[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
                 ACTION DELAYED, SMALL BUSINESS 
                   OPPORTUNITIES DENIED: IMPLEMENTATION OF 
                   CONTRACTING REFORMS IN THE FY2013 NDAA

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


                                HEARING

                               before the

               SUBCOMMITTEE ON CONTRACTING AND WORKFORCE

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             JULY 15, 2014

                               __________

                               [GRAPHIC] [TIFF OMITTED] 
                               

            Small Business Committee Document Number 113-075
              Available via the GPO Website: www.fdsys.gov




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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                      BLAINE LUETKEMEYER, Missouri
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                   JAIME HERRERA BEUTLER, Washington
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                       DAVID SCHWEIKERT, Arizona
                       KERRY BENTIVOLIO, Michigan
                        CHRIS COLLINS, New York
                        TOM RICE, South Carolina
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                        BRAD SCHNEIDER, Illinois
                          RON BARBER, Arizona
                    ANN McLANE KUSTER, New Hampshire
                        PATRICK MURPHY, Florida

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


                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Richard Hanna...............................................     1
Hon. Grace Meng..................................................     2

                               WITNESSES

Ms. Angela Styles, Partner, Crowell & Moring, LLP, Washington, DC     4
Ms. Charlotte Baker, President, Digital Hands, Tampa, FL, 
  testifying on behalf of Women Impacting Public Policy..........     6
Mr. Larry Allen, President, Allen Federal Business Partners, 
  McLean, VA.....................................................     7
Mr. Damien Specht, Special Counsel, Jenner & Block, LLP, 
  Washington, DC.................................................     8
Hon. John Shoraka, Associate Administrator for Government 
  Contracting and Business Development, Small Business 
  Administration, Washington, DC.................................    17

                                APPENDIX

Prepared Statements:
    Ms. Angela Styles, Partner, Crowell & Moring, LLP, 
      Washington, DC.............................................    25
    Ms. Charlotte Baker, President, Digital Hands, Tampa, FL, 
      testifying on behalf of Women Impacting Public Policy......    30
    Mr. Larry Allen, President, Allen Federal Business Partners, 
      McLean, VA.................................................    34
    Mr. Damien Specht, Special Counsel, Jenner & Block, LLP, 
      Washington, DC.............................................    40
    Hon. John Shoraka, Associate Administrator for Government 
      Contracting and Business Development, Small Business 
      Administration, Washington, DC.............................    47
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.


ACTION DELAYED, SMALL BUSINESS OPPORTUNITIES DENIED: IMPLEMENTATION OF 
            CONTRACTING REFORMS IN THE FISCAL YEAR 2013 NDAA

                              ----------                              


                         TUESDAY, JULY 15, 2014

                  House of Representatives,
               Committee on Small Business,
         Subcommittee on Contracting and Workforce,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 1:00 p.m., in 
Room 2360, Rayburn House Office Building, Hon. Richard Hanna 
[chairman of the Subcommittee] presiding.
    Present: Representatives Hanna, Tipton, Meng, Velazquez, 
and Clarke.
    Chairman Hanna. Call this hearing to order.
    Thank you all for being here. Nearly 4 years ago, this 
Subcommittee began a comprehensive look at small business 
contracting reform. We held numerous hearings and held round 
tables, eventually settling on commonsense contracting reforms. 
These reforms were passed by the Small Business Committee in 
early 2012, adopted as part of the National Defense 
Authorization Act in 2013 and eventually signed by the 
President on January 2, 2013.
    Unfortunately, what should have been a bipartisan success 
story has soured due to inaction and inattention. A year and-a-
half later, the vast majority of these reforms remain 
unimplemented, and this is causing real harm to small 
businesses. We are a society of laws, and all businesses need 
to know what laws apply to them so they can comply and so they 
can thoughtfully chart their future course.
    For example, Congress began reforming the mentor-protege 
programs with the 2010 Small Business Jobs Act and then 
continued this in the 2013 NDAA. However, no proposed 
regulation or program guidance has been forthcoming from the 
Small Business Administration on this topic. This means small 
businesses don't know if they should pursue a mentor-protege 
agreement at the Department of Homeland Security or if the SBA 
will declare the program invalid in a year. This creates an 
unnecessary barrier to growth.
    Likewise, Congress has enacted numerous reforms to make it 
easier for small businesses to team and these also have not 
been implemented. Not only do they harm small businesses with 
teaming, they also face contradictory regulations, statutes and 
contract provisions. Small businesses are not set up to be 
arbitrators of the law. We need agencies to implement 
regulation in a timely fashion.
    While I understand that some rulemaking issues may be 
complicated, that does not excuse the failure to meet statutory 
deadlines. Furthermore, I fail to understand why it took the 
SBA 19 months to simply publish the name of their suspension 
and disbarment officer online. This requirement required no 
regulation and could have been done in a matter of minutes. But 
the SBA didn't post it until this morning, 569 days after the 
President signed this bill into law.
    Further, while the information may be technically on the 
Web site, it is exceedingly difficult to find. Typing 
``suspension'' and ``disbarment'' into the search tool does not 
actually take you to the suspension and disbarment officer or 
office. This delay is a perfect example of how bureaucratic 
barriers to private-sector growth work. SBA has been busy by 
spending $39 million on SBA-created initiatives rather than 
implementing the law passed by Congress and signed by the 
President.
    Today, our first panel will help us understand what the 
lack of implementation means to small businesses in a practical 
sense, then the SBA will join us for a second panel to explain 
to the committee what steps are being taken to implement these 
needed reforms.
    I want to thank the witnesses again for being here.
    I now yield to Ranking Member Meng for her opening 
statement.
    Ms. Meng. Thank you, Mr. Chairman.
    I appreciate you holding this hearing on this critical 
topic. The Small Businesses Committee, and this Subcommittee in 
particular, have a long tradition of working in a bipartisan 
manner on procurement and contracting issues. Together, we have 
worked to modernize the SBA's contracting initiatives while 
exposing fraud, waste and abuse in a range of small business 
procurement programs. It is my hope that today's hearing will 
continue in that direction.
    By examining changes to small business contracting policy 
included in last year's Defense Authorization Act, we can hope 
to further improve this process for our Nation's entrepreneurs. 
For small businesses, Federal agencies can be a great client. 
Last year, the Federal Government spent $461 billion purchasing 
a wide range of goods and services. Federal agencies require 
everything from paper clips to air planes to landscaping to 
construction, and small companies are vital to meeting these 
needs.
    Congress has long recognized the many benefits stemming 
from small business participation in the Federal marketplace. 
Helping small firms land these opportunities spurs job creation 
and helps small companies grow into larger ones. Often, when a 
larger company is awarded a Federal project, its existing 
workforce can absorb the new demand for its products or 
services. However, when small companies take on government 
work, they often must increase their capacity, growing their 
payroll and creating new jobs. This, in turn, generates greater 
overall economic opportunity in communities where small 
businesses are located.
    The public also benefits from this arrangement. Small firms 
provide excellent service and quality products at competitive 
prices. When the government does business with them, taxpayer 
dollars are well spent. Moreover, bringing additional small 
companies into the procurement pool creates competition, 
thereby driving down prices and boosting service quality. Given 
the valuable public benefits of having government do business 
with small enterprises, it is important that Federal agencies 
be proactive in this area and that small firms be able to 
navigate the procurement process.
    Unfortunately, this has not happened. The 23 percent small 
business contracting goal has not been met in many years; 
although, it appears that objective may finally be met this 
year. Still, those numbers are not final. Even if, at long 
last, the Federal Government has finally met its 23-percent 
goal, this alone is not sufficient. The 23-percent goal should 
be considered a floor not a ceiling when it comes to small 
business participation.
    Similar initiatives aimed at helping women-owned businesses 
have fallen short. The Service-Disabled Veteran-Owned Small 
Business Program has also not kept pace. In that regard, it is 
worth discussing whether raising these goals would be a useful 
step. However, if they remain simply that, unenforceable goals, 
and there is no penalty for failure to meet them, it is unclear 
how changing the numbers will actually get more disadvantaged 
and small firms involved in the procurement market.
    Part of the issue has been a failure to invest the 
appropriate resources to ensure small firm participation. An 
overworked staff of procurement center representatives is 
tasked with expanding outreach to the small business community. 
However, with their ranks thinned, the fact is that they simply 
do not have that manpower to police every procurement action 
and ensure small businesses get a fair shake.
    Of course, our committee is familiar with how big companies 
have historically gamed the system, syphoning off projects that 
should be designated for small firms. Whether it is HUBZones, 
the Service Disabled Veterans Program, misuse of pass-through 
arrangements or simply miscoding big companies as small ones, 
we all know that there are significant problems in the 
procurement process.
    In sum, Mr. Chairman, there is no shortage of policy 
obstacles that prevent small firms from winning their fair 
share of Federal contracts. It is my hope that today's 
discussion will take a broad look at how we can rectify some of 
these problems while working to improve the process for 
entrepreneurs. Whether it is the legislation passed by the 
committee earlier this year, changes made through the Defense 
Authorization Act, or simply enhanced oversight, we must 
continue pushing to ensure small businesses are not locked out 
of the contracting process.
    Thank you to our witnesses for being here today, and I 
thank the chairman again and yield back.
    Chairman Hanna. Thank you.
    I will just quickly explain the lighting system. It is 5 
minutes. When it gets yellow, you have another minute. Try to 
stay close. We want to hear what you have to say, so we will be 
flexible.
    For our first panel, I am pleased to welcome Angela Styles. 
Ms. Styles is a partner with Crowell & Moring, specializing in 
Federal contract law and proved herself a great friend to small 
businesses when she served as the administrator for the Federal 
procurement policy.
    Next to her is Larry Allen. Mr. Allen, President of Allen 
Federal Businesses Partners, a small business in McLean, 
Virginia, that helps small and large businesses navigate the 
Federal procurement landscape.
    Our third witness is Ms. Charlotte Baker, the cofounder of 
Digital Hands. Digital Hands is a woman-owned business, a small 
business specializing in managed security services. She is here 
today testifying on behalf of Women Impacting Public Policy.
    Our fourth witness and final witness on this panel is Dr. 
Damien Specht. Mr. Specht cofounded Jenner & Block's Government 
Contracts Corporate Transactions Group.
    Again, welcome you, Ms. Styles, you may begin.

 STATEMENTS OF ANGELA STYLES, PARTNER, CROWELL & MORING, LLP, 
 WASHINGTON, D.C.; CHARLOTTE BAKER, PRESIDENT, DIGITAL HANDS, 
   TAMPA, FL, TESTIFYING ON BEHALF OF WOMEN IMPACTING PUBLIC 
    POLICY; LARRY ALLEN, PRESIDENT, ALLEN FEDERAL BUSINESS 
   PARTNERS, MCLEAN, VA; AND DAMIEN SPECHT, SPECIAL COUNSEL, 
              JENNER& BLOCK, LLP, WASHINGTON, D.C.

                   STATEMENT OF ANGELA STYLES

    Ms. Styles. Thank you very much, Chairman Hanna, 
Congresswoman Meng.
    I appreciate the opportunity to appear before you today to 
discuss the impact of the Small Business Administration's 
failure to implement Federal contracting reforms mandated in 
the National Defense Authorization Act for fiscal year 2013. 
SBA's failure to act has created significant ambiguity for 
Federal contractors, both small and large. While this 
uncertainty keeps the lawyers, like me, busy, it costs 
contractors and results in higher prices for the Federal 
Government.
    As chair of Crowell & Moring's government contracts group 
and the former administrator of the Office of Federal 
Procurement Policy, I work with contractors affected by SBA's 
inaction every single day. We have started to see a dramatic 
increase in compliance questions related to these unimplemented 
provisions, but there is one specific provision and a 
complicated one that I want to focus on today.
    The 2013 NDAA modified the Small Business Act to change the 
limitations on subcontracting for Federal prime contracts 
awarded to small businesses under set-aside programs. So, for 
example, when a Federal procurement is set aside for 
competition among small businesses, the winning small business 
prime contractor is restricted from subcontracting more than a 
certain percentage of the amount paid by the Federal Government 
to another business.
    For service contracts, the NDAA provision provides that the 
small business prime contractor may not expend on 
subcontractors more than 50 percent of the amount paid to the 
small business prime contractor by the Federal Government. So, 
for example, if you receive a contract award for $100 as a 
small business, you can't subcontract more than $50 of the 
award to a large business. It is simple. It is easy to apply. 
And it is really easy for everyone, whether you are a prime 
contractor or you are a subcontractor or you are the 
government.
    The NDAA statutory provision was a meaningful change, 
because for many years, and guess what, still existing in 
current, unmodified form in SBA's regulations in the FAR, the 
limitation on the subcontracting regulations require small 
business prime contractors awarded a prime contract on a set-
aside basis to agree to something completely different; that at 
least 50 percent of the cost of contract performance incurred 
for personnel shall be expended for employees of the small 
business prime contractor.
    In practice, what constitutes the cost of contract 
performance for personnel has been absolutely impossible to 
understand or to implement. So, for example, if a small 
business prime contractor is awarded $100,000 contract to 
maintain trucks at a military base and the small business prime 
contractor wants to subcontract, say, engine maintenance to a 
large business, the small business prime contractor has to 
convert the $100,000 firm-fixed price contract into a cost-of-
performance metric under the current regulations that have not 
been modified to take into account the NDAA statute.
    It is really a cost reimbursement contract that they have 
to convert it to, and they have to compare the cost of their 
small business cost of performance for personnel to the cost of 
performance of the large business contractor. Nobody knows what 
they are doing. Nobody knows how to administer this correctly, 
and the uncertainty has led to many disputes with the 
government and between prime contractors and subcontractors.
    The NDAA changed this requirement into a simple 
calculation. In my example, the small business prime 
subcontractor--the small business prime contractor could 
subcontract $50,000 of the award to a large business. Simple 
and easy to administer and understand. The SBA's failure to 
implement new regulations consistent with the NDAA is creating 
chaos. A contract executed by a Federal agency today with a 
small business contains the old regulation, which requires at 
least 50 percent of the cost of contract performance incurred 
for personnel is expended for employees of the small business 
prime contractor.
    The contract clause does not exempt the small business from 
also complying with the NDAA provision. So compliant and 
diligent small businesses are left in the position of 
implementing two inconsistent provisions, one that is in 
regulation and one that is in the statute. This inconsistency 
is adding millions of dollars to compliance costs for small 
businesses. SBA needs to immediately begin this rulemaking 
process to resolve the uncertainty and to improve the business 
climate.
    The Small Business Administration's mission is to aid 
counsel and assist and protect the interest of small 
businesses. SBA's failure to act is crippling the very small 
businesses it is supposed to protect and to assist. Congress 
enacted commonsense reforms to clarify the complex limitations 
on subcontracting, allow small businesses to team more 
effectively, eliminate regulatory compliance burdens and 
provide opportunity for new small businesses to get into the 
government contracting business. SBA's failure to act has 
denied these benefits to Federal contractors, large and small, 
results in inefficiencies and lost opportunities for economic 
growth.
    This concludes my remarks, but I am more than happy to 
answer questions.
    Chairman Hanna. Thank you.
    Ms. Baker.

                  STATEMENT OF CHARLOTTE BAKER

    Ms. Baker. Chair Hanna, Ranking Member Meng and 
distinguished members of the Subcommittee, thank you for the 
opportunity to testify this afternoon. My name is Charlotte 
Baker. I am the CEO of Digital Hands, a Tampa-based IT company 
that provides innovative IT services to large enterprise 
companies as well as public entities, helping them in their 
ongoing war against growing cyber threats.
    I am here today representing Women Impacting Public Policy, 
or WIPP, as a member of their education foundation board. WIPP 
is a national nonpartisan public policy organization advocating 
on behalf of its coalition of 4.7 million businesswomen, 
including 75 business organizations. My testimony will focus on 
the urgently-needed rulemaking that will enable my business as 
well as many other small businesses to win more Federal 
contracts. Specifically, we need the SBA to implement Section 
1651 of the fiscal year 2013 NDAA as soon as possible.
    Previously, WIPP testified on the importance of changing 
the law with respect to contracting, and this committee oversaw 
its passage. So let me take this opportunity to say thank you.
    I would also like to take a minute to explain the 
subcontracting changes contained in Section 1651. The section 
makes an important change that the 50 percent prime contractor 
work requirement on set-aside contracts are made on the basis 
of total contract dollars rather than based on the current 
method of labor costs. This change ensures that the majority of 
dollars set aside for small business goes to that small 
business.
    Equally important in Section 1651 is Subsection B, which 
allows similarly-situated entities to contract with each other 
without specifying a percentage of the work that each is 
required to do. Previously, the law limited subcontracting to 
50 percent of the labor cost on set-aside contracts. For 
purposes of definition, a similarly-situated entity is a WOSB 
prime contractor winning a WOSB set-aside and subcontracting 
work to another WOSB firm. Another example is a small business 
prime contractor winning a small business set-aside contract 
and subcontracting to another small business.
    So why is this important? Because it affects companies like 
mine that perform complex IT services. Let me give you an 
example. Several months ago, a significant IT requirement was 
posted by an agency. Digital Hands and another EDWOSB planned a 
team together to meet the scope of work. The other EDWOSB, the 
prime, was to provide logistical support and access to a 
Federal supply schedule while Digital Hands would have 
subcontracted to provide an innovative technology solution 
utilizing highly-trained IT security personnel.
    In this case, Digital Hands subcontracting the work, the 
portion of the cost of labor provided by Digital Hands higher-
paid security personnel would have resulted in a much higher 
percentage of cost than the 50 percent allowed to 
subcontractors. To further explain, while the majority of the 
hourly work, the number of hours, would have been provided by 
the prime through its lower-cost technicians, the bulk of the 
labor cost would have come from us, from Digital Hands. Because 
of the current subcontracting rule, the 50-percent limit 
effectively prohibited us from bidding.
    On a broader level, promulgation of Section 1651 will 
ensure that dollars awarded remain with the companies who have 
the same set-aside designation and increased access to Federal 
contracts for businesses like mine. As we continue to respond 
to Federal opportunities, these elements are critical. My 
recommendation is simple: Urge the SBA to implement this 
provision as quickly as possible. Thanks to this committee's 
leadership, Congress passed the change. Now the SBA needs to 
implement it. The longer the delay, the more small businesses 
will miss out.
    Thank you for the opportunity to testify today. Hopefully, 
my story will expedite the enforcement of this rule. I am happy 
to answer any questions.
    Chairman Hanna. Thank you.
    Mr. Allen.

                    STATEMENT OF LARRY ALLEN

    Mr. Allen. Good afternoon, Mr. Chairman, Ranking Member 
Meng and members of the Subcommittee.
    I am honored to be here this afternoon to discuss the pace 
of the Small Business Administration's implementation of three 
sections of the fiscal year 2013 NDAA. These laws limit the 
liability of companies receiving advice from Federally-
supported entities, provide greater clarity about small 
business suspension and debarment procedures and provide this 
body with additional reporting on that process. SBA delays in 
establishing rules for each of these elements are harming the 
small businesses that Congress wanted to protect.
    Section 1681 establishes safe harbor protections for small 
businesses that rely on advice given by either procurement 
technical assistance centers or small business development 
centers. Small businesses that take advice from these 
organizations believe that it is correct and has the support of 
an agency of the United States Government. Without the 
implementation of this section, small contractors could find 
themselves in significant trouble if they act based on 
recommendations of an SBDC or PTAC that are inconsistent with 
procurement rules.
    There are many centers dispensing advice to many small 
firms. It is very possible that either incorrect or incomplete 
information could be dispensed. Without the protections in 
1681, small firms that inadvertently fall into noncompliance 
could find themselves exposed to a host of problems. Under the 
Civil False Claims Act, for example, the government is entitled 
to triple the amount of monetary damages actually incurred and 
in addition to an $11,000-per-invoice fine.
    Once a small company is through with litigation, fines, 
attorney's fees and other costs, it may find that its very 
viability has been compromised. The safe harbor provisions of 
Section 1681 would protect small firms from the worst penalties 
if their violations were caused due to reliance on faulty 
information provided by a PTAC or SBDC. Among the penalties of 
the government's disposal to discipline inappropriate 
contractor behavior are suspension and debarment. These 
penalties are commonly referred to as the death penalty in 
government contracting.
    A Federal suspension or debarment brings all of the 
company's public sector work to a halt, even as a 
subcontractor. Suspensions and debarments are currently 
increasing. The GAO recently issued a report showing that 
subsections have more than doubled since 2009. Ironically, the 
same report identified improvements made in six government 
agencies to bring consistency and transparency to their 
suspension and debarment process, something the SBA is 
specifically supposed to do per Section 1682.
    The SBA was to introduce suspension and debarment 
regulations, new standard operating procedures and identify a 
suspension and debarment officer, which they did, as you have 
mentioned, Mr. Chairman, this morning. Two things are happening 
without these rules: First, companies wrongly identifying 
themselves as small, an issue that this committee is familiar 
with, have an easier time fighting suspension or proceedings; 
second, truly small firms are suffering from the lack of a 
consistent, transparent process from the agency charged with 
protecting and promoting their Federal market participation.
    Congress passed 1682 with the intent to protect small 
businesses. As a result of the SBA's inaction, though, small 
businesses may actually be treated more fairly at some of the 
other agencies. Section 1683 requires that the SBA issue an 
annual report to Congress on suspension and debarment. Since 
the SBA oversees many types of small firms, there are special 
precautions that must be taken. Congress is right in wanting to 
review agency actions here.
    While the initial intent may have been to suspend or debar 
companies improperly calling themselves small, this section 
could also protect real small firms from inconsistent 
processes. The specific report details called for in Section 
1683 will give Congress a fuller understanding of what is 
happening. Publishing the information may actually result in 
fewer companies being penalized.
    Lastly, properly used, the information can also be used to 
help Congress make future decisions on appropriate small 
business legislation. We recommend that Congress continue to 
provide oversight on the SBA's lack of progress in implementing 
these three key elements of the 2013 NDAA and take steps to 
hold senior agency officials accountable for this inaction.
    I thank you for your time and attention and look forward to 
your questions.
    Chairman Hanna. Thank you.
    Mr. Specht.

                   STATEMENT OF DAMIEN SPECHT

    Mr. Specht. Chairman Hanna, Ranking Member Meng and members 
of the Subcommittee, thank you for the invitation to appear 
today. Before I begin, let me state that my comments are my 
own, and I am not speaking on behalf of my law firm or any 
specific client. My name is Damien Specht, and I am a 
government contract attorney with the law firm of Jenner & 
Block here in Washington, D.C.
    When the 2013 NDAA was enacted a year and-a-half ago, I 
discussed the legislation with both large and small clients. In 
general, they considered the NDAA to be a mixed bag for small 
government contractors, but reserved judgment until the 
legislation was implemented by the SBA. As we all know, little 
of that implementation has occurred. From my perspective, the 
most important change in the 2013 NDAA relates to SBA's mentor-
protege program.
    Many small contractors report difficulty convincing large 
prime contractors or government customers that they can 
successfully perform technically challenging or large-scale 
work. Large contractors also report difficulty finding the 
track record of success they need in the key small business 
subcontractor. SBA's mentor-protege program fills this gap by 
partnering large mentors with early stage 8(a) small 
businesses. The 2013 NDAA gave SBA the authority to expand the 
program beyond 8(a) firms, but I am not aware of any public 
statement that SBA will exercise that authority.
    This has led to significant uncertainty in the contracting 
community as to whether expansion in this program will ever 
happen. SBA's delay may be the result of a number of difficult 
issues it must address. For example, does SBA have the 
resources it needs to administer a significantly larger program 
or will application processing times increase and oversight be 
weakened? In addition, the NDAA states that the expanded 
program shall be identical to the mentor-protege program for 
8(a) concerns.
    But the current program is limited to companies in the 
earliest stages of the 8(a) process. As a result, SBA will have 
to determine if all small businesses should participate in the 
expanded program or whether participation should be limited to 
early stage small businesses. From my perspective, the program 
was designed for early stage businesses, so limiting proteges 
to firms that fall below half of their relevant size standard 
would be a good way to expand responsibly while focusing on 
businesses that will benefit the most. SBA can then revisit 
additional expansion in future years.
    The NDAA also required reform of agency level mentor-
protege programs. In my experience, few clients are aware that 
these programs exist, and many confuse agency programs with the 
SBA's far more robust program. This can be a fatal error 
because only the SBA's mentor-protege program offers an 
affiliation exemption for a large mentor and a small protege 
bidding as a joint venture.
    Because of this confusion, the 2013 NDAA's effort to 
increase uniformity among these programs was welcomed. Now, it 
is SBA's responsibility to resolve some key policy issues. 
First, will SBA impose a limit on the number of protegees a 
mentor can have or the number of contracts a mentor and protege 
can pursue? If so, will these limits apply across all mentor-
protege programs, or will limits be applied to participants in 
each program?
    Given the difficulties of tracking all mentor and protege 
relationships, I would suggest that limits be imposed on an 
agency-by-agency basis. After all, ensuring every willing 
protege has a mentor for different aspects of its business can 
only be beneficial. Second, should the joint venture 
affiliation for the SBA program apply to other agency programs? 
Expanding the exception would limit confusion and encourage 
participation in all agency programs.
    Third, SBA must decide whether the benefits of different 
mentor-protege programs should be uniform. For example, some 
agency programs offer small business subcontracting credit for 
costs spent assisting the protege. This encourages the mentor 
to follow through on its commitment, so it would argue that 
such efforts should be adopted across the government and added 
to SBA's program.
    As these issues highlight, we are at a key moment in the 
future of mentor-protege programs. The goal of this effort 
should be expanding participation, but we cannot forget that 
expansion will require additional resources. Not all of the 
provisions of the 2013 NDAA are helpful for small businesses. 
As you know, the Small Business Jobs Act of 2010 imposed 
penalties up to the entire contract value on concerns that 
misrepresent their size. Although the 2013 NDAA added a safe 
harbor from this rule, the legislation and SBA's related 
rulemaking have a number of critical flaws.
    First, SBA's proposed allowing local development center to 
choose whether to offer advisory opinions without offering 
additional funding. Given the additional work involved, what 
incentives to these centers have to issue opinions? Even if 
some offices choose to issue these opinions, what will this 
patchwork of resources mean for small businesses that are 
outside the region served by these offices?
    Second, SBA has not proposed a time limit for issuing these 
opinions. Size determinations can take months and delays in 
advisory opinions cause small businesses to miss out on 
procurement opportunities. Third, SBA's proposed rule does not 
allow a contractor to appeal an adverse decision. Given the 
size determinations are regularly overturned by SBA's Office of 
Hearings and Appeals, small businesses require an appellate 
forum.
    In sum, it is essential that small government contractors 
and small businesses considering entering the Federal space 
have the certainty of an effective safe harbor. Without 
significant revision, however, the currently-posed safe harbor 
is unlikely to meet that need.
    Thank you for your time, and I look forward to your 
questions.
    Chairman Hanna. Thank you very much.
    Amazing. I feel like we should be having a conversation 
with the SBA, which we will have in a moment. I want to thank 
you for being here and listening to this, too. That is a big 
help, I think. Hopefully for you, too.
    Mr. Allen, how does the SBA's suspension disbarment 
guidance compare with other agencies, such as the Air Force? 
And you mentioned that the remedy doesn't exist because you 
can't find the officer and then you can't define the rules and 
that people can be basically disbarred or suspended without a 
way to seek a remedy. What does that look like compared to 
other places you may know about?
    Mr. Allen. Well, as I alluded to, Mr. Chairman, the GAO 
recently identified the Air Force, the Department of Veterans 
Affairs and a couple of other agencies that had taken 
significant steps to improve the consistency and transparency 
of their own suspension and debarment processes trying to make 
this a real business case for why you take that type of 
dramatic action.
    Without having these reforms, the SBA is really operating 
behind the curve, not using best practices. The result is that 
you can't be assured of consistent decisions. You can be 
assured that there will be perhaps in some cases a proper 
reason to appeal a suspension or debarment decision, but 
without that transparency and having best practices like those 
recommended by GAO, it may be difficult and costly for a truly 
small business to protect itself.
    Chairman Hanna. Are you concerned that it is arbitrary and 
capricious by virtue of what you just explained?
    Mr. Allen. Certainly more arbitrary and capricious than it 
is at other agencies.
    Chairman Hanna. Uh-huh. So that really is dangerous when 
you have----
    Mr. Allen. Yes, sir. Particularly given the small business 
nature of the companies that are doing business with this 
agency.
    Chairman Hanna. Thank you.
    Ms. Styles, you explained a few things you thought could be 
done pretty quickly, and yet, some of these rules, I think, 48 
out of 52 requirements have not been dealt with, not been 
formulated. Do you want to talk about that? I mean, what are 
the ones that you think it is kind of ridiculous that hasn't 
been done?
    Ms. Styles. Well, I think the primary one that I talked 
about----
    Chairman Hanna. If that is true. I don't want to put words 
in your mouth.
    Ms. Styles. No, I think it is absolutely true. It is 
unfathomable for me to understand how it has taken so long, 
when it is really, many of these are minor regulatory changes 
that have to occur to create consistency in how contracting is 
happening even on the debarment one. You just, you want small 
businesses to know where to go, how to get there, what the 
process is for suspension and debarment and not have to pay the 
lawyer.
    Chairman Hanna. Let me explain to anyone listening, you are 
an expert in this. This was your career.
    Ms. Styles. Yes.
    Chairman Hanna. So it is not as if you are just an angry 
lady showing up here today.
    Ms. Styles. I was in charge of the rules before. I know 
that you can get them----
    Chairman Hanna. You were in charge. So if you had that job, 
you would have it done or at least you have some done. Right.
    Ms. Styles. Absolutely. You know, it doesn't take that much 
to issue interim rules where a statute says the regulation has 
to change. It needs to happen. I mean, I can't tell you how 
much companies are having to spend to understand the 
differences and how much that is ultimately costing the 
government, as well.
    Chairman Hanna. Do you think that is keeping the government 
from enjoying the best and most competitive opportunities?
    Ms. Styles. Absolutely. Absolutely. I think small 
businesses are confused and don't have access that they need to 
have and don't understand the rules to contract.
    Chairman Hanna. Thank you.
    I am going to yield to Ranking Member Meng.
    Ms. Meng. Question to Mr. Allen: In efforts to increase 
small business subcontracting, commercial market 
representatives advise large prime contractors on maximizing 
subcontracting opportunities for small businesses and aids 
small businesses in marketing themselves to large businesses. 
In your opinion, are CMRs doing their job on this front, and 
how can they be more effective in increasing subcontracting 
opportunities?
    Mr. Allen. I appreciate the question. My take is that you 
find a high degree of variability on the effectiveness of that 
type of advice from the SBA. It is really very highly dependent 
on the situation. A lot of times you will find that the lists 
of businesses that they reach out to and work with are fairly 
tight and confined to ones that they perhaps worked with in the 
past. And their comfort level and ability to work with other 
businesses is not so good, so those companies don't get the 
help that they need.
    You are right in saying that large contractors take 
seriously their small business contract use. It is those 
efforts from the companies themselves that I think probably do 
the best job; whereas the SBA's resources are perhaps a little 
bit more scattershot in their effect. One of the best things, I 
think, that the SBA could do would be to be very active at a 
regional level with companies that can truly work with a larger 
prime contractor or even another small prime, because you find 
some very good people out around this country in those regions 
that can help the government, whether it is here or elsewhere.
    Ms. Meng. Thank you.
    Question to Ms. Baker: The NDAA required SBA to provide a 
Web site for large businesses to post subcontracting 
opportunities. However, this has yet to occur, leaving 
businesses with looking only to the existing sub net platform. 
Have you found that this Web site has been helpful in providing 
these opportunities?
    Ms. Baker. No, not whatsoever.
    Ms. Meng. Do you think there are deeper problems or 
solutions that need to be rectified?
    Ms. Baker. I think the dissemination of information through 
a mechanism that can be trusted and that is updated and readily 
available is important for all small businesses. Without this, 
what happens is the cost of customer acquisition or the cost of 
pursuing Federal contracts is much higher, and it is done in an 
unorganized manner.
    Ms. Meng. Thank you.
    And question to Mr. Specht: The committee continues to hear 
from numerous small businesses about the problem of contract 
bundling. As a result of this practice, subcontracting and 
teaming have become the best options for small businesses that 
are unable to perform the entirety of these massive contracts. 
Yet, small businesses have faced difficulty in this arena, as 
agencies may prefer a single offer rather than offers received 
from teams. What has your experience been when your clients 
have teamed up with other businesses?
    Mr. Specht. It is a great question, and it is an issue that 
comes up quite a bit. Quite a bit of my practice is negotiating 
these teaming agreements between large prime contractors and 
subcontractors. And I can tell you that from the government's 
perspective, you need to be crystal clear with the evaluators 
as to who is performing what work and the small, that may be a 
subcontractor, has to be extremely assertive about making sure 
that that is mentioned in the proposal.
    Because, unfortunately, what often happens is that a small 
business will be part of a team, they will negotiate a teaming 
agreement, and then after award, the small business will be 
cast aside, the large business will absorb that work, and the 
small business will have been used to get the award but not to 
actually perform it.
    Ms. Meng. And anyone else is welcome to answer.
    Ms. Baker. That is exactly one of the fears of the small 
businesses going together with a prime contractor. What has 
happened to us in many cases is that we will put together the 
work, we will spend a lot of time putting together our side of 
it, and there is no assurance moving forward. You do have to be 
aggressive that you will be the chosen one, but there is no 
guarantee.
    With our peers, we have found stories that there have been 
promises made, and then in the end, the actual award that was 
bid on by the small business subcontractor was taken by the 
prime.
    Ms. Meng. Thank you.
    I yield back.
    Chairman Hanna. Thank you.
    Mr. Tipton.
    Mr. Tipton. Thank you, Mr. Chairman.
    Thank you, panel, for being here. Just a couple of quick 
questions to follow up.
    Ms. Styles, after the chairman's questions, in part of your 
answer, you said how much it is costing the government in terms 
of that. Can you expand on that a little bit? What is it 
costing the government?
    Ms. Styles. So it is probably impossible to quantify, but I 
can tell you, not an insignificant number of small businesses 
have come to my law firm to seek advice about how to comply 
with and the limitations on subcontracting rule in particular. 
If the rule is clear, if there was actually a rule in place 
implementing the NDAA, they wouldn't have to come; they 
wouldn't have to pay the bill. It adds to their cost.
    And at the end of the day, even if it is a fixed-price 
contract, they have to pass the cost along somewhere. They will 
be passing those costs along in their contract because they all 
have to figure out how to comply with two inconsistent rules 
right now, and it has been going on for, what, you know, a year 
and a half, if not more. And they have to figure it out in 
order to the perform the contract. So they have to pay to get 
legal advice to understand what is the right thing to do.
    Mr. Tipton. Right. I am a small business guy. And you like 
to be able to know the rules that you are playing under, you 
know. Is this a chronic pattern that we are seeing? You know, 
we had Mr. Allen speak that some of the other agencies are 
doing a little better job in some specific components, but is 
this a chronic problem that you are seeing?
    Ms. Styles. I think so. I think that it is a chronic 
problem in terms of getting the rules out on time, 
understanding what the changes are and just the sheer 
complexity of the rules themselves.
    Mr. Tipton. Let's supplement, Ms. Baker. You just talked a 
little bit about the Web site not truly being helpful in terms 
of dispersing the information and in terms of the contracts. 
You are out of Tampa, Florida, if I recall correctly?
    Ms. Baker. Yes, sir.
    Mr. Tipton. And your economy may be a little bit better 
than it is in my district in Colorado, a little bigger area. 
But do you have some people that could use some jobs down in 
Tampa, Florida?
    Ms. Baker. Yes, sir.
    Mr. Tipton. If you had access to actually find out about 
these contracts, to be able to have some actual certainty in 
terms of going forward what the rules are going to be, any kind 
of a guess on what type of jobs that might be able to create, 
what kind of security that might be able to create for existing 
jobs?
    Ms. Baker. Yes. So the job creation for my sector of 
industry is not a low-paying help desk arena. And so having 
opportunities and having visibility to be opportunities that 
are in cyber creates jobs that are six-figure jobs. And these 
are newly created jobs. These are not allocating jobs from one 
area of commercial, the commercial segment to the Federal 
segment. It is actual new creation.
    So, you know, what could it mean? The size of the contracts 
that are due and the new opportunities for cyber threat 
detection really, you know, create, in terms of compensatable 
jobs, millions and we are talking, you know, a job with one 
agency just on a cost basis could be a $2 million underlying 
cost structure.
    Mr. Tipton. Right. And I like the chairman, and I know the 
ranking member, as well. Appreciate the administration, Small 
Business Administration, for taking the time to be able to be 
here and listen to some of your comments. They are here. What 
would you like to be able to tell them? What can help?
    Ms. Baker.
    Ms. Baker. My gist today and the thing that I would love to 
urge, it is desperately needed, is that we invoke and we put 
into practice the similarly situated entities. Small businesses 
do not have the ability to go together when they are in the 
same class and compete without that 50 percent rule applying. 
In industries and in services, in goods that are of higher 
value, it is impossible for somebody to come in and be a sub 
and meet that rule. As long as all the moneys are going to the 
class of the similarly situated entities, I just urge that what 
the good work that has already been done by this committee gets 
put into place so that we can move forward and not lose out on 
more opportunities.
    Mr. Tipton. Mr. Allen, what advice would you give in what 
she described as the death penalty when it comes to suspension 
and debarment?
    Mr. Allen. I believe that the SBA needs to come up to speed 
on the suspension and debarment practices, follow the 
recommendations set forth by GAO. They are now easily 
identifiable as best practices as implemented by other Federal 
agencies. That will let people know at least whether they are 
on one side of the fence or the other, much more clearly. For 
those that are on the wrong side of the fence, that will 
hopefully clarify the process and not waste resources. And for 
those that are on the right side of the fence, they will know 
that and they will be able to proceed accordingly.
    Mr. Tipton. Thank you.
    I yield back, Mr. Chairman.
    Chairman Hanna. Ms. Clarke.
    Ms. Clarke. Thank you, Mr. Chairman.
    And thank you Ranking Member Meng.
    I would also like to thank our witnesses for your testimony 
today.
    My question is to Mr. Specht. Your written testimony goes 
to great lengths to discuss the mentor-protege program, a 
program I share enthusiasm for, as well. Could you dig a bit 
deeper and flesh out your concerns regarding the possible 
opportunity cost should the SBA not exercise the NDAA's 
authority to further expand the program?
    Mr. Specht. Absolutely. And yes, you are right. I am 
enthusiastic about the mentor-protege program because I have 
seen it in action. I have seen large contractors work with 
smalls and help them build up the infrastructure and make them 
successful. But the concern is that right now, the only 
businesses that can be proteges are essentially early-stage 
8(a) participants, so small, disadvantaged businesses in the 
early stages of their business career.
    And the problem is that many of those businesses are not 
yet sophisticated enough to really pursue the large contracts 
that interest a large business mentor. And so if SBA expands 
the program and we get more small businesses into the program, 
larger small businesses, somewhat more advanced small 
businesses, if we do that sooner rather than later then more of 
these smalls will find more willing mentors who are willing to 
pursue these opportunities with them and willing to share their 
experience with the small business contractors.
    Ms. Clarke. Thank you.
    I saw a lot of heads nodding at the table over there as you 
were speaking.
    Would you like to add something, Mr. Allen, Ms. Baker, Ms. 
Styles?
    Mr. Allen. I would only add, Ms. Clarke, that I think he is 
absolutely right. Mr. Specht is absolutely right. In my 
experience, I have seen hundreds of small companies who are not 
ready to take that next step, even though they may initially 
think that they are. And those are the ones that can sometimes 
end up getting very easily frustrated, walking away from the 
market entirely, and the government misses out on some of the 
innovations that those companies can provide and are providing 
the commercial market. So staying with these businesses and 
giving them a real sense of understanding that this can be an 
18- to 24-month process will, I think, encourage more of them 
to stay in and we will all benefit from that.
    Ms. Clarke. Ms. Baker, did you want to add something?
    Ms. Baker. In my experience, and in talking to fellow WIPP 
members, the mentor-protege program is something that is very 
attractive. It is very hard to come by and one of the reasons 
will be that you don't meet a designation, such as an 8(a), or 
you don't have experience in the government market, even though 
you may have experience in the commercial market, and so there 
are a lot of barriers in the conversation about why you are 
qualified.
    And so it appears to me that we would benefit from opening 
up that dialogue about what the mentor-protege program is truly 
designed to do and the fact that it is not a program for small 
businesses just to bring in their relationships. We have had 
conversations, a number of conversations that say, you know, 
prime contractor X, and this has happened, discussions with 
about five of them, would love to do a mentor-protege program.
    And the way that you get to get into the mentor-protege 
program is you bring them business. You bring them business. 
And then, you know, you have got to think about it. Then, who 
really needs who in this situation? So it is a source of 
frustration, and it is one in which my company would love to 
participate in, but I just don't see how it is worth the hassle 
and the time for us. We don't have an 8(a) designation. We are 
an EDWOSB. And it just seems that we have other to take another 
route.
    Ms. Clarke. Mr. Chairman, I yield back.
    Chairman Hanna. Thank you.
    We are privileged today. Ranking Member Velazquez is here.
    Ma'am.
    Ms. Velazquez. Thank you, Mr. Chairman.
    And let me take this opportunity to thank the witnesses for 
being here today. This is an area where I have devoted so much 
energy and time throughout the years as a member of this 
committee in advocating, if there is a way where we could help 
small businesses do what you can do best and that is creating 
jobs, is to have a level playing field for businesses to be 
able to access federal contracts.
    Ms. Baker, I would like to ask you a question. There are 
multiple advocates in place to ensure that small businesses 
receive a fair share of federal contracts and are not 
disproportionately affected by acquisition policies. Businesses 
have reached out to these advocates for guidance in navigating 
the in-sourcing process. Do you believe that these offices are 
doing enough at the front end of the decisionmaking process to 
ensure that small businesses receive fair treatment?
    Ms. Baker. I truly believe that the intent is there, and I 
truly believe that shepherding small businesses to the right 
decisionmakers is something that the liaison officers have well 
embraced. The issue often that we have to overcome is, 
especially in my industry with cyber, is the thought process 
that the decisionmaker or the contracting officer does not 
believe that a small business can do the quality of work that 
we actually do and win awards for in the commercial sector.
    So, you know, to deal with the small business liaison 
officer to get to the right contracting officer or the actual 
buyer is something that is embraced by the advocate in the 
agencies, but they are not always effective in finding and 
reaching and being knowledgeable about the opportunities. And 
often, when they are educated, it is to bring in a small 
business that really is a sub, when often we can actually be 
primes.
    Ms. Velazquez. Okay. Thank you.
    Mr. Allen, contracting officers are supposed to use market 
research to aid them in determining what contracts go to what 
small business program. Have you found that contracting 
officers are doing the research prior to releasing 
solicitations?
    Mr. Allen. In many cases, Ms. Velazquez, no. And some of 
that has to do with the fact that contracting officers have a 
lot on their plate. They are very overworked. We have seen 
their numbers dwindle, particularly the ones that are 
experienced, leaving the government. The result is that you 
have a very uneven amount of experience in the acquisition 
workforce, so we don't always see that market research being 
done.
    Ms. Velazquez. So perhaps you will agree that sometimes the 
rhetoric ``doing more with less'' might sound good but not in 
this case, where we have an agency that has one of the smallest 
budgets throughout the federal government. And yet, we love to 
preach and talk about the important role that small businesses 
play, but if we don't provide the resources for the Small 
Business Administration to do their job as well as the 
committee to do the work that we are supposed to do here--
because I think that we could come here and criticize SBA for 
not issuing the regulations, but then we have to understand 
what type of record--congressional record--there is that would 
allow for those who will be issuing those regulations to go 
back and see the intent of Congress when we pass legislation 
here. It would be much easier for the SBA to have that wealth 
of information coming from the committees work. It is not right 
that we come and allow for other committees to introduce and 
put provisions in their defense authorization when we didn't do 
the work here on the Small Business Committee.
    So it would be difficult for the SBA, and that creates 
confusion. You touched on the debarment issue. Well, they need 
to go back and check, what was the intent. If we don't have the 
congressional record, they will not have that information, 
which will make their job more difficult and complex.
    With that, I yield back, Mr. Chairman.
    Chairman Hanna. I want to thank our first panel and invite 
you to stay if you would like. I know at least one of you has a 
plane to catch. And we have votes at around 20 after, perhaps. 
So we should be able to hopefully work through this. Thank you 
again for your time and your willingness to participate at this 
hearing.
    I want to welcome SBA Associate Administrator John Shoraka. 
Mr. Shoraka is responsible for all the government contracting 
and business development programs at the SBA, including the 
insurance procurement regulations. Mr. Shoraka has appeared 
before this Subcommittee many times, and I am happy that he is 
here.
    And I am glad you brought reinforcement. So welcome.

      STATEMENT OF THE HONORABLE JOHN SHORAKA, ASSOCIATE 
     ADMINISTRATOR FOR GOVERNMENT CONTRACTING AND BUSINESS 
  DEVELOPMENT, SMALL BUSINESS ADMINISTRATION, WASHINGTON, D.C.

    Mr. Shoraka. Thank you for having me. Chairman Hanna, 
Ranking Members Meng and Velazquez, and members of the 
Subcommittee, I am honored to be here today to present SBA's 
ongoing efforts to expand access to Federal contracting 
opportunities for America's 28 million small businesses. SBA's 
Office of Government Contracting and Business Development 
oversees the Federal Government's performance against the 
statutorily-mandated small business prime contracting goal of 
23 percent.
    This includes ensuring that agencies meet the socioeconomic 
goals of 5 percent for socially-disadvantaged small businesses 
and women-owned small businesses and 3 percent for small 
businesses located in historically underutilized business zones 
and service-disabled, veteran-owned small businesses.
    For Federal agencies to meet these goals, they need to have 
the right tools in place. The National Defense Authorization 
Act for fiscal year 2013 contained provisions to provide 
acquisition personnel resources to help small businesses 
receive approximately $80 billion annually in contracts. SBA 
has made significant strides implementing many of the 
provisions included in NDAA 2013.
    We have revised our regulations to eliminate the caps on 
the dollar threshold of contracts that could be awarded under 
the Women-Owned Small Business Contracting Program. The cap 
removal will help close the gap between WOSB accomplishments 
and the 5 percent goal. SBA understood the importance of 
eliminating this barrier and acted quickly to issue an interim 
final rule to implement the change, which was incorporated into 
the Federal acquisition regulations last June.
    We continue to review and update as necessary all size 
standards. SBA has completed its review of all revenue-based 
size standards and issued an inflation adjustment last month. 
As a result, thousands of additional small businesses will be 
able to qualify for Federal contracting opportunities. As we 
continue our review of size standards, we have integrated the 
relevant changes from NDAA 2013 into our process.
    Additionally, SBA raised surety bond guarantee limits from 
$2 million to $6.5 million and allows for bonds up to $10 
million if the contracting officer certifies it is necessary 
for award of the contract. This provides small construction 
companies with the ability to bid on and obtain larger 
construction contracts. We are also aware of the importance of 
senior-level accountability to small business contracting 
goals.
    We have worked with procuring agencies to ensure that 
senior executives receive training on small business 
contracting and that meeting small business contracting goals 
are actually a part of their performance evaluations. SBA's 
procurement center representatives have also incorporated new 
small business contracting provisions into the trainings they 
regularly provide to contracting officers. We continually 
leverage our work with the Small Business Procurement Advisory 
Council to share best practices and review the performance of 
the OSDBU offices at every agency.
    At the beginning of June, SBA submitted a draft rule to the 
Office of Management and Budget's Office of Information and 
Regulatory Affairs authorized by NDAA 2013, which will allow 
the small business prime contractors to utilize similarly-
situated small business subcontractors to perform the required 
percentage of work on contracts. This will allow small 
businesses to work together to win contracts that are larger 
and have more complex requirements and that have historically 
not been suited for small business participation.
    In the near future, SBA will publish a rule to implement a 
new government-wide mentor-protege program. The mentor-protege 
program will be for all small business concerns including 
socioeconomic subcategories. This program will be consistent 
with SBA's mentor-protege program for participance in the 
agencies 8(a) business development program.
    Last month, we published a proposed rule on advisory size 
determinations which establishes the criteria that small 
business status advisory opinions must meet in order to be 
deemed adequate and specifies the review process for such 
opinions. This rule further amends SBA's regulations to update 
the circumstances under which the agency may initiate a final 
or a formal size determination.
    SBA continues to review the small business contract goaling 
guidelines and has now included leasing, to the extent 
reported, which was a category spend previously excluded. SBA 
is reviewing the SBA's Office of Advocacy's recently published 
recommendations for improving the goaling process, and we are 
working with OMB's Office of Federal Procurement Policy, 
General Service Administration and other agencies to determine 
any future improvements to this process.
    At SBA, and across the administration, we are committed to 
ensuring that more small businesses have access to contracting 
opportunities, to grow their businesses and create jobs in our 
communities. As Administrator Contreras-Sweet highlighted in 
her priorities speech last month, the SBA will be a market 
maker for small companies by opening new business channels 
within the Federal Government.
    Thank you for your continued leadership and support, and I 
look forward to your questions.
    Chairman Hanna. Thank you.
    I appreciate the laundry list of what you have completed, 
but we are really here to talk about what isn't done of the 54 
regulations and the 40, I think, roughly that have been not 
completed. So that is the gist of the argument here today. 
Not--I appreciate the work you have done.
    Also, the notion that was put out there somehow that you 
were underfunded for this work, yet some $39 million has been 
spent on things like a Web site, $6 million for a Web site, a 
new Web site. And so I just, I guess what I am saying is, this 
is the law. There is a requirement. There was a schedule, a 
time. And you also heard Ms. Styles say clearly that there were 
things that are very important and they are not done. So I 
guess, I would just like to know how you feel about the 
comments you heard and give you an opportunity to talk freely 
about your opinion of what you heard.
    Mr. Shoraka. Sure. First of all, thank you for the 
question. I appreciate having been here to hear those comments. 
It is very helpful in my role to understand the impact that we 
are having in the community. And I really appreciate when I am 
out in the field and actually meet with small businesses to 
receive those comments.
    What I will say is, with respect to NDAA 2013, where we 
found opportunity to move quickly, especially under the women-
owned small business cap removal where we think that will gain 
significant traction and help us to achieve our goals, we moved 
rather quickly and did an interim final rule and actually 
worked with the administration to adjust the Federal 
acquisition regulations to take effect immediately, or at least 
by June of last year.
    Where we have to work with our sister agencies, where we 
have equities in our sister agencies, where rules can impact 
those agencies, I think it is very critical for us to work very 
closely with those agencies to make sure we get the rulemaking 
process correct the first time. These are rules that do have 
significant impact and will have significant positive impact.
    But we want to make sure we get them correct the first time 
around, and we also want to make sure that they go through the 
public comment period and that the public small businesses, the 
small businesses that are going to be effected by these rules 
have an opportunity to actually comment on them.
    Chairman Hanna. So what would you say to someone who said 
that you are ignoring those you don't like and addressing those 
that you like? Because that is kind of what it feels like. And 
I appreciate that you have other agencies to coordinate that 
with, but 19 months is a long time. And the fact that you put 
up an officer's--a Web site today, you know, there are 
questions that really need to be answered, and I think that it 
is important that everybody trust the system----
    Mr. Shoraka. Sure.
    Chairman Hanna.--that you have administered.
    Mr. Shoraka. And obviously, I would argue that, you know, 
there is always room for improvement in the rulemaking process. 
I would argue that the rulemaking process within our agency is 
such that we want to make sure all the various equities within 
the agency understand the impact that this is going to have. We 
work closely with all the other affected offices at the SBA. 
But at the same time, when there are opportunities to move 
quickly and go to interim final rule, we have been able to find 
those opportunities and take advantage of them.
    Chairman Hanna. Are there rules that you have no intention 
of following of the 40 that are left to address?
    Mr. Shoraka. I would argue that of the rules that were 
mentioned today, as I mentioned in my testimony, both with 
respect to the subcontracting requirements, that rule is at a 
OIRA for clearance, interagency clearance, and will be going 
out for public comment shortly, and we look forward to 
receiving public comment on that.
    Chairman Hanna. Do you have some kind of timeline of when 
you expect to----
    Mr. Shoraka. Certainly.
    Chairman Hanna.--finish the rest of it? I mean, it is a 
long list.
    Mr. Shoraka. Certainly. I think the----
    Chairman Hanna. There were numerous hearings to make those 
rules come about.
    Mr. Shoraka. I think the NDAA 2013 rule that is currently 
in OIRA takes quite a load of the laundry list that was 
presented here today. The mentor-protege rule that is also 
waiting for our administrative signature and should go out 
shortly for interagency clearance, that also takes a 
significant stab at what we have heard here today.
    Chairman Hanna. Have you heard someone suggest that mentor 
policy should be expanded or moved down the food chain, 
actually, to smaller businesses as opposed to--I will yield to 
Ranking Member Meng. Thank you.
    Ms. Meng. Thank you, Associate Administrator Shoraka, for 
being here today. You mentioned the SBA's mentor-protege 
program where small businesses can receive subcontracting 
opportunities. This allows mentors to pass subcontracts to 
small business protege firms. Can you tell us how many of these 
opportunities small businesses have received through this 
program?
    Mr. Shoraka. Currently, the mentor-protege program that we 
have is for our 8(a) business development program. And I don't 
have the exact numbers but would be happy to share those with 
you in the future.
    What I will say is that the mentor-protege program is a 
business development program, right. It shouldn't be viewed as 
a contracting program, as I am sure you are aware. The intent 
of the program is to provide some benefit to the protege, be it 
technical experience, management experience, financial where 
with all. And that transitionary period helps to grow that 
protege so that in the future, it can go after contracts on its 
own.
    So the metro-protege program for the 8(a) program, as we 
have heard here today, has been very beneficial in providing 
opportunities for small 8(a) firms, and the intent is to expand 
that to all small businesses.
    Ms. Meng. I yield back.
    Chairman Hanna. Ms. Clarke, we have votes in a few minutes, 
but we do have time.
    Ms. Clarke. Thank you, Mr. Chairman.
    Administrator Shoraka, I have a fairly basic question. The 
broad lack of compliance regarding the Office of Small and 
Disadvantaged Business Utilization is staggering. OSDBU is a 
critically important agency, yet almost all of the mandated 
reforms are, as yet, unmet. I don't believe that SBA is 
maliciously ignoring congressional intent, so could you give us 
a better understanding as to why, as we sit here today, the 
guidelines and/or regulations have not been issued?
    Mr. Shoraka. Certainly. Statutorily, we don't have 
authority over an agency's OSDBU, however we work very closely 
with them through this Small Business Procurement Advisory 
Council. SBPAC meets regularly, and we talk ability and present 
best practices that have been successful in our sister agencies 
and how those can be implemented at other agencies and how 
OSDBUs can be more successful in presenting small businesses to 
the contracting community and representing small businesses in 
the contracting community and making sure that the agency 
actually meets its goals.
    What I will say is that the administration, through the 
White House Small Business Procurement Group, ask that agencies 
look at OSDBU's reporting directly to a deputy secretary or 
higher. And we spent some time, as the agency sort of 
responsible for monitoring that, spent some time working with 
each OSDBU and tracking the fact that more and more of them 
over time have been compliant with that request, and I know 
that that became effective in NDAA 2013.
    I think that is really critical in making sure that the 
small business community's voice is heard at the agency. And I 
think as we see OSDBU's reporting to senior executives at the 
agency, small business procurement has become major initiatives 
at those agencies, and we have seen a lot of traction when it 
comes to small business procurement.
    Ms. Clarke. Well, I want to encourage as probably part of 
that, that working group, that, you know, there be some 
pressure applied here. Because their role is just so critical 
for them to be sort of trailing behind.
    Mr. Shoraka. Absolutely.
    Ms. Clarke. You know, it doesn't accrue to a benefit to our 
businesses. And so to the extent that through your relationship 
you can urge and also express to them our concern here at this 
committee that that would make all the difference in the world.
    Mr. Shoraka. Thank you.
    Ms. Clarke. With that, Mr. Chairman, I yield back.
    Chairman Hanna. Ms. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Administrator Shoraka, I continue to be frustrated by the 
lack of progress on the women's business procurement program. 
When you have only 806 contracting actions worth approximately 
$40 million awarded last year, there is no other way to 
describe it other than a failure because it really has been a 
failure. I need to ask you, what steps are you taking to ensure 
that the program is fully utilized?
    Mr. Shoraka. Thank you, Congresswoman. I think the program 
itself has been critical in bringing visibility around women-
owned small business procurement. As you are----
    Ms. Velazquez. The numbers.
    Mr. Shoraka. Sure. And as you are aware much more than I 
am, the program, the law was established in the early 2000s and 
the administration really took the effort in 2009 to establish 
the program. What I would say is that our administrator is very 
keen on making sure that this program is effective. It is 
unique. There are 83 NAICS codes where contracting officers can 
set aside a contract for women-owned small business programs.
    I think with removal of the caps, we are seeing more and 
more traction where set-asides can actually happen, because 
with caps of $4 million and $6.5 million, you can imagine how 
many thousands of contracts would have to be set aside to 
achieve that 5 percent goal. So I think that was really 
critical, and it was critical that we moved quickly to take 
those caps out.
    What I will say is that we will work continuously to train 
contracting officers. And not only that, we have cosponsorships 
with American Express OPEN and Women Impacting Public Policy to 
bring education around the program to women-owned small 
businesses, because when they take ownership, they have really 
been demanding at agencies to take ownership of it, as well.
    Ms. Velazquez. We will see next time you come before this 
committee.
    Mr. Shoraka. Thank you.
    Ms. Velazquez. We heard one of the witnesses on the first 
panel raise concerns over two regulations within debarment that 
seem to conflict with each other. And without getting into 
those specific details, I want to ask you, if this committee 
had actually done its work by reporting bills, filing a 
committee report, debating these bills on the floor and going 
to conference with the Senate and producing a conference 
report, would that have made it easier for you to reconcile 
what Congress' intent was on this provision as well as helping 
speeding up the process in getting those regulations done?
    Mr. Shoraka. Sure. Thank you for the question. With respect 
to that particular question around suspension and debarment, 
that is obviously not necessarily in my lane. It is our Office 
of General Counsel.
    Ms. Velazquez. Uh-huh.
    Mr. Shoraka. What I will say is that anytime the intent of 
Congress can be clearly discerned by us is very helpful in 
developing results and regulations based on that.
    Ms. Velazquez. But would you agree on my estimation that 
when you build a congressional record, it makes it easier on 
those who are working on drafting and issuing those 
regulations?
    Mr. Shoraka. Sure.
    Ms. Velazquez. Because, you know, regulations are a very 
complex action, and sometimes you need to go back and look at 
the intent of Congress. When you lack a committee report and 
when you lack debate on the House floor, then that record 
doesn't exist. And what I am asking is, do you think it would 
make your work easier?
    Mr. Shoraka. So, again, thank you for the question. My 
involvement in the rulemaking process, being that I am not the 
lawyer at the agency and I don't actually draft the rules, is 
making sure that they are timely, as to the extent possible, 
and making sure that they reflect congressional intent and 
making sure that they reflect the statute. What I would say is 
that in my view, anytime that can be discerned more clearly, it 
is helpful to the process.
    Ms. Velazquez. Thank you.
    Thank you, Mr. Chairman.
    Chairman Hanna. Thank you, Ranking Member Velazquez.
    There are committee reports to look at for all of the 
hearings that happened. And as a practical matter, these are 
the law, so we are not here to interpret them. We are here to 
respond to them and put these in place.
    So I want to thank you here today for being here, sir. I 
know you have been here many times, and you are always 
gracious. I appreciate that.
    I think that it is important that we all owe small 
businesses as quick and efficient and clear a response as we 
possibly can and try to help weave them through the 
bureaucracy. To that end, I don't know what this committee can 
do, but I think if you are experiencing trouble with agencies 
in getting them to respond, I am sure that Chairman Graves and 
Ranking Member Velazquez, if I speak for her, would be happy to 
help you navigate that and perhaps make people more responsive.
    I ask unanimous consent that members have 5 legislative 
days to submit statements and supporting materials for the 
record.
    Without objection, so ordered.
    This hearing is now over. And, again, I want to thank 
everyone for being here.
    [Whereupon, at 2:19 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X


                     STATEMENT OF ANGELA B. STYLES

                     PARTNER, CROWELL & MORNING LLP

              BEFORE THE HOUSE COMMITTEE ON SMALL BUSINESS

               SUBCOMMITTEE ON CONTRACTING AND WORKFORCE

                             JULY 15, 2014

    Chairman Hanna, Congresswoman Meng, and Members of the 
Subcommittee, I appreciate the opportunity to appear before you 
today to discuss the impact of the Small Business 
Administration's failure to implement federal contracting 
reforms mandated in the National Defense Authorization Act for 
FY 2013 (``NDAA''). SBA's failure to act has created 
significant ambiguity for federal contractors--both small and 
large. While this uncertainty keeps the lawyers busy, it costs 
government contractors--and ultimately results in higher prices 
for the federal government and taxpayers. As the chair of 
Crowell & Moring's government contracts group, the Coordinator 
of the Defense Industry Initiative on Business Ethics and 
Conduct and the former Administrator of the Office of Federal 
Procurement Policy at the Office of Management and Budget, I 
work with government contractors effected by SBA's inaction--
every day. What we have started to see is a dramatic increase 
in compliance questions related these unimplemented provisions. 
Businesses are concerned and confused by SBA's failure to 
implement a number of NDAA provisions. This legal uncertainty, 
and the resulting increased compliance costs, need not exist.

    Subcontracting Limits

    In a much needed reform, the NDAA modified the Small 
Business Act to add a new provision relating to limitations on 
subcontracting for federal prime contracts awarded to small 
businesses under ``set-aside'' programs. So, for example, when 
a federal procurement is ``set-aside'' for competition among 
small businesses, the winning small business prime contractor 
is restricted from subcontracting more than a certain 
percentage of the amount paid by the federal government to a 
large business. For service contracts awarded as a ``set-
aside'', the new statute provides that the small business prime 
contractor ``may not expend on subcontractors more than 50 
percent of the amount paid to'' the small business prime 
contractor by the federal government.\1\ The new NDAA statutory 
provision is a meaningful change in two ways. First, the 
limitation on subcontracting regulations for many years (and 
still existing in the current unmodified form) require small 
business prime contractors awarded a prime contract on a set-
aside basis to agree that ``[a]t least 50 percent of the cost 
of contract performance incurred for personnel shall be 
expended for employees of'' the small business prime 
contractor.\2\
---------------------------------------------------------------------------
    \1\ 15 U.S.C. Sec. 657(s)(a)(1) (2014).
    \2\ 48 CFR 52.219-14(c)(1) (emphasis added).

    In practice, what constitutes the ``cost of contract 
performance'' for personnel has been impossible to understand 
or implement. So for example, if a small business prime 
contractor was awarded a $100,000 contract to maintain trucks 
at a military base and the small business prime contractor 
wants to subcontract engine maintenance to a large business, 
the small business prime contractor would have to convert the 
firm fixed price into a ``cost of performance'' metric and 
compare their cost of performance for personnel to the cost of 
performance of the large business subcontractor. No one (the 
businesses or the government) really knows if they are 
administering the limitations on subcontracting correctly and 
this uncertainty has led to many disputes with the government 
and between prime and subcontractors. Fortunately, the NDAA 
changed this vague requirement into a simple calculation. In 
our example, the small business prime contract awarded a set 
aside contract could subcontract $50,000 of the award to a 
---------------------------------------------------------------------------
large business--simple and easy to administer.

    The problem, however, is the SBA's failure to implement new 
regulations consistent with the new NDAA limitations on 
subcontracting statutory provision. A new contract (executed by 
a federal agency today) would contain the old regulation (FAR 
52.219-14) which requires the contractor by contract term to 
ensure that ``[a]t least 50 percent of the cost of contract 
performance incurred for personnel [is] expended for employees 
of'' the small business prime contractor. The contract clause, 
however, does not exempt the small business prime contractor 
from also complying with the new NDAA statutory provision on 
limitations on subcontracting. Compliant and diligent small 
business are left in the position of implementing two 
inconsistent provisions, a statute that allows them to 
subcontract 50% of the amount they are paid and a contract 
clause which requires them to perform 50% of the cost of 
performance with their own employees.\3\ This inconsistency is 
adding millions of dollars to compliance costs for small 
businesses.
---------------------------------------------------------------------------
    \3\ In accordance with 41 U.S.C. 429-431, commercial item contracts 
and contracts below the simplified acquisition threshold are likely not 
subject to the new NDAA statutory provision until a determination is 
made by the Federal Acquisition Regulatory Council as to their 
applicability.

    Second, the new statute allows a small business prime 
contractor winning a set-aside contract to subcontract any 
amount of work to similarly situated small business. Under the 
existing regulation, with minor exceptions, the limitation on 
subcontracting applies to subcontracts with both large and 
small businesses. So a small business prime contractor winning 
a ``set-aside'' award has significant limitations on the amount 
of work that could be subcontracted to another small business--
treating subcontracts with large business the same as 
subcontracts with small businesses. The regulation also 
prevents joint ventures among small businesses where for 
example 45 percent of work would be completed by one small 
business in a joint venture, 45 percent by another small 
business in that joint venture, and only 10 percent 
subcontracted to outside business entities. The NDAA clarified 
this restriction with a simple rule that would allow the prime 
small business subcontractor to subcontract any dollar amount 
---------------------------------------------------------------------------
to a similarly situated small business.

    SBA needs to immediately begin this rulemaking process to 
resolve the uncertainty and improve the business climate. 
First, the SBA needs to change its regulations to reflect the 
laws Congress explicitly changed.\4\ That action will spur the 
Federal Acquisition Regulation Council to change the FAR's 
limitation on subcontracting clause.\5\ Neither of these 
entities has taken action, and that failure is increasing the 
cost of doing business with the government.
---------------------------------------------------------------------------
    \4\ 13 C.F.R. 125.6(a).
    \5\ 48 C.F.R. 52.219-14.

---------------------------------------------------------------------------
    Other Unimplemented Reforms

    Small Business Opportunities Website

    Finding federal contracting opportunities can be an 
intimidating proposition. Even large contractors with hundreds 
of federal contracts under their belt have questions about the 
intricacies of the process. For small businesses, especially 
those that have never competed for these contracts, finding 
federal opportunities can be doubly hard. Faced with that 
complexity, many small businesses are deterred from the process 
altogether.

    To help allay those fears, Congress mandated that SBA 
establish a website to allow large businesses to post 
subcontracting opportunities for small businesses.\6\ SBA has 
not yet implemented that requirement, and thus, it has denied 
small businesses from having a user-friendly means to access 
and compete for federal subcontracts. Not only should SBA 
implement such a website, but it should also expand the 
website's reach by allowing existing small business prime 
contractors to access the forum to post their own 
subcontracting opportunities. SBA has still not completed this 
relatively simple act, and is depriving small businesses of the 
access to contracting opportunities that Congress hoped to give 
them.
---------------------------------------------------------------------------
    \6\ 15 U.S.C. 637(k)(1) (2014).

---------------------------------------------------------------------------
    Mentor-Protege Program

    In another attempt to encourage inexperienced small 
businesses to compete for federal contracts, Congress 
established a mentor-protege program--pairing small businesses 
with larger, more experienced federal contractors.\7\ Congress 
tasked SBA with outlining the requirements for the program, 
including which contractors would be eligible for the program 
and the types of assistance mentors could provide their 
proteges.\8\ If properly implemented, this program could 
significantly expand the number of small businesses actively 
competing for government contracts. However, without SBA 
implementation, the program will never materialize. Congress 
gave SBA 270 days to issue regulations governing this 
program;\9\ today, 562 days later, SBA has still not done so.
---------------------------------------------------------------------------
    \7\ 15 U.S.C. Sec. 657(r)(a)(1) (2014).
    \8\ 15 U.S.C. Sec. 657(r)(b)(3)(A-J) (2014).
    \9\ 15 U.S.C. Sec. 657(r)(b)(3) (2014).

    Safe Harbor for Good Faith Efforts to Comply with Size 
---------------------------------------------------------------------------
Regulations

    Prior to the NDAA, well-meaning small businesses that 
misinterpreted the complex small business size regulations 
could be convicted of fraud, subjecting them to fines of up to 
$500,000 and 10 years of imprisonment for misrepresenting their 
status as a ``small business concern.'' \10\ Recognizing that 
this rule might inadvertently punish successful and honest 
small businesses trying to comply with size restrictions, 
Congress mandated that SBA to create a ``safe harbor'' process 
for small businesses to obtain a written advisory from a Small 
Business Development Center for Procurement Technical 
Assistance Center for good faith attempts to comply with these 
size regulations.\11\ Congress gave SBA 270 days to issue rules 
defining the contours of this provision;\12\ today, 562 days 
later, SBA has only found the wherewithal to issue a proposed 
rule for public comment. It is difficult to fathom why SBA, 
taking the effort to draft and issue proposed rule for comment, 
did not simply issue the rule as an immediately effective 
interim rule. By issuing a proposed rule, the harshness of 
potential penalties remains for an unlimited period of time.
---------------------------------------------------------------------------
    \10\ 15 U.S.C. Sec. 645(d) (2014).
    \11\ National Defense Authorization Act for FY 2013, Pub. L. No. 
112-239, Sec. 1681(a) (2012).
    \12\ Id., at Sec. 1681(b).

---------------------------------------------------------------------------
    Other Reforms

    Recognizing the complexity of the federal contracting 
process, Congress mandated that SBA create a compliance guide 
for small businesses attempting to determine their size status. 
This guide would ``assist business concerns in accurately 
determining their status as a small business concern'' to 
prevent inadvertent fraudulent misrepresentations.\13\ A 
relatively straightforward task, Congress gave SBA 270 days to 
conduct this revision;\14\ today, 562 days later, SBA has not 
taken any action.
---------------------------------------------------------------------------
    \13\ Id., at Sec. 1681(c).
    \14\ Id.
---------------------------------------------------------------------------
    Congress mandated that SBA issue clear guidance listing the 
Administration's standard operating procedures for suspension 
and debarment, as well as publicizing the name of the ``senior 
individual responsible for suspension and debarment 
proceedings.'' \15\ Congress gave SBA 270 days to take these 
simple actions;\16\ today, 562 days later, SBA has not issued 
any guidance. SBA, however, continues to actively suspend and 
debarment companies and individuals without standard operating 
procedures.
---------------------------------------------------------------------------
    \15\ Id., at Sec. 1682(c).
    \16\ Id.

---------------------------------------------------------------------------
    Conclusion

    If SBA continues to withhold these regulations, federal 
contractors may have legal standing to sue the SBA over its 
failure to act. The Administrative Procedure Act, which governs 
agency rulemaking procedures, allows a court to compel an 
agency to act if the agency has ``unlawfully withheld'' or 
``unreasonably delayed'' \17\ some ``discrete agency action 
[the agency] is required to take.'' \18\ Such failure to act, 
the Supreme Court has made clear, includes ``the omission of an 
action without formally rejecting a request--for example, the 
failure to promulgate a rule or make some decision by a 
statutory deadline.'' \19\ SBA has failed to promulgate the 
rules that Congress mandated that it promulgate. SBA was under 
a clear legal obligation to issue several sets of regulations 
within 270 days; its inaction for nearly twice that amount of 
time constitutes both an unlawful withholding and an 
unreasonable delay. But what small business has the money to 
launch such legal action?
---------------------------------------------------------------------------
    \17\ Administrative Procedure Act Sec. 706(1); see also 
Administrative Procedure Act Sec. 551(13) (stating that agency action, 
under the APA, is defined to include ``the whole or a part of an agency 
rule, order, license, sanction, relief, or the equivalent or denial 
thereof, or failure to act'') (emphasis added).
    \18\ See Norton v. S. Utah Wilderness Alliance, 542 U.S. 55, 64 
(2004) (emphasis in original).
    \19\ Id., at 63.

    The Small Business Administration's mission is to ``aid, 
counsel, assist and protect the interests of small business 
concerns.'' \20\ SBA's failure to act is crippling the very 
small businesses it is supposed to protect and assist. Congress 
enacted common-sense reforms in the NDAA--reforms that (1) 
clarify the complex limitations on subcontracting, (2) allow 
small businesses to team to more effectively, (3) eliminate 
regulatory compliance burdens, and (4) provide opportunities 
for new small businesses to get into the government contracting 
business. SBA's failure to act has denied these benefits to 
federal contractors large and small, resulting in 
inefficiencies and lost opportunities for economic growth.
---------------------------------------------------------------------------
    \20\ U.S. Small Business Administration, Mission (June 10, 2014), 
http://www.sba.gov/about-sba/what--we--do/
mission.

    This concludes my prepared remarks. I am happy to answer 
any questions you may have.

[GRAPHIC] [TIFF OMITTED] 

    Testimony of Charlotte Baker, CEO, Digital Hands, on behalf 
of Women Impacting Public Policy to the House Small Business 
Subcommittee on Contracting and Workforce

    Chair Hanna, Ranking Member Meng, and distinguished Members 
of the Subcommittee, thank you for the opportunity to testify 
this afternoon.

    My name is Charlotte Baker and I am CEO of Digital Hands. I 
also serve on the Education Foundation Board of Women Impacting 
Public Policy (WIPP). Based in Tampa, Florida, Digital Hands 
provides IT services to large enterprise companies as well as 
public entities--in essence, helping them in their ongoing war 
against growing cyber-threats.

    I am here today representing Women Impacting Public Policy 
(WIPP). WIPP is a national nonpartisan public policy 
organization advocating on behalf of its coalition of 4.7 
million business women including 75 business organizations. 
WIPP plays a key role in developing women-owned businesses into 
successful federal government contractors through its Give Me 5 
and ChallengeHER programs.

    The title of the hearing sums up our testimony today. 
``Action delayed: Small Business Opportunities Denied'' is the 
reason the women-owned business community needs the Small 
Business Administration (SBA) to implement Sec. 1651 of P.L. 
112-239 as soon as possible. This provision should be a top 
priority for the agency tasked with assisting our community, 
because it allows small businesses to work together on federal 
contracts without unnecessary subcontracting restrictions. 
Moreover, women-owned companies like mine can better take 
advantage of the Women-Owned Small Business Federal Contract 
Program, because prime contractors will have greater 
flexibility to subcontract with other women-owned contractors.

    While many small business provisions of P.L. 112-239 affect 
contracting, Section 1651 focuses on subcontracting 
requirements. The section makes an important change--that the 
50% prime contractor work requirement on set-aside contracts is 
made on the basis of total contract dollars rather than based 
on the current method of labor costs. This change ensures that 
the majority of dollars set-aside for a small business goes to 
that small business.

    Within this section, however, is subsection ``(b)'', which 
focuses on an exemption to this requirement for ``similarly 
situated entities.'' This change, in particular, will increase 
the ability of small businesses to work together on federal 
contracts.

    The Importance of Implementing ``Similarly Situated 
Entity'' Provisions

    For my company, and many other women-owned businesses, the 
``Similarly Situated Entities'' provision will reduce barriers 
to contracting. For purposes of definition, a ``similarly 
situated entity'' is a WOSB prime contractor winning a WOSB 
set-aside contract and subcontracting work to another WOSB 
firm. Another example is a small business prime contractor 
winning a small business set-aside and subcontracting to 
another small business.

    For businesses new to procurement, subcontracting is often 
the first step toward entering the federal marketplace. In its 
description of subcontracting, the SBA goes so far as to call 
it, ``a great way to `get a foot in the door' of government 
contracting.'' \1\ Statute, however, places limits on the 
amount of work subcontractors can perform.
---------------------------------------------------------------------------
    \1\ U.S. Small Business Administration. ``Sub-Contracting.'' http:/
/www.sba.gov/category/navigation-structure/contracting/contracting-
opportunities/sub-contracting. Accessed May 25, 2014.

    The ``Similarly Situated Entities'' provision of Section 
1651 would change that requirement for small businesses with 
similar designations. This is a change WIPP advocated for 
before this Committee. On October 6, 2011, Board Chair Jennifer 
Bisceglie urged the Committee to change it and this Committee 
---------------------------------------------------------------------------
shepherded this change through the Congress.

    Again, current law requires that at least 50% of any 
contract dollars awarded through a small business contracting 
program go to that small business. This ensures that contracts 
set-aside for certain groups (e.g. Small Business, WOSB/EDWOSB, 
HUBZone, 8(a), SDVOSB) ultimately go to businesses of that 
type--and are not rerouted to other designations or large 
contractors.

    Provision (b) of Section 1651 permits subcontracting of any 
amount when the subcontractor is a ``similarly situated 
entity.'' Once it is implemented, an EDWOSB may subcontract any 
amount to another EDWOSB. This is a change we strongly support 
because: 1) dollars awarded remain with companies who have the 
same set-aside designation and 2) access to contract 
competition for small businesses is increased. As we continue 
to respond to federal opportunities, these elements are 
critical.

    Benefits of ``Similarly Situated Entities'' Provision in 
Section 1651: Digital Hands Example

    The delayed implementation of this ``similarly situated 
entity'' provision has negatively impacted the WOSB community. 
Digital Hands' recent experience is a clear example of why this 
is so important.

    Several months ago, a significant Information Technology 
(IT) requirement was posted as a set-aside opportunity for 
EDWOSB competition. Digital Hands and another EDWOSB planned to 
work together. The other EDWOSB, the prime, was to provide 
logistical support and access to a Federal Supply Schedule 
(FSS), while Digital Hands was to subcontract to provide an 
innovative technology solution. In this case, Digital Hands' 
subcontracting work would have resulted in a much higher total 
labor cost as it would have necessitated the placement of 
highly trained IT security personnel to meet the agency's 
requirements.

    While the majority of the hourly work would be provided by 
the prime through its lower cost technicians, the bulk of the 
labor cost of the work would be from the sub, i.e., more highly 
trained, higher paid, IT personnel. Digital Hands was 
eliminated from bidding on this project because of the current 
subcontracting rule. The 50% limit effectively prohibits such 
an arrangement.

    Under provision (b) of Section 1651, such partnerships 
would be allowable--effectively securing the entire contract 
for the targeted small business companies in the determined 
set-aside category and increasing access to the federal 
marketplace for the subcontractor. Both of these are stated 
goals of the program. However, as this rule has yet to be 
promulgated, EDWOSB's, like Digital Hands, are very limited in 
our ability to team with other women-owned companies or for the 
matter, any small companies.

    My recommendation is simple: urge the SBA to implement this 
provision as quickly as possible to bring these necessary 
changes that impact businesses who are the economic engine in 
the United States. Thanks to this Committee's leadership, 
Congress passed the change; now, the SBA needs to implement it. 
The longer the delay, the more that all small businesses will 
continue to miss out on opportunities.

    Thank you for providing a forum to present at this hearing 
today and for your efforts to make the contracting environment 
better for women-owned businesses. Hopefully my story will 
expedite the enforcement of this rule. I am happy to answer any 
questions.

    About Digital Hands

    Digital Hands is a certified woman-owned small business 
(EDWOSB), providing IT operations support with core 
capabilities in cyber security, infrastructure management and 
help desk. The company provides solution architecting, 
strategic sourcing, deployment, and ongoing operational 
support. A key differentiator of Digital Hands is the company's 
ability to develop innovative service solutions around emerging 
technologies as well as having two service models; a remote 
model (from secure onshore locations) and the traditional 
customer on-premise service model. Digital Hands leverages the 
cloud to reach global clients and provide Tier 1 through Tier 3 
support services, on a 24x7x365 basis, for complex IT 
environments.

    Some of North America's largest airlines, telecoms, 
financial services companies, and hotel chains rely on Digital 
Hands' SLA-based managed IT and security services every day. 
The company offers business model alignment that caps risk and 
optimizes costs. In addition, Digital Hands provides reliable 
and predictable IT operations support that allows organizations 
to focus on core business needs.

    The company has received numerous awards from the 
Technology Services Industry Association, including the 2013 
TSIA Star Award for ``Innovation in the Delivery of Managed 
Services'' and 2011 for ``Complex Application Support'' and, 
previously, ``Best Practice Awards--Customer Commitment'' and 
``Service Excellence--Integrated Services.''
                              TESTIMONY OF


                              LARRY ALLEN


                               PRESIDENT


                    ALLEN FEDERAL BUSINESS PARTNERS


                     House Small Business Committee


                             July 15, 2014

    Good afternoon, Mr. Chairman and Members of the Committee. 
I am honored to be here this afternoon to discuss the pace of 
the Small Business Administration's implementation of three key 
small business provisions that became law upon the passage of 
the National Defense Authorization Act (NDAA) of 2013. Thee 
provisions are intended to provided clarity and protection to 
small firms doing business with the US government. Delays in 
establishing rules through which the implementation of the 
legislation is executed harm the small businesses that Congress 
wanted to protect by passing the original legislation.

    I have worked in government procurement and contracting for 
25 years. During that time I have worked with thousands of 
small firms that sell to the US government as either a prime or 
subcontractor. I have both extensive policy and business 
planning experience. When President of the Coalition for 
Government Procurement, I was privileged to work on legislation 
such as the Federal Acquisition Streamlining Act, Clinger-Cohen 
Act and legislation requiring Federal Prison Industries to 
compete more evenly with small businesses. I have advocated for 
a level playing field for small firms throughout my 
professional career and, as a small business myself, continue 
to work for a federal business climate that promotes common 
sense.

    The federal government relies on small business contractors 
to make it possible for agencies to meet their missions. Small 
businesses help ensure that programs assisting low income 
households have the money they need to feed their families. 
Small firms help provide for the national defense. Others 
perform critical, cutting edge research that will help solve 
problems in healthcare and technology that many of us do not 
know yet exist.

    The diverse nature of small firms doing work with federal 
agencies makes it essential that the rules governing this 
business are as clear and well-known as possible. Today's small 
business supplier base includes firms with substantial federal 
experience as well as those just entering the market. 
Experienced firms need to know if the ground beneath them is 
shifting, while new market entries need to ensure they have a 
good map in the first place.

    I am here today to discuss Sections 1681, 1682, and 1683 of 
the FY'13 NDAA. Collectively, these laws will limit the 
liability of companies receiving advice from federally-
supported entities on government contracting matters, provide 
greater clarity about small business suspension and debarment 
procedures, and provide this body with additional reporting on 
that process to ensure the fair treatment of small business 
government contractors.

    Section 1681

    Section 1681 establishes Safe Harbor protections for small 
businesses that rely on advice given by either Procurement 
Technical Assistance Centers (PTAC's) or Small Business 
Development Centers (SBDC's). PTAC's provide local, in-person 
counseling and training services for small business owners. 
SBDC's provide services through professional business advisors 
such as the development of business plans; manufacturing 
assistance; financial packaging and lending assistance, and 
other services small firms need to become successful. These two 
organizations work in tandem with the US Small Business 
Administration to offer assistance to small firms seeking 
information on how to get established as a government 
contractor. Information on both PTAC's and SBDC's can be found 
on the SBA's own web site. Small businesses that take advice 
from these organizations implicitly believe that it is correct 
and has the support of an agency of the United States 
government behind it.

    Yet, without the implementation of Section 1681 small 
contractors could find themselves in significant trouble if 
they act based on recommendations of an SBDC or PTAC that are 
inconsistent with established procurement rules. There are many 
centers dispensing advice to small firms of all kinds and, 
despite the best intentions of those involved, it is very 
possible that either incorrect or incomplete information could 
be dispensed. If, though, a company believes that it has 
received correct advice from an organization to which a US 
government agency directed it, and acts on it, it could be in 
violation of a host of federal procurement rules. Without the 
protections envisioned by Section 1681, small firms that 
inadvertently fall into non-compliance could find themselves 
exposed to government audits, investigations or whistleblower 
actions.

    The myriad federal contract oversight organizations 
ensuring contract compliance are extremely active in the 
current market. I spend a significant amount of time in my 
business explaining government contract compliance to clients 
and emphasizing its importance. The need to ensure strict 
contract compliance can best be summarized by my current motto: 
``When selling to the government, it's not about how much money 
you make, it's about how much you keep.''

    Failure to properly follow applicable laws and regulations 
can have a significant negative impact on a small firm's 
ability to operate. Under the Civil False Claims Act, for 
example, the government is entitled to triple the amount of 
monetary damages it actually incurred, in addition to an 
$11,000 per invoice fine. Once a small firm that has committed 
a False Claims Act violation is through with the litigation, 
fines, and attorney's fees associated with a negative action, 
it may find that its very viability has been compromised.

    The Safe Harbor provisions of Section 1681 would protect 
small firms from the worst penalties if their violations were 
caused due to reliance on faulty information provided by a PTAC 
or SBDC. Violators would not be off the hook for all problems, 
but rather have limited liability for any portion of their 
violations that came from advice supplied by a PTAC or SBDC.

    Section 1681 calls for the SBA to establish a process by 
which small businesses receiving information and advice from 
PTAC's and SBDC's would receive a standard letter noting that 
the business has some limited legal protection if advice from 
the organization relied upon turns out to be incorrect. As with 
any other issue surrounding government contracting, having a 
written determination on government letterhead is essential if 
proper protection is to be provided contractors during an audit 
or investigation.

    Having a standard, transparent, consistent practice for the 
issuance of such letters is critical if Section 1681 is to 
operate as intended. SBDC's and PTAC's are operated by a wide 
array of organizations in over 1,000 locations throughout the 
world. A common standard, therefore, is essential to ensure 
that all businesses operate on an equal platform and have the 
protections intended no matter where a firm is doing business.

    One particularly important matter where accurate guidance 
is needed is on the matter of whether a particular business can 
actually be considered ``small''. As the Committee is aware, 
the regulations governing business size are complex and vary 
widely. While intended to be an objective standard, the nature 
of business and commercial market evolution injects a 
considerable degree of subjective judgment into the proper 
identification of some companies. Section 1681 recognizes this 
reality by requiring that the SBA issue a Compliance Guide to 
assist in ensuring that companies are properly classified. This 
Guide could be a valuable tool to reduce the chances that a 
firm would be improperly classified.

    As the Committee is certainly aware, being mis-categorized 
as a small firm can lead to significant negative consequences 
for a business. Just some of the penalties that can be levied 
include contract cancellation, post-award contract audits, 
negative performance evaluations and, of course, suspensions 
and debarments. Companies that could have been protected from 
these penalties by the issuance of the Guide called for in 
Section 1681 are still in as much risk as they were before the 
law was passed.

    Despite the obvious benefits to small firms of having the 
protections provided for in Section 1681, the SBA has yet to 
promulgate a rule implementing it. Congress is now far down the 
road on completing the NDAA for FY'15, meaning that nearly two 
years have lapsed since the implementation of the FY'13 
measure. Small businesses continue to be exposed to potential 
litigation and other negative actions today due the agency's 
inability to move forward. Put another way, the SBA's inability 
to act is costing small firms money and placing them in 
unnecessary risk.

    Section 1682

    As noted above, among the penalties at the government's 
disposal to discipline inappropriate contractor behavior are 
suspension and debarment. These penalties are, quite rightly, 
referred to as the ``death penalty'' by some in the federal 
contracting world. A federal suspension or debarment brings all 
of a company's public sector work to a halt at the federal, 
state, and local government levels and as either a prime or 
sub-contractor.

    Suspensions and debarments are currently increasing. Just 
last month, the Government Accountability Office issued a 
report showing that such actions have more than doubled 
government-wide since 2009. Ironically, the same report 
identified improvements made in six government agencies to 
bring consistency and transparency to the suspension and 
debarment process, something the SBA is specifically supposed 
to do per Section 1682. The GAO noted the positive progress in 
the agencies it tracked, making a lack of progress at the SBA 
more notable.

    Section 1682 calls on the SBA to issue new suspension and 
debarment regulations within 270 days of enactment of the 
original bill. Similarly, new Standard Operation Procedures 
(SOP's) were to be developed in the same timeframe. Among the 
latter was a requirement that the name of a specific Suspension 
and Debarment Officer (SDO) be identified.

    We are now significantly beyond the 270 day limit. Without 
newly issued rules, two things are happening in the small 
business world. First, companies wrongly identifying themselves 
as small, but working under a contract as a small business, 
have an easier time fighting suspension or debarment 
proceedings. This is in part the case because the provisions in 
Section 1682 allowing contracting officers to take such an 
action regardless of whether the firm is providing satisfactory 
work have yet to be implemented.

    Secondly, truly small firms are suffering from the lack of 
a consistent, transparent suspension or debarment process from 
the agency charged with protecting and promoting their federal 
market participation.

    Neither of these outcomes can be called acceptable. The 
consequences of a suspension or debarment action can be truly 
business-ending. This is why such proceedings have 
traditionally been above the political fray and carried out in 
a clear cut manner. There simply must be an updated, standard 
set of procedures that the SBA will follow when its officials 
literally hold the life or death of a firm in their grasp.

    Other agencies have taken necessary steps to improve their 
processes, even in the absence of specific legislative guidance 
to do so. These recent actions have created a set of real-time 
best practices that the SBA could draw upon to establish their 
own rules. Congress passed Section 1682 with the intent to 
protect small businesses, whether it be from competition from 
firms that are not actually small or from patchwork suspension 
and debarment practices that can lack transparency and insert 
subjectivisim into the suspension or debarment process.

    As a result of the SBA's inaction, small businesses may 
actually be treated more fairly at other agencies.

    Section 1683

    This section requires that the SBA issue an annual report 
to Congress on suspension and debarment activities. The SBA 
oversees many types of small firms doing business with the 
government, including companies with special socio-economic 
designations. There are special precautions that must be taken 
when moving against such firms and Congress is right in wanting 
to review agency actions in this area to ensure that all firms 
are treated fairly.

    As with Section 1682, while the initial intent may have 
been to suspend or debar companies improperly calling 
themselves ``small'', this section also has the ability to 
protect actual small firms from inconsistent processes. 
Including specifics such as the number of companies proposed 
for suspension, the number actually suspended, and the reasons 
for such actions, as Section 1683 does, gives Congress a fuller 
understanding of what is happening in this important area. 
Other provisions in this section will provide information on 
how the SBA is working with its Office of the Inspector General 
and the Department of Justice, to ensure positive procurement 
outcomes. If these reports work as intended the information in 
them may actually result in fewer companies being penalized if 
they can use the information to better understand what it is 
that gets firms in trouble in the first place.

    In addition, properly used, the information in the report 
can be used to help Congress make future decisions on 
safeguards, preferences, goals or other public policy measures 
that impact the manner in which small businesses sell to 
government agencies. Should, for instance, small firms be 
subject to the same monetary penalties as a much larger 
business? The answer to that and other questions may come from 
the information provided in an annual report. If the report 
shows that today's monetary fines are overly punitive on small 
firms, thus driving some out of the market or keeping others 
from coming in, Congress could change the rules for small firms 
if it believed that doing so would be in the government's best 
interest.

    Conclusion

    Our firm recommends that Congress continue to provide 
oversight on the SBA's lack of progress in implementing these 
three key elements of the 2013 NDAA and take steps to hold 
senior agency officials accountable for this inaction. Small 
firms are not getting the benefit of the protections originally 
envisioned. Businesses that are not truly small are still 
competing with legitimate businesses for small business work. 
Due to these, and other lapses at the SBA, small businesses are 
not receiving the support Congress envisioned. As a result, 
those small firms that are conducting business must often face 
an uphill battle, while others simply stay out of the market 
due to their inability to crack the code. This, ultimately, is 
not in the government's best interest as it deprives it of 
unique and cutting edge solutions.

    Thank you for your time and attention. I look forward to 
your questions.
                          Testimony of

                         Damien Specht

                        Special Counsel

                      Jenner & Block, LLP

Co-Chair, Government Contracts Corporate Transactions Practice 
                             Group

           BEFORE THE UNITED STATES HOUSE OF REPRESENTATIVES


                      COMMITTEE ON SMALL BUSINESS


               SUBCOMMITTEE ON CONTRACTING AND WORKFORCE


   Regarding ``Action Delayed, Small Business Opportunities 
 Denied: Implementation of Contracting Reforms in the FY 2013 
                             NDAA''

                         July 15, 2014
    Chairman Hanna, Ranking Member Meng and Members of the 
Subcommittee, thank you for the invitation to appear today. it 
is a privilege to share my views on the issues facing small 
business government contractors with all of you. Before I 
begin, let me state that my comments are my own and I am not 
speaking on behalf of my law firm or any specific client.

    My name is Damien Specht, and I am a government contracts 
attorney with the law firm of Jenner & Block here in 
Washington, D.C. My practice focuses on corporate transactions 
and compliance counseling for large and small government 
contractors. Because of my broad-based practice, I have the 
opportunity to work with businesses ranging from 8(a) program 
participants, whose company is just beginning to take off, to 
large prime contractors that have tends of thousands of 
employees. As I am sure you all are aware, all of these 
businesses are keenly interested in the small business policies 
pursued by this body and the Small Business Administration.

    When the 2013 National Defense Authorization Act was 
enacted a year and a half ago, the small business community 
immediately took notice. The initial reaction from my clients, 
and the opinion I share, is that the legislation is a ``mixed 
bag'' for small government contractors, but that much will 
depend on how the legislation is implemented by the SBA.

    In my limited time, I would like to address three reforms 
presented, but not yet fully implemented, from the 2013 NDAA.

                     SBA's Mentor-Protege Programs


    From my perspective, the most important change in the 2013 
NDAA relates to SBA's mentor-protege program.

    One of the major benefits of SBA's mentor-protege program 
is that it closes the gap between customer needs and small 
business capabilities. Many of the small contractors I work 
with report difficulty convincing large prime contractors or 
government customers that they can successfully perform 
technically challenging or large-scale work. Even when they are 
successful in capturing a large award, small firms face 
challenges in quickly creating the contract administration, 
supply chain and compliance infrastructure required to comply 
with government contracts regulations.

    Those facts likely sound familiar to the members of this 
subcommittee. There is, however, another aspect to this 
problem. With the increasing pressure to meet small business 
subcontracting goals and achieve strong past performance 
reviews, large business contractors are constantly pursuing 
reliable small business subcontractors. These large contractors 
report difficulty finding the advanced capabilities and track 
record of success they need in a key small business 
subcontractor. After all, it is not enough merely to put a 
small business subcontractor on your team: Successful contract 
performance by that subcontractor is vital.

    That is where SBA's mentor-protege program is invaluable. 
Partnering mentors with 8(a) small businesses gives the small 
business the chance to leverage the mentor's experience and 
understand what infrastructure is needed to reach the next 
level. Mentors benefit by gaining a trusted small business 
partner that, in time, can be used for more sophisticated work. 
The ability of the mentor and protege to pursue contracts 
together as a joint venture is a necessary ingredient to 
cementing the benefits for both parties.

    Currently, these benefits are limited to a very narrow 
group of small businesses. For a small business to qualify as a 
protege under the SBA mentor-protege program, it must be an 
8(a) concern that (1) is in the developmental stage of program 
participation; or (2) has never received an 8(a) contract; or 
(3) has a size that is less than half the size standard 
corresponding to its primary NAICS code.

    Because I believe that the SBA mentor-protege program has 
been a success, I was pleased to see language the Small 
Business Jobs Act of 2010 expanding the program to the Service 
Disabled Veteran-Owned, HUBZone, and Women-Owned Small Federal 
Contract Business Programs and, in Section 1641 of the 2013 
NDAA, authorizing expansion to include all small business 
concerns. Although SBA has stated that it will make it a 
priority to issue regulations establishing the three newly 
authorized mentor-protege programs set out in the 2010 Small 
Business Jobs Act, I am not aware of any public statement from 
SBA that it will exercise the 2013 NDAA's authority to further 
expand the program. This has led significant uncertainty in the 
contracting community as to whether the expansion will ever 
happen.

    SBA's delay may be the result of a number of difficult 
issues it must address. For example, does SBA have the 
resources it needs to administer a significantly larger 
program? More specifically, will application processing times 
increase or oversight be weakened by expansion? Because 
contractors face hard deadlines for proposal submission, an 
extended wait for application processing would hamstring 
potential mentor-protege joint venturers and undermine the 
program. Weakened oversight raises its own concerns and may 
limit the benefit of the program to small businesses.

    In addition, the NDAA states that the expanded program 
``shall be identical to the mentor-protege program'' for 8(a) 
concerns. But, as discussed earlier, the current mentor-protege 
program is limited to a small subset of 8(a) concerns that is 
in the earliest stages of the program, has not been awarded an 
8(a) contract or is half the size of its applicable size 
standard. Obviously, these criteria cannot be applied to other 
small businesses that are not 8(a) firms. As a result, SBA 
faces a choice: Should it allow for small businesses to 
participate in the expanded program, which would be 
inconsistent with the current program's focus on only the 
smallest firms, or should it limit the expanded program to 
early-stage small businesses as measured by some other 
yardstick? My own view is that the program was designed for 
early-stage businesses, so limiting proteges to firms that fall 
below half of their relevant size standard would be a good way 
to expand responsibly while focusing on businesses that will 
benefit the most. If that effort is successful, SBA can revisit 
further expansion in future years.

    Another issue is the fact that the current program is time-
limited because 8(a) firms are ineligible for mentor-protege 
joint venture. Under the 8(a) program, a large business mentor 
can perform 60 percent of the set-aside work awarded to a joint 
venture, but this conflicts with the FAR's subcontracting rules 
requiring the small business to perform the majority of the 
work. Whether it does it as part of this rulemaking or another, 
this inconsistency should be addressed by SBA.

    In short, SBA will have a very challenging task 
implementing these changes. These are not questions with easy 
answers, and the position that the agency takes will be 
critical to the future health of what is now an excellent 
program.

                     Other Mentor-Protege Programs


    As effective as I believe the SBA Mentor-Protege program 
is, I do not think there is sufficient information available to 
judge the efficacy of other agency mentor-protege programs. As 
you are aware, a number of agencies have created their mentor-
protege programs that offer to compensate large contractors for 
assisting small businesses and have other benefits, such as 
allowing mentors to apply assistance given to a protege against 
small business subcontracting performance.

    In my experience, few clients are aware of agency mentor-
protege programs. Some that are aware of these programs confuse 
them with the SBA's far more robust program. This can be a 
fatal error because only the SBA's mentor-protege program 
offers an affiliation exemption for a large mentor and small 
protege bidding together as a joint venture. As a result, a 
situation could arise where a protege in ineligible for set 
aside award because it incorrectly believes that another 
agency's mentor-protege program provides a joint venture 
affiliation exception.

    Because of this confusion, I welcome the 2013 NDAA's effort 
to increase uniformity among these programs and assess how they 
relate to the SBA's mentor-protege program. In SBA's 
implementation of this legislation must address a number of 
policy issues:

           The SBA currently imposes a limit on the 
        number of proteges a large business can have and the 
        number of mentors a small business can have. Will these 
        limits apply across all mentor protege programs or will 
        the limits be applied for participants in each program? 
        Given the difficulties of tracking all mentor and 
        protege relationships, I would suggest that any limit 
        be imposed on an agency by agency basis. After all, 
        ensuring every willing protege has a mentor for 
        different aspects of its business can only be 
        beneficial.

           The SBA also limits the number of contracts 
        that the mentor and protege can pursue as a joint 
        venture. If the same mentor and protege participate in 
        multiple programs, should that limit apply to all of 
        their awards? If mentor-protege joint ventures will be 
        allowed in other agency programs, imposing such a limit 
        does not make sense. A higher, cross-program limit 
        could be considered or the three-contract limit could 
        be imposed on a per agency basis.

           Should the joint venture affiliation 
        exception for the SBA mentor protege program apply to 
        other agency programs? If so, what is the scope of the 
        exception? In my experience, this exception is one of 
        the most attractive parts of the program. Expanding the 
        exception will limit confusion and encourage 
        participation in all agency programs, but that should 
        be coupled with aggressive oversight to ensure that the 
        program does not become vulnerable to abuse that will, 
        in the long term, undermine its credibility.

           Similarly, SBA must decide whether other 
        mentor-protege program benefits should be available 
        across all agencies. For example, some agency program 
        offer small business subcontracting credit for costs 
        spent assisting the protege. This encourages the mentor 
        to follow through on its commitments, so I would argue 
        that such efforts should be adopted across the 
        government and added to SBA's program. However, the 
        more uniform the program benefits, the more questions 
        are raised as to why we have separate agency programs 
        at all.

           As discussed above, SBA must also decide who 
        can be a protege in these programs. Many agency mentor-
        protege programs are available to all small businesses 
        while SBA's program is currently limited to 8(a) 
        concerns. This is part of the larger debate I discussed 
        earlier, but I would suggest that having different 
        eligibility criteria for each agency's program is 
        confusing and unnecessary.

    As these issues highlight, we are at a key moment in the 
future of the mentor-protege program at SBA and across the 
government. The goal of this effort should be expanding access 
and increasing clarity with regard to the benefits of entering 
into a mentor-protege relationship. In doing so, however, we 
cannot forget that administration and oversight of these 
programs will require resources for each agency with a program.

                          Limited Safe Harbor


    As I noted earlier, not all the provisions of the 2013 NDAA 
are helpful for small businesses. One of the areas where the 
NDAA falls short is with regard to the safe harbor for size 
misrepresentation. Although Section 1681 of the NDAA required 
the creation of a safe harbor for good-faith reliance on a 
written size opinion from SBA, SBA has only recently issued a 
proposed rule on this topic. More frustrating than the delayed 
rulemaking, however, is the extremely limited scope of the safe 
harbor.

    As you know, the Small Business Jobs Act of 2010 increased 
the penalties for concerns that misrepresent their size or 
status to receive the award of a federal contract to the total 
amount expended by the government under the contract, 
subcontract, grant or cooperative agreement.

    Although the penalty is harsh, it seems easy enough to 
comply with this rule: Don't misrepresent your size. However, 
having litigated size protests in front of SBA's Office of 
Hearings and Appeals, I can tell you that size cases are very 
fact specific and SBA's affiliation rules allow for different 
good-faith interpretations.

    For example, the Office of Hearings and Appeal has held 
that a concern was other than small because it was 18 percent-
owned by a large business, which was more than the next largest 
shareholder at 8 percent.\1\ That case is published, so small 
businesses are, at least in theory, on notice that this 
specific fact pattern is not acceptable. But what if we change 
the facts so that the large business is a 15 percent 
shareholder? Or what if the next largest shareholder holds 11 
percent? How is a small business to predict how the Office of 
Hearings and Appeals would decide that case? It is appropriate 
to impose a penalty of the entire contract value--potentially 
trebled--if the small business guesses wrong?
---------------------------------------------------------------------------
    \1\ Size Appeal of Novalar Pharms., Inc., SBA No. SIZ-4977, at 17-
19 (2008).

    Without an effective regulatory safe harbor to control for 
situations like this, we are asking small businesses to bet 
their company on the accuracy of each and every size 
representation they make. As a practical matter, that risk is 
prejudicial to the very constituency this subcommittee and the 
SBA seek to help. The tremendous risk associated with an 
incorrect representation is also a barrier to entry for small 
firms in the government contracts marketplace. Why would small 
business owners pursue federal business when they could lose 
their business based on a regulatory nuance? For those small 
government contractors who are successful, an ineffective safe 
harbor limits the value of their companies, as possible 
investors will have to factor in the potential for business-
---------------------------------------------------------------------------
crushing losses.

    The 2013 NDAA added a safe harbor for small businesses that 
misrepresent their size in ``good faith reliance on a written 
alert opinion from a Small Business Development Center ... or 
an entity participating in the Procurement Technical Assistance 
Cooperative Agreement Program...'' Unfortunately, SBA's recent 
proposed rulemaking raises real doubt as to whether this safe 
harbor will provide any real benefit to the small business 
community.

    The most fundamental concern I have about this safe harbor 
is that it may never actually be implemented. Although the NDAA 
lists the entities that can issue advisory opinions, it goes on 
to say that ``nothing in this Act shall obligate either entity 
to provide such a letter ....'' In its rulemaking, SBA 
emphasizes this point by giving each individual Small Business 
Development Center (SBDC) or Procurement Technical Assistance 
Center (PTAC) the individual choice whether to offer advisory 
opinions. Moreover, the rule confirms that no additional 
funding will be provided to offices that offer advisory 
opinions. Given the additional work involved, it is not clear 
what incentive individual SBDCs or PTACs will have to issue 
opinions, thus rendering the safe harbor moot. Even if some 
offices choose to issue these opinions, it is not at all clear 
what this patchwork of advisory opinion resources will mean for 
small businesses that are outside the regions generally served 
by a particular office.

    Further, even if an SBDC or PTAC chooses to issue advisory 
opinions, neither SBA's proposed rule nor the 2013 NDAA 
includes a time limit for issuing those opinions. In my 
experience, size determinations often take months. If advisory 
opinions are handled in a similar manner, small businesses that 
want to rely on this safe harbor may be forced to endure an 
open-ended delay in submission of proposals and may miss out on 
procurement opportunities.

    In addition, although SBA's rule provides for a 10-day 
review of advisory opinions by its Office of General Counsel 
(OGC), the proposed rule does not allow a contractor to appeal 
an adverse SBDC, PTAC or OGC decision. Given that size 
determinations are regularly overturned by SBA's Office of 
Hearings and Appeals, small businesses plainly need an 
appellate forum. The rule's failure to provide an appeal 
mechanism puts substantial risk on the small business community 
for possible errors at the SBDC or PTAC level, which a 10-day 
review by the OGC is unlikely to resolve.

    In sum, it is essential that small government contractors--
and small businesses considering entering the federal space--
have the certainty of a safe harbor from the presumed loss 
rule. Without significant revision, however, the currently 
proposed safe harbor is unlikely to meet that need.

                               Conclusion


    In conclusion, I would like to emphasize that large and 
small government contractors need regulatory certainty to plan 
for the coming years. Whether they consider the 2013 NDAA to be 
a positive, negative or a mixed bag, the government contracts 
community is looking forward to working with this subcommittee 
and the SBA to implement these provisions as quickly and 
effectively as possible.

    Thank you for your time and I look forward to your 
questions.
[GRAPHIC] [TIFF OMITTED] 

    Chairman Hanna, Ranking Member Meng, and members of the 
Subcommittee, I am honored to be here today to present SBA's 
ongoing efforts to expand access to federal contracting 
opportunities for America's 28 million small businesses.

    SBA's Office of Government Contracting & Business 
Development oversees the federal government's performance 
against the statutorily-mandated small business prime 
contracting goal of 23 percent. This includes ensuring that 
agencies meet the socio-economic goals of 5 percent for 
socially disadvantaged small businesses (SDBs) and woman-owned 
small businesses (WOSBs), and 3 percent for small businesses 
located in historically under-utilized business zones 
(HUBZones) and service-disabled veteran-owned small businesses 
(SDVOSBs). For federal agencies to meet these goals, they need 
to have the right tools in place. The National Defense 
Authorization Act (NDAA) for fiscal year (FY) 2013 contained 
provisions to provide acquisition personnel resources to help 
small businesses receive approximately $80 billion in contracts 
annually.

    SBA has made significant strides implementing many of the 
provisions included in NDAA 2013. We revised our regulations to 
eliminate the caps on the dollar threshold of contracts that 
could be awarded under the WOSB Federal Contract Program. The 
cap removal will help close the gap between WOSB accomplishment 
and the 5 percent goal. SBA understood the importance of 
eliminating this barrier, and acted quickly to issue an interim 
final rule to implement the change, which was incorporated into 
the Federal Acquisition Regulations last June.

    We continue to review, and update as necessary, all size 
standards. SBA has completed its review of all revenue based 
size standards, and issued an inflation adjustment last month. 
As a result, thousands of more small businesses will be able to 
qualify for Federal contracting opportunities. As we continue 
our reviews of size standards, we have integrated the relevant 
changes from NDAA 2013 into our process.

    Additionally, SBA raised surety bond guarantee limits from 
$2 million to $6.5 million, and allows for bonds up to $10 
million if the contracting officer certifies it is necessary 
for award of the contract. This provides small construction 
companies with the ability to bid on and obtain larger 
construction contracts.

    We are also aware of the importance of senior-level 
accountability to small business contracting goals. We have 
worked with procuring agencies to ensure that senior executives 
receive training on small business contracting and that meeting 
small business contracting goals are part of their performance 
evaluations. SBA's Procurement Center Representatives have also 
incorporated new small business contracting provisions into the 
trainings they regularly provide to contracting officers. We 
continually leverage our work with the Small Business 
Procurement Advisory Council to share best practices and review 
the performance of the Offices of Small and Disadvantaged 
Businesses at the agencies.

    At the beginning of June, SBA submitted a draft rule to the 
Office of Management and Budget's (OMB) Office of Information 
and Regulatory Affairs, authorized by NDAA 2013, which will 
allow small business prime contractors to utilize similarly 
situated small business subcontractors to perform the required 
percentage of work on the contract. This will allow small 
businesses to work together to win contracts that are larger 
and have more complex requirements and that have not 
historically been suited for small business participation.

    In the near future, SBA will publish a rule to implement a 
new Government-wide mentor-protege program. The mentor-protege 
program will be for all small business concerns, including 
socio-economic subcategories of small businesses, consistent 
with SBA's mentor-protege program for participants in SBA's 
8(a) Business Development Program.

    Last month, we published a proposed rule on advisory size 
decisions, which establishes the criteria that small business 
status advisory opinions must meet in order to be deemed 
adequate and specifies the review process for such opinions. 
This rule further amends SBA's regulations to update the 
circumstances under which the Agency may initiate a formal size 
determination.

    SBA continues to review the small business contracting 
goaling guidelines and has now included leasing, to the extent 
reported, which was a category of spend previously excluded, 
into the small business goals. SBA is reviewing the SBA's 
Office of Advocacy recently published recommendations for 
improving the goaling process, and are working with OMB's 
Office of Federal Procurement Policy, General Services 
Administration, and other agencies to determine any future 
improvement to this process.

    At SBA, and across the Administration, we are committed to 
ensuring that more small businesses have access to contracting 
opportunities to grow their businesses and create jobs in our 
communities. As Administrator Contreras-Sweet highlighted in 
her priorities speech last month, ``The SBA will be a `market 
maker' for small companies by opening new business channels 
within the federal government.''

    Thank you for your continued leadership and support, and I 
look forward to your questions.

                                 
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