[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
CONTINUING CHALLENGES FOR SMALL CONTRACTORS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CONTRACTING AND WORKFORCE
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
NOVEMBER 18, 2015
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 114-030
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
MIKE BOST, Illinois
CRESENT HARDY, Nevada
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
MARK TAKAI, Hawaii
Kevin Fitzpatrick, Staff Director
Stephen Denis, Deputy Staff Director for Policy
Jan Oliver, Deputy Staff Director for Operation
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. Nydia Velazquez............................................. 2
WITNESSES
Ms. Anne Crossman, Head Revolutionary, Completed Systems, Oakton,
VA, testifying on behalf of Women Impacting Public Policy...... 4
Mr. Edward T. DeLisle, Partner and Co-Chair, Federal Contracting
Group, Cohen Seglias Pallas Greenhall & Furman PC,
Philadelphia, PA, testifying on behalf of the Associated
General Contractors of America................................. 5
Mr. Michael D. Janeway, President and CEO, APG Technologies, LLC,
Sterling, VA................................................... 7
Ms. Karen Ward, President and CEO, WESSGRP, Fredericksburg, VA,
testifying on behalf of the U.S. Women's Chamber of Commerce... 8
APPENDIX
Prepared Statements:
Ms. Anne Crossman, Head Revolutionary, Completed Systems,
Oakton, VA, testifying on behalf of Women Impacting Public
Policy..................................................... 19
Mr. Edward T. DeLisle, Partner and Co-Chair, Federal
Contracting Group, Cohen Seglias Pallas Greenhall & Furman
PC, Philadelphia, PA, testifying on behalf of the
Associated General Contractors of America.................. 24
Mr. Michael D. Janeway, President and CEO, APG Technologies,
LLC, Sterling, VA.......................................... 34
Ms. Karen Ward, President and CEO, WESSGRP, Fredericksburg,
VA, testifying on behalf of the U.S. Women's Chamber of
Commerce................................................... 40
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
CONTINUING CHALLENGES FOR SMALL CONTRACTORS
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WEDNESDAY, NOVEMBER 18, 2015
House of Representatives,
Committee on Small Business,
Subcommittee on Contracting and Workforce,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2360, Rayburn House Office Building. Hon. Richard Hanna
[chairman of the subcommittee] presiding.
Present: Representatives Hanna, Gibson, Velazquez, and
Lawrence.
Chairman HANNA. Thank you all for being here. We will call
this meeting to order.
There is an old adage in business that you cannot manage
what you do not measure. The very active tracking often drives
behavior. However, today, we are here to talk about what
happens when measurements are distorted or ignored? In the
realm of federal contracting, it usually means small business
suffers. For example, when you look at small business goals,
the SBA grades results. However, what SBA reports is not what
we told it to measure. Congress created a goal of 23 percent of
prime contracts to small businesses each year, and the SBA
reports that it exceeded that goal for the last 2 years.
Unfortunately, the truth is that the federal government
excludes nearly 20 percent of its contracts before it figures
out whether or not it met its goals. Kind of strange, is it
not?
Due to the way SBA counts the exclusions, some agencies are
not required to do much for small businesses. Agencies, like
the Department of Transportation, report that over 45 percent
of their contracts went to small businesses, but in reality, it
was only 13 percent because DOT excludes 72 percent of its
contracts as unsuitable for awards to small businesses. The
General Service Administration, an agency that has procurement
as its mission, reported that 40 percent of contracts went to
small businesses, but the truth is only 17 percent went to
small business firms because the GSA thinks that 44 percent of
its contracts count. This fuzzy math costs small businesses
around 11 billion bucks a year.
Likewise, when it comes to subcontracting, the Small
Business Act requires that large prime contractor businesses
must negotiate goals for using small subcontractors. However,
the last time a company suffered a penalty from this, if you
can believe it, was 1982. Indeed, SBA lowered the
subcontracting goal again last year but agencies are still
missing the goal. The Subcontracting Achievement Report does
not even provide dollars, although this information has been
required since the 1970s. Many large contractors do not even
bother submitting reports about their subcontracting
activities. All of this sends a message that while Congress may
want small businesses to thrive and succeed, the Executive
branch has not followed the law or measured the results. What
we measure and the time we recognize the contributions small
businesses both as prime and subcontractors make to the
economy, they increase competition, increase innovation, create
jobs, and save taxpayers' dollars.
As this Subcommittee considers the issues surrounding small
businesses and federal contracting, we want to learn today how
we can ensure we are using the right metrics and getting
complete data. If we succeed at that goal, we will help small
businesses compete, create jobs, and save taxpayers money.
I want to thank our witnesses for participating today,
which will help us achieve those ends.
Now, I yield to Ranking Member Velazquez, for her opening
remarks.
Ms. VELAZQUEZ. Thank you, Mr. Chairman. It is my pleasure
to again be filling in for Mr. Takai.
In fiscal year 2014, the federal government spent more than
$440 billion on the purchase of goods and services netted for
its day-to-day operations. As such, the U.S. government remains
a consistent and reliable client, which attracts small
businesses looking to enter the federal marketplace by becoming
either prime contractors or subcontractors. We have seen some
success in ensuring that small businesses receive their fair
share of these contracting dollars.
Last year, small primes received over $90 billion,
amounting for almost 25 percent of contracting dollars. By this
measure, the government has once again met its small business
contracting goal. However, when taking a closer look at the
data, not all is as it appears. It seems that a lack of
transparency in the reporting of these numbers is skewing the
results. For example, billions of dollars continue to be
excluded from the Small Business Goaling Reports. In fiscal
year 2014, $80 billion, nearly 20 percent, was deemed not
eligible for small businesses, and as a result, not included in
the base of calculating the small business goal.
While some of these contracts have been set aside for other
groups, there are those that argue that small businesses are
incapable of performing some of these contracts. This is just
not the case. The capabilities of small businesses continue to
grow, and we have seen many instances in which small businesses
were awarded these contracts even without the use of set-aside
procedures. Additionally, there is no statutory language that
exempts these contracts from being included in the calculation
of the goals.
Unfortunately, the lack of transparency does not end there.
At an earlier hearing, we heard allegations that one agency has
been underreporting its contracting dollars by $6 to $10
billion for the past 5 years. Also, we continue to see large
companies among those listed as receiving small business
contracting dollars. SBA cannot continue to claim that 23
percent of prime contracting dollars have been awarded to small
businesses if the data being used to arrive at that conclusion
is incomplete and inaccurate.
However, prime contracting is only one part of the equation
to becoming successful in the federal marketplace. Before
becoming prime contractors, many small businesses first enter
the marketplace as subcontractors, yet we continually hear how
difficult it has become for firms to get subcontracts as prime
contractors are doing more of the work themselves.
Our supply chain needs a robust and varied source of
subcontractors. Not only do they allow for more specialized
businesses, but subcontracting allows for the benefit of these
contracts to flow further into communities, creating more jobs
and increasing economic development. For these reason and many
more, we need to make sure that prime contractors are fully
utilizing small businesses as subcontractors to the maximum
extent possible.
You have heard us say time and time again that a small
business contract creates a win-win situation for both the
business itself and the federal government. Competition is
good, and that is one of the fundamental principles of our
system. I hope that today's hearing will allow us to get some
insight as to how we can create more of these win-win
situations and ensure that small businesses are getting their
fair share of federal contracts.
I want to thank all of the witnesses for being here today,
and I yield back the balance of my time.
Mr. Chairman, I just would like to share with the members
of the panel that I am filling in for Mr. Takai, who is the
ranking on this subcommittee, but he is absent, and so I am
here making this opening statement, but I have to go to my
other hearing of the Financial Services Committee, where
chairwoman of the SEC is testifying, and I have legislation
that is very important, and I would like to ask her some
questions, so I will have to excuse myself.
Chairman HANNA. Thank you.
Ms. VELAZQUEZ. Thank you.
Chairman HANNA. Do you have something to say? Go ahead,
please.
Ms. VELAZQUEZ. It is my pleasure to introduce Ms. Karen
Ward. Ms. Ward is the president of Ward ENG Support Services,
an economically disadvantaged, women-owned business located in
Leesburg, Virginia. The company specializes in system
engineering, cyber security, and information assurance, as well
as program management. Ms. Ward has a Master of Science in
Software Engineering and is a doctoral candidate of
Engineering. Ms. Ward is also here testifying on behalf of the
U.S. Women's Chamber of Commerce, an organization that
represents 500,000 members, three-quarters of whom are small
business owners and federal contractors. Welcome, and thank you
for being here.
Chairman HANNA. Thank you.
Our first witness today is Ms. Anne Crossman, who is the
Head Revolutionary with Completed Systems in Oakton, Virginia.
Completed Systems is a software development Ms. Crossman
founded in 1996. She is testifying on behalf of Women Impacting
Public Policy. Thank you for being here.
Our second witness is Mr. Edward DeLisle, partner and co-
chair of the Federal Contracting Group at Cohen Seglias Pallas
Greenhall and Furman--a lot of people--in Philadelphia,
Pennsylvania, where he consults clients in all aspects of small
business procurement. He is testifying on behalf of the
Association of General Contractors of America.
Our third witness is Michael Janeway. Mr. Janeway is the
founding member and president of APG Technologies, LLC, a
service-disabled, veteran-owned small business headquartered in
Sterling, Virginia.
Thank you all for being here.
Ms. Crossman, you may begin.
You know how the lights work.
Ms. CROSSMAN. I am working on it.
Chairman HANNA. You have 5 minutes and the light will go on
and that will tell you when you have--that is a 1 minute
warning, but we want to hear what you have to say, so you may
begin. And stay relaxed.
STATEMENTS OF ANNE CROSSMAN, HEAD REVOLUTIONARY, COMPLETED
SYSTEMS; EDWARD T. DELISLE, PARTNER AND CO-CHAIR, FEDERAL
CONTRACTING GROUP, COHEN SEGLIAS PALLAS GREENHALL & FURMAN PC;
MICHAEL D. JANEWAY, PRESIDENT AND CEO, APG TECHNOLOGIES, LLC;
KAREN WARD, PRESIDENT AND CEO, WESSGRP
STATEMENT OF ANNE CROSSMAN
Ms. CROSSMAN. Thank you very much. Good morning, Chair
Hanna and distinguished members of the Subcommittee. My name is
Anne Crossman. I am the head revolutionary at the Completed
Systems, a women-owned small business based in Leesburg,
Virginia. Our company is dedicated to completing information
technology projects that others have given up on. I am also
president of Vertical Jobs, a company that provides experienced
role players to law enforcement and government agencies. I am
here today representing Women Impacting Public Policy, where I
serve on its Leadership Advisory Council. WIPP plays a key role
in developing women-owned businesses and its successful federal
government contractors through its Give Me 5 and ChallengeHER
programs.
On a personal note, clarity of teaming relationships and
the length of time between an RFP and an award, are continuing
challenges. Thankfully, under the Committee's leadership, the
Congress has enacted much needed changes for small contractors.
While the federal government has yet to reach its 5 percent
goal of prime contracts awarded to women, the size of the WOSB
procurement program has tripled since 2011. In 2011, WIPP
testified before this Subcommittee on subcontracting issues.
Since that time, the Committee has made a number of
improvements that we applaud, including allowing women-owned
small businesses to better partner with one another on federal
contracts. In addition, the Committee's efforts to increase
accountability for agencies to meet their subcontracting goals
and incorporation of subcontracting goals for DoD are much
appreciated. In reviewing our past testimony before this
Committee on barriers facing women business owners in the
federal market, we identified two continuing challenges,
subcontracting plan issues, and data transparency. Many of the
problems faced by subcontractors are symptoms of the underlying
issue that the subcontractors have no real relationship with
the federal government.
In 2011, we raised several questions about subcontracting
plans. How are they reviewed prior to award? How are they
enforced? Should subcontractors have access to the plans? WIPP
members tell us that many of these questions have not yet been
addressed. We continue to believe that prime should adhere to
an ``if you list us, use us'' policy.
With respect to data transparency, GAO has found issues
with the collection and availability of subcontracting data. It
seems to us that using four systems to report disparate data is
inefficient.
Data issues, however, are not limited to only
subcontracting plans. The annual scorecard should be accurate
given the roles these reports play in encouraging agencies to
contract with small businesses. We offer three suggestions.
First, the data reported in the scorecard needs to be accurate.
The SBA OIG found widespread misreporting by agencies. Second,
the scorecard should measure the entirety of federal spending.
Exclusions from the score card significantly change goal
achievement progress.
Third, reporting the number of firms winning contracts, not
just the total dollar amount would enhance the scorecard. While
the amount awarded to small businesses is increasing, there are
fewer firms participating in these contracts.
In conclusion, women entrepreneurs consider the federal
marketplace a key opportunity to grow their businesses. For
many, subcontracting is a staple of their federal business.
Ensuring that the rules governing federal contracting are
accurate and fair is of paramount importance to their success.
Thank you for the opportunity to testify, and I would be
happy to answer any questions that you may have.
Chairman HANNA. Thank you.
Mr. DeLisle?
STATEMENT OF EDWARD T. DELISLE
Mr. DELISLE. Yes. Thank you, Chairman Hanna, for inviting
me to speak before the Committee today about a number of very
important issues that are confronting small business today.
What I am going to do is stress two points during my oral
testimony this morning. The first pertains to transparency in
federal small business contracting, and the second pertains to
the change order and the claims process that small business
construction contractors in the federal marketplace are having
a more and more difficult time navigating based upon how that
process or those processes are being administered by the
federal government, because you see, the difficult part of
being a small contractor does not end with the procurement
process, the solicitation process. It continues after project
award. And so I will speak about some of those issues as well.
With respect to transparency, the issue is, how well is the
federal government providing access to opportunities for small
business? And are these opportunities placing small businesses
in a position to succeed and thrive? In order to answer those
critical questions, there has to be an understanding as to
where contracting opportunities are presenting themselves for
small business as part of the contracting continuum, which
there are many layers in the construction industry. Prime
contractor, subcontractor, and various different levels. Where
are subcontractors being provided those opportunities, and what
percentage of federal government contracts are, in fact, they
getting?
Well, that is where transparency in the reporting issue all
come into play, and this Committee has played a leading role in
attempting to increase transparency and generate the data
necessary to answer the questions that I just posed a few
moments ago. And the scorecards which have been mentioned are a
good first step in determining exactly how small businesses
benefitting from the programs that do exist currently with the
federal government. AGC thanks the Committee for its efforts up
until this point and asks for the Committee's help in seeing
another important initiative come to fruition.
On December 26, 2013, the President signed the National
Defense Authorization Act of 2014, and section 1614 of the Act
calls for reporting and counting of lower tired small business
subcontractors towards the fulfillment of small business
contracting goals. Under the old system, only small businesses
at the first tier or subcontracting level are reported and
counted towards obtaining small business goals for any given
contract and, in fact, we are still operating under that old
system now. Under the new system, the idea is to provide a more
in-depth analysis and understanding of how and how many small
businesses are benefitting from any given contract. Under the
old system, you do not get that.
Why have we not seen the new law go into effect? Well, it
because of the rulemaking process. The SBA and FARC Council are
still in the rulemaking process. Under the law when it was
initiated, when it was signed, they had 18 months to complete
the rulemaking process. We are not there yet. We are 23 months
out. And while we have a proposed rule from the SBA to
implement the new law, we are just not there yet, which is
affecting the ability to understand even how small business is
being impacted all through the contracting continuum. So from
AGC's standpoint, we would urge the Committee to push the SBA
and FARC Council to complete the rulemaking processes so that
this important initiative can be put into effect.
Now, with respect to change orders and claims, once a small
business contractor gets through the initial process of
obtaining a contract, it does not end there. Changes happen on
federal contracts all the time. Government needs change,
conditions from a construction contractor's standpoint in the
field may change, and work becomes more expensive, and
additional time may be needed to complete whatever work might
be required under a given contract.
Small businesses can adapt and adjust to changes like that.
However, the processes for dealing with changes need to be
fair, and the process needs to be timely. Unfortunately, many
times it is unfair and untimely, and there is no better example
than the VA's project in Aurora, Colorado, about which I have a
lot of experience. I had a client on that particular project
who had an $18 million renovation job on an existing facility,
and it cost $32 million to complete. The change order process
never took place, forced this contractor to submit claims,
prolonged the process, and but for luck and circumstance, my
client would have been out of business. And there are many
small businesses that are in exactly that same boat.
We, at AGC, encourage this Committee to investigate issues
like those, the change order and claims process, and AGC is
committed to working with the Committee as part of any
investigative process that it deems appropriate.
Chairman HANNA. Thank you.
Mr. Janeway?
STATEMENT OF MICHAEL D. JANEWAY
Mr. JANEWAY. Good morning, Chairman Hanna and the members
of the Committee. I would like to thank you for inviting me to
testify today to discuss the continuing challenges facing small
contractors, and specifically, how the federal government has
not met its subcontracting goal in 5 years.
My name is Mike Janeway, and I am the founding member and
president and CEO of a small business called APG Technologies,
LLC, located in Potomac Falls, Virginia. My expertise in this
matter is as a private business owner, a board committee member
of several professional associations, and a retired Air Force
lieutenant colonel with defense acquisition experience on large
ACAT 1 programs.
I founded APG Technologies in March 2008, as a service-
disabled, veteran-owned small business, with a goal of
providing high value ROI data management designs and solutions
to the Department of Defense and various intelligence agencies.
We have about 30 employees located in multiple states where we
have successfully delivered programs used in the War on Terror.
We maintain an excellent reputation and have grown slow but
steady, and are known as a niche provider of high-value, secure
data management solutions.
Since our deliverables are typically a component of a large
overall development, most of our revenue comes from being a
subcontractor. The last 3 or 4 years have been extremely
challenging, especially for small businesses. We have seen the
impacts of sequestration, delays in acquisition cycles,
contracts canceled, short duration purchase orders for 4 to 6
weeks at a time, contracts combined into large purchase
agreements, turmoil in our large partners as they merge and
spinoff business units, and an acquisition with poor to
nonexistent communications and an overriding focus on low price
awards. The results of this have driven many small businesses
out of business. And while I do not have the numbers, I had a
senior SBA executive tell me at a recent event they have seen
large and dramatic number drops in the number of small business
supporting federal.
Adding to all this is the talent flight we are starting to
see from employees who leave federal for commercial. In the
words of a former employee, ``It is just too unstable, and I do
not see a future in federal.'' While this may seem overly dark,
when you are in a small business and you make your living off
subcontracts, it seems that way at times because you are at the
bottom of a somewhat unstable and even dark chain, it seems.
The government requires federal contractors to submit a
small business subcontracting plan that outlines how they will
meet the subcontracting business goals. Since the goals are
administrative rather than statutory, there is a lot of
flexibility in execution, and most of the time the goals are
not met. Too often we see subcontracting plans written to
adjust proposal goals with little to no follow-through after
the prime contract is awarded. With no enforcement by the
federal government to hold contractors accountable, the
subcontracting plan seldom matches reality and goals are seldom
met.
APG Technologies has experienced this where we entered into
a team agreement in good faith with a large defense integrator.
We took engineering talent off billable gigs to write the
solutions and proposals, and then were not awarded the contract
afterwards for some convenient reason. That is not an uncommon
story with a lot of small companies out there. Setting
statutory subcontracting goals to be followed by all federal
agencies are the key to establishing a degree of stability for
small businesses. Without these measures, the federal
government will continue to fail in meetings its small business
subcontracting goals. I believe the solutions should be
statutory, and government contracting officers need the
authority and ability to enforce them. Subcontracting plans
should no longer just be words on a paper; it should be an
enforceable and executable management plan to address the
statutory requirement that reflects the government's desire for
a healthy and vibrant small business community.
Mr. Chairman, thank you for the opportunity. I will be glad
to answer any questions you have.
Chairman HANNA. Thank you.
Ms. Ward?
STATEMENT OF KAREN WARD
Ms. WARD. Chairman Hanna, Ranking Member Velazquez, members
of the Committee, thank you for this opportunity to provide
this testimony. I am Karen Ward, president and CEO of WESSGRP,
testifying today on behalf of the U.S. Women's Chamber of
Commerce.
Access to federal contracts is vital for the continued
growth and vitality of American small businesses. Yet, in 2014,
there were 36,000 fewer small business government suppliers
than there were in 2008. And between 2014 and 2015, small
business awards decreased 20 billion. In this environment,
decline in federal spending and decline in government
suppliers, it is undoubtedly more important to ensure
transparency in contracting and that the mandatory goal of
maximum practical opportunity for small business concerns is
being met government-wide.
Prior to 2008, annual small business procurement reports on
federal procurement provided more detailed, important
information than they do today. But in 2008, these reports were
stripped down to nothing more than an aggregated list of total
amounts spent by agency. The current SBA goaling and federal
acquisition reports are the antithesis of transparency. I ask
that Congress act to require the SBA to restore the goaling and
federal procurement report format to include the in-depth data
and analysis as was present prior to 2008.
Inappropriate use of grandfathering is causing billions of
dollars in awards to large businesses to be reported as part of
small business goal achievement as federal agencies attribute
awards to small businesses. Even when the business, as acquired
by a large firm, is no longer qualifying for small business
goaling.
federal regulations require firms that qualify as small at
the time of its initial offer may be considered small business
for goaling purpose throughout the life of the contract.
However, important exceptions apply. Within 30 days of a proved
contract novation, a contractor must certify its small business
size to the procuring agency. And if the firm is no longer
small, the agency can no longer count the options or orders
issued pursuit to the contract towards its small business
goals. This is similarly true in the case of a merger or
acquisition. There have been many instances where my firm has
been forced to unjustly compete during RFPs against companies
that were classified as a small originally, but if reclassified
today, would no longer meet the small business size
requirements.
I call upon Congress to require SBA to include details in
annual procurement reports detailing the contract actions and
dollars attributed to small business goaling with firms that
are no longer small. Each year, the Small Business
Administration carves out billions of dollars in federal
contracts to be excluded from small business goaling. Most of
these exclusions are without merit. The practice should
immediately be terminated.
As a small business and lead for a small company prior to
starting my own firm, I have seen and demonstrated that small
companies are capable of performing work overseas. There can be
no justification for claiming that American small businesses
have limited chance to compete for awards pertaining to
contracts performing outside the U.S., foreign sales, or
American embassies. I ask Congress to act to require the SBA
and these unwarranted exclusions from small business goaling
and require that any exclusions be fully reported and justified
annually.
The federal government is still not meeting its
subcontracting goals, holding business prime contracts
accountable for the subcontracting plans can help the
government meet these goals. As a subcontract, I have seen
issues associated with the ability to perform the work within
the rates defined by large primes. Large primes will list the
small business participating on the subcontractor plan and then
provide payment rates for subcontractors that are not
executable. Consequently, due to the inability for the small
business contractors to fill these positions, the large primes
ultimately fill those positions with their own personnel.
I ask Congress to require procurement center
representatives to review all subcontracting plans, assuring
they are complaint with the maximum practical opportunity for
small business participation and empower the PCRs to deliver
the acceptance of the prime contractor's subcontracting plans
should these plans not meet these requirements.
Thank you for this opportunity to provide my testimony, and
thank you for your efforts on behalf of the small business
federal suppliers.
Chairman HANNA. Thank you, Ms. Ward.
Oh, we are going to have Colonel Gibson ask the first
question.
Mr. GIBSON. Thanks, Mr. Chairman. And thanks for putting
together this hearing. It has been very informative. I
appreciate the testimony of the panelists here this morning
with regard to issues that we are having on transparency,
accurate reporting, and what might be done in terms of tweaking
what we have on the books now, maybe tightening up some of the
rulemaking timelines, or at least communicating our concern. I
am hearing all that.
And then also, Ms. Ward, I appreciate these comments as far
as small businesses that may not be small anymore. And I am
curious to know, just as a clarification, you had mentioned
inappropriate use of grandfathering. Is that what you meant? Or
can you give an example of that just for my understanding?
Ms. WARD. So what I mean by that is there are so many times
where there is a small business opportunity, and when you
actually go after that opportunity, because they have been
grandfathered in on an IDIQ, they are able to pursue that
contract as a small. But in reality, they are no longer a small
contracting firm. And so when you have companies like myself,
which are truly small contracting firms, it is extremely hard
to compete against those firms. And on top of that, you have
got these numbers which show how small businesses have a number
of opportunities by percentage of what is allocated for federal
contracting. And in reality, because the fact that these
companies are no longer small or getting these awards, it is
showing that those companies specifically have--the federal
agency is meeting those small numbers, percentages, but in
reality, they are really not. And so the number of
opportunities for someone like myself and my company and others
like me within the U.S. Women's Chamber of Commerce are
decreasing.
Mr. GIBSON. That helps. Thank you. And thank you for your
strong leadership.
Earlier in the testimony, and I think it was our expert
from AGC, was suggesting recommendations to changes for the
change order and claims process. I am curious to maybe put a
finer point on that, any recommendations you have. And then
also for the panel, anything they want to add on that.
Mr. DELISLE. Excuse me. Yes, thank you.
Specifically with respect to the claims process, I can tell
you that I think that an alternative dispute resolution process
would be extremely helpful. Any sort of early detection and
process that would allow the parties, require the parties, to
sit down and work through these issues before you get involved
in costly litigation would be most beneficial. And I think that
is definitely something to consider as you consider some
alternatives moving forward because the process that we are
dealing with now is just simply not working.
Mr. GIBSON. And it would seem that that would make--I mean,
candidly, that would make it harder because the smaller
businesses have a harder time competing in terms of how much
cost that would be in litigation, so it is a way of
outflanking, if you will, small business.
Mr. DELISLE. Yes.
Mr. GIBSON. That is a fair point.
Any other panelist want to address that, or address
anything on that score?
Well, thank you. Again, this has been very helpful in my
read up before this and then hearing you today, so it is
meaningful for us when you come here and you provide that
testimony. So Chairman, thanks for your leadership on this, and
I will yield back.
Chairman HANNA. Thank you.
I want to ask you something. I pretty well get all this. I
have been in construction, myself, for about 30 years, and what
do you think individually of the exclusion that these different
governmental agencies make which automatically kick out large
sums of money simply because I guess the premise is that small
businesses are not capable of--and you mentioned this in your
statement, Ms. Ward--of doing work that apparently is either
too large or too difficult or too complicated. Somehow they
arrive at these numbers and exclude, which is why we are here
today, because when you do that, you automatically reduce the
total dollars available. I mean, does anybody have an opinion
about how they arrive at that? The whole process seems so
arbitrary and capricious, and because it is rulemaking and
rules and not clearly defined obligations, legal obligations,
it seems like these agencies take advantage of that to pretty
much make up their own rules as they go along.
We have some time here. I would just be interested in
anybody's insights on that.
Mr. JANEWAY. Mr. Chairman, we have worked at a lot of
different agencies within defense and intelligence and in
general I would say most of them handle it in a somewhat
uniform manner. They do a sources sought release where they try
to find out what companies are out there that can bid on a
particular scope of work. The challenge we find in those
sources sought are hearing about them. Sometimes they are not
always widely disseminated, even though they are supposed to be
on CB, Federal Commerce Business Daily or the electronic
version of it. CBO, I think it is. So they do release them. We
do not always see them. Sometimes they are overly complex and
complicated in how you have to respond to them. They almost
become a proposal in themselves in the format and the volumes
of material that comes back. So it is a challenge to respond to
those in the timeline you are looking for and with the
complexity or detail that they are looking at.
Chairman HANNA. So somewhat of like a war of attrition the
process creates by itself.
Mr. JANEWAY. Exactly. Exactly. I mean, you find most
businesses, small companies out there going after--I hate to
use this term but it really is a reality.
Chairman HANNA. Can you describe, you have taken people off
of the workload that was productive, put them on something that
was potentially beneficial but it fell apart?
Mr. JANEWAY. Yeah, there are very few small companies out
there, even large companies now, that have people that are not
on billable engagements. If they are not working, they are
definitely working proposals. So it is actually lost revenue
when you do that. Exactly.
Chairman HANNA. Ms. Ward?
Ms. WARD. I would agree with Mr. Janeway. That is the issue
I have as well, and a lot of us small businesses, is that even
with myself, I work on multiple different contracts, and there
is really no one that is not billable within my organization at
this particular point in time, so that I can remain competitive
and keep the rates where I need to keep them so I can
subcontract off of larger companies. But in the prior work that
I have done working for other organizations, we were a small
company and we were able to successfully do work in foreign
countries and be able to succeed in providing those
capabilities that they were looking for. And so I really, truly
believe they need to open up those capabilities and give small
businesses a chance to respond and go after those.
Chairman HANNA. And why do you think they do not do that?
Ms. WARD. You know, I think it comes down to the risks that
they see. Right? I mean, typically, you are looking for the low
risk, the ability to procure it and have an organization that
they feel can----
Chairman HANNA. What you are really saying is the fact that
you are a small business is almost evidence to them that there
is risk associated for some bureaucrat someplace. It is easy
for him to hire somebody big and proven than it is to take a
chance on you?
Ms. WARD. Yes.
Chairman HANNA. Which would be, to me, an indication that
we actually need laws rather than rules to help them facilitate
and eliminate that anxiety, if you will.
Ms. WARD. Correct.
Chairman HANNA. Does that make sense to Ms. Grossman?
Ms. CROSSMAN. I think maybe I might come at it from a
slightly different perspective, but from a purely analytical
perspective, if people are not including dollars, that just
changes the total amount of money available. So I think making
people who say it is not small business, this cannot be done by
a small business, I think they should have to include that
revenue in the bigger number and make more things available on
work that is not part of that available to small businesses.
Chairman HANNA. Do you agree, Mr. DeLisle?
Mr. DELISLE. I think it is challenging. I can tell you that
from my personal experience, I do a lot of overseas work, and I
specifically am dealing with an awful lot of construction
contracts that were built in Afghanistan right now. And I will
tell you that the Corps of Engineers, Department of Defense has
eaten large companies alive in places like that. It is very
difficult to successfully perform overseas, and in that
particular environment, it was extremely challenging. Lakeshore
TolTest is one known example of a company that simply did not
make it. Very large company that performed a lot of work in
Afghanistan and simply could not make it. So I can understand
it from the government's perspective. Taking into consideration
the risk involved in performing overseas, I can.
I would say, however, that there are certainly
opportunities for small businesses abroad, perhaps more at the
subcontracting level, and that that issue does, in fact, need
to be looked at more closely in terms of allowing
participation.
Chairman HANNA. So you would say then that if they kept
better track of and allowed you to have transparency, which was
one of your original points----
Mr. DELISLE. That is right.
Chairman HANNA.--that you could actually have a better
measurement of the small businesses that are used, and you
might even feel better about the whole process because you
would know that they actually are being used, and whether or
not they are successful. And if there are requirements, then
you would know how to fit your company into that space.
Mr. DELISLE. And that is exactly the point. Yes. Yes, Mr.
Chairman.
Ms. WARD. The agency that excludes the highest percentage
of its dollars from its base does not do overseas contracting.
So it is not all overseas--we are all talking about overseas
dollars, but the Department of Transportation excludes all but
28 percent of its spend. That is not overseas contracting.
Chairman HANNA. But they all exclude substantial amounts. I
mean, you cannot take that away.
Ms. WARD. Well, of the nine agencies that exclude the
highest percentage of dollars all seem to get As on their
scorecard from SBA.
Chairman HANNA. Which, we would argue, they should not get.
Mrs. Lawrence? Thank you.
Mrs. LAWRENCE. Thank you.
Ms. Crossman and Ms. Ward, while equally successful in
terms of results, women and minority business owners report
investing more time and money in seeking federal procurement
opportunities and submit significantly more than the average
small business contractor does. What major challenges do you
see women and minority-owned business facing in order to win
these contracts?
Ms. Ward? Do you need a moment? I can go to Ms. Crossman.
Ms. WARD. Yes, I do. Please.
Mrs. LAWRENCE. Ms. Crossman?
Ms. CROSSMAN. I think that the new rulings for women-owned
small businesses, giving them, the contracting officers the
ability to sole source to women-owned small businesses has been
a great thing for all women-owned businesses. I think the
interesting part of this is all going to be how and when and if
the contracting officers will begin to use the new rulings. It
is new, and contracting officers sometimes do not like change,
so I think encouraging them to feel comfortable setting aside a
sole source for an EDWSB. You know, as we have been looking at
the sources sought that are coming out, and as we talked with
contracting officers, we have been trying to spread the word,
and we bring around the information provided by women impacting
public policy and try to connect the contracting officers. So
it is an education.
Mrs. LAWRENCE. So if I follow you, it is a tremendous
amount of discretion that is given to the contracting officer,
and so therefore, they can or cannot use this tool of sole
sourcing?
Ms. CROSSMAN. Well, they have the opportunity to use it.
Mrs. LAWRENCE. Okay.
Ms. CROSSMAN. But choosing to use it because it is new,
right, not a lot of people have used it so far. It is new. It
is a risk.
Mrs. LAWRENCE. What is the risk?
Ms. CROSSMAN. Because it is a new ruling. How are people
supposed to use this new ruling? The 8(a) sole source has been
in play forever. The women-owned small business is new. So I
think it is just sort of educating the contracting officers and
spending time convincing them this is a good thing for them to
do. And it is a plus for them and a plus for women-owned small
businesses.
Mrs. LAWRENCE. That is good to hear.
Ms. Ward, have you put your thoughts together?
Ms. WARD. Thank you for giving me the time to think through
it.
So I hear what you are saying, and I would agree. One of
the issues though in talking to the contracting officers is
that they have not been given policy that allows them to
actually execute direct awards for EDWSB. And I have heard that
through a number of them. I have participated in a lot of
industry-type U.S. Women's Chamber of Commerce meetings where
they bring a lot of large industry and agencies into the forum,
and when we go around and we talk to them, they specifically
say we do not have the rulings and the policy yet to put into
place. I also deal with other contracting offices and small
business advocates within the agencies and they say the same
thing; that until they have policy within the DoD or within the
federal government and the federal space, they cannot execute
it because they have to have that policy which drives the
actions that they take.
Additionally, one of the issues that I see is that there
are a number of organizations--this may not be the right
forum--but there is a number of organizations that classify
themselves in EDWSB and they do not have the certifications
associated with it. My company, for the little bit of money
that I spend, I go to a third party because I do want to
justify the fact that, yes, if I am classifying myself as an
EDWSB, I am actually a EDWSB.
Mrs. LAWRENCE. Exactly.
Ms. WARD. And that is one of the issues that I am seeing.
Because there is more than once I have bumped into other
companies and had discussions with them, and they say they are
an EDWSB, but in reality, they are not.
Mrs. LAWRENCE. I really appreciate your openness on that.
Mr. Chair, I just had another question for Mr. DeLisle. In
2014, the federal government awarded $90 billion to small
businesses. Despite spending such a considerable amount, a
recent GAO report found that there was no single system
currently in place that is designed to link small business
contractors to prime contracts. What tools are necessary to
help small businesses get those subcontracts? And second, how
do we get the prime contractors to invest more resources in
subcontracting contracts, opportunities?
Mr. DELISLE. I can tell you that based upon my own
experience, how it is done many times now. There are
organizations, the National 8(a) Association is one of them,
and I do a lot of work for the National 8(a) Association. And
they will host meet and greets on a fairly regular basis trying
to put large prime contractors together with potential
subcontracting partners, both for large contracts that may be
solicited by the government, as well as set-aside contracts
where a teaming arrangement could take place, small business
hiring large business. That is one way that it is done. I host
them myself. As far as what government can do, it is a great
question because right now there is a disconnect between the
primes, or the large businesses I should say, and the small
businesses, linking together, finding one another, to work
together. And that is the biggest problem. I do not know if you
can necessary issue legislation to force some sort of a system,
maybe you could. Maybe you could require some sort of a meeting
of some type at some point during the solicitation process and
have the large businesses document the fact that, yes, well, we
hosted a meet and greet of some kind, this is who we invited,
and this is who attended. You could do that if you wanted to.
Perhaps that is one solution that you may have. As it stands
right now, companies are on their own. I have plenty of small
businesses that I represent that actively solicit agencies that
they are interested in working for, and that is what they do
and they ask questions. Okay, well, who do you use on your big
contracts? Who are they? Who is the contact person? That is how
it is done oftentimes now.
Mrs. LAWRENCE. Thank you so much. I yield back my time.
Thank you, Mr. Chairman.
Chairman HANNA. Ms. Velazquez?
Oh, I want to take a minute and congratulate you on your
Sandy----
Ms. VELAZQUEZ. Yes.
Chairman HANNA.--bill being passed Monday; right?
Ms. VELAZQUEZ. Monday. So it is going to the president for
his signature.
Chairman HANNA. Good for you. Congratulations.
Ms. VELAZQUEZ. Yes. Thank you. Yes.
Mr. DeLisle, you stated in your testimony that by removing
the exclusions to the small business goal, agencies will look
to the construction industry to make up the difference in their
goals What can we do to ensure that agencies are not relying on
one industry for their goals and are looking to expand small
business participation throughout all sectors?
Mr. DELISLE. The construction industry, I think simply by
its nature and the fact that you have so many different levels
of contracting that typically take place. It ends up being a
place, which is not a bad thing, where many, many smaller
contractors can perform and succeed. The problem is that I do
not believe, AGC does not believe and is concerned that other
industries--take manufacturing for one example--will not
shoulder a fair amount of the subcontracting load, if you will,
and participate at the same levels. I think what you need is
going back to the reporting and transparency issues that we
have discussed earlier, we need more information. There has to
be an industry-by-industry review of what is happening and an
understanding from the bottom, or from the top down to the
bottom, who is participating. And that gets back to my earlier
testimony where under the National Defense Authorization Act of
2014, if we can move that along, I think you will get much of
that information and then be able to make a determination as to
what the appropriate levels are and where the participation
level should be.
Ms. VELAZQUEZ. Okay, thank you.
Ms. Ward, you noted in your testimony that in a merger,
acquisition, or other contract innovation, small businesses are
required to recertify their size status. Yet, we have continued
to see dollars that are counted towards the small business goal
going to large businesses as a result of such acquisitions. Why
do you think this is the case? Are businesses gaming the system
and not recertifying when they are supposed to? Or is the
information just not being reported correctly?
Ms. WARD. The reason I think that is the case is that if I
get awarded an IDIQ, in the time I am awarded that IDIQ, I am a
small business, but over time I am very successful and I am no
longer a small business, but I am still on that IDIQ. I qualify
as a small business on that IDIQ. So when I go after an
opportunity--and some of these IDIQs are not just 5 years, they
are 10 year IDIQs. And so when I go after an opportunity, I go
after an opportunity as a small, but in reality, I am a
multimillion dollar company. And I am way past the small
thresholds. So what happens is companies like myself who are
small and go on teams that are smaller, have a harder time in
competing against those opportunities.
So if the federal government was required to basically set
them up as if they are on longer a small, and that is not part
of their small thresholds, then we would see a reality of how
many contractors that are small contractors who are actually
getting a percentage of the dollars allocated to the federal
contracting.
Ms. VELAZQUEZ. I am just thinking in terms of legislative
fixes. But I will come back to you.
Ms. Crossman, prior to award, large prime contractors are
required to submit subcontracting plans for review. If a
contracting officer finds them to be inadequate, he or she can
decide to not award the contract to the business. In your
experience, how often are contracts not awarded due to
inadequate subcontracting plans?
Ms. CROSSMAN. From personal experience, I have not
experienced that but we are also pretty particular about who we
team with. But I do know of people where it has happened. It
has not been my experience though.
Ms. VELAZQUEZ. So do you think that if this happened more
often, would contractors be inclined to submit higher
subcontracting goals?
Ms. CROSSMAN. Yes.
Ms. VELAZQUEZ. And Mr. Janeway, in FY2014, it was reported
that small businesses received 33 percent of subcontracting
dollars, yet we know that this number has been overinflated in
the past due to inaccurate reporting. Based on your own
experience, what about the process allowed this kind of
misinformation to be reported?
Mr. JANEWAY. Ma'am, I am not sure I have enough detail on
how the government actually reports that. All I can say is I
see numbers that seem to be kind of spread all over the
spectrum. You will see an association says that they did not
meet their goals and then you will see something in the paper
says an agency has declared success and they did meet their
goals. So I do not have that insight.
Ms. VELAZQUEZ. Ms. Ward, do you think that the federal
agency, in this case SBA, has the authority to address the
issue of small businesses growing into a big businesses and
still applying or bidding for a contract that is intended to go
to small businesses? How can we address that issue?
Ms. WARD. So just to restate what you are asking,
essentially what you are asking is that if a small contractor
wins an IDIQ and they are small at the time that they won it--
--
Ms. VELAZQUEZ. Right.
Ms. WARD.--and essentially, as the IDIQ moves forward and
they are no longer classified as a small, how does the SBA
ensure that that large company, even though they are on an
IDIQ, can still go after that award?
Ms. VELAZQUEZ. Mm-hmm.
Ms. WARD. Unfortunately, in today's contracting world, that
is exactly what they are given the ability to do. What I would
hope is that if you could look at the numbers and show that
those companies that are winning those awards are not small, it
would actually show the reality of whether or not they are
meeting the small business contracting goals. And if they are
not meeting those goals, they would take hopefully other
avenues to provide opportunities to the small companies.
Ms. VELAZQUEZ. Thank you.
Chairman HANNA. Thank you.
It seems that the ability to be arbitrary for the
bureaucracy to protect itself, to move towards larger companies
is almost inherent in the process. Would you agree with that?
That contracting officers would choose to use less latitude by
hiring larger companies simply because it is easier. It defends
their positions and the likelihood of failure is reduced. So
would it be safe to say then that the rulemaking process at the
end of the day cannot necessarily, unless they are hard and
fast rules which you asked for, Ms. Ward, which are actually
laws, and it is tracked differently, and more transparency, if
we do not do that, we cannot fix this problem. Is that too far
a reach on my part? Anyone?
Mr. JANEWAY. I would agree with you, sir. I think there is
almost an inherent culture within acquisitions of risk
aversion. Having been there, done that, you know, I remember us
taking a risk where we had to, or we tried to buy down risk.
But the culture today is very risk averse. It has always kind
of been that way with contracting officers. I think it is the
way they are trained to watch exactly how they do and who makes
what decisions. But many times I think the entire, within the
program management or execution side of it has also become risk
averse. So it is much easier to hand a contract to a large
defense integrator than break it off amongst----
Chairman HANNA. How big a factor is that? I mean, you see
them effectively lower their goals by separating larger
companies from small companies, so that is kind of an overt
way, but what is the more subjective guess you might have about
how that affects the ultimate awarding to small businesses?
Mr. JANEWAY. I do not know that I could actually put a
number on it.
Chairman HANNA. It would be hard to do.
Mr. JANEWAY. Yeah.
Chairman HANNA. But you think it is a lot?
Mr. JANEWAY. Yeah. Yes, I do.
Chairman HANNA. Does everybody sort of agree, or not?
Mr. DELISLE. Yes, Chairman. I think one thing that may play
into this also is the fact that you have a government
contracting workforce that had been getting older, and you had
many that retired and left. And you have younger contracting
officers, perhaps becoming contracting officers a little bit
sooner than they otherwise should, who are much less willing to
take a risk than somebody who may have been more experienced
and older, and thereby, willing, to take that risk. I mean,
that is certainly something that I have seen at least some of
as part of dealing with very young contracting officers who you
think to yourself, ``Well, gee, they are really making these
decisions.'' Well, it is far easier for someone that fits that
description to stick with the company that you know, or go with
the larger company because there is less risk involved. There
is less possibility that somebody is going to look at me that I
made a mistake. So that could be playing into some of this as
well.
Chairman HANNA. And all of that demands more transparency,
so at least those larger companies are required to also go to
work with smaller businesses.
Mr. DELISLE. That is right.
Chairman HANNA. If there are on further questions? No?
I want to thank you all for being here today. Given the
hundreds of billions in federal contract dollars at stake each
year, ensuring that small businesses have the opportunity to
compote for federal prime and subcontracts is important. The
goals are supposed to help us accomplish this, but currently,
they are being used to paint a rosy picture rather than to
capture reality, which we have heard today. We also need to
make sure that subcontracting opportunities are real, and that
subcontractors with a desire and a capacity are able to
transition to become prime contractors.
I look forward to working with my colleagues on these
issues, and I ask for unanimous consent that each member have 5
legislative days to submit statements and supporting materials
for the record.
Without objection, so ordered.
This hearing is adjourned. And thank you again.
[Whereupon, at 11:00 a.m., the Subcommittee was adjourned.]
A P P E N D I X
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Good morning. Chair Hanna, Ranking Member Takai and
distinguished Members of the Subcommittee, thank you for the
opportunity to testify.
My name is Anne Crossman. I am the Head Revolutionary at
Completed Systems, a women-owned small business, based in
Oakton, Virginia, dedicated to completing information
technology projects that others have given up on. I am also
President of Vertical Jobs, a company that provides experienced
role players to law enforcement and government agencies.
I am here today representing Women Impacting Public Policy
(WIPP) where I serve on its Leadership Advisory Council. WIPP
is a national nonpartisan public policy organization advocating
on behalf of its coalition of 4.7 million business women
including 78 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. Despite WIPP's efforts, access to federal contracts
continues to be a challenge for women-owned businesses.
In my experience, two issues for small contractors are
clarity of teaming relationships and length of time between
Request for Proposal (RFP) response and contract award date.
Many of the small business set-asides in today's environment
require teaming and working with competitors as partners.
Clarifying each team member's part and following through to
ensure the subcontracting plan has been met takes time and
focus. To a small business, time really is money and having to
pay resources to be available not knowing when or if you will
be performing the work is costly.
With regard to these issues, I know I am not alone.
Contracting challenges confront WIPP members on a daily basis
and act as barriers to women business owners succeeding in the
federal market. WIPP's procurement committee continually
updates women federal contractors on the changing landscape of
procurement through communications and webinars.
Under your leadership, the Congress has enacted much needed
changes, increasing access to federal contracts for all small
businesses. Women entrepreneurs continue to struggle to access
federal contracts at both the prime and subcontracting levels.
While the federal government is yet to reach its 5% goal of
prime contracts awarded to women, progress is being made. Since
its inception in 2011, the size of the WOSB Procurement Program
has tripled. We are heartened by Administrator Maria Contreras-
Sweet's commitment to meeting this goal in FY16.
In October 2011, WIPP testified before this Subcommittee in
a hearing entitled, ``Subpar Subcontracting: Challenges for
Small Business Contractors'' on the issues small businesses
face with respect to subcontracting.\1\ Since that time, the
Committee has made a number of improvements that we applaud,
including allowing women-owned small businesses to better
partner with one another on federal contracts.
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\1\ Bisceglie, Jennifer. Statement to the U.S. House, Small
Business Committee, ``Subpar Subcontracting: Challenges for Small
Businesses Contractors,'' Hearing, October 6, 2011. Available at:
http://smallbusiness.house.gov/uploadedfiles/
bisceglie--testimony.pdf
In the 2011 hearing, WIPP testified on confusion
surrounding subcontracting requirements. The National Defense
Authorization Act (NDAA) of 2013 addressed many of these
fundamental problems by requiring the Small Business
Administration (SBA) to clarify subcontracting requirements,
including the amount that must be performed by both prime and
subcontractor vendors. The SBA's proposed rule would update
performance and subcontracting requirements for small business
and socioeconomic program set-aside contracts.\2\ We are
hopeful that the final rule implementing these changes will be
released soon.
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\2\ Small Business Government Contracting and National Defense
Authorization Act of 2013 Amendments, 79 Fed. Reg. 77955 (December 29,
2014).
More recently, WIPP supports an effort to increase
accountability for agencies to meet their subcontracting goals
as part of H.R. 1481, the Small Contractors Improve Competition
Act of 2015, ultimately included in the FY16 NDAA.
Incorporating subcontracting goals in Department of Defense
procurement responsibilities is a positive step toward
---------------------------------------------------------------------------
improving the subcontracting environment for small businesses.
In reviewing past testimony before this Committee on
barriers facing women business owners in the federal market, we
identified two continuing challenges. These are concerns with
the subcontracting environment and issues with data collection
and transparency. I will use my remaining time to focus on
these two challenges.
Continuing Challenge #1: Subcontracting
Not having a relationship with the federal government is
one of the most significant problems facing subcontractors.
Without that relationship, subs are wholly dependent on the
prime to remain in the federal contracting system. We believe
subcontractors would benefit from participating in the broader
contracting process. Many of the problems faced by
subcontractors are symptoms of the underlying issue that
subcontractors have no real relationship with the federal
government.
When WIPP testified before this Subcommittee in 2011, we
raised several questions about subcontracting plans: How are
subcontracting plans being reviewed prior to award? How are
subcontracting plans enforced? Should subcontractors have
access to the plans?
WIPP members tell us that many of these questions have not
yet been addressed. Four years later, we still do not know the
true amount subcontracted to small businesses or whether
subcontracting plans are actively enforced. We suggest that the
federal government should require disclosure of the portion of
the subcontracting plan to the subcontractor that is listed. At
WIPP, we call this recommendation a ``List Us, Use Us'' policy,
and we believe ensuring that subcontractors are not used solely
to win awards but to do the work will benefit women
entrepreneurs.
The government should require prime contractors to share
this information with the subcontractor upon award. We
understand the complexity of asking federal agencies to monitor
compliance with the subcontracting plan, but it is necessary to
ensure that prime contractors are acting in good faith when
they amend subcontracting agreements.
WIPP has previously testified on the lack of information in
the reporting of subcontracting plans. Since that time, the
Government Accountability Office (GAO) has authored a study,
``Linking Small Business Subcontractors to Prime Contracts Is
Not Feasible Using Current Systems.'' \3\ This 2014 study
highlighted the same concerns that WIPP expressed in its 2011
testimony. The report found that linking subcontracting plans
to prime contracts was ``especially difficult'' because the
subcontracting plans do not specify to which contract they
belong. GAO surveyed the four reporting systems--the Electronic
Subcontract Reporting System, USASpending.gov, Federal
Procurement Data System and Federal Funding Accountability and
Transparency Act Subaward Reporting System and concluded that
not one of the four had fully comprehensive data. In addition,
GAO found that less than ten percent of contracts reported all
of the required data.\4\
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\3\ Government Accountability Office, Linking Small Business
Subcontractors to Prime Contracts Not Feasible Using Current Systems,
December 2014.
\4\ Government Accountability Office, DATA TRANSPARENCY: Oversight
Needed to Address Underreporting and Inconsistencies on Federal Award
Website, August 1, 2014.
WIPP supports the effort to make this data reliable and
uniformly accessible. In addition, it seems to us, that using
four systems to report disparate data is an inefficient and
unnecessary method to gather and display subcontracting data.
WIPP believes two pieces of information should be reported and
easily accessible: subcontracting opportunities available for a
given contract and the extent to which those opportunities are
---------------------------------------------------------------------------
actually being performed by a small business.
Continuing Challenge #2: Transparency in Federal
Contracting Data
Data issues, however, are not limited to only
subcontracting plans. WIPP believes that annual scorecards must
be transparent and accurate, given the role these reports play
in encouraging agencies to contract with small businesses,
including women-owned small businesses. The annual scorecards,
however, could be improved in three ways to better reflect
small business contracting achievement government-wide.
First, the data reported in the scorecards needs improved
accuracy. The SBA Office of Inspector General (SBA OIG) has
cited accuracy in data reporting as a significant challenge for
the agency.\5\ In a 2015 report, the SBA OIG found ``widespread
misreporting by procuring agencies...[and] many contract awards
that were reported as having gone to small firms have actually
been substantially performed by larger companies.'' \6\ WIPP
believes that accurate and timely data reporting will aid SBA
in establishing Agency goals and ultimately ensure that small
businesses, especially subcontractors, receive their share of
contracting awards.
---------------------------------------------------------------------------
\5\ Small Business Administration - Office of Inspector General,
Report on the Most Serious Management and Performance Challenges Facing
the Small Business Administration in Fiscal Year 2016, October 15,
2015.
\6\ Id at 6.
Second, these scorecards should measure the entirety of
federal spending, Exclusions from the scorecard significantly
change goal achievement progress. While SBA's achievement of
meeting the 23% was impressive, it would only have been 19.2%
with the incorporation of all spending.\7\ SBA's recent
decision to include international contracts in these numbers is
a good start.
---------------------------------------------------------------------------
\7\ Small Business Administration - Office of Advocacy, Evaluation
of the Small Business Procurement Goals Established in Section 15(g) of
the Small Business Act, June, 2014 at 13.
Third, SBA scorecards would be enhanced by also measuring
the number of firms winning contracts. Currently, the
scorecards only measure dollars awarded to small businesses.
While the amount awarded to small businesses is increasing,
there are fewer firms participating in these contracts.\8\ As a
result, contracting dollars are now concentrated in a smaller
number of firms. WIPP was pleased to see this addresses in the
FY16 NDAA.
---------------------------------------------------------------------------
\8\ Burton, Robert. Statement to the U.S. House Small Business
Committee, ``Contracting and Industrial Base II: Bundling, Goaling, and
the Office of Hearings and Appeals.'' Hearing, March 27, 2015.
Available at: http://smallbusiness.house.gov/calendar/
eventsingle.aspx?EventID=397854#sthash.hPCLkrG8.dpuf
In conclusion, women entrepreneurs consider the federal
marketplace a key opportunity to grow their businesses. With
more than ten million women business owners nationwide,
competition for government opportunities among women innovators
and entrepreneurs remains strong. For many, subcontracting is a
staple of women business owners in the federal market. Ensuring
that the rules and systems governing both prime and
subcontractors are accurate and fair is of paramount
importance. This Committee has always acted to support these
pillars of WIPP's procurement policy, and we know you will
---------------------------------------------------------------------------
continue to do so.
Thank you for the opportunity to testify and I would be
happy to answer any questions that you may have.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Testimony of Michael Janeway
President and CEO
APG Technologies, LLC
House Small Business Committee Subcommittee on Contracting and
Workforce Hearing:
``Continuing Challenges for Small Contractors''
November 18, 2015
Good morning. I would like to thank Chairman Hanna, Ranking
Member Takai and the members of the Subcommittee on Contracting
and Workforce for inviting me to testify today to discuss the
continuing challenges facing small contractors and specifically
how the federal government has not met its subcontracting goal
in five years, even though they have continued to lower the
goal each year.
My name is Mike Janeway, and I am the founding member, and
President and CEO of a small business, APG Technologies, LLC
headquartered in Potomac Falls, Virginia. My expertise is as a
private business owner and as a retired U.S. Air Force Lt
Colonel with experience working in the defense acquisition
community as a program manager and program director of large
command and control systems for both U.S. war fighters and our
Middle East allies.
I founded APG Technologies in March 2008 as a Service
Disabled Veteran Owned Small Business (SDVOSB) with the goal of
providing high value ROI engineered designs and implementation
to the Department of Defense and the various intelligence
agencies of the U.S. federal government. We have approximately
30 employees spread across operating locations in the
Washington DC area; Dayton, Ohio; Denver, Colorado; Colorado
Springs, Colorado; Dallas, Texas; and at times various
locations in California, Florida, Kentucky, and New York. Our
company has successfully delivered and supported a variety of
programs and missions used in the war on terror.
Having stayed true to our mission of providing high value
data management solutions we have grown slowly, yet we maintain
an excellent reputation in our market. Since o ur engineering
deliverables typically center around components of much larger
developments, most of our work is awarded as a subcontractor to
much larger prime contractors. Our experience includes teaming
with many of the large companies that typically bid on defense
and intelligence contracts, including many of their operating
locations across the U.S.
Federal procurement is not just of singular importance to
many small businesses--small-business participation is crucial
to a healthy and competitive federal procurement process. Small
businesses provide high-quality goods and services to federal-
contracting agencies and infuse the federal procurement system
with much-needed competition. In turn, the federal government
invests in the most-dynamic and innovative sector of the U.S.
economy.
More than 30 years ago, Congress set a goal of having a
certain portion of all federal contracting dollars go to small
businesses and established sub-goals for small businesses owned
by women, socially and economically disadvantaged individuals
and service-disabled veterans, and for small businesses in
Historically Underutilized Business Zones (HubZones). The
current government-wide goal for small businesses' share of
contracting dollars is 23 percent. However, every year since
2006, the federal government has missed the 23 percent small
business goal and all but one of the sub-goals.
Small firms accounted for 63 percent of the net new jobs
created between 1993 and mid-2013 (or 14.3 million of the 22.9
million net new jobs). Small firms in the 20-499 employee
category led job creation. This unrivaled success has been
achieved with less than adequate governmental support, however.
Although small businesses comprise 99.7 percent of all employer
firms in the U.S., employ half of all private sector employees,
and are responsible for more than 50 percent of the country's
private, non-farm gross domestic product, they only receive a
fraction of federal contracting dollars and a tiny sliver of
federal research and development investment. In fact, in fiscal
year 2012, only 22.3 percent of all contracting dollars went to
small business. When small businesses are excluded from federal
contracts, the federal government, American taxpayers and the
nation's economy lose out.
Subcontracting is an important avenue for small businesses
to gain entry to the federal marketplace when they lack the
capacity to compete at the prime contractor level and can also
serve as a stepping stone to receiving work as a prime
contractor. According to past NSBA survey data of those small
firms that provide goods and services to the federal
government, 48 percent said they have performed subcontracting
duties for the federal government. Among businesses that do
perform subcontracting for the federal government,
approximately 66 percent said that at most 20 percent of their
firms' revenue is based on federal subcontracting.
Subcontracting plans, where large business prime
contractors explain how they will tap the talents of small
businesses to help them in performing the contract are the key
tool agencies have to facilitate opportunities for small
businesses as subcontractors. While statutory and
administrative goals are intended to provide small businesses
with significant subcontracting opportunities, a lack of
attention, consequences, and systems continues to plague the
program.
Unlike the small-business prime contract goal, the small-
business subcontract goal is administratively rather than
statutorily determined. Like small-business prime contracting,
federal agencies set goals for the percentage of subcontracts
that will be awarded by federal contractors to small
businesses. To achieve these goals, the government requires
many federal contractors to submit small-business
subcontracting plans that outline how small businesses will
participate in contract performance.
Too often we see subcontracting plans written only to
address proposal goals with little to no follow through after
the prime contract is awarded. With no enforcement by the
federal government to hold prime contractors accountable
subcontracting plans seldom match reality and goals are never
meet. The impact to a small business can be significant. APG
Technologies and hundreds of others companies have experienced
this same scenario where you enter into a teaming agreement in
good faith, provide engineering and administrative talent at
your own expense to develop a solution, hire recruiters to get
a jump on recruiting the best talent, and may even pay an
option to lease a larger office only to see the prime
contractor find some reason not to award the subcontract or to
delay staffing.
This allows the U.S. Small Business Administration (SBA) to
adjust the subcontracting goal based on what it perceives to be
the real opportunities for subcontracting. However, while SBA
has steadily decreased the subcontracting goals from 36 percent
to 34 percent over the last five years, subcontracting
achievements have fallen from 35 percent to 33 percent. Each
time SBA decrease the goals, agencies manage to subcontract
less with small businesses. This results in real losses to
small businesses.
In the Small Business Procurement Scorecard--which measures
each agency's progress in meeting their small business and
socio-economic prime contracting and subcontracting goals and
provide accurate and transparent contracting data--published
annually by the SBA, the agency reported the following
subcontracting goals and achievement for FY 2013:
------------------------------------------------------------------------
Subcontracting Subcontracting
Small Business Concern Goal Achievement
------------------------------------------------------------------------
Small Business 36.00% 34.00%
Women Owned Small Business 5.00% 6.60%
(WOSB)
Small Disadvantaged Business 5.00% 6.70%
(SDB)
Service Disabled Veteran Owned 3.00% 1.70%
Small
Business (SDVOSB)
HUBZone 3.00% 1.20%
------------------------------------------------------------------------
In fiscal year (FY) 2013, small businesses received $86.7
billion in subcontracts, which is just about $5 billion less
than they received in prime contracts. If federal agencies had
met the then-goal of 36 percent, subcontract would have
accounted for more dollars to small business than prime
contracts. The fact that the goal keeps decreasing indicates
that less and less is being provided to small subcontractors.
APG Technologies' experience is that prime contractors will
comply with requirements the federal government frequently
measures and enforces. The opposite is also true in that prime
contractors pay little attention to requirements not measured,
validated, and enforced. For example, APG Technologies has been
a subcontractor on a large contract for a military service
intelligence agency where we run the data management,
integration, and architecture teams. The agency goal for SDVOSB
awards is three percent but they rarely achieve half that
annual goal and have shown little interest in enforcement on a
contract with scope we could easily fulfill. Despite only
achieving half their subcontract goal of three percent the
prime contractor repeatedly recruits and staffs their own
employees rather than award us new work.
Recently, this same contract was re-competed and awarded to
a new company which added us as a subcontractor. Under this new
contract, from the same agency, for the same scope, some of the
small-business goals were not listed and the prime contractor's
response has been to cut APG Technologies' hours which has
resulted in staff reductions.
Prime contractors on any contract with an estimated
contract value exceeding $650,000 that has subcontract
possibilities are required to submit a subcontracting plan to
the government that assigns both percentage and dollar value
goals to these opportunities. The government monitors the
prime's utilization of small businesses by reviewing this plan
and reported achievements against the plan. The government's
review of performance against the plans is further complicated
by antiquated supporting technology that still has contractors
submitting plans and reports to the contracting officer in
paper format in some cases.
This further shows that the SBA's subcontracting goals are
arbitrary. In an attempt to improve this process, the National
Defense Authorization Act (NDAA) for FY 2013 required that:
Not later than 180 days after the date of the enactment of
this part, the Administrator of the [SBA] shall review and
revise the Goaling Guidelines for the Small Business Preference
Programs for Prime and Subcontract Federal Procurement Goals
and Achievements to the extent necessary to ensure that ...
agency subcontracting goals are established on the basis of
realistically achievable improvements to levels of
subcontracting rather than on the basis of an average of
previous years' subcontracting performance.
However, nearly three years after the President signed the
NDAA, SBA has not issued new subcontracting goal guidelines.
Indeed, instead of implementing goals that reflect ``achievable
improvements'' the SBA has decreased the subcontracting goal
since 2013. This is not the solution.
According to past NSBA survey data, nearly 79 percent of
the small businesses surveyed supported the idea that the
federal government should provide greater oversight and
protection for federal subcontractors. Therefore, I was
especially pleased to see that the Senate Small Business and
Entrepreneurship Committee passed both the Small Business
Subcontracting Transparency Act of 2015 (S. 2138) and the Small
Contractors Improve Competition Act of 2015 (S. 2139), which
examines the difficulties in dealing with the federal
procurement process, and addresses small business challenges in
level the playing field and ensure fair competition in
government contracting.
I also appreciate all of the work by House Small Business
Committee Chairman Steve Chabot on his Small Contractors
Improve Competition Act of 2015 (H.R. 1481), which would amend
the Small Business Act and the FY 2013 NDAA, and is intended to
increase the number of awards made to small businesses by
addressing several perceived obstacles that inhibit
opportunities to increase small-business participation in
federal contracting. Especially crucial was Sec. 102 that dealt
with subcontracting goals.
Currently, when considering whether senior agency
executives are eligible for bonuses, agencies must look at
whether they met the small-business prime contracting goals.
However, agencies do not look at whether the agency is meeting
its subcontracting goals. As a consequence, the percentage of
subcontract dollars awarded to small businesses has been
falling, and is down 2.5 percent since 2010. With
subcontracting being an important entry point for federal
contractors, this provision holds senior agency officials
accountable for meeting all the goals. I applaud these small-
business contracting reforms being included into H.R. 1735, the
National Defense Authorization Act for 2016 (NDAA) and look
forward to President Barack Obama signing NDAA into law in the
coming days.
The solutions to these concerns should be statutory in law
by requiring the SBA to return to the higher 36 percent goal,
stop reducing subcontracting goals, and make the goals
mandatory contract requirements for all federal acquisitions
with procedures and penalties for failure. Administratively,
the Federal Acquisition Regulation (FAR) should be changed to
make and allow the following:
1. Subcontracting plans should be contractually
binding, compliant with SBA goals, and enforced by the
federal contracting officers.
2. Contract Officers should quarterly measure a
contractor's compliance with the subcontracting plan.
3. Contracts Officers should be authorized to
penalize contracts not meeting their subcontracting
plan through payment withholds and other penalties.
In short, the subcontracting plans should no longer just be
words on paper to address a proposal requirement. It should be
an executable management plan that is contractually binding
under and which the prime contractor is measured and held
accountable. The subcontracting plans requirements should be
revised to increase small business subcontracting participation
and enhance the electronic subcontracting reporting system to
improve federal agency monitoring of prime contractor
achievements against their subcontracting plans.
As small businesses struggle to compete for federal
contracts and subcontracts, I appreciate this subcommittee
examining whether legislative changes could better protect and
promote businesses such as mine.
Mr. Chairman, thank you for the opportunity to provide you
and your subcommittee with the insight of my company's
experiences. If there is anything I can do to assist you or
your subcommittee I am more than eager to serve.
Testimony of
Karen Ward, President and CEO
WESSGRP
on behalf of the
U.S. Women's Chamber of Commerce
Before the House Small Business Committee
Subcommittee on Contracting and Workforce
for the Hearing
``Continuing Challenges for Small Contractors''
Wednesday, November 18, 2015, at 10:00 a.m.
Rayburn House Office Building, Room 2360
Chairman Hanna, Ranking Member Velazquez, members of the
committee--thank you for this opportunity to provide testimony
before the Subcommittee on Contracting and Workforce.
I am Karen Ward, President and CEO of WESSGRP. I am
testifying today on behalf of the U.S. Women's Chamber of
Commerce. My firm, which is certified EDWOSB by the U.S.
Women's Chamber of Commerce, provides system engineering,
cyber-security, database administration, software engineering
and program management support to the federal government and
commercial markets.
Access to federal contracts is vital for the continued
growth and vitality of American small businesses, the people
they employ and their communities. In today's environment of
declining federal spending and declining government suppliers,
it is doubly important to ensure transparency in contracting
and that the mandatory goal of maximum practical opportunity
for small business concerns \1\ is being met government wide
through direct small business prime contracts and
subcontracting with small business.
---------------------------------------------------------------------------
\1\ See 15 U.S.C. 644Sec. 15(g)(1)(B): Achievement of Government
Goals, http://goo.gl/Fq268c--Each agency shall have an annual goal that
presents, for that agency, the maximum practicable opportunity for
small business concerns, small business concerns owned and controlled
by service-disabled veterans, qualified HUBZone small business
concerns, small business concerns owned and controlled by socially and
economically disadvantaged individuals, and small business concerns
owned and controlled by women to participate in the performance of
contracts let by such agency. The Small Business Administration and the
Administrator for Federal Procurement Policy shall, when exercising
their authority pursuant to paragraph (2), insure that the cumulative
annual prime contract goals for all agencies meet or exceed the annual
Governmentwide prime contract goal established by the President
pursuant to this paragraph.
---------------------------------------------------------------------------
Facts:
In FY2014 there were 36,000 fewer small
business government suppliers than there were in
FY2008.\2\
---------------------------------------------------------------------------
\2\ See https://www.fpds.gov/, Unique Vendors Reports from FY 2008
and FY 2014. The Federal Procurement Data System--Next Generation
reports there were 144,857 unique small business vendors during FY 2008
vs. 108,762 unique small business vendors during FY 2014.
Small business awards were $23.6B less in FY
2015 than they were in FY 2010--including a large
---------------------------------------------------------------------------
contraction of $20B between FY2014 and FY2015 alone.\3\
\3\ See https://www.fpds.gov/, Small Business Goaling Reports
Annual SBA goaling reports or procurement
scorecards do not tell us how many new suppliers are
securing awards each year or how many suppliers are
lost or acquired. Nor do they report the acquisition
---------------------------------------------------------------------------
vehicle used or the amount of competition.
SBA goaling reports or procurement
scorecards tell us nothing about the details of
contracts and contractors by agency, buying center,
region or NAICS. They tell us nothing about the number
of small businesses receiving contracts by socio-
economic category or the number of actions broken into
dollar size ranges.
And, SBA goaling reports or procurement
scorecards tell us nothing about the actions excluded
from small business goals.
Annual Small Business and Federal Procurement Reports
contain extremely limited information providing few insights
into the details of how federal acquisitions and small business
goals are being met.
Many on this committee may not know--prior to 2008,
much of the informative data I just named as missing
from SBA reports was included in an annual Federal
Procurement Report.\4\ But, in January 2007, the Small
Business Administration announced a sweeping, gutting
change to the annual Small Business Procurement
Scorecard.\5\ This change, along with the development
of the Federal Procurement Data System--Next
Generation, rendered the small business and federal
procurement reports to be nothing more than a simple
list of aggregated spending numbers. The current SBA
goaling reports and federal acquisition reports are the
antithesis of transparency.
\4\ FY 2007 Federal Procurement Report. Section 1: Total Federal
Views - https://goo.gl/LBUPDQ, Section 2: Geographic Views - https://
goo.gl/acCBd4, Section 3: Agency Views - https://goo.gl/bmFktt.
\5\ Letter from Fay Ott, Associate Administrator for Government
Contracting and Business Development to the Directors of the Offices of
Small and Disadvantaged Business Utilization, Re: Small Business
Procurement Scorecard Guidance for Fiscal year 2008, 1/10/07. https://
www.sba.gov/sites/default/files/aboutsbaarticle/
goals--revised--guidelines.pdf
I ask that Congress act to require the SBA to restore
the goaling and federal procurement report format to
include the in-depth data and analysis as was present
---------------------------------------------------------------------------
prior to FY2008.
Inappropriate use of ``grandfathering'' is causing billions
of dollars in awards to large businesses to be reported as part
of small business goal achievement each year.
Federal agencies may be incorrectly attributing
billions of dollars in awards annually as awards to
small business--even when the business has been
acquired by a large business and no longer qualifies
for small business goaling.
13 C.F.R. 121.404(g)(1 and 2) states, a concern that
represents itself as a small business qualifies and
qualifies as small at the time of its initial
offer...(and) is considered to be a small business
through the life of the contract.
However the following important exceptions apply:
``(1) Within 30 days of an approved contract
novation, a contractor must recertify its small
business size to the procuring agency, or inform the
procuring agency that it is other than small. If the
contractor is other than small, the agency can no
longer count the options or orders issued pursuant to
the contract, from that point forward, towards its
small business goals.''
And, ``(2)(i) In the case of a merger or acquisition,
where contract novation is not required, the contractor
must, within 30 days of the transaction becoming final,
recertify its small business size status to the
procuring agency, or inform the procuring agency that
it is other than small. If the contractor is other than
small, the agency can no longer count the options or
orders issued pursuant to the contract, from that point
forward, towards its small business goals. The agency
and the contractor must immediately revise all
applicable Federal contract databases to reflect the
new size status.'' \6\
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\6\ See CFR Title 13: Business Credit and Assistance, Small
Business Size Regulations, http://www.ecfr.gov/cgi-bin/text-
idx?SID=cb5092954b2d88cc6f0e0b5c902fb1c3&mc=true&node=se13.1.121--
1404&rgn=div8
However, in 2014, SBA Administration Maria Contreras-
Sweet testified before the House Small Business
Committee that, ``We have a rule in place that says
that once you get a contract with government, that you
are given five years. And so if a large company
acquires a small business, then it is grandfathered in
for a number of years.'' \7\ This statement clearly
contradicts the regulations--and the objectives of our
government.
---------------------------------------------------------------------------
\7\ Testimony of Small Business Administrator Maria Contreras-
Sweet, U.S. House Committee on Small Business (Sept. 10, 2014), https:/
/goo.gl/nUXAMV.
Additionally, the government reports regarding small
business contracting do not provide transparency as to
how many contracts awarded to small companies are truly
being performed by small companies over the lifecycle
of the contract and on IDIQs at award. There have been
many instances where RFPs my firm has competed with
companies classified as small but, if reclassified
today, would no longer meet the parameters that
---------------------------------------------------------------------------
classify the company as a small company.
I call upon Congress to require the SBA to include
details in the annual goaling and procurement reports
about the contract actions and dollars attributed to
small business goaling with firms that are no longer
small.
Exclusions to small business eligible actions rob small
businesses of billions of dollars every year.
Each year, the Small Business Administration carves
out billions of dollars in opportunities to be excluded
from small business goaling. Most of these exclusions
are without merit; the practice should be immediately
terminated. In FY2014, $73 billion of federal spending
was not included as part of the ``small business
eligible'' actions.\8\ Considering that, at a minimum,
23% of this spending should have been awarded to small
businesses--small businesses lost over $16 billion in
opportunities in FY2014 alone.
\8\ Per https://www.usaspending.gov, the federal government spent
$445.6B in contract actions. Per http://smallbusiness.data.gov/, the
SBA attributed only $367.2B as small business eligible actions. The SBA
excluded $78.4B in contract actions from small business eligible
actions.
For example, in FY2014 small businesses lost: $12.4B
from the Department of Defense, $2.5B from the
Department of State, $2B from GSA. A public report
prepared by the Department of the Army tells us, ``If
all the goaling exclusions were removed for FY14,
Army's base would grow by 15.37B and small business
dollars would grow by $.71B which would decrease (Army)
---------------------------------------------------------------------------
small business achievement by 5.50%.'' \9\
\9\ The Impact of Small Business Exclusions on Army's FY14
Performance, 4/13/15. http://www.sellingtoarmy.info/content/impact-
small-business-exclusions-army%E2%80%99s-fy14-performance
In 2001, the General Accounting Office directed the
Small Business Administration to, ``re-assess its
rationale for making certain types of exclusions.''
\10\ The GAO noted, ``Since fiscal year 1998, SBA has
directed FPDS to exclude certain types of contracts
when calculating annual small business prime contract
achievements.'' However, ``SBA's rational for making
---------------------------------------------------------------------------
these exclusions is not documented.''
\10\ Small Business: More Transparency Needed in Prime Contract
Goal Program, U.S. Government Accounting Office, August 2001. http://
www.gao.gov/assets/240/21854.pdf
This report states that the reason for excluding
foreign sales, contracts performed outside the United
States, American embassies and certain actions by the
Federal Highway Administration is because ``small
business have limited chance to compete for awards.''
The report also finds SBA's annual guidance on these
---------------------------------------------------------------------------
exclusions ``is confusing and incomplete.''
As a small company and a lead for small companies
prior to starting my own firm, I have seen and
demonstrated that small companies are capable of
performing work overseas.
There can be no justification for claiming that
American small businesses have limited chance to
compete for awards pertaining to contracts performed
outside of the U.S., foreign sales and American
embassies--nor has the SBA provided evidentiary data to
support this claim. Quite the contrary. In May 2015 the
SBA Associate Administrator of Government Contracting
stated: ``We couldn't find a justification to continue
to exclude overseas contracts. So coming in 2016, we're
working with the Office of Federal Procurement Policy,
Defense, USAID and State on including those contracts
in the base.''
I ask that Congress act to require the SBA to end
these unwarranted exclusions from small business
goaling and require that any exclusions be fully
reported and justified in small business goaling
reports annually so that the entire small business
community might see the billions of dollars of
opportunity lost every year.
The federal government is still not meeting its
subcontracting goals. Holding large business prime contractors
accountable for their subcontracting plans can help the
government meet these goals.
Subcontracting opportunities are very important to
small business suppliers. As part of the Small Business
Jobs Act of 2010, the SBA implemented rules that
require prime contractors to ensure small business
concerns are given the ``maximum practicable
opportunity'' to participate in the performance of the
work and conduct market research to identify small
business subcontractors and suppliers through ``all
reasonable means.'' \11\
---------------------------------------------------------------------------
\11\ See Federal Acquisition Regulations, 52.219-B Utilization of
Small Business Concerns, https://www.acquisition.gov/sites/default/
files/current/far/html/
52--217--221.html#wp1136032
As a subcontractor, I have seen issues associated
with the ability to perform the work within the rates
defined by the large prime. A prime contractor may
detail a number of subcontractor positions on their
subcontracting plan--but, the actual dollars attributed
to these subcontractors for the work to be performed is
not executable by the subcontractors. On several
subcontracting plans, where my company has provided
resources and capabilities and where the list of small
businesses participating are within the framework
defined by the subcontractor requirements, the rates
provided for the subcontractor are not executable.
Consequently, due to the inability of the small
business contractors to fill these positions, the large
prime ultimately fills the position with their own
---------------------------------------------------------------------------
personnel.
I believe it is important to place cornerstone of
accountability at this juncture--to assure that prime
contractors are adhering to ``maximum practical
opportunity'' requirement. Federal code states that
Procurement Center Representatives shall, ``be an
advocate for the maximum practical utilization of small
business concerns in Federal contracting.'' \12\ As
such, it is appropriate for PCR's to delay the
acceptance of prime contractor subcontracting plans
should these plans not exhibit maximum practical small
business participation.
---------------------------------------------------------------------------
\12\ See 15 U.S.C. 644 Sec. 15(1)(2)(H), Awards or contracts.
https://www.law.cornell.edu/uscode/text/15/644
I ask Congress to require Procurement Center
Representatives to review all subcontracting plans to
make sure these plans are assuring the ``maximum
practical opportunity'' for small businesses to
participate in the performance of the work and empower
the PCRs to delay the acceptance of prime contractor
subcontracting plans should these plans not meet this
---------------------------------------------------------------------------
requirement.
Thank you for this opportunity to provide testimony and
thank you for your efforts on behalf of small business federal
suppliers.
[all]