the other challenge. There is one line. There
is no small and medium businesses. You are small or other than
small. Where below that you could be--you have special
preference access and above which you are, out competing with
everybody else. Those two things present a pretty big
challenge, and so we go in and look at all the data to say:
Where is the right place to draw that where we allow small
businesses to grow up to that point and then through that
point, and they will successfully be able to compete full and
open after that, but we are not making it so high we are
stifling entrepreneurship and new business starts and that sort
of thing. And it is one of the most challenging things we do.
Every one of the size standards that we are advising now goes
out for public comment and those types of things.
What we do try to do for simplification standpoint--and as
I said to Senator Portman, we can do more here, and we are
trying to do more. GSA and SBA are working together actually on
some things there. But right now all we really need from the
firm is how many employees do they have and what are their
trailing 3 years of revenue. And then that determines what the
size standards are, because they are everyone revenue or
employee based. They do not need to go through a long,
complicated multivariate regression to figure out if they are
small or not. They just need to know what their employees and
revenues are.
That being said, the more that we can do to get more small
businesses into the contracting arena is a win-win, and so
simplification certainly is something we want to do there and
is a place we are pushing.
Senator McCaskill. Well, and I know how much work there is
to do. We do have real problems with the data. We have real
problems with training in terms of contracting officials and
challenges with the acquisition workforce. Taking some of the
complexity off their plate seems to me--if you are--I mean, I
think probably I could get some small businesses in this room
that would tell you--that would argue with you that it is
simple. But if you are trying to simplify for the companies,
then all of these complex formulas and so forth, it just seems
to me that we could clear that out. And I bet you we could save
some money if we did that.
My time is up. Senator Portman, do you have more questions?
Senator Portman. Thank you, Madam Chairman. I should
probably stop here, but I do have more.
Again, at the risk of boring the audience, as you said,
with the technical questions, one thing I found that was
interesting is that the SBA Inspector General in the 2010
annual report called a GSA multiple award schedule provision a
``loophole.'' The report said that in the GSA multiple award
schedule contracts that contain multiple industrial codes
creates a loophole. His quote was, ``Currently a company
awarded such a contract can identify itself as `small' on
individual task orders, even though it does not meet the size
criteria for the applicable task. Thus, the agencies may obtain
small business credit for using a firm classified as small when
the firm is not small for the specific orders under the
contract.''
Ms. Connolly and Mr. Jordan, can you provide the
Subcommittee with an update on GSA's response to that finding
and any action GSA has taken or plans to take in response to
that?
Ms. Connolly. Senator Portman, I am familiar with the SBA
IG report, and I was not able to speak to the IG directly to
understand any nuances of that, but I will continue to answer,
but I want to first acknowledge that the report was directed to
SBA to take internal management actions to address those
regulations. But, of course, whenever it involves our GSA
multiple award schedules, SBA cannot do it alone. GSA and SBA
need to work together on that. And what I found out as part of
coordination for this hearing is I was pleasantly surprised to
find out the Federal Acquisition Service and SBA have been
working together closely to fine-tune some of the instructions.
We have a system now--and if everybody is--people can be
doing the right thing to apply the predominant NAICS code to
the schedule, which covers a broad range of usually supplies
and services. The contracting officer can be doing the right
thing to code that according to current policy and regulations,
and the awarding task order or delivery order contracting
officer can be following appropriate instructions and
recognizing that NAICS code has already been assigned, and they
cannot change that in the system. And to the best of my
understanding, I believe that is what the SBA IG is calling a
``loophole.'' And I know in--it does happen, and that is what
GSA and SBA are working on to resolve.
Senator Portman. Anything further, Mr. Jordan?
Mr. Jordan. Sure. I agree with everything Mindy said, and I
really appreciate the collaboration by GSA and the Office of
Federal Procurement Policy. This ties into the discussions we
are having as we implement the Small Business Jobs Act
provision around task order set-asides for multiple award
contracts and how all these things work together. That law
asked Administrator Mills, OFPP Administrator Dan Gordon, and
GSA Administrator Johnson to work together to implement these
task order set-aside rules and how they will look going
forward, and this issue that my Inspector General has had for a
management challenge in my shop for a few years now is
certainly something that we are working to come to a final
resolution on and that all parties can agree to.
Senator Portman. All right. This is why I probably should
have stopped my questioning earlier because let me just list
some of the things we talked about today.
This multiple award contracts issue is the latest in the
complexity that is around the set-aside program. We have talked
about, as Senator Tester said, large businesses elbowing out
small businesses. And the Chair has probed that, as I have, on
why are large businesses securing some of these contracts that
should be for small businesses. And, frankly, in a system like
this, with less competition, it encouraged gaming of the
system. And there is some gaming of the system we have talked
about. The complexity we have talked about that makes it very
difficult for a lot of small businesses to even access this
opportunity. And, again, what I hear from small businesses is:
It is supposed to be an opportunity for us because of the
complexity of Federal contracting, we are small businesses, we
do not have the sophistication, and yet we are finding that the
complexity of this program is too much for us; we are trying to
grow our businesses and not be focused on government
complexity.
Duplication we have talked about, the GAO report, and we
look forward to hearing back from you on that. And then the
competition issue, which is maybe the most fundamental one, if
you have, under the FAR, the ability to have only a sole
source, does that make sense for the taxpayer?
All this leads to a fundamental question that I want to get
on the record and get your response to, with the incredible
fiscal challenges that we face, with this ongoing discussion
that we are having about how to be sure that everything in
government is as cost effective as possible. And I think
knowing--I think it is fair to say, we can stipulate that
anytime you limit competition for Federal contracting, there is
going to be a cost to the taxpayer, and whether it is this set-
aside or others, if you restrict competition, it tends to
increase the contract price.
Again, $98 billion in prime contracts to small businesses,
not meeting the 23-percent target but coming close, CRS tells
us that about $56 billion of that have been awarded through
some kind of restricted competition or sole-sourcing in 2010,
and not all sole-sourcing but restricted rather than an open
competition.
So I guess I would ask you this question: Is it fair to say
that the major small business contracting programs come at a
premium to the taxpayers? Is this an unbudgeted cost that
follows from the competition? And are you aware of any effort
to try to estimate what that is? Do you have any cost--what is
the cost to the taxpayer of having this restricted competition?
Mr. Jordan.
Mr. Jordan. I do not have a quantified cost, and I do not
have a quantified benefit, but I can say unequivocally that
small business contracting is a win-win. It is a win for the
small businesses; it is a win for the government. And, it is a
third win for the taxpayers as well.
I have been doing this for 2\1/2\ years, and there are
certainly complexities. We have tried to streamline and will do
more. There are rules that we did not think made sense, and we
have changed many of those and will change more. But if there
is one thing that I have seen and have no question about is
that these small business set-aside programs are good. They are
good for the economy. They are good for the growth of small
business. This revenue is important oxygen these firms need to
grow and create jobs, and I have no questions about that.
Senator Portman. Good answer, but has there been any
evaluation? Are you aware of any evaluation of what the cost--
--
Mr. Jordan. I am not aware of any.
Senator Portman. Ms. Connolly.
Ms. Connolly. Senator Portman, I am not familiar with the
CRS number, but I wonder if we are having competition set aside
for groups of small businesses, if that is being calculated
into the number. And so that is my----
Senator Portman. I think it is just a number saying that it
is not an open competition. The general rule, of course, in
government contracting is it should be open and, that is--open
and full competition is what the Competition Contracting Act
says, full and open competition. So when it is not full and
open competition, it is more restricted. I think that is where
their number comes from.
Ms. Connolly. Yes, full and open competition. We also have
other requirements which require us to set aside----
Senator Portman. No, I know. That is----
Ms. Connolly [continuing]. Awards under the simplified
acquisition threshold for small businesses. So I guess we have
competing----
Senator Portman. Exactly. Has anybody ever evaluated what
the cost is of that?
Ms. Connolly. I am not aware of that type of evaluation.
Senator Portman. Do you think SBA would be able to evaluate
those costs?
Mr. Jordan. I do not know. I mean, I think that the
challenge would be you cannot just evaluate a short-term cost.
You need to evaluate the long-term cost. Building a monopoly
could in the short term deliver great prices that year, but
then the reason that our laws are against that is because in
the long term the power changes and then you do not get good
price or good value. And by getting rid of the small businesses
who may be undercut by large businesses----
Senator Portman. I do not think anybody is talking about a
monopoly, just----
Mr. Jordan. It is restricting----
Senator Portman [continuing]. Open and fair competition.
Mr. Jordan. Well, I think where the calculation would be a
factor is the fairness, because a large business may be able to
eat a lower price now, putting those small businesses out of
business. Then there are no small businesses to provide those
goods or services, and large businesses say we are going to
recoup all those losses, and then some, government, because you
have nobody else to procure from. And that is what I would need
to look at if a study like that would be done, and I think it
would be pretty--well, it would certainly be pretty complex. I
do not know if we would have all the data available to do it.
Senator Portman. I just think it is a question to be asked.
Again, as I said at the outset, I think this is an important
program, and we need to be sure small businesses who are
struggling right now and who are going to be the way in which,
in my view, we get out of this difficult economic situation and
have the opportunities. But it is also a program, rife with
inherent issues, and, again, I listed them a moment ago. I will
not go back over it. But there is complexity involved here, and
there is a restriction of competition to the point that there
is sole-source contracting, which is certainly not the
intention of Federal procurement laws and regulations generally
where you want to have competition, because ultimately the
taxpayer pays. Mr. Vera.
Mr. Vera. If I may, Senator Portman, while I do not have
any of the quantifiable data that you are seeking, I would just
say that small businesses absolutely do benefit from the set-
aside programs. We as advocates would argue in most cases--
after doing the appropriate market research that the FAR
requires, we would argue for a set-aside if it makes sense, and
the reason being that small businesses have limited resources
to market to the agencies. So if it is a full and open
scenario, they may not want to compete against the huge firms
in a set-side--that they have more ability to pursue the
contracts, and that is why we advocate for that.
Senator Portman. Well, again, I think simplification and
streamlining, dealing with some of these definitional problems,
are really important to make sure small businesses want to
compete even under the SBA program because some of the small
business groups I talk to and small businesses themselves,
again, are frustrated by it. I think there are probably some
small business groups represented behind you here. Maybe I am
not hearing the full story, but some of them tell me, frankly,
this is not a top priority for them because it is complicated
and costly. So we need to do a better job of making these
programs work better for small businesses and ultimately be
sure it is all working for the taxpayer.
Thank you, Madam Chairman.
Senator McCaskill. Thank you, Senator.
I want to go back and correct the record or clarify the
record as it relates to the question that Senator Tester asked
about the business, was it small at the beginning and then grew
to be so large, the example I used at the opening of my
questioning. And let me point out that this brings in another
issue, because VSE benefits from the coding. The code for this
particular contract was aircraft manufacturing, which sets a
size standard for a small business at 1,500 employees. That is
the largest possible business size under the SBA's standards.
If the government had determined that the code for the
contract was aircraft maintenance and repair services--which,
by the way, that is what this contract was for--the size
standard would have been $7 million and this company would have
never qualified. Had the government used the appropriate code
which more closely matches the contract description, they never
would have the set-aside in the first place.
So now they have exceeded even the largest standard, but
they started out being coded at a standard much larger than
they should have ever been coded. And it gets back to my
question before: Why is everybody a manufacturer?
Mr. Jordan. Well, on this issue--I do not know the
specifics of this case, but on the issue overall I actually
think that we will have a tremendous amount of common ground
because I hate NAICS code shopping. I think that contracting
officers need to select the most appropriate NAICS code for
that procurement. Now, that is different from the wholesale/
retail issue that we spoke about before, but what you are
implying--and this is not the only case where that is raised to
me--is that a contracting officer is choosing a NAICS code
because they want the higher size standard, not because it is
the most appropriate for that solicitation. That is something
that my procurement center representatives that work with the
buying activities, when they see that happen, they push back
strongly. I have had protests and other issues come to me on
that issue, and it is something we work on the training on the
front end and the accountability on the back end to try to make
sure does not happen, because I agree, it is very inappropriate
to NAICS shop because you are looking for a certain size
standard, and even worse, if it is because you want a certain
firm or firms to be part of that competition.
Senator McCaskill. So can you pull this thread and go back
to the contracting officer that shopped for this code and
clearly used the wrong code that allowed this huge contract to
be part of the small business calculation now since 2008? And
does something happen to that contracting officer that clearly
decided they wanted this company to be able to qualify for the
set-aside when they really should not have? What happens?
Mr. Jordan. With this particular case, I do not know--yes,
we are happy to look into it, to the first part of your
question. With how will that play out, I just do not know
without all the facts of the case. But, in terms of an
accountability piece of this, which I think you are also
alluding to, we are now pushing to get small businesses
achievement, small business contracting included in the
performance plans for Senior Executive Service (SES) members in
the contracting officer chain of command, because there are
30,000 contracting officers doing 5 million contracts a year.
They make mistakes. And if that is the case, that is one thing.
Senator McCaskill. I do not think this is a mistake.
Mr. Jordan. But there are other issues as well, exactly,
and we want to make sure that all the folks--chief acquisition
officer, senior procurement executives, heads of contracting
activities, all the way down--have skin in the game in making
sure the right thing is done, and the right thing is getting
small business contracts to small businesses.
Senator McCaskill. I would love to get a room of
contracting officers--and maybe you can comment on this, Ms.
Connolly or Mr. Vera. I would love to get a bunch of
contracting officers in the room with truth serum and say, ``Do
you have any fear that if you shopped the code to be able to
include a company in a small business set-aside, do you have
any fear that there will be any accountability if clearly you
have shopped the code and put the wrong code on a company?''
What do you think? Anybody afraid of that in the acquisition
personnel world?
Ms. Connolly. I am not afraid of that. I think by far the
majority of our acquisition workforce has the highest
integrity, is passionate about their work and feels that they
are doing a very patriotic duty to spend the taxpayer dollars.
I do acknowledge that between the systems that we have there is
probably--in the whole continuum, there are probably
contracting officers and small businesses who are overwhelmed
by the complexity of the systems that they are required to use,
and we have training for the contracting officers. We have some
training for the vendors. There is a continuum of people who
have trouble selecting the right NAICS code among all the other
things that they are doing. If they are a small business, they
are out delivering their products and services.
Senator McCaskill. Well, don't you think, though, it would
be pretty easy to figure out whether somebody is manufacturing
airplanes?
Ms. Connolly. Yes.
Senator McCaskill. I mean, with all due respect, either you
are building airplanes or you are not. I can see where there
could be some coding issues that would be hard to maybe pick
which one, but I cannot imagine one that would be much easier
than figuring out whether somebody is building--whether they
are repairing airplanes or building airplanes. I mean, those
are not kissing cousins. Either you are putting an airplane
together from scratch and selling it or you are not.
Ms. Connolly. That seems entirely clear-cut.
Senator McCaskill. Yes.
Ms. Connolly. But I have to admit, as a contracting officer
I have been in specific procurements in my career where
something that originally--let us say it looked like we were
buying a supply because of--as we developed the statement of
work, that--and understood really what we needed as an agency,
I am personally familiar with instances where that supply,
because of the way we needed it delivered and the services that
we needed to accompany that delivery, that became a service
contract. So that is the appropriate action when you have gone
from a supply to now I need services, I need delivery, I need
sizing, I need the vendor to determine those for us or deliver
those services in conjunction with the item. It is appropriate
to change the NAICS code to a service.
Senator McCaskill. Well, and I agree that there are going
to be places where there is gray and it will be hard for the
contracting officer and hard for the vendor, and I get that.
But maybe I am somewhat jaundiced by my experience into looking
into defense contracting. I think that sometimes there is a
tendency in the defense world that I want what I want from who
I want it from when I want it, and I am going to use the
contracting rules and regulations in a way that will allow that
result. And, by the way, if we are talking about shooting fish
in a barrel, it probably is the Department of Defense, because
I think we all know that they are the big gorilla when it comes
to contracting in the Federal Government.
So I would certainly encourage you all to pull the thread
when you see an instance where it appears there has been code
shopping and make sure that the acquisition force at DOD
understands that somebody is watching and paying attention.
Finally, the last thing that we have not covered that I
wanted to cover briefly was self-representation. Have you found
contractors that have misrepresented their size status?
Anybody?
Mr. Jordan. I can say yes. SBA handles size protests, so
while your size status is a self-certifying thing, an
interested party--be that another bidder, the contracting
officer, whomever--can protest that. And last year, I think SBA
handled just over 700 of these size protests, and I think just
under 200 of them were sustained. So we do see that frequently,
and I have a team of folks who handle those protests very
quickly so as not to slow down the process but to make sure
that business who said they are small in fact is.
Senator McCaskill. And what happens to the people that have
misrepresented their size status, that have actually lied about
how big they are?
Mr. Jordan. We have a range of enforcement actions, and not
just that we have them, we are actually using them. So there
are suspensions----
Senator McCaskill. This is not like debarring, you are
actually using it?
Mr. Jordan. We have suspensions and debarments, which we
are using, and I have the statistics that show that they are
going up and up. For the first time, for example, this year,
referrals to SBA suspension and debarment officials from
internal sources outnumber those that are referred from GAO. So
we are really driving things through that process.
Senator McCaskill. Good.
Mr. Jordan. In addition, the Small Business Jobs Act gave
us another really important arrow in our quiver around
presumption of loss, which says if you misrepresent your size
or status to win an award, then the government can sue you
civilly for the full value of that contract. So we will keep
the building you built, we are going to debar you, and we are
going to sue you and get our 50 million bucks back.
Senator McCaskill. Have we done that yet?
Mr. Jordan. We have not implemented them. They are in the
process of being implemented, but I am very excited about, not
just the retributive, punishing the bad actors, but
disincentivize anybody from trying.
Senator McCaskill. It is a sad day when I have to admit
that excites me, too. [Laughter.]
That just shows you how wonky this stuff gets and how
important I think it is. I think that would be terrific. And I
really do think one of the things that government does not do
well is deter. I think we put up with sloppiness because we are
overwhelmed by the workload, and many times when there are bad
actors, we do not react swiftly enough or strongly enough, and
that is something that does deter. As an old prosecutor, there
are crimes you can deter and there are crimes you cannot deter.
You all are in an area where you can deter a lot of bad
activity by the way you handle the code shopping, by the way
you handle misrepresentation of size, by the way you handle
some of the twisting and turning that goes on in order to try
to shoehorn businesses into a small business category. And some
of this is the pressure that we are putting on these agencies
to do more business with small business and them trying to
react to that. So we have to be careful that we do not
incentivize to the point that we are forcing people to try to
miscode in order to ``make a number.'' And I think that is the
other danger we have here.
Clearly, we did not do 22.7. I do not know what we did,
because there is a bunch of money in there that is not really
from small businesses. I would like to see that number go down
if it meant it was more accurately reflecting the amount of
business that we were actually doing with small businesses
across this country.
That concludes the questions I have. We will look forward
to the answers to the questions that you all were gracious
enough to indicate you would get back to us with. Thank you
all. I do know this is hard stuff. I do know that you guys are
not going to have a ticker-tape parade in terms of being heroes
to the American people. You will forever be in a category of
very important work that does not get enough positive
attention, but there are people out here--and I know many of
them serve on this Committee--that really appreciate the work
you do.
So thank you for being here, and I will look forward to
maybe an answer as to why--especially I am anxious to know why
we cannot change that manufacturing classification.
Thank you, Mr. Jordan, thank you, Mr. Vera, and thank you,
Ms. Connolly.
[Whereupon, at 11:35 a.m., the Subcommittee was adjourned.]
A P P E N D I X
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