[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
THE CUMULATIVE BURDEN OF PRESIDENT OBAMA'S EXECUTIVE ORDERS ON SMALL
CONTRACTORS
=======================================================================
HEARING
before the
SUBCOMMITTEES ON INVESTIGATIONS, OVERSIGHT, AND REGULATIONS AND
CONTRACTING AND WORKFORCE
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
SEPTEMBER 13, 2016
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 114-071
Available via the GPO Website: www.fdsys.gov
________
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HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
CHRIS GIBSON, New York
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
CARLOS CURBELO, Florida
CRESENT HARDY, Nevada
WARREN DAVIDSON, Ohio
NYDIA VELAZQUEZ, New York, Ranking Member
YVETTE CLARK, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRENDA LAWRENCE, Michigan
ALMA ADAMS, North Carolina
SETH MOULTON, Massachusetts
Kevin Fitzpatrick, Staff Director
Jan Oliver, Chief Counsel
Adam Minehardt, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Cresent Hardy............................................... 1
Hon. Alma Adams.................................................. 2
WITNESSES
Mr. James P. Hoffman, P.E., President, Summer Consultants, Inc.,
McLean, VA, testifying on behalf of the American Council of
Engineering Companies.......................................... 5
Ms. Donna S. Huneycutt, Co-Owner and Chief Operating Officer,
WWC, LLC, Tampa, FL, testifying on behalf of the National
Defense Industrial Association................................. 7
Mr. Jimmy Christianson, Regulatory Counsel, Associated General
Contractors of America, Arlington, VA.......................... 8
David Madland, Ph.D., Senior Fellow & Senior Advisor to the
American Worker Project, Center for American Progress,
Washington, DC................................................. 10
APPENDIX
Prepared Statements:
Mr. James P. Hoffman, P.E., President, Summer Consultants,
Inc., McLean, VA, testifying on behalf of the American
Council of Engineering Companies........................... 25
Ms. Donna S. Huneycutt, Co-Owner and Chief Operating Officer,
WWC, LLC, Tampa, FL, testifying on behalf of the National
Defense Industrial Association............................. 34
Mr. Jimmy Christianson, Regulatory Counsel, Associated
General Contractors of America, Arlington, VA.............. 39
David Madland, Ph.D., Senior Fellow & Senior Advisor to the
American Worker Project, Center for American Progress,
Washington, DC............................................. 54
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
Statement of Chairman Richard Hanna.......................... 65
THE CUMULATIVE BURDEN OF PRESIDENT OBAMA'S EXECUTIVE ORDERS ON SMALL
CONTRACTORS
----------
TUESDAY, SEPTEMBER 13, 2016
House of Representatives,
Committee on Small Business,
Subcommittee on Investigations, Oversight,
and Regulations,
joint with the
Subcommittee on Contracting and Workforce,
Washington, DC.
The Subcommittees met, pursuant to call, at 10:00 a.m., in
Room 2360, Rayburn House Office Building, Hon. Cresent Hardy
[chairman of the Subcommittee on Investigations, Oversight, and
Regulations] presiding.
Present: Representatives Hardy, Knight, Hanna, Kelly,
Adams, and Lawrence.
Chairman HARDY. Good morning. I would like to call this
hearing to order.
I would like to start by thanking our witnesses, especially
the small business owners who have traveled from different
parts of the country, for being here.
Today, we are going to take a look back at all the
executive actions President Obama has taken throughout his
presidency that have a direct effect on the Federal
contractors. More specifically, we want to examine how these
actions have affected small firms that do business with the
Federal Government.
Throughout this Congress, our full Committee, as well as
several of our Subcommittees, including mine and Mr. Hanna's,
have held hearings highlighting the negative outcomes of
several of these actions, doing our best to defend the small
business community. Regrettably, President Obama either was not
listening, or worse, he simply ignored our appeals.
For example, last September, Mr. Hanna and I held a joint
hearing discussing the negative outcomes small businesses would
have faced should Executive Order 13673, commonly referred to
as ``the Blacklisting rule,'' become final. We received
testimony at that hearing that would undermine the government's
longstanding policy of maximizing contracting opportunities for
small businesses and that it was an opportunity to extort
settlements out of small businesses. These pleas were ignored
by the Department of Labor, and the Blacklisting rule became
final on August 24th.
The Blacklisting rule is one of many new Federal
regulations that have been spawned by the President's decree
hampering economic growth in our small business communities.
Aside from the circumventing of the Congress' legislative
authority, I am particularly concerned that these executive
actions will lead to fewer small businesses participating in
the Federal marketplace.
We need a healthy industrial base with many small
businesses working to provide the government with innovative
goods and cost-effective services. When fewer small businesses
compete for federal contracts, the outcome will be less
innovation and a higher cost to taxpayers.
Regrettably, this exodus has already started. We currently
have 100,000 fewer small businesses registered to do business
with the Federal Government than we did just 4 years ago. This
is not good for the United States.
In meeting after meeting with my constituents back home in
Nevada, and listening to small business after small business
testify before this Subcommittee, I have come to the conclusion
that Washington regulators, and particularly those appointed in
the Obama administration, do not understand how much their
actions affect the day-to-day operations of small firms.
This is unfortunate, and I hope to work with this
administration to make them understand just how difficult they
are making it for small Federal contractors.
We have an outstanding panel here today with us this
morning, and I am very interested in hearing how bad it is
getting out there for our small federal contractors. We will
keep yelling, and maybe the President will finally hear us.
Now I yield to the Ranking Member, Ms. Adams, for her
opening statement.
Ms. ADAMS. Thank you, Mr. Chairman, for holding this
important meeting. To our panelists today, our witnesses, for
your presence and your participation, I thank you as well.
Each year, the Federal Government spends over $400 billion
in taxpayer dollars to pay private companies for goods and
services. In the past, Congress has used this significant
financial might to help drive forward a number of policy goals.
One such policy goal that is a priority for this Committee and
for Congress is the participation of small businesses in the
federal marketplace. As such, we have passed legislation aimed
at ensuring all small businesses get a fair shot at these
projects. Likewise, this Committee has worked in a bipartisan
manner to help women- and minority-owned businesses navigate
the procurement process, recognizing that as the country's
largest consumer of goods and services, the Federal Government
has the ability to use its buying power to advance priorities
important to our Nation.
President Obama signed several executive orders and
presidential memorandum setting standards for contractors doing
good work for the government, and while funds received from
Federal contracts boost local economies and allow firms to hire
more employees, some firms play by their own set of rules to
win these lucrative dollars. As a result, law-abiding
businesses are disadvantaged and pushed out of the marketplace.
Therefore, these executive actions are aimed at leveling the
playing field for all contractors. From ensuring that
contracting officers are looking at labor law violations when
evaluating a firm's responsibility to protecting employees from
discrimination on the basis of sexual orientation and providing
sick leave and a higher minimum wage, these executive actions
cover a wide range of areas to not only protect employees, but
also protect the government from undue risk. So we should be
clear of the businesses that perform work for the government.
The overwhelming majority comply with laws and do right by
their employees while providing excellent goods and services at
competitive prices.
However, this Committee has heard of a number of bad actors
that skirt the law and continue to receive Federal contract
work. For instance, according to one report, almost half of the
total initial penalty dollars assessed for Occupational Safety
and Health Administration violations in 2012 were against
companies holding Federal contracts. However, these businesses
were rarely debarred or suspended from the federal marketplace
as a result of their unsafe working environments.
Labor laws are crucial to a healthy economy. Allowing
habitual violators to continue working with the federal
government without requiring remedies puts employees at risk of
injury and the government at risk of delays and additional
costs.
So with regards to the executive orders on increasing wages
and protecting employees seeking equal pay, studies have shown
that higher wages lead to better quality of services, lower
employee turnover, and more robust bidding by high-road
employers, all of which improve the efficiency and the economy
of federally contracted work.
While these executive actions have resulted or will result
in new processes and procedures for Federal contractors, many
of the changes will fit into the existing procurement process
with the contracting officer using additional criteria to
consider. Yet, as we hear today, many small firms are concerned
with the cumulative impact impacting all executive orders will
have on their businesses. Small businesses provide quality
goods and services at affordable prices, meaning a better deal
for the government and the taxpayer, yet they have smaller
margins, and new regulations can be harder for them to absorb.
With small businesses creating over two-thirds of new jobs, our
economy needs both small businesses and sufficient employee
protections to properly operate. Accordingly, it is important
that we find the balance in which small businesses are not
overly burdened by complying with the guidelines, while not
diluting the protections afforded to law-abiding contractors
through these executive orders.
With that, I look forward to hearing the witnesses'
perspective on these important topics, and I yield back. Thank
you, Mr. Chair.
Chairman HARDY. Thank you, Ms. Adams.
I would like to turn some time over to the chairman of the
Subcommittee on Contracting and Workforce, Chairman Hanna.
Chairman HANNA. Thank you, Chairman. I appreciate it.
I am going to forego my statement today. So much of this is
self-evident and it is often mostly, most of the time it is the
case that witnesses have much more insight, and I do not want
to take up any time to read my statement because I have a lot
of questions and I want to get some feedback and want to take
the time to do it. So thank you, Chairman.
Chairman HARDY. Thank you, Mr. Chairman.
If the Committee members have any opening statements
prepared, I would like to ask that they submit them for the
record.
Now, I would like to explain how things kind of work around
here, which many of you probably already know.
You will have 5 minutes to deliver your testimony. The
light will start out as green. When you have 1 minute
remaining, the light will turn yellow, and finally, when your 5
minutes is up, it will turn red. I ask you to adhere to this
time limit if you could, please.
Now, I would like to introduce our witnesses.
Our first witness is Mr. James Hoffman, president of Summer
Consultants, Inc., a small mechanical, electrical, and plumbing
engineering firm in McLean, Virginia, testifying on behalf of
the American Council of Engineering Companies. He possesses 24
years of experience preparing studies and designs of federal
historic and institutional facilities and complex renovation
projects. Mr. Hoffman is a Project Manager for indefinite
delivery, indefinite quantity contracts with Baltimore District
of the Army Corps of Engineers Naval Facilities, Engineering
Command Washington, and the National Institute of Standards and
Technology. Other past and current federal experience includes
work with the Architect of the Capitol, the 11th Wing of the
Department of the Air Force, and the General Services
Administration. Thank you for being here, Mr. Hoffman.
Up next we have Ms. Donna Huneycutt, Chief Operating
Officer and Co-owner of the Wittenberg Weiner Consulting,
testifying on behalf of the National Defense Industrial
Association, or the NDIA. Prior to joining the WWC, she
practiced business immigration law representing Fleet Boston
Financial and Vertex Pharmaceuticals. Previously, Ms. Huneycutt
practiced corporate law in New York, focusing on private
placement startups and structured finance. She holds a B.A.
from the University of California-Berkeley, and a J.D. from
Columbia University. She is an active member of the Committee
on Acquisition Management and Small Business Division
Legislative Affairs and Policy Team of the NDIA. She co-chaired
the Small Business Committee on Pathways to Transformation,
Response on Acquisition Reform prepared by the NDIA at the
request of the Senate Arms Service Committee and the House Arms
Service Committee. Thank you for being here, Ms. Huneycutt.
Next, we have Jimmy Christianson, Regulatory Counsel for
the Associated General Contractors, or the AGC. Working with
AGC for nearly 6 years, Mr. Christianson lobbies Congress and
federal agencies on transportation authorizations and
appropriations, procurement, public-private partnership, labor,
and environmental bills. He has success in this which he has
led the enactment of favorable provisions in the National
Defense Authorization Act for the fiscal years 2014, 2105, and
2016; the Water Resources Reform and Development Act of 2014;
and various appropriation bills. He also works with the
association members from CEOs of multibillion-dollar companies
to middle managers and business owners to identify, prioritize,
and advance industries' legislative and regulatory agencies. He
received his B.A. from the University of Pennsylvania and his
J.D. from the University of Maine. Thank you for your
participation, and we look forward to hearing from you, Mr.
Christiansen.
Now, I would like to yield to Ms. Adams to introduce our
next witness.
Ms. ADAMS. Thank you, Mr. Chair.
It is my pleasure to introduce Dr. David Madland. Dr.
Madland is a Senior Fellow and a Senior Advisor to the American
Worker Project at the Center for American Progress. He has
written extensively about the economy, including the middle
class, economic inequality, retirement policy, labor unions,
and workplace standards, such as the minimum wage. He has
appeared frequently on television shows, including PBS
NewsHour, and has been cited in publications such as The New
York Times, The Wall Street Journal, and The Washington Post.
Dr. Madland has a doctorate in government from Georgetown
University and received his bachelor's degree from the
University of California-Berkeley. Welcome, Dr. Madland.
Chairman HARDY. Again, I would like to thank you all for
being here.
Mr. Hoffman, we will start with you. You have 5 minutes.
STATEMENTS OF JAMES P. HOFFMAN, P.E., PRESIDENT, SUMMER
CONSULTANTS, INC.; DONNA S. HUNEYCUTT, CO-OWNER AND CHIEF
OPERATING OFFICER, WITTENBERG WEINER CONSULTING, LLC; JIMMY
CHRISTIANSON, REGULATORY COUNSEL, ASSOCIATED GENERAL
CONTRACTORS OF AMERICA; DAVID MADLAND, PH.D.,SENIOR FELLOW &
SENIOR ADVISOR, AMERICAN WORKER PROJECT CENTER FOR AMERICAN
PROGRESS
STATEMENT OF JAMES P. HOFFMAN
Mr. HOFFMAN. Subcommittee Chairman Hanna, Chairman Hardy,
Ranking Member Adams, and members of this Committee, I
appreciate the opportunity to testify before you today about
the issues surrounding the cumulative burden of President
Obama's executive orders on small contractors.
My name is James Hoffman, and I am the President of Summer
Consulting, a mechanical, electrical, and plumbing engineering
firm, headquartered in McLean, Virginia. Summer Consultants is
a small business with 36 people, and we have been in the
federal marketplace for over 50 years.
My firm is an active member of the American Council of
Engineering Companies, the voice of America's engineering
industry. ACEC's over 5,000 member firms represent hundreds of
thousands engineers and other specialists throughout the
country that are engaged in a wide range of engineering work
that propel the Nation's economy and enhance and safeguard
America's quality of life. Almost 85 percent of these firms are
small businesses. ACEC appreciates the efforts that the
Department of Labor and the FAR Council play to ensure
compliance with labor laws. The industry is committed to
following the rules, but the Federal Government must understand
the burdens on the private sector and that the cost is passed
on to the government with duplicative requirements.
The blacklisting rule creates burdens for engineering firms
and other contractors working for federal agencies. While we
understand the rationale behind the order, it should be noted
that the bad actors are less than 0.01 percent of the total
contracting workforce. Let me repeat that, less than 0.01
percent of the total contracting workforce.
The Sick Leave Executive Order also creates unnecessary
administrative and financial burdens on contractors. While the
Council supports paid sick leave, the amount of reporting and
the changes required to implement the rule create more expense
for contractors and the government. Most of the Council's firms
offer equivalent paid sick leave, so the requirement is
repetitive.
These orders create a more burdensome and expensive process
for federal contractors, which drives up taxpayer costs while
driving businesses out of the Federal market. For example, my
firm is a prime contractor and manages many subcontractors.
Under the blacklisting rule, I will have to preclear my
subcontractors before I develop a response. Developing a
response takes time and focus away from other business as I
develop the full scope of the requirements to make sure that
the subcontractors have the business and ethical credentials to
help me win the work. I question that I will be able to consult
with both the contracting officer and the agency labor
compliance advisor to find out if these subcontractors are
okay, and I am concerned about the alleged labor violations, or
violations that are beyond the 3-year period will be held
against my firm or any subcontractors during the solicitation
and within the context of the contract.
My firm already reports compliance with the required rules
and orders up to the applicable agency. Adding another set of
reporting that is duplicative increases my overhead.
Engineering firms across the Nation complain that contracting
officers are looking to reduce firm overhead and expenses in
this tight budget environment.
Under the Sick Time rule, engineering firms also face
increased overhead by mandating employee weekly sick time
reports. This requires new systems and potentially adds
employees to implement the changes, and generally, firms are
typically paid on a monthly or biweekly cycle and report sick
leave and other time off with each pay period. Member firms
respond that implementation costs in the first year are
estimated to be in excess of $50,000, with additional costs in
the subsequent years.
Both these rules will add to the overhead that the
government is already trying to limit. Implementation of these
rules will further add to those overhead expenses, putting
firms in a difficult situation of possibly leaving the federal
marketplace, which dilutes competition for critical services as
taxpayers or adding costs to the agency if the expenses are
accepted.
I ask that the Committee consider asking the FAR Council
and the Department of Labor to withdraw the proposed sick time
guidance and the final blacklisting guidance, to redraft it to
better align with the current contracting process. I also ask
that the members of this Committee support either the House or
Senate NDAA language to limit implementation of the FAR rule
and DOL guidance.
Thank you for the opportunity to participate in today's
hearing, and I will be happy to respond to any questions from
the Committee members.
Chairman HARDY. Thank you for your testimony.
Ms. Huneycutt?
STATEMENT OF DONNA S. HUNEYCUTT
Ms. HUNEYCUTT. Thank you. Good morning.
Subcommittee Chairman Hanna and Chairman Hardy, Ranking
Member Adams, and members of the Committee, thank you for the
opportunity to appear before you this morning.
I am here on behalf of the National Defense Industrial
Association, the Nation's oldest and largest defense industry
association, comprised of nearly 1,600 corporate and 90,000
individual members.
Small businesses are a critical component of the U.S.
economy, serving as a catalyst for economic development,
providing employment opportunities, and as the engine of new
ideas and innovations. Accordingly, the federal government has
established programs to ensure participation opportunities to
small businesses to fulfill the public policy objectives of the
Federal Acquisition Regulation, and access a source of
innovative products and services for federal government
customers. Explicit and implicit in the desired outcomes for
small business programs is achieving effective competition by
maximizing small business participation and enabling small
businesses to grow through diversification of the goods and
services they provide and expansion into the nongovernmental
marketplace.
As outlined at the onset of the FAR, the guiding principles
of the federal acquisition system are to satisfy government
customers by maximizing use of commercial products and
services, utilizing contractors with superior past performance,
and promoting competition. At the same time, the federal
acquisition system shall minimize operation costs, conduct
business with fairness and integrity, and fulfill policy
objectives. The EOs attempt to fulfill the latter two guiding
principles, but in the process, undermine each of the others.
The rationale for the procurement-related EOs have been to
``promote economy and efficiency in procurement'' through their
intended outcomes. Industry does not necessarily disagree with
the logic, but rather, how that efficiency and economy is
achieved. Supporting documentation for the EO on Fair Pay and
Safe Workplaces states, ``The vast majority of federal
contractors play by the rules.'' However, the implementation
approach to each of the EOs punishes that vast majority of good
actors through costly, government-unique compliance
requirements, a particularly inefficient means to promote
efficiency.
The most efficient and economic means to fulfill the policy
objectives of the EOs is to alter government buying practices.
For example, the rationale for the Fair Pay and Safe Workplace
EO is, ``Contractors that consistently adhere to labor laws are
more likely to have workplace practices that enhance
productivity and increase the likelihood of timely,
predictable, and satisfactory delivery of goods and services to
the federal government.'' Thus, if the government makes
contract awards based on the offeror that provides a good or
service for the best value, it would have already chosen an
offeror that adheres to existing labor laws and has workplace
practices that enhance productivity. Unfortunately, as industry
has long pointed out, the government has poor buying habits
that have equated ``best value'' with ``lowest cost,'' and
valued compliance to government-unique requirements over actual
performance in delivering goods and services, creating a
perverse incentive to ``race to the bottom'' to win contracts.
Congress has already passed sufficient legislation to
ensure protections of federal contractor employees and to
ensure that the government only contracts with responsible
sources. The federal government should focus on enforcing the
objectives of existing laws, rather than using EOs to prescribe
in excessive detail how to comply.
A major frustration for small businesses is that in many
cases they agree with the intended outcome of an EO, such as
providing for the well-being of federal contractor employees or
making sure that competitors play by the rules, but object to
the process by which the EOs have been developed and
implemented.
Small businesses are not only concerned with the collective
impacts of the EOs on their bottom line, but also the
detrimental impacts they will have on government customers and
their ability to carry out missions, the most consequential of
which is national security. In recent years, the Department of
Defense, the federal government's biggest spender by a
substantial margin, has placed a renewed emphasis on an
innovation and acquisition reform, led by top officials in the
Office of the Secretary of Defense and the Services.
Unfortunately, the EOs undermine these initiatives. The
resultant accumulation of government-unique requirements and
their compliance costs will continue to deter new suppliers
from entering the government marketplace and drive exits by
firms already selling to the government, restricting
competition.
In closing, several of the recent EOs have, through flawed
processes, installed burdensome, unnecessary, inefficient, and
in many cases duplicative and overlapping regulatory regimes
that have the cumulative effect of dramatically increasing the
cost of doing business with the federal government. Over time,
these will decrease efficiency and economy in federal
procurement, while undermining small business growth and
development, and limiting the federal government's access to
innovative products and services to fulfill their needs.
Thank you again for the opportunity to appear before you
this morning, and I am happy to answer any questions you may
have.
Chairman HARDY. Thank you, Ms. Huneycutt.
Mr. Christianson?
STATEMENT OF JIMMY CHRISTIANSON
Mr. CHRISTIANSON. Chairman Hanna, Chairman Hardy, Ranking
Member Adams, and members of the Committee, thank you for
inviting the Associated General Contractors of America to
testify today on this important topic. My name is Jimmy
Christianson. I am Regulatory Counsel for AGC, which represents
more than 26,000 union and open-shop commercial construction
companies throughout the Nation.
The construction industry has historically supported and
provided opportunities for small businesses. It includes more
than 660,000 firms throughout the United States, of which 93
percent have fewer than 20 employees. Generally speaking, those
employees may include cost estimators, proposal managers,
superintendents, craft labor, equipment operators, and other
staff whose primary purpose is construction work.
The business of a construction small business is
construction. When it comes to compliance issues, many small
businesses may have one or two employees that handle safety,
labor, human resources, and environmental compliance for the
entire company. In many companies, the safety director is also
the environmental compliance director. The human resource
director is also the accountant and the general office manager.
The reality is that small business employees are often working
``double duty'' because small businesses have extremely limited
resources.
That stated, abiding by laws and regulations is part of the
cost of doing business. The requirements of the statutes and
regulations imposed, however, can also represent barriers to
entry for small emerging businesses and barriers of growth to
existing ones. Laws and regulations are necessary to help
maintain a level and competitive playing field. Nevertheless,
not all laws are necessarily good laws, and similarly, not all
regulations are necessarily good regulations or practical. Laws
and regulations enacted and finalized, even with the best
intentions, can have unintended consequences and needlessly
duplicate or confuse existing legal frameworks.
Of the more than 400 executive orders and presidential
memoranda issued by President Obama, AGC has identified 22 that
impact the construction contracting industry and its small
businesses. Several of those actions, which I am happy to
discuss in detail during the question-and-answer period, will
individually and cumulatively expose small business
construction contractors to significant legal costs, legal
liabilities, and other risks. Small business contractors will
have to consider these executive actions in the context of the
potential risks versus rewards of participating in the federal
construction market.
Given the overall state of the economy today, as we
experience a workforce shortage, more than two-thirds of our
members say they are looking for workers. The private market,
other markets out there are more competitive. They will have to
consider whether they will continue to work in the federal
market or, as they have told me, plan to or strongly consider
walking away. The administration probably did not intend to
drive small businesses out of the Federal market in
implementing these actions; nevertheless, it appears to be a
realistic impact.
AGC looks forward to working with this Committee on ways to
prevent small businesses from leaving the Federal market and
addressing the problems with several of these executive
actions. I hope today that we can talk about the practical
realities that these executive orders place on small
businesses. I hope we can talk about the reality that many
small businesses already in the construction industry have
Davis-Bacon requirements that require them to pay prevailing
wage rates. How will these different executive orders on paid
sick leave take into account, because many of them do not,
existing statutory requirements that are already in there? We
will also remember that most small businesses, veteran-owned
small businesses, minority-owned small businesses, the small
businesses we represent, consider their workers in many cases
to be part of their family, just as many of you consider your
employees and your congressional staff to be part of your
family, and it is hard when rules and regulations come down
that make them have to make decisions that have to say we have
to let go of some members of our family.
I look forward to your questions. Thank you.
Chairman HARDY. Thank you, Mr. Christianson.
Dr. Madland?
STATEMENT OF DAVID MADLAND
Dr. MADLAND. Thank you, Chairman Hardy and Chairman Hanna,
Ranking Member Adams, and members of the Subcommittee. I very
much appreciate the opportunity to be here.
My name is David Madland. I am a Senior Fellow at the
Center for American Progress Action Fund. CAP Action is an
independent, nonpartisan, and progressive education and
advocacy organization dedicated to improving the lives of
Americans through ideas and actions.
The President's executive actions that are the subject of
today's hearing draw widespread support from a broad coalition
of supporters. Not only do organizations representing workers,
veterans, women, the elderly, and taxpayers support many of
these actions, but so, too, do a number of small businesses.
Many small businesses feel that these executive actions will
help them compete on a level playing field and make the
contracting process more welcoming to businesses like theirs.
Indeed, in 2015, small business contracting, as a percentage of
total government contracting, was at record high levels.
Though I think the general points I make could be applied
to most, if not all, of the President's contracting reforms, I
will focus my remarks on those that address minimum wage,
require paid sick, ban discrimination based on sexual
orientation and gender identity, and ensure companies comply
with workplace laws before getting new government contracts.
The federal government has a long and successful history of
starting important social changes with federal contractors. For
example, President Lyndon Johnson prevented companies that
contract with the federal government from discrimination on the
basis of race, color, religion, sex, or national origin.
Actions by President Richard Nixon furthered these protections.
Ronald Reagan sought to promote minority contractors. Bill
Clinton encouraged contractors in economically distressed
areas. George W. Bush sought to ensure contractors employed
only American citizens or legal residents.
President Obama's efforts to raise standards for workers on
federal contracts build on this history and are an important
part of making the economy work for everyone, not just the
wealthy few. In the United States today, wages have been
stagnant for decades, while economic inequality is near record
levels. Too many people are struggling to pay bills, especially
those working in low-wage industries where wage theft is
rampant as employers pay workers less than they are legally
required. Many Americans cannot take time off if they get sick,
and people often face discrimination because of their sexual
orientation and gender identity. Discrimination based on race
and gender still occurs, despite previous federal actions.
At the same time these executive actions address important
economic and social challenges, they also promote economy and
efficiency in government contracting. The basic idea is that
treating workers fairly leads to better results for taxpayers.
Human capital is the core input into many federal contracts,
and taxpayers receive the most efficient and effective
utilization of all available manpower when workers are treated
fairly.
Not surprisingly, giving these benefits to taxpayers,
businesses, and workers, many state and local governments have
already implemented similar policies, and evidence shows that
these policies tend to work pretty well. A study of New York
City's paid sick leave found that after 1-1/2 years after the
law went into effect, 86 percent of employers supported the
policy.
Studies examining LGBT contracting policies in state and
local governments found that in almost all localities, any
resistance to these policies was minimal and short-lived. The
State of Maryland's living wage law conducted by the state
found that the number of bids increased after the State adopted
the policy by nearly 30 percent. Statements from officials in
San Francisco and Los Angeles indicate that their responsible
contracting systems have increased the pool of experienced
firms willing to bid for their work. Private companies are also
adopting similar wage and responsibility review processes.
That is why there are a number of small businesses that
support these kinds of policies. Indeed, a Maryland state
contractor who first decided to bid only after the living wage
was enacted said without these standards, ``the bids are a race
to the bottom. That is not a relationship we want to have with
our employees. Living wage puts all bidders on the same
footing.''
The president of American Small Business Chamber of
Commerce explained that the President's executive order on the
minimum wage will ``help level the playing field.'' A poll from
the small business majority found that nearly 80 percent of
small business owners support a law to ban discrimination
against LGBT employees, and a hearing at this very Committee,
construction contractor Bill Albanesi stated that the Fair Pay
and Safe Workplace Executive Order ``makes good business
sense.'' It makes good sense to vet the contractor before he
gets a job. It is common in our industry. We do it all the time
and we do not see it as being a burden to any legitimate fair
contractor that is playing by the rules.
In summary, executive actions help address problems in the
economy and they are supported and help workers, businesses,
and taxpayers. Thank you.
Chairman HARDY. Thank you, Dr. Madland.
I would like to begin our first round of questioning. I am
going to yield myself along with everybody else as we go
through.
Mr. Hoffman, I would like to start with you. You know, a
bad rule is a bad rule. But do you think some of these concerns
that could have been alleviated by the DOL if they followed the
Regulatory Flexibility Act and actually allowed small business
firms to be part of that conversation to maybe come up with a
better outcome. What are your thoughts on that?
Mr. HOFFMAN. Yes, sir. Having a greater voice in these
regulations is important, and the Office of Advocacy does an
excellent job in listening to small businesses. We feel that
greater input from the small and large business community into
this far-reaching regulation is necessary to make it workable.
Chairman HARDY. Thank you.
Ms. Huneycutt, it is stated that there are about 100,000
small businesses that have left the federal marketplace in just
the last 4 years. Do you think any of these actions would make
any of those small business firms ever want to come back doing
business with the federal government with some of those actions
that have been put in place?
Ms. HUNEYCUTT. Well, I can tell you that there is a
continuum along which each different firm is going to opt out
of something. It might be with increasing layers of regulation
which often conflict with each other or are hard to make work
with state regulations or other agency regulations and require
additional investments in, for example, recordkeeping systems
and lawyers at 400- to $700 an hour. I can tell you that we
recently spent $10,000 to implement a human resources
information system that was totally compliant and is a
commercial system, and now with the sick leave recordkeeping
that will be required by the new EO, we will be required to
potentially opt out of it or pay for special coding to have
that work for us. So some firms are going to opt out, and my
firm at this time does not engage in service contract work
because the very prescriptive ways that the recordkeeping has
to be done and things need to be structured are simply too
pricey for us to implement and continue to run our business,
although we actually do meet all of those objectives. So we
have sick leave. We do not have any claims against us. And even
still they are a barrier to entry to the SCA.
Along that same continuum, unfortunately, what we are
seeing is that there are a lot of firms that are opting out of
compliance, and sinning first and asking forgiveness later. The
contracting officers who are already so burdened with so many
different pieces that they need to evaluate in a proposal
really do not have the bandwidth or the autonomy to ensure
compliance with those, especially in a lowest price,
technically acceptable environment where costs are continually
being driven down. So unfortunately, what we are seeing is that
oftentimes the government is getting exactly the opposite of
what it wants because it is rewarding the actors that are
noncompliant without knowing it and driving compliant firms out
of business.
Chairman HARDY. Thank you.
Mr. Christianson, in your testimony, you mentioned the use
of project labor agreements for federal construction projects,
executive order or your written testimony. Can you talk a
little bit about how this might affect the open shop contractor
or even those who are located in the right-to-work states?
Mr. CHRISTIANSON. Sure. The fact is that the agency's
position is that we leave it up to--we believe it is the
decision of the contractor and laborer to come to a
collectively bargained agreement, project labor agreement, and
that government mandating those agreements is not a good idea
because they do not have the expertise necessarily to do so.
They do not have the parties in the construction industry to do
so. But when you are dealing with open shop, take for example a
very open shop area maybe in the middle of Nevada where there
are not many union contractors, if you are all of a sudden
mandating that there has to be some sort of union work in an
area that is predominately open shop, you are going to have
these companies basically change the way that they do work to
do a project and they are probably just not going to fit the
project.
Chairman HARDY. Thank you.
My time is expired. I would like to turn the time over to
Ms. Adams.
Ms. ADAMS. Thank you, Mr. Chair.
Before we address the topic, I wanted to just get the
panel's reaction to comments made by the CEO of Science
Applications International Corporation, SAIC, last week in
which the CEO indicated that small business set-asides and
contract unbundling were making it harder for his company to
get contracts. Do you feel like these comments are
representative of what is going on in the federal marketplace?
Anyone who would like to answer it?
Mr. HOFFMAN. I will start. There are opportunities for
large firms to participate with small firms in the federal
market, there was recently passed legislation for mentor-
protege. There are also other agreements, and recently there is
the new Small Business Multi-Tier rule that is allowing prime
contractors to count small business subcontracts to their goal.
Ultimately, this is helping the agency to meet their small
business goals. I think there is still opportunity for large
firms to partner with small firms to get work done.
Ms. ADAMS. Dr. Madland, do you have a comment?
Dr. MADLAND. Yes. As I said in my opening statement, the
share of government contract dollars that are going to small
businesses is at record highs, which indicates that the
President's efforts to focus on small business are working. Yet
I think there is significant room for large contractors to do
quite well because the scope of government dollars going to
government contracts over the past several decades has
increased significantly, so there is more total work out there
even if a significant percentage now is going to small
businesses.
Ms. ADAMS. Okay. Thank you.
Would anybody else like to comment? Yes, ma'am?
Ms. HUNEYCUTT. I would agree as a small business that we
are the beneficiaries of set-asides. I think that has been
working increasingly well in the last couple of years. I wonder
whether some of the reasons SAIC is having trouble competing is
because a lot of the statutes that currently exist that were
passed by Congress are not being enforced and small businesses
have an easier time staying under the radar, thereby lowering
their prices and becoming more price competitive. If they
choose, or not knowingly, if they do not comply.
Ms. ADAMS. Thank you, ma'am.
Okay, Mr. Christianson, with many construction firms doing
business in the millions, why is it so difficult for these
firms to keep track of their legal infractions over a 3-year
period?
Mr. CHRISTIANSON. Construction is an inherently regional
business. In many states, different coasts, you have different
projects in different areas. You are working out of trailers.
Especially in small businesses, you may not have the technology
that a multibillion-dollar company has to track these things. I
think the more fundamental question is why do the agencies that
actually charge these contractors with infractions not have
these records? They are the ones that are ultimately bringing
these actions. Why are they asking contractors to do this?
Should they not already have this information?
Ms. ADAMS. Okay. Let me follow up. There has been a lot of
discussion about the negative impact that these executive
orders will have on small businesses. However, are there any
welcomed changes that help those in your industry or are there
areas where you feel more action is needed?
Mr. CHRISTIANSON. I do not think so, what is going on here
is there is more problems that are created. I think many of
these are solutions looking for problems in the sense that, for
example, with paid sick leave, most of our union contractors as
we found out, do not really provide paid sick leave, because
through collective bargaining, they collectively bargain for
higher wages than even Davis-Bacon wages to take into account
things like you are not working. It is a seasonal industry, so
you are not working all the time. If you have paid sick leave
during the time that people should be on the job, you are going
to change construction schedules. You are going to delay
projects, you are going to add to costs. We had one company,
for example, that said take off the entire month of December.
But now, because of the paid sick leave executive order, they
are not going to be able to do that. Take off extra time for
the holidays, they are not going to be able to do it.
The other thing is, in certain states and cities, you have
state paid sick leave rules. You have city paid sick leave
rules and now federal paid sick leave rules. So if you are on a
federal contract, some of your employees may have federal paid
sick leave requirements. If you have a state contract, you have
state paid sick leave requirements. And then local, what do you
follow? That is really the problem.
Ms. ADAMS. Thank you, sir. I am out of time.
Mr. Chair, I yield back.
Chairman HARDY. Thank you. I would like to turn the time
over to Chairman Hanna.
Chairman HANNA. You know, it is pretty clear we are in slow
growth. Very slow growth. Historically slow growth. It is also
true, Dr. Madland, that real wages have not gone up in a very,
very long time, which nobody can be happy about.
I have got 25 years in the Operating Engineers Union. I
believe you are earnest in your perspective, but what bothers
me about it, Dr. Madland, is so much of it is conjecture and
subjective in its nature. I wonder, when you hear three other
individuals say that these rules are burdensome and
overcomplicated and are discouraging people from entering the
marketplace--and of course, what you said is true, that there
are more small businesses as a percentage of total government
contracts, but it is also true that the number of distinct
small businesses' actions has declined, and it is true that
there are 100,000 less people.
You do not believe these other three panelists? Do you
think they are wrong or they are somehow saying something that
is completely designed for their own self-interests? Because I
hear this every day from business that it is not just the fact
that these regulations are out there but that they are not
considered in the process. It is the cumulative effect of it
all. I do not see people out there trying to--I mean, one-tenth
of 1 percent, sure they are bad actors, but why should you hold
Mr. Hoffman responsible for every general contractor or
subcontractor beneath him which he may or may not have any
control over? Frankly, as you said, I think Mr. Hoffman
mentioned that those are known people that it is the
government's job to keep track of.
This is not meant to be personal, but it is surprising to
me that you can speak in such general terms about people and
have very specific notions about overtime and new overtime
rules and the 30-hour work week rule that even the
Congressional Budget Office has said will cause up to 2 million
people to leave their jobs. I am just interested.
Dr. MADLAND. Sure. I think most of my testimony comes based
on the experience when state and local governments implement
similar policies. While I am by no means discounting the
concerns that the panelists here have stated, you often find,
before the policies get enacted, significant concerns, but
after they go into a place they are less significant.
Just to read one very small quote. This was San Francisco.
The Vice President of the local Chamber of Commerce, which led
the fight against the city's paid sick leave before it passed,
reported that the law's impact was ``minimal,'' and that ``by
and large paid sick days has not been much of an issue.'' We
have actual evidence from, for example, I cited the Maryland
study of the living wage where the first and only State to pass
a living wage, much higher wages for government contracts, and
they actually found that the number of bidders for state
projects increased after they implemented the law.
Chairman HANNA. I do not disagree that that person said
that about that, and I do not know of the Maryland study. I
will take your word for it. But do you think that really that
is generally the preponderance of regulations and rules that--I
mean, I was in business for 35 years. Mr. Hardy was. There is a
point that people who have been successful in their lives say
it is not worth it anymore. It is just too damn much work to
keep up with the government. I am going to walk away. We have a
lot of evidence to that, anecdotal and real, 100,000 businesses
fewer. They are not sitting here whining at you. They are
saying to you we want to do business with the federal
government. We appreciate the opportunity, but at some point
you are breaking our back and it is not worth it.
I think that is the difference between the value system
that you lay out which, one can prove individually yes or no,
but that is what I hear, that we just kind of cannot take it
anymore. Particularly, it strikes me that there is a point for
a lot of people where they say, you know, I am out. It is not
worth it. You are not worth it. The federal government is too
complicated and too much in our face. I think that is a real
concern.
My time is up. Thanks.
Chairman HARDY. Thank you.
I would like to turn the time over to Congressman Kelly.
Mr. KELLY. Thank you, Mr. Chairman and Chairman Hanna.
Thank you both and Ranking Member. Thank all you witnesses for
being here.
Just as a follow-up, more in a comment than a question with
Chairman Hanna. Having been a small business owner, throughout
my August I spent almost every day at town halls and those type
of things with local folk and small businesses, veterans, being
a member of the Mississippi National Guard and serving for over
30 years. I just left the National Guard Conference where I was
there as a participant, not as a congressman.
It confuses me that we have think tank people in here, and
I am not just talking about this panel, but I am talking about
the entirety of the panels that have been here in 14 months. We
have think tank panels. We have government employees. We have
academia people who say that these rules have no effect on
small businesses, but I have yet to have a small business
person sit at that table and say that they felt that we did not
have any effect. Most of the people that we have in front are
just like you, three small business owners who actually own
small businesses who say it has a tremendous impact on how we
do business and whether we do business.
So I ask you to continue to fight as small businesses and
continue to keep up the dialogue to let them know that these
things impact because I, as you, and I think Mr. Christianson
said this, as a small business owner, I know we pay our
employers all that we can and we are going to preserve and keep
and pay as well as we can, all small business employees because
they are part of our family. They are. We want to see them do
well.
That being said, this week I had Kopis Mobile, which is an
app business that does a lot with DOD, and they are anchored in
Flowood, Mississippi. Aside from keeping small businesses from
being created and putting small businesses out of business, I
am also concerned about the negative impact these regulations
are having on innovation.
Ms. Huneycutt, can you talk a little more about how these
actions will affect technological innovation?
Ms. HUNEYCUTT. I have been following very closely the
efforts to get Silicon Valley and more R&D-oriented commercial
firms to participate in the bidding process for government
work. I think it is something that is critical for maintaining
our technological edge, particularly at DOD. They move at the
speed of business.
As an anecdote, I can tell you that we tried to team with a
firm that provides a platform by which to--and we were looking
at the State Department--by which to communicate through social
media through a centralized hub that would send the same
messaging out through Twitter and Facebook and all of these.
They were flummoxed at the way that the process worked. They
were flummoxed at all of the different ways that they would
need to change their business model in order to be compliant,
and the hoops, the time that it took. This is not how they are
used to doing business.
I would suggest, especially if you want to increase the
participation of commercial firms in bidding for government
work, you do not--either these regulations and these new
requirements should be passed as comprehensive legislation. It
is not unique to the government, so that everybody needs to
engage in it. I would suggest that there be more enforcement of
the way companies are characterizing the way they engage
people, because oftentimes they will mischaracterize them as
1099 subcontractors, have them sign a contract that says they
are complying with everything, and then they get everything
cheaper and there is not any real compliance there.
I would suggest that you be aware that this puts commercial
companies in a position where now they need to treat their
government contract employees differently than their commercial
contract employees, and they cannot treat them differently.
That keeps them out of the government.
Mr. KELLY. Mr. Hoffman, just briefly, have about 45 seconds
left. What impact do all these new requirements have on the
procurement process for small companies like yours?
Mr. HOFFMAN. My question is how are we going to, for
example, vet our subcontractors? I just had the opportunity to
negotiate overhead rates with a government agency and they were
pointing to one of the consultants as to having low overhead or
lower rates on a different contract. I asked, well, what
contract or what is the name of that firm so I can reference
it? While they gave me the last four, they were not even
willing to give me the name of the contractor. If they will not
give me the name of the contractor in a straightforward
environment, when will the government give me the name of a
contractor which potentially is negative and they are worried
about backlash or something like that? So I am concerned
myself.
Mr. KELLY. Thank you, Mr. Chairman. I yield back.
Chairman HARDY. Thank you, Mr. Kelly. We will turn the time
over to Mr. Knight.
Mr. KNIGHT. Thank you, Mr. Chair.
Just a couple of questions. I was reading through some
articles and watching what government is doing and what
business is trying to adhere to, and some of the comments by
all of the panel today. It begs the question that if government
does something, or they say they are going to do something and
people rebel against it, but then it happens anyway, people
just have to adhere to it and that is just the way it is. That
is what I look at when we start talking about the overtime rule
and we start talking about $15 an hour going across the country
and what is happening in cities like Seattle since they have
seen the biggest decline in jobs in restaurants since 2009
since they have done the $15 an hour ordinance. So when
government gets involved, too heavy-handed, then we tend to see
a problem.
But my questions are about something recently our Vice
President said. He said, ``Because of the administration's
efforts to rebuild the basic bargain, the economy has gone from
crisis to recovery to resurgence. Today's expansion of overtime
protections will build on this momentum.''
Do any one of you or do all of you agree with this?
Yes, sir?
Dr. MADLAND. Yes. I think the overtime regulations are an
important step forward to ensuring that workers, when they work
more than 40 hours a week when they are lower income, will
receive time and a half, which is the basic bargain of
overtime. As you know, the standard had been eroded over
decades so that very few salaried workers were receiving
overtime. It used to be that the majority of salaried workers
received overtime and the new regs will do that, which is part
of how you ensure that workers have wages to spend that can go
into the pockets of small business owners.
Mr. CHRISTIANSON. We do not disagree necessarily that it
has been a long time since the overtime wages have been
increased or the thresholds have been increased. But the issue
is the practicality of more than doubling that threshold and
making small businesses have to adhere to that in under a
year's time. To have to plan for that is really just not----
Mr. KNIGHT. Before everyone continues I will put the second
question on that, and maybe you can answer, too. Would any of
your members be opposed to talking about an increase? We went
from a little over 23,000 to almost 51,000. Would any of your
members be opposed to talking about an increase that would
probably put us into a more acceptable for small business,
acceptable for continuing our economy to move forward? I am not
trying to----
Mr. CHRISTIANSON. We are always interested in talking. We
did not really have the opportunity to talk. That is what
happened here is we had an opportunity to talk about the
impacts but it does not seem like the administration did any
listening.
Mr. KNIGHT. Okay. And again, I will say the flip side, too.
It has been a long time since that has been changed. We do not
keep minimum wage at 25 cents an hour. It moves and it ends up
trying to be at a wage that is commensurate to the timeframe.
Some people think that that is too low and some people think
that the jumps are too high. But, when we talk about the
overtime rule, and moving it, I think it is a 113 percent jump.
That seems to me to be a jump that small business is going to
not just push back on, but have a very difficult time adhering
to.
Mr. CHRISTIANSON. You know, you cannot get something from
nothing. Small businesses are not all of a sudden going to be
able to pay everyone overtime that are under this threshold.
Some people are now going to be hourly workers. They basically
feel like they have been demoted, which is not necessarily
true, but just the reality if they want to stay on the job, the
company has the same amount of finite limited amount of funds.
They are going to readdress what level certain people are paid,
how many hours people work, so that they can adjust
accordingly.
Mr. KNIGHT. In my last 20 seconds, do you think that that
takes away some of the flexibility for small businesses?
Because like you say, now we are going to turn some of them
into hourly wages. In California, we have done some things that
have taken away the ability for employers and employees to have
a conversation, and say you have to have certain breaks at
certain times, and if you do not have these certain breaks,
then you are in violation. It takes away the flexibility. Then
it turns it into, I am the employer, you are the employee, and
that is the way it is and we do not talk and you follow the
rules and I have to fill these forms out, and have a nice day.
Yes, ma'am?
Ms. HUNEYCUTT. My response is to what was discussed a
little bit earlier. With the exempt rules referencing a higher
salary point, I can tell you the practical impact that that has
had on us where, actually, we have very few people that were
below that point to begin with, but those that were near that
point got pay raises because the cost of giving them another
couple of thousand dollars raise was nothing compared to the
cost of having to change our recordkeeping systems. But what
that also means is that we are very hesitant to hire at that
lower salary level or that lower wage level because, again, the
cost of the recordkeeping, the cost of changing our payroll
system. A lot of commercial payroll companies do not--actually,
if that is global they will be abiding by that. If it is a
government-specific thing, a lot of commercial payroll
companies, human resources information systems companies, will
not accommodate that. So you are back to square one having to
look for another service or having to pay to customize their
recordkeeping.
Particularly, a lot of the work that is done at the lower
wage levels, a lot of it can be automated. I do think that some
firms will be looking to automation or noncompliance or other
ways to--from my point of view, for my company only, it is
really the recordkeeping and changing. If you have 15 different
categories of employees, it is very hard to keep track of what
the rules are. The employees say, well, he is getting this, why
can I not get that? It sows some havoc.
Mr. KNIGHT. Thank you. My time is well expired. Thank you,
Mr. Chair.
Chairman HARDY. Thank you. There is a desire to go around
with another round of questions, so I am going to start off
with Ms. Adams if she would like.
Ms. ADAMS. Thank you, Mr. Chair.
Mr. Christianson, I wanted to follow up on something. You
hinted about the lack of consistency between federal and state
laws regarding regulations. If there were better consistencies
between the federal and state statutes, would you be open to an
executive order that promotes paid leave and other similar
measures?
Mr. CHRISTIANSON. The fact is an executive order cannot do
that. It is not lawful. They cannot change state law by
executive fiat. So the question itself is one that I do not
think is even realistic.
Ms. ADAMS. Well, not so much lawful, but what about
consistency?
Mr. CHRISTIANSON. If the federal government contracts were
to fall in line with other requirements, that would be,
beneficial assuming that requirement in itself is beneficial.
Ms. ADAMS. Okay, Mr. Hoffman, much of the objections to the
Fair Pay and Safe Workplace Executive Order center on
blacklisting, the idea that contracting officers are spoiling
to disqualify firms for superfluous reasons. Do you feel that
these concerns have been addressed in the final rules that the
Department of Labor has issued?
Mr. HOFFMAN. Right now, it is not clear to me the concept
of, first of all, that something is going to occur in 3 days.
Our experience with contracting officers is things do not
happen that quickly. If it is an issue of an allegation,
perhaps there should be an investigation. Is that adequate time
to do that? Are we going to provide records or provide
information to the private sector so that we can select our
teammates correctly? I gave an example earlier as to whether
that actually happens. I gave a very simple example, we cannot
even identify who is the prime contract on a contract number,
though at some point I will figure it out. So, I have some
doubts.
Ultimately, it seems to me, Ms. Adams, that we have these
different reports and the government collects them. If we could
take the information that we already have and act upon that and
put in a secure deposit repository, collect all the information
that we are already collecting, that would be a good idea. It
strikes me that the government has fantastic intentions, but we
have a significant amount of regulation, and not all regulation
is good. We would really like to go ahead and design innovative
solutions for our clients and not looking back at forms and
annual reports and this and that. Potentially hiring people to
do administrative compliance is not growing the business.
Ms. ADAMS. Thank you, sir.
Dr. Madland, while we recognize the concerns that some
small firms have expressed regarding the new overtime rules, as
well as the increase in minimum wage, can you discuss some of
the benefits for employers and the economy as a result of the
changes?
Dr. MADLAND. Sure. The basic story, as I said, wages have
been stagnant for quite some time. They are just starting to
tick up. That has caused a lack of overall demand in the
economy, which has reduced new hiring by small businesses and
all businesses because there is not enough new consumers out
there. Raising people's wages through the minimum wage and
through overtime will help boost overall demand in the economy,
which can help create a virtuous cycle and grow the larger
economy.
Ms. ADAMS. Thank you. I yield back, Mr. Chair.
Chairman HARDY. Thank you. I turn some time over to Mr.
Hanna.
Chairman HANNA. Thank you, Chairman.
What I hear here is people who fundamentally agree with one
another, but it is the preponderance and the lack of input that
is given that is not adequate. In a national debate, it is
really discouraging to hear both parties vilify small business
in one way or another, because we both know the business of
America is business and that is really where all the jobs come
from and all the growth, the growth that we are not seeing
right now.
You had a phrase, Dr. Madland, that you used, and I am not
taking a position on it. I am wondering what you mean by the
term ``wage theft.'' I can imagine what you mean by it, but I
think what I see out there is people who feel put upon that in
order to run a business well, you cannot have every outcome
perfect. A lot of time in the government's pursuit of a perfect
outcome, it actually does what that common phrase is, it kills
the goose. That a certain amount of slippage, which you may
regard as something wrong or illegal or immoral or unethical,
is really part of, not that anyone on any case would approve
it, but the ability of business to do business in an
environment that is welcoming and not punitive, where they are
not always feeling like they are probably, likely, on every
given day doing something wrong, is also important. Businesses
need to be let to do what it is they do best and government
does not always have the best answer for that. It has the
outcome it likes, but it does not get there necessarily in the
right way.
The overtime rule. I have talked to a lot of people who
have no problem with what the President has done other than
they doubled it. I have spoken to a lot of businesses that say
if you went to 35,000, we get it. I would be the first person
to admit that there are companies out there that take advantage
of that, just like Ms. Huneycutt talked about 1099s. There are
companies that take advantage of the 1099 rule. You see that
playing out in court, and I agree that is wrong because it
denies benefits and keeps people out of a system that provides
them with a decent lifestyle and hope for a decent--but what do
you mean by ``wage theft?'' Do you feel as though businesses
are bad somehow? I know you are going to say no, but what do
you mean?
Dr. MADLAND. Wage theft is when companies do not pay the
legally required wages. That typically means they are paying
less than, for example, the minimum wage. One of the key
examples actually in support of the Fair Pay and Safe Workplace
Executive Order was a worker named Helen Avalos, who worked up
at Walter Reed as a contractor janitor. Her company just
stopped paying her, stopped paying her and all the other
workers. She has got rent, got kids. Does not have, you know,
low income. What is she going to do? The company continued to
receive new government contracts. That is kind of what I mean
by wage theft. It is breaking the law by failing to pay legally
required wages. The independent contractors----
Chairman HANNA. But are there not laws that cover that in
the State of Virginia? I mean, the minimum wage laws?
Dr. MADLAND. Yes. But if they are not doing it, that is
wage theft. That is what wage theft is, is breaking----
Chairman HANNA. I mean, she has recourse without the
federal government getting involved in it.
Dr. MADLAND. She was working as a federal contractor and,
no, she actually did not really have much recourse. She and her
coworkers protested outside and said what is going on? It was
weeks of not getting paid.
Chairman HANNA. Okay. I accept that. I am sure it is true.
I have no reason to believe otherwise. But how about the notion
that one incident or a bunch of incidents would give you cause
to react to affect thousands, if not millions, of businesses
around the country so that the actual--and this is the common
complaint--that the benefits of what you have done are real and
positive, but yet they cost much, much more than they are worth
and that the government does not really look at that?
Dr. MADLAND. I think you are talking about the Fair Pay and
Safe Workplaces. For most companies without legal violations,
they will simply check a box certifying they do not have legal
violations, akin to what is done for tax violations. For those
that do, there will be some additional reporting requirements.
However, again, the goal of those reporting----
Chairman HANNA. I am sorry. Go ahead. I do not mean to
interrupt you.
Dr. MADLAND. The goal of those reporting requirements is to
provide sort of a warning to have further review of the
company's larger----
Chairman HANNA. But you heard what Ms. Huneycutt said, that
these recording requirements, which you say are a few hours,
other people say are tens if not hundreds of hours, you do not
have a good perspective on what it actually costs these
businesses going forward, and that you are placing a
disproportionate cost on tens of thousands of businesses
without regard to that cost because of the outcome you desire,
that perhaps that should be taken into account.
Dr. MADLAND. Yes. Obviously, you need to weigh the cost and
the benefits and the time that is required.
Chairman HANNA. It does not feel like you do.
Dr. MADLAND. Well, as I said, most of the time, most
companies will have a very simple process. There will be a more
involved process for companies with legal violations. But
again, the goal is to get those companies into compliance with
the law, that seems like a worthy goal. Also, the studies of
the cost estimates suggest it is going to be less than a cent
for every hundred dollars of federal contracts of the
additional cost, and that is a burden, but also, you are
helping draw in more law-abiding companies that then will want
to contract with the government that are familiar with similar
processes. Lots of private companies----
Chairman HANNA. Losing a hundred thousand companies does
not support that and does not support that notion. Also, the
cost that we--excuse me, Mr. Hardy, just 1 second. Do you mind?
The cost associated with it, I have never heard of anybody who
would say to you it is 1 penny on a dollar. But with that I
yield back. Thank you, Dr. Madland.
Chairman HARDY. Thank you. And I would like to go ahead and
let Ms. Huneycutt, she had the desire to address that question,
and yield my time to it.
Ms. HUNEYCUTT. Sure. It sounds to me like that situation is
already addressed by DOL regulations, which do not permit an
employer to have somebody work and then not pay them. There are
very specific regulations regarding the timeliness of payment,
so that already exists. Again, my concern remains the same,
which is that if we diffuse the responsibility for enforcement
to the contracting officers, then they really do not have the
bandwidth to do this or the autonomy. They are going to say,
well, that is really DOL's enforcement issue and I am not going
to worry about it until DOL tells me something. DOL is going to
say that is the contracting officer's responsibility and I am
not going to enforce it until the contracting officer tells me
something. My concern is that with the increasing layers or
duplicative regulations there will be less accountability and
more bad actors invited to leverage that.
Chairman HARDY. Thank you.
One quick question I would like to address, and of these
100,000 contractors we have lost in the last 4 years, Mr.
Christianson, being a small business owner myself in the past,
and going from two or three employees and working your way up
to 350 over time, when you step into the contracting world with
the government agencies, do you believe that other small
businesses that are say 50 and under will have the ability to
step into this field? Because now you have grown your internal
staff or office staff to two or three times the size that you
would have had at a normal site. Do you believe these
contractors, are you hearing that as some of the challenges?
Would you like to elaborate on that? Anybody else who would
like to?
Mr. CHRISTIANSON. First of all, Mr. Kelly mentioned or
acknowledged that I am a small business owner. I am not. I am a
regulatory counsel. I do not have that honor of being a small
business owner, I represent them.
Chairman HARDY. But you work with many small businesses?
Mr. CHRISTIANSON. Work with many, and I have my job in many
thanks to the regulations and the confusion that the President
has put forth. AGC created this position recently for me as a
result of all the questions small businesses were asking. So I,
in part, am part of the job growth lawyers as a result of this.
I do not think that is what you all think of job growth when
you think of small businesses.
But on your question, in the commercial construction
industry, small businesses could be $36.5 million or below. If
you have a contractor that is $5 million versus $30 million,
and you are going after the same set-aside work and now you
have to comply with equally confusing and burdensome
regulations, your overhead costs as a percentage if you are
that $5 million company is going to be way higher than that one
for that $30 million company. So you are now at a competitive
disadvantage completely. You are going to have to hire, not me
as the association lawyer, me as the outside counsel because I
can tell you that I talked to our general counsel before
coming. He does not know of any commercial construction company
that had their own in-house lawyers or attorney below $100
million. They hire outside counsel at $400 an hour and hire
consultants to do this.
Chairman HARDY. Thank you.
Anybody else care to elaborate on that?
With that, that is the final question. Again, I want to
thank each of you [our panelists] for being here today and
testifying.
Small businesses play a critical role in our federal
marketplace. A vibrant, competitive, and robust small business
sector lowers prices, spurs innovation, and creates jobs. As
all of us here at our Committee, Democrat and Republican alike,
recognize the importance of having worked in a bipartisan
fashion throughout the 114th Congress, passing numerous pieces
of legislation designed to help small firms compete in the
federal marketplace.
Unfortunately, our President is either unable to understand
how hard it is complying with these executive actions for small
businesses, or worse, unwilling to listen. We here on the Small
Business Committee, will continue to speak up and fight so that
the folks have a seat at the table.
I ask unanimous consent that members have 5 legislative
days to submit statements and supporting materials for the
record.
Without objection, so ordered.
We are adjourned.
[Whereupon, at 11:21 a.m., the Subcommittees were
adjourned.]
A P P E N D I X
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Cumulative Burden of President Obama's Executive Orders on
Small Contractors
Testimony before the Committee on Small Business
United States House of Representatives
Subcommittee on Investigations, Oversight and Regulations
And
Subcommittee on Contracting and Workforce
Donna S. Huneycutt
Co-Owner and Chief Operating Officer
WWC, LLC
On behalf of:
National Defense Industrial Association
10:00 AM
Tuesday, September 13, 2016
Rayburn House Office Building, Room 2360
Chairman Chabot, Ranking Member Velazquez, and Members of
the Subcommittees, thank you for the opportunity to appear
before you this morning. I am here this morning on behalf of
the National Defense Industrial Association, the nation's
oldest and largest defense industry association, comprised of
nearly 1,600 corporate and 90,000 individual members. While
several Executive Orders (EOs) issued in recent years have, or
will have, a detrimental impact on small businesses that
contract with the federal government, such as the Department of
Labor's so-called ``Overtime Rule'', for the purposes of my
testimony this morning I would like to focus on the EOs
specific to government procurement or federal contractors.
Small businesses are a critical component of the U.S.
economy, serving as a catalyst for economic development,
providing employment opportunities, and as the engine of new
ideas and innovations. Accordingly, the Federal Government has
established programs to ensure participation opportunities to
small businesses to fulfill the public policy objectives of the
Federal Acquisition Regulation (FAR), and access a source of
innovative products and services for Federal Government
customers. Explicit and implicit in the desired outcomes for
small business programs is achieving effective competition by
maximizing small business participation and enabling small
businesses to grow through diversification of the goods and
services they provide and expansion into the nongovernmental
marketplace.
Several EOs and Presidential Memoranda specific to
government procurement or federal contractors have overwhelmed
small business contractors and undermined small business goals.
Small businesses have borne the cost of having to understand
not only additions and changes to the Federal Acquisition
Regulation (FAR) and regulations of various Departments and
agencies, but also how the agencies will implement those
changes. This requires careful study of resulting agency
procedures, guidance, and instructions, in addition to
projecting workforce behaviors, which are largely driven by the
actual or perceived interpretation of the original regulations
by oversight actors (Government Accountability Office, agency
Inspectors Generals, etc.). Once those are understood, small
businesses must incur significant initial and reoccurring
compliance costs. These costs place a burden on small business,
and take the place of investments in research and development
(R&D), human capital, and other means to grow businesses.
As outlined at the onset of the FAR, the guiding principles
of the Federal Acquisition System are to satisfy government
customers by maximizing use of commercial products and
services, utilizing contractors with superior past performance,
and promoting competition. At the same time, the Federal
Acquisition System is to minimize operation costs, conduct
business with fairness and integrity and fulfill policy
objectives. The EOs attempt to fulfill the latter two guiding
principles, but in the process, undermine each of the others.
The rationale for the procurement-related EOs have been to
``promote economy and efficiency in procurement'' through their
intended outcomes. Industry does not necessarily disagree with
the logic, but rather, how that efficiency and economy is
achieved. Supporting documentation for the EO on Fair Pay and
Safe Workplace states, ``the vast majority of federal
contractors play by the rules.'' \1\ However, the
implementation approach to each of the EOs punishes that vast
majority of good actors through costly, government-unique
compliance requirements--a particularly inefficient means to
promote efficiency. In fact, the proliferation of government-
unique requirements imposed by the EOs undermines efficiency
and economy by limiting the government to suppliers that are
willing and able to comply. Their neither promotes competition,
innovation, nor does it maximize the use of commercial products
and services.
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\1\ See ``FACT SHEET: Fair Pay and Safe Workplaces Executive
Order.'' Available at: https://www.whitehouse.gov/the-press-office/
2014/07/31/fact-sheet-fair-pay-and-safe-workplaces-executive-order.
Further, the most efficient and economic means to fulfill
the public policy objectives of the EOs is to alter government
buying practices. For example, the rationale for the Fair Pay
and Safe Workplaces EO is ``Contractors that consistently
adhere to labor laws are more likely to have workplace
practices that enhance productivity and increase the likelihood
of timely, predictable, and satisfactory delivery of goods and
services to the Federal Government.'' Thus, if the government
makes contract awards based on the offeror that provides a good
or service for the best value, or in other words, the offeror
most likely to deliver or perform on time, predictably, and
with satisfactory performance, it would have chosen an offeror
that adheres to existing labor laws and has workplace practices
that enhance productivity. Unfortunately as industry has long
pointed out, the government has poor buying habits that have
equated ``best value'' with ``lowest cost'' and valued
compliance to government-unique requirements over actual
performance in delivering goods and services, creating a
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perverse incentive to ``race to the bottom'' to win contracts.
Congress has already passed sufficient legislation to
ensure protections of federal contractor employees, and to
ensure that the government only contracts with responsible
sources. Rather than using EOs to alter the enforcement or
interpretation of legislation, the Federal Government should
ensure that they are enforcing existing laws to ensure
protections for workers, and then alter buying practices to
reward best value.
A major frustration for small businesses is that in many
cases they agree with the intended outcome of an EO such as,
providing for the well being of federal contractor employees,
or making sure that competitors play by the rules, but object
to the process by which the EOs have been developed and
implemented and the resulting burdens. This starts with the
Federal Government's assessment of burdens on small entities.
The Small Business Administration's (SBA) independent Office of
the Advocate \2\ has commented that the Federal Government
underestimated the compliance costs and entities affected in
implementing regulations for Fair Pay and Safe Workplaces, Paid
Sick Leave for Federal Contractors, and Establishing a Minimum
Wage for Federal Contractors EOs. Unfortunately, since the EOs
are published without the public vetting inherent in the
legislative process, the public has no means of providing
input, or accountability, on the likely burdens prior to
publication.
---------------------------------------------------------------------------
\2\ Regulatory comments by the SBA Office of Advocacy can be found
here: https://www.sba.gov/category/advocacy-navigation-structure/
legislative-actions/regulatory-comment-letters.
This lack of engagement with small businesses prior to
development of the EO, or their implementing regulations, has
resulted in unnecessarily burdensome requirements. For
instance, the proposed rule to implement EO 13706,
``Establishing Paid Sick Leave for Federal Contractors,''
requires federal contractors to ``calculate an employee's
accrual of paid sick leave no less frequently than at the
conclusion of each workweek,'' and provide an employee in
writing their accrued sick leave at the employee's request.
However, most companies have internal business systems
calibrated for bi-weekly or semi-monthly pay periods, which is
the same frequently for employees to input hours worked or
taken for leave. Forcing small businesses to invest in
customized business systems or man hours to adjust to these
intervals, while accommodating the various standard and
nonstandard employee schedules within their business, is
unnecessary, and does not ``increase efficiency and cost
savings in the work performed by parties that contract with the
Federal Government,'' as the EO intends. Or in the case of the
``Fair Pay and Safe Workplaces'' EO, the implementing
``guidance,'' was not subjected to the rulemaking process,
despite its ``regulatory nature,'' as pointed out by the SBA
Office of the Advocate. Further, implementation of the EOs have
not provided adequate compliance support for small businesses.
For example, the FAR rules implementing EO 13627,
``Strengthening Protections Against Trafficking In Persons In
Federal Contracts,'' was made effective without
Congressionally-mandated guidance to help contractors comply
with new requirements, severely limiting the ability of small
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business to comply most effectively with new regulations.
One EO in particular, Fair Pay and Safe Workplaces, is
simply unfair to businesses of all sizes. Under this EO, small
businesses would have to disclose alleged and adjudicated
violations of 14 Federal laws and EOs in addition to yet-to-be
fully-determined equivalent state laws in the preceding three
years to either government contracting officers (COs), or the
Department of Labor (DoL). Once disclosed, the DoL or CO (with
help from agency labor compliance advisors [ALCAs]) would
determine, based on the details of the alleged or adjudicated
violations and any mitigating factors, whether they are
serious, repeated, willful, and/or pervasive in making a
responsibility determination.
Aside from the enormous associated compliance burden, the
EO unfairly places these subjective determinations in the hands
of COs who are incredibly risk averse and untrained in labor
law. Although they are able to seek the advice of an ALCA, DoD
alone for instance, has nearly 24,000 contracting officers
(COs) that enter into contracts worth billions of dollars
annually, with only one DoD ALCA and a handful of
representatives. Common sense indicates that the small-dollar
contracts that SBs compete for as primes would at the bottom of
the list of priorities for ALCAs, leaving the onus on COs to
assess and interpret actual and alleged violations and a range
of mitigating factors, and leaving scarce resources for the
government to engage with small business to develop and
implement labor compliance plans. This aligns with industry's
long-stated contention that this EO is punitive-based, with the
intent of blacklisting businesses, rather than the supposed
intent of ``helping companies improve.''
Small businesses are not only concerned with the collective
impacts of the EOs on their bottom-line, but also the
detrimental impacts they will have on government customers and
their ability to carry out missions, the most consequential of
which is national security. In recent years, the Department of
Defense (DoD), Federal Government's biggest spender by a
substantial margin, has placed a renewed emphasis on innovation
and acquisition reform, led by top officials in the Office of
the Secretary of Defense and the Services. These efforts have
been initiated as a result of the current state of the
acquisition process, which is unable to keep up with the rapid
pace of technological innovation and security threats, and the
reality that innovation is driven by private sector R&D,
requiring DoD to access nontraditional and commercial suppliers
that have historically been deterred from the government
marketplace by procurement policies, to stay at the forefront
of technological innovation.
Unfortunately, the EOs undermine these initiatives. The
resultant accumulation of government-unique requirements and
their compliance costs will continue to deter new suppliers
from entering the government marketplace and drive exits by
firms already selling to the government, restricting
competition. Further, Fair Pay and Safe Workplaces, alone,
figures to drive a substantial increase in bid protests,
slowing down the acquisition process even more.
In closing, several of the recent EOs have, through flawed
processes, installed burdensome, unnecessary, inefficient, and
in many cases duplicative and overlapping regulatory regimes
that have the cumulative effect of dramatically increasing the
cost of doing businesses with the federal government. Over
time, these will decrease efficiency and economy in federal
procurement, while undermining small business growth and
development, and limiting the Federal Government's access to
innovative products and services to fulfill their needs, in
direct contradiction of ongoing initiatives.
Thank you again for the opportunity to appear before you
this morning and I am happy to answer any questions you may
have.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Opening Statement of
Chairman Richard Hanna
House Committee on Small Business
Subcommittee on Contracting and the Workforce
Hearing: ``The Cumulative Burden of President Obama's Executive
Actions on Small Contractors''
September 13, 2016
Thank you, Chairman Hardy. I, too, would like to start by
thanking the witnesses for taking time from their busy
schedules to be with us. We really do appreciate it.
Most of the issues we will examine today are not new. As
Chairman Hardy mentioned in his opening statement, the Small
Business Committee has done extensive work over the past two
years to improve how small businesses work with the federal
government. During the 114th Congress, our Committee has
reported nearly 40 pieces of bipartisan legislation aimed at
making it easier for small firms to do business with the
federal government. Nearly 20 of these bills became law as part
of last year's National Defense Authorization--and nearly 20
more are still in play in this year's NDAA.
The bipartisan work we have done here in the Small Business
Committee is stark contrast to what President Obama has done
during his time in office. Since 2009, the President has issued
15 Executive Orders and presidential memoranda that
specifically relate to government contracting. While these
mandates may be well-intentioned, too often the cost
significantly outweigh the benefits. In fact, it is estimated
that compliance with unique government regulations costs almost
30 cents of every contract dollar--a figure sure to increase as
more of these executive actions are fully implemented.
To make matters worse, we have seen time and time again
that the proposed regulations stemming from these executive
actions consistently fail to comply with the Regulatory
Flexibility Act, or RFA. At its most basic, the RFA is a
simple, yet critical law that mandates that federal agencies
give small businesses a seat at the table when they are
developing both proposed and final rules.
In recent years, agencies' inability to comply with the RFA
has created further difficulties for small businesses. For
example, agencies frequently publish regulations that have
significant flaws in their economic impact analyses or lack a
discussion of significant alternatives that reduce impacts on
small businesses.
Agencies also certify rules as not having a significant
economic impact on a substantial number of small businesses but
fail to provide a factual basis for this conclusion as the law
requires. Sometimes agencies do not conduct the kind of
affirmative outreach that is required under the RFA and
accordingly limit the opportunity for small businesses to
provide adequate input in the rulemaking process.
Unfortunately, the regulations that have come out of these
presidential actions are no different in their lack of small
business input. These issues cannot persist or we will continue
to see innovative small firms exiting the federal marketplace,
leaving taxpayers on the hook for more expensive products
purchased by our federal agencies.
We have an excellent panel with us today and I look forward
to hearing their testimony. Again, thank you all for being
here.