[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]



 
        SUPPORTING SUCCESS: EMPOWERING SMALL BUSINESS ADVOCATES

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

                                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
                            DECEMBER 9, 2015

                               __________

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]      

                               

            Small Business Committee Document Number 114-033
              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
             Emily Murphy, 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

Hon. Angela B. Styles, Chair and Partner, Crowell & Moring LLP, 
  Washington, DC, testifying on behalf of the Defense Industry 
  Initiative on Business Ethics and Conduct......................     4
Mr. Davy G. Leghorn, Assistant Director, National Veterans 
  Employment and Education Division, The American Legion, 
  Washington, DC.................................................     6
Ms. ML Mackey, Chief Executive Officer, Beacon Interactive 
  Systems, Cambridge, MA, testifying on behalf of the National 
  Defense Industrial Association.................................     7
Ms. Tracy Balazs, Founder, President and Chief Executive Officer, 
  FSR, Annapolis, MD, testifying on behalf of US Pan Asian 
  American Chamber of Commerce...................................     9

                                APPENDIX

Prepared Statements:
    Hon. Angela B. Styles, Chair and Partner, Crowell & Moring 
      LLP, Washington, DC, testifying on behalf of the Defense 
      Industry Initiative on Business Ethics and Conduct.........    20
    Mr. Davy G. Leghorn, Assistant Director, National Veterans 
      Employment and Education Division, The American Legion, 
      Washington, DC.............................................    46
    Ms. ML Mackey, Chief Executive Officer, Beacon Interactive 
      Systems, Cambridge, MA, testifying on behalf of the 
      National Defense Industrial Association....................    51
    Ms. Tracy Balazs, Founder, President and Chief Executive 
      Officer, FSR, Annapolis, MD, testifying on behalf of US Pan 
      Asian American Chamber of Commerce.........................    55
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.


        SUPPORTING SUCCESS: EMPOWERING SMALL BUSINESS ADVOCATES

                              ----------                              


                      WEDNESDAY, DECEMBER 9, 2015

                  House of Representatives,
               Committee on Small Business,
          Subcommittee on Contracting and Workforce
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 11:00 a.m., in 
Room 2360, Rayburn House Office Building. Hon. Richard Hanna 
[chairman of the subcommittee] presiding.
    Present: Representatives Hanna, Knight, Kelly, Velazquez, 
and Chu.
    Chairman HANNA. This hearing will come to order.
    It has been four years since this Subcommittee held a 
hearing on the role of small business advocates, although we 
have spent a lot of effort strengthening these offices. During 
those four years, we have worked with the Minority to create 
minimum requirements for each of the small business advocates.
    We have added clarity and precision to the roles of the 
Procurement Center Representatives, PCRs, and the Offices of 
Small and Disadvantaged Business Utilization, OSDBUs. We have 
worked to improve the data and systems upon which they rely, 
and to give them new tools to assist small businesses competing 
for prime contracts and subcontracts. However, there is still 
much work to be done.
    Unfortunately, the regulations and standard operating 
procedures in places across the Government have not kept pace 
with the Small Business Act or the reality of Federal 
contracting.
    What does that mean? First, job descriptions for the 
business opportunity specialists and commercial market 
representatives are woefully out of date. Second, PCRs are 
regulatorily prohibited from looking at many consolidated 
contracts. Third, OSDBUs are not able to catch agency personnel 
evading the Small Business Act. Fourth, small contractors are 
losing opportunities to compete.
    Finally, it means that we are not explaining to new 
contractors that winning an award is only the first hurdle, 
next, you have to comply with obscure, confusing compliance 
regulations.
    Today, we are here to learn from small businesses and those 
that work with them how we can ensure that the small business 
advocates created by the Small Business Act can be more 
effective.
    I especially what to hear suggestions on what Congress can 
do to alleviate these burdens. I think it is appropriate that 
we periodically review the efficiency of these programs and 
make improvements so that the reality of the programs remains 
true to the spirit of the Act. I think we have an opportunity 
to work on these issues in a bipartisan manner.
    As we have discussed numerous times this year, we know that 
we are losing small contractors, and it will be difficult if 
not impossible to replace these sectors of our technological 
and industrial base. Supporting the advocates who support small 
businesses is a crucial element of small business success.
    I now yield to the ranking member for her opening 
statement.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman. It is my pleasure 
to be filling in for Mr. Takai.
    Each year, the federal government spends approximately $440 
billion on a variety of goods and services needed for its daily 
operations. It has been the mission of this committee to ensure 
that small businesses receive their fair share of dollars 
generated by these contracting opportunities.
    As such, we have provided small businesses with tools to 
assist them in entering and competing in the federal 
marketplace as either prime contractors or subcontractors. 
While their effects were not immediate, these tools have slowly 
proven the effectiveness in getting results.
    Through small business set-aside programs, the dollars 
awarded to small businesses increased to $91 billion in 2014, 
accounting for 25 percent of contracting dollars. In fact, 
there were also increases in the awards to small business 
subgroups.
    For example, service disabled veteran owned businesses 
received $13 billion, and small disadvantaged businesses were 
awarded $34 billion.
    However, more work is needed to get all small businesses 
their fair share as the government has failed to meet its goal 
for women owned small businesses.
    Additionally, the mindset of contracting officials needs to 
be changed so that they see these goals as floor rather than 
ceiling. It is to that end we must have strong small business 
advocates placed throughout the acquisition process.
    The amount of resources dedicated to these officials would 
seem to indicate that the Small Business Administration places 
no importance on the role they play for small businesses.
    Procurement center representatives are the first line of 
advocacy. These officials are tasked with overseeing contracts 
to determine if it should have been set aside for small 
businesses or whether it was improperly bundled.
    Despite their important function, there are only 49 of 
these advocates overseeing more than 50 million contracting 
actions; 49.
    What I would like to say, Mr. Chairman, to the committee is 
the fact that sequestration and budget cuts have consequences. 
We are here to make sure that we provide a level playing field 
for small businesses to be able to access the marketplace, the 
federal marketplace, but in order for the staff at the Small 
Business Administration to do their job, they need resources.
    As a result of the short staffing, PCRs are no longer 
reviewing actions if there is any kind of set-aside on the 
contracts. These officials are allowing the bare minimum small 
business representation, and that is just unacceptable.
    Commercial market representatives face staff shortages with 
only 27 advocates to monitor the subcontracting plans of large 
prime contractors. Their effectiveness is further diluted as 
many of them have other responsibilities to perform, taking 
them away from the CMR role.
    The same can be said for business opportunity specialists, 
who are often pulled by their district offices to help with 
other small business programs rather than overseeing the 8(a) 
participants as intended.
    Many of the problems with the CMR and BOS advocates are 
compounded by the fact that neither of these positions are laid 
out in the statute. Instead, they have been left to develop 
with SOPs and common practices. This begs one critical 
question. How can small businesses know what these advocates 
can do for them if their roles have not been clearly defined?
    With 100,000 fewer small business contractors registered to 
do business with the government than in 2012, and the average 
contract size increasing because of more bundling, it is more 
important than ever that actions are taken to reinforce the 
importance of small business advocates.
    I hope that today's hearing will help us gain some insight 
as to how we can strengthen the role these advocates play in 
not only assisting small businesses navigate the marketplace 
but also ensuring these businesses receive their fair share of 
contracting dollars.
    I thank all the witnesses for being here today, and I yield 
back the balance of my time.
    Chairman HANNA. Thank you. If additional members have 
opening statements prepared, I ask that they submit them for 
the record.
    Thank you all for being here. In a moment I will introduce 
you individually, but so you understand the timing, you have 
five minutes. When it turns red, you have one, but we want to 
hear what you have to say, so do not sweat the program too 
much.
    We have one panel today. Our first witness is Angela 
Styles, Chair and Partner at Crowell & Moring. She is 
testifying on behalf of the Defense Industry Initiative on 
Business Ethics and Conduct, a non-profit organization 
dedicated to a culture and practice of ethics and integrity in 
all business dealings with the Department of Defense.
    Our second witness is Davy Leghorn, the Assistant Director 
of the National Veterans Employment and Education Division at 
the American Legion. The Legion is the largest wartime veterans 
service organization. Thank you.
    Our third witness is Ms. ML Mackey, CEO of Beacon 
Interactive Systems, a successful SBIR contractor. She is 
testifying on behalf of the National Defense Industrial 
Association.
    I now yield to the ranking member to introduce our last 
witness.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman. It is my pleasure 
to introduce Ms. Tracy Balazs, the Founder, President, and CEO 
of Federal Staffing Resources. FSR is a woman-owned minority 
business located in Annapolis, Maryland, with over 11 years of 
experience, the business also successfully graduated from SBA's 
8(a) business development program, and now serves as a mentor 
in the program.
    Ms. Balazs is also here testifying on behalf of the US Pan 
Asian American Chamber of Commerce, whose goal is to open doors 
for Asian American minority businesses and their business 
partners in corporate America, in federal, state, and local 
governments. Welcome.
    Chairman HANNA. Thank you. Ms. Styles?

 STATEMENTS OF ANGELA B. STYLES, CHAIR AND PARTNER, CROWELL & 
MORING; DAVY G. LEGHORN, ASSISTANT DIRECTOR, NATIONAL VETERANS 
  EMPLOYMENT AND EDUCATION DIVISION, THE AMERICAN LEGION; ML 
 MACKEY, CHIEF EXECUTIVE OFFICER, BEACON INTERACTIVE SYSTEMS; 
 TRACY BALAZS, FOUNDER, PRESIDENT, AND CHIEF EXECUTIVE OFFICER 
                 OF FEDERAL STAFFING RESOURCES

                 STATEMENT OF ANGELA B. STYLES

    Ms. STYLES. Thank you very much, Chairman Hanna, 
Congresswoman Velazquez, and members of the Subcommittee. I 
appreciate the opportunity to appear before you today as the 
coordinator of the Defense Industry Initiative on Business 
Ethics and Conduct, or DII, to discuss ways to empower small 
businesses to comply with the many, many requirements of the 
Federal marketplace.
    DII is a non-partisan and non-profit 501(c)(3) association 
of U.S. defense companies who are committed to a culture and 
practice of ethics and integrity.
    In 1986, the chief executive officers and senior officials 
of 18 defense contractors, who were led by Jack Welch from 
General Electric, voluntarily met and created DII and drafted 
self governance principles. Today, 76 defense contractors 
including both small and large businesses, are signatories to 
the DII self governance principles.
    As part of its mission, DII provides the resources and 
assistance to help train hundreds of thousands of defense 
industry employees in ethics and compliance.
    In an ideal world, all businesses that participate in the 
Federal marketplace would have the wherewithal to understand 
and comply with all of the obligations that go hand in hand 
with Federal contracting. Unfortunately, this is not an ideal 
world.
    The scope and complexity of the regulations faced by 
contractors challenge are enough to regularly challenge even 
the largest companies with robust ethics and compliance 
programs. With less resources, measured by both money and 
manpower, and less experience with Government contracting, the 
hurdles faced by small businesses are monumental.
    As a result, the Federal Government is undoubtedly 
contracting with small businesses that do not know the full 
extent of the laws, regulations, or provisions required for 
Federal contracting. Some are not monitoring their compliance 
with these requirements, and some have no process to 
voluntarily disclose violations to appropriate authorities.
    Although there are numerous Federal agencies, centers, and 
offices that work with small businesses engaged in Federal 
contracting, DII has extensively searched--when I say 
extensively, we have done web searches, we have made phone 
calls, we have had meetings with all different levels of 
Government officials, we have not found Federal Government 
resources that provide guidance to small businesses to aid in 
the adoption of codes of conduct or the establishment of 
broader compliance in ethics programs for small businesses.
    Because the Federal resources for small businesses seem to 
be woefully lacking in the Federal Government, DII itself 
recently undertook several significant initiatives to provide 
ethics and compliance resources to small business contractors.
    In 2014, we published a model Code of Conduct for 
suppliers, and I have provided that as Attachment C to the 
Committee. We also have on our website a supplier toolkit that 
is available for small businesses and all businesses as well.
    Following the publication of both our Supplier Code of 
Conduct and our toolkit, we were making our way around to 
different suspension and debarment officials at the Department 
of Defense, and they kept telling us it really was not enough, 
that they really wanted to see if the private sector could help 
with ethics and compliance programming for small businesses.
    One thing they do not want to do is suspend or debar small 
businesses because they did not have the resources or the 
ability to understand how to comply with the laws and the 
regulations.
    As a result of those meetings, DII has committed to provide 
additional resources to small businesses that are Federal 
contractors, both prime and subcontractors.
    To that end, at the specific request of the Army Suspension 
and Debarment Office, we actually put up training for small 
businesses on our website, but that is just the first step. We 
have a webinar available. I have provided the slides of that 
webinar. Even you can get on and take a look at what we 
provided.
    They told us how important it was to have some basic 
training about small business programs up and available, so we 
put together that training, we put it up on our website, but we 
are not stopping there.
    This spring, we are going to launch a very robust small 
business toolkit, which includes structure and organization of 
a compliance program, some materials so they can build their 
own compliance program.
    We are going to have specific codes of conduct, policies 
and procedures for small businesses to be able to literally 
lift out of our website and use at their companies.
    We are making sample training videos for them to be able to 
train their employees on critical ethics and compliance issues 
in Federal contracting, and we are also going to provide them 
with templates on how to monitor and audit your own compliance 
program.
    We are very hopeful that these with a mentor-protege 
program that we are putting together for a list of mentors that 
are available within DII to assist, take phone calls, answer 
questions from small businesses. We hope this will actually 
help.
    I will tell you this cannot just be the private sector 
alone. While DII and many of the defense contractors are very 
committed to making resources available, we really want this 
effort, this education and training effort, to be done in 
coordination with the Department of Defense and with our Small 
Business Administration colleagues.
    It takes both the public and private sectors, I think, to 
ensure that small businesses have the resources and tools to 
wisely, legally, and ethically perform Federal contracts.
    This concludes my prepared response, but I do want to thank 
one of my colleagues for assisting me with this testimony. She 
is here today, Olivia Lynch, with my office.
    There are very few, aside from your counsel that have here 
on the Committee, people that actually understand small 
business statutes and regulations and how difficult this is, 
but I can tell you Ms. Lynch, who helped me with the testimony, 
and certainly the counsel you have on your Committee, are 
certainly some of the leading experts around.
    Thank you very much.
    Chairman HANNA. Thank you. Mr. Leghorn?

                  STATEMENT OF DAVY G. LEGHORN

    Mr. LEGHORN. Good morning, Chairman Hanna, Ranking Member 
Velazquez, and members of the Subcommittee. On behalf of our 
National Commander, Dale Barnett, and 2.3 million members of 
the American Legion, we thank you for this opportunity to 
testify at this hearing.
    In the midst of obstacles for veteran entrepreneurs seeking 
Federal contracts and the VA purchase card scandal, the 
American Legion recognizes the need to empower the Small 
Business Administration and the offices of small and 
disadvantaged business utilization to hold the Federal agencies 
accountable.
    Our Government has a fiduciary responsibility to not 
circumvent the procurement process with questionable shortcuts. 
The American Legion can appreciate that VA misused purchase 
cards in fulfilling their duties to provide adequate care to 
veterans, but we are concerned that this deliberate undermining 
of the procurement process is putting our veterans at risk.
    This issue is paramount to the American Legion as it 
directly affects the care of a vulnerable segment of the 
veterans' population. Federal contracts protect veteran 
patients with terms and conditions and hold medical suppliers 
or health care administrators accountable.
    None of these protections are in place when equipment and 
services are acquired outside of the procurement process. Never 
mind that VA is likely being overcharged or that the abuse of 
purchase cards is unfair to small businesses. This is foremost 
a safety concern that needs to be addressed.
    The American Legion believes that VA contracting officials 
misused purchase cards because of short staffing and bad 
training. We would like to believe that the perpetuated culture 
of foiling the procurement process is unintentional. With that 
in mind, there are measures that VA can implement to ensure 
that our veteran patients are safe and all purchases that are 
set aside for small businesses remain reserved for small 
businesses.
    VA OSDBU must train and re-train contracting employees. VA 
should hire additional staff to write and oversee contracts in 
order to decrease the existing workload. VA must account for 
purchase card expenditures and they must start recording it in 
a database like that of the FTPS.
    Another issue harmful to veteran small businesses is the 
Federal Strategic Sourcing Initiative. The American Legion has 
never thought that the FSSI was good for small business. While 
this initiative streamlines Government procurements, it is 
flawed in that it drastically reduces competition for 
Government spending.
    As we mention in our written testimony, with the latest 
generation of FSSI, the bidding process is burdensome and cost 
prohibitive to small businesses. Further, it is equally 
frustrating to sell to an agency despite having been identified 
as a small business prime under the FSSI.
    We have come to terms that this generation of FSSI is here 
to stay, so the American Legion would like to make a few 
recommendations to ensure that at least a few of our veteran 
small businesses can benefit.
    Procurement center representatives are supposed to be our 
advocates. They ensure a fair portion of contracts and 
subcontracts are allocated to small business. Unfortunately, 
there are simply not enough PCRs to review every contract for 
compliance, and PCRs do not review outgoing FSSI delivery 
orders.
    The contracts under the FSSI are so large that the American 
Legion believes that it will be of benefit to the small 
business community if PCRs are required to review outgoing FSSI 
contracts.
    The American Legion goes a step further and recommends an 
SBA budget increase for the hiring of more PCRs.
    Over the years, procurement initiatives and tools like the 
FSSI reverse auctions and large IDIQ contracts were all 
partially aimed at alleviating the workload of contracting 
employees. A case can be made that these initiatives and tools 
are not working because contracting employees are still looking 
for shortcuts.
    There is a need for additional competent Federal personnel 
to write, oversee, and monitor contracts because much of the 
frustrations our veteran entrepreneurs have stem from a lack of 
well trained procurement staff.
    The American Legion does not believe that Federal employees 
intentionally put veteran patients in danger or are maliciously 
suppressing the veteran small business industrial base with bad 
policy. They just need the requisite training and manpower to 
do the job correctly and be the advocates for small business 
that they were intended to be.
    In closing, the American Legion thanks this Committee for 
the opportunity to testify today, and we look forward to any 
questions you may have.
    Chairman HANNA. Thank you. Ms. Mackey?

                     STATEMENT OF ML MACKEY

    Ms. MACKEY. Good morning, Chairman Hanna, Ranking Member 
Velazquez, and members of the Subcommittee. My name is ML 
Mackey, and I am the CEO of Beacon Interactive Systems, a small 
business with offices located in Waltham, Massachusetts and in 
Norfolk, Virginia.
    I am also the Legislative Affairs and Policy Committee 
Chair for the Small Business Division of the National Defense 
Industrial Association, NDIA.
    In each of those roles, my motivation is the same, to 
utilize small business effectively to increase innovation, cost 
savings, and competition in the Federal acquisition ecosystem.
    Chairman Hanna, Ranking Member Velazquez, I appreciate your 
leadership and the efforts of your Subcommittee taking the form 
of your obvious interest in and commitment to leveling the 
playing field for small businesses to compete in the Federal 
marketplace and the many pieces of legislation you have 
authored and passed to that end.
    My role at NDIA places me in regular discussions of small 
business legislation. The overwhelming response of my 
colleagues to your efforts and your Committee's efforts is 
sincere appreciation, so please let me begin by saying thank 
you.
    As I said, this Subcommittee has demonstrated a deep 
commitment to leveling the playing field for small business. 
This concept is important to today's discussion because if one 
accepts that small business has a lot to offer and that in many 
cases small business is where innovation occurs, what we are 
all fighting for makes sense, this level playing field. Your 
efforts make it possible for the best, not just the biggest to 
rise to the top.
    The goal of your efforts is not to make it easy on small 
business, and it is not, but rather to ensure that we have a 
diverse industry that supplies the Government with the very 
best goods and services possible at the best possible price.
    Unfortunately, the level playing field is as difficult to 
create as it is important to maintain for the well being of the 
Government contracting ecosystem.
    Fortunately for those of us that advocate for small 
business interests, we have strong advocates like this 
Committee. Your efforts in the recent legislation regarding 
small business Federal contracting in the fiscal year 2016 NDAA 
demonstrate once again that small business can depend on 
Congress to work for a fair and healthy acquisition system.
    Of course, new legislation is just the beginning of this 
process. Each one of your provisions must be written into clear 
regulations and policies that each agency can implement. Next, 
the Congress, the Small Business Administration, and each 
agency must oversee the implementation of these regulations and 
policies to be sure they are followed.
    With that in mind, what I can offer today is some feedback 
from my experience in my own company as well as some of my NDIA 
colleagues' experiences with their small businesses.
    I make five recommendations in my prepared testimony, but 
in the interest of time, I will read only two of them here 
today and submit the others for the record.
    The first one I want to discuss with you is the lack of PCR 
involvement in consolidated contracts. This limits small 
business participation. We suggest that PCRs should actively 
advise on consolidated contracts, inviting PCRs to advise on a 
consolidated acquisition strategy will help better identify 
those requirements where small businesses can best perform, and 
help structure the solicitation such that more small businesses 
can compete.
    Over the recent decade, the Federal Government has seen 
widespread and far reaching changes in the way it procures 
services and technology. There has been significant growth of 
consolidated contracts. Although this has helped the Government 
cope with the reduction on the acquisition workforce through 
fewer contracts, it tends to bundle requirements that are out 
of reach of most small businesses.
    For example, technology contracts are generally the result 
of consolidating multiple discipline requirements into a single 
solicitation for large business team competition. Empowering 
PCRs to advise on consolidated contracts will help to ensure 
that the requirements are within the reach of small business.
    The impact will be increase small business participation 
and competition resulting in more cost effective and innovative 
solutions for our warfighter.
    The second problem I will speak to is post-award 
compliance. The Government has created barriers to entry in the 
Federal market and thus, is not getting all the companies 
participating that it would like to have. Many entrepreneurial 
small business owners do not want to deal with the compliance 
headache and risk of engaging with the Federal Government.
    To be clear, Beacon became a Federal Government contractor 
when after 10 years of running a successful private sector 
software company and in the wake of the tech bubble burst, our 
market dried up. We engaged with the Navy's SBIR program to 
accomplish a pivot into the Federal market.
    Once we got through the initial burden of understanding 
some of the Federal contracting compliance issues, it has wound 
up being a net positive experience both for our company and our 
Federal customers, but overcoming the barriers was really hard 
at first. Honestly, it still is at times.
    I suggest we develop paths and provide resources for non-
traditional entrepreneurial small businesses to drive the 
innovation, cost effectiveness, and improve competition so 
desperately needed in Federal procurement.
    The impact would be increased small business participation 
and improved quality across the board, not just on the high 
quality of what these entrepreneurial small businesses will 
directly provide, but also by the competition they will incite 
across the Government supplier base.
    Mr. Chairman, on behalf of both the National Defense 
Industrial Association and myself, I hope that these 
suggestions will be useful in your ongoing work.
    I would like to thank you and the Committee for your 
leadership, and I would be pleased to respond to any of your 
questions.
    Chairman HANNA. Thank you. Ms. Balazs?

                   STATEMENT OF TRACY BALAZS

    Ms. BALAZS. Good morning, Chairman Hanna, and Ranking 
Member Velazquez, and members of the Subcommittee. Thank you 
for this opportunity to provide testimony regarding my personal 
experiences as a woman owned small business owner who has 
graduated from the SBA 8(a) program, and is now an approved SBA 
mentor.
    My name is Tracy Balazs. I am the Founder, President, and 
Chief Executive Officer of Federal Staffing Resources, also 
known as FSR. I am also a retired registered nurse.
    I am testifying today on behalf of FSR regarding the 
advocacy and support of small business representatives from the 
following departments that I have had experience: 8(a) Business 
Development Program--Business Opportunity Specialists, BOS, the 
Procurement Center Representatives, PCRs, and the Office of 
Small and Disadvantaged Small Business Utilization, OSDBU.
    As a member of the US Pan Asian American Chamber of 
Commerce, an organization whose mission is to be the gateway to 
corporate and Government contracts, while opening doors and 
making connections for the Asian American minority businesses 
and their partners, I am grateful for their recommendation that 
FSR should provide testimony today.
    Federal Staffing Resources is a successful business with 
250 employees, in large part due to the programs, the guidance, 
and the support provided by the SBA.
    FSR has been a Federal contractor since its inception in 
February 2004. Our core competency has been in support of those 
who have sacrificed for our freedoms--the active duty men and 
women and the veterans of the U.S. Armed Forces, by providing 
the best in class health care personnel and program management 
expertise to the Department of Defense and the Veterans Health 
Administration.
    We strongly believe that the SBA has given FSR the 
opportunity to provide these services to the best of our 
ability by giving us support we needed.
    The 8(a) program was crucial to our early survival in 
business. My experiences have been extremely positive, and FSR 
has benefitted greatly from the 8(a) certification. It has not 
been without challenges, however, since the compliance 
requirements of 8(a) certified companies are rigorous.
    The Government contracting process is complex and 
confusing. Most small businesses do not have the time or the 
money it takes to fully understand how to succeed as a 
Government contractor. The SBA provides essential guidance to 
business owners.
    One issue that I had encountered while I was working with 
the SBA is the interpretation and implementation of 
standardized policies and procedures. They are handed down from 
headquarters to the regional offices, the district offices, and 
finally to the individual SBA representatives.
    Even within the same office but mostly across state lines 
and districts, interpretations of policies may differ. I have 
had conflicting experiences regarding how the SBA reviews its 
financial eligibility and size standards and how it applies 
this criteria to award or to deny contracts.
    Some guidance is misleading, conflicting, and 
misinterpreted, which can result in inappropriate action, such 
as improper awards.
    Increased training for the representatives as well as 
inviting industry to offer their experiences may help mitigate 
confusion, and ensure uniform compliance. Non-compliance and 
lack of attention to the rules may be potentially fatal for a 
small business.
    Even from the beginning, I knew that the relevant statutes 
and regulations must be respected and never ignored. We take 
compliance very seriously, and so much so that FSR has a 
Director of Compliance.
    Since the 8(a) program is highly regimented, certified 8(a) 
contractors are under greater scrutiny for compliance than any 
other small businesses that do not have a certifying body 
mandating an annual update of their business or financials.
    FSR is a mentor in the 8(a) Mentor-Protege program. It is 
part of our duty to educate our protege and make them aware of 
the pitfalls of non-compliance.
    The SBA helped us grow our business pipeline and our 
business network. The OSDBUs and the PCRs were essential in 
creating opportunities for the past decade. The OSDBUs work 
closely with the SBA and small businesses to ensure that we are 
aware of Federal opportunities and that we are aware of the 
growing statutes and regulations.
    The two areas that the PCRs may have a direct impact on 
small businesses is to make recommendation for small business 
set-asides and to review the subcontracting plans and goals of 
large businesses.
    The monitoring of the small business subcontracting plans 
may merit review. The concern is that large businesses are not 
being fully assessed for compliance in the percentage of small 
business utilization, as specified in their contract.
    I understand from speaking to several OSDBUs and PCRs that 
the large businesses are expected to meet their small business 
subcontracting goals. However, due to insufficient numbers of 
Government personnel, they are unable to police all the plans. 
Therefore, these percentages are reported only by large 
businesses, and without verification from the subcontractor 
small businesses.
    The Government receiving a report on subcontracting revenue 
directly from small businesses so may themselves verify this 
objective has been met.
    In closing, I would like to acknowledge the SBA program and 
their personnel for assistance in helping me achieve business 
success.
    Chairman Hanna and Ranking Member Velazquez, members of the 
Subcommittee, thank you very much for this opportunity. FSR 
hopes that our contributions and personal experiences may 
impact the way the SBA interacts with small businesses in 
monitoring and educating to ensure more compliance.
    Thank you very much. I am available for questions.
    Chairman HANNA. Thank you. There is a theme here, and that 
is that the SBA is shorthanded, which makes me wonder, they 
offered a buyout program last year to PCRs and CMRs, and 15 
people retired.
    Ms. Styles, a couple of things. How does DII develop 
training on issues like limitations on subcontracting when the 
SBA and the FAR have not issued its own final rules, and could 
you give me some examples of the types of ethical issues that 
people are confronting that might not seem obvious?
    Ms. STYLES. The rules, as you know, are quite complicated. 
The statutes governing Federal contracting and the regulations 
governing Federal contracting are complicated even for the 
largest of defense contractors in our country.
    I can tell you what makes it even worse is when a new 
statute comes out and the regulations are not updated to 
reflect the new statute, so the regulations are incorporated 
into the contractor's contract, so you sign on the bottom line 
and it becomes part of your contract, so you have to comply 
with the regulation that says one thing for limitation on 
subcontracting, but then there is also a statute out there that 
you also must comply with that says something else on the 
limitation on subcontracting. The best that we can advise our 
clients is that they have to figure out how to follow both.
    Chairman HANNA. They may not be in the same document. They 
could be completely separate and maybe even unavailable at the 
time?
    Ms. STYLES. Are we really anticipating small businesses to 
read legislation, statutes that pass? They rely on the 
contract. They rely on the Federal acquisition regulations. It 
is really hard to also expect them to go scour through the 
statutes to figure out what they are supposed to be doing in 
particular instances. It is very, very difficult.
    I will say even some of the simplest issues are hard to 
understand. Federal contracting is not commercial contracting. 
You cannot take Government employees out to lunch. You have to 
follow the specific terms and conditions of your contract. You 
cannot sell products that are made in China.
    There are things that are just really, really different 
that are easy to get tripped up on, and we see it every day. We 
see it every day with small businesses.
    Chairman HANNA. To anybody, what kind of implications does 
this have on bundling? Obviously, there is an incentive to do 
that. I had asked you what kind of ethical issues you might be 
confronted with that might not seem obvious. You said you had 
made a couple of examples.
    Ms. STYLES. Well, even the simplest things like pricing, 
certified cost and pricing information, where products have to 
be manufactured that are supplied to the U.S. Government. 
Simple gifts and gratuity rules. There are like pages and pages 
of gift and gratuity rules, not just for Federal employees, but 
also in terms of what would constitute what you can do with 
your suppliers as well.
    It is easy to get tripped up on----
    Chairman HANNA. Would you say that it is almost impossible 
to follow, that anybody can make a mistake, and it depends on 
who is watching when that mistake is made?
    Ms. STYLES. Yes, even the largest companies make mistakes, 
and they have a lot of resources to comply and to put ethics 
and compliance programs in place.
    Chairman HANNA. Anyone else want to speak on that?
    Ms. BALAZS. I think it is easy to make a mistake. However, 
it is on the onus of the small business who is going to be 
working in the Federal space to be updated on the regulations. 
This is required on the 8(a) certification.
    You have to make sure that you comply with the terms of 
your contract. Therefore, you as a business owner has to do 
some homework. You have to be aware of what is going on and 
what you have to do while working in the Federal space.
    If the opportunity were there to be able to have our 
representatives to be able to support us and educate us and 
remind us that we have compliances to meet, I think that would 
help us, instead of just allowing the small businesses to 
figure it out for themselves.
    Chairman HANNA. Thank you. Ms. Velazquez?
    Ms. VELAZQUEZ. Thank you. Ms. Styles, one of the main 
factors in staying active in the marketplace is to remain 
compliant. Can you help me understand why there is so little 
emphasis put into that?
    Ms. STYLES. I do not know why. I think a lot of the 
emphasis has been put on getting the contracts to the small 
businesses, which is great, right. We want our small businesses 
to get a good share of Federal contracts.
    I think the emphasis was put there to the exclusion of what 
happens once you get the contract, how you perform, how you 
follow the laws and regulations.
    Ms. VELAZQUEZ. How is it that DII does not find any 
government source that provides guidance on small business 
compliance?
    Ms. STYLES. We were really surprised when we started 
looking and realized what a big problem it was starting to 
become, at least from what we were hearing from our Government 
colleagues in terms of their concerns about whether the small 
business suppliers they were relying on, that provided good 
products and services, did not have a compliance program.
    We were getting tripped up in different areas, so that is 
why we started looking.
    Ms. VELAZQUEZ. Thank you. Ms. Balazs, you noted in your 
testimony that you have a Director of Compliance. This is not a 
step that has been taken by small businesses. Why do you choose 
to make this investment, and what kind of assistance did you 
seek when creating your program?
    Ms. BALAZS. So, I chose to make this investment because we 
wanted to be 100 percent compliant, and we did not want to risk 
being disbarred or suspended. The 8(a) certification is 
precious. You work hard to get it. You work hard to maintain 
it. Although there are many companies that feel they will not 
get caught, it is a risk that you take if you are not in 
compliance.
    We chose to be able to assign someone in our organization 
to be Director of Compliance. She is self taught. She has years 
of Government experience, and has had a great deal of resources 
that she has obtained through classes or seminars provided by 
the SBA and other agencies, et cetera.
    It really keeps our feet to the fire, to be able to make 
sure that if we are going to be working and competing in the 
Government space that we are going to do exactly what the 
Government tells us to do.
    Ms. VELAZQUEZ. Would something like the tools that Ms. 
Styles mentioned have been helpful to you?
    Ms. BALAZS. Absolutely. If we had those resources at hand, 
we certainly would not have had to go and find them and seek 
them out. We did not get the assistance from the SBA. When we 
got our 8(a) certification, it was just an understood thing 
that we would be compliant, although there was nothing that we 
were given in terms of a handbook on how to do it, what is the 
FAR, how do we read the FAR. Your toolkit would be absolutely 
great for any business but essentially those are going into the 
Federal space.
    Ms. VELAZQUEZ. It is great that now you provide compliance 
assistance to your protege. Did you find that other entities 
were lacking in terms of providing counseling to small 
businesses?
    Ms. BALAZS. I believe so. I think it is really focused on 
getting contracts, networking who you meet, who are the buyers, 
who are the acquisition teams. It is not really focused on 
after award and what is expected of the small business or the 
large business.
    Ms. VELAZQUEZ. Thank you, Ms. Balazs. Ms. Styles, other 
than money and manpower, what have you found to be the biggest 
obstacle in creating a compliance program?
    Ms. STYLES. It is the culture of the company. It has 
everything to do with the people who are leading the company. 
They have to embrace it and they have to understand it, and 
just like Ms. Balazs over here, that is exactly what you want. 
You want a company that says if I am taking Federal dollars and 
I am performing a service, I am going to do it right.
    Ms. VELAZQUEZ. Do you have an estimate on how much a basic 
compliance program would cost?
    Ms. STYLES. It is not inexpensive. You have to have a 
person at least partially committed to it. I would say at least 
$100,000 to put the very, very basics in place.
    Ms. VELAZQUEZ. I have other questions for the other two 
witnesses on the second round, because we have other members 
here.
    Mr. Leghorn, earlier this year we held a hearing on the 
alleged fraud and abuse of government purchase cards by the 
Department of Veterans Affairs. You spoke at that hearing, but 
yet veterans' groups have yet to testify before the committee 
on this issue.
    Can you discuss further how this type of fraud has affected 
the veteran small business community?
    Mr. LEGHORN. Thank you for your question, ma'am. So, the 
way it affects veteran owned small businesses is that first of 
all, the small business goal and percentages that are reported 
by VA OSDBU come from--are taken from data from FDPS.
    Since purchase card expenditures are not reported in FDPS, 
the percentage that they actually report to the SBA is false.
    We do not think this is something that is completely just 
only relegated to VA, we think other agencies have violated the 
purchase card rules as well.
    Overall, it could be that more than one agency is reporting 
false small business percentages to the SBA, and the SBA does 
not really have any teeth to go after the agencies when 
discrepancies are found.
    Ms. VELAZQUEZ. How can we get acquisition officials to stop 
trying to shortcut the contracting process?
    Mr. LEGHORN. I think the best thing we could do is to 
leverage the OSDBUs within all the agencies and rely on them to 
really train their contracting employees to use regular 
procurement vehicles or if things need to be expedited, to use 
maybe their sole source authority, but most importantly, they 
have to start reporting their purchase card expenditures.
    Ms. VELAZQUEZ. Thank you. Ms. Mackey, the committee often 
hears from small businesses that they do not know the role of 
certain advocates or know how to properly utilize them as 
resources. In some cases, they do not even know the advocate 
exists.
    What can be done to clarify these roles and ensure that 
small businesses know about both the advocates and resources 
available to them?
    Ms. MACKEY. I would tell you that when I first found out 
about PCRs, I thought oh, wow, what a great role. I was really 
excited to have them get engaged in some of the contracting 
discussions we were having, and then I realized how few there 
were and how stretched thin they were, and how they did not 
know the particulars, specifically of the SBI contracting we 
were doing. It was like this promise that just went passing by.
    I am very encouraged that we are talking about increasing 
those resources. I also would suggest that you reach out 
through the industry associations. What keeps striking me about 
the answers that I hear from my fellow panelists is this 
ability to initiate or do training.
    Ms. Styles, you talked about changing it from the top down. 
I think if you really want to change behavior, you want to have 
this kind of compliance, you need a continuous maintenance of 
your operational procedures and how you act, and so many of us 
as small business owners find education in our industry 
associations. I would recommend to you that you reach out 
through the industry associations.
    Ms. VELAZQUEZ. Thank you. Thank you, Mr. Chairman.
    Chairman HANNA. Thank you. Mr. Kelly?
    Mr. KELLY. Yes. Mr. Leghorn, first, I want to thank you for 
your service in the American Legion and obviously before that. 
As a member of the American Legion, that is very important to 
me.
    You know that the procurement center representatives, PCRs, 
are supposed to be the small businesses' advocates, ensuring a 
fair proportion of purchases, contracts and subcontracts that 
are allocated to small businesses.
    Can you explain why the SBA would have a regulation that 
keeps its procurement center representatives from reviewing 
some of the largest contracting opportunities for small 
businesses? By this, I mean contracts awarded as part of the 
FSSI and other consolidated multiple award contracts.
    Mr. LEGHORN. Thank you for your question, sir. PCRs only 
look at contracts that are above a certain dollar amount, 
because there simply are not enough of them to look at every 
outgoing contract. With some of the contracts that go out, the 
orders that go out under the FSSI, they already have a small 
business component built into them.
    For example, if you had seven primes that are designated, 
three of them could be small businesses, and four of them could 
be large businesses, and they are not obligated to look at them 
because small business is already built in.
    Mr. KELLY. Ms. Mackey, you are welcome to comment as well.
    Ms. MACKEY. I am not sure that I could comment too much 
more than that except to add in that it is really important to 
articulate and discretely break up the kind of work that needs 
to be done, and make sure we keep all the opportunities open. I 
really appreciate what you had to say on that.
    Mr. KELLY. Mr. Leghorn, you know from your view there are 
not enough PCRs to keep up with the expedient review of every 
contract for compliance. In an ever increasingly difficult 
budget environment, outside of hiring additional PCRs, are 
there other steps that could be taken to modernize or create 
effectiveness within the PCR role?
    Mr. LEGHORN. Sir, I think a really good start, if we are 
not going to hire any more PCRs, is to just have PCRs start 
looking at FSSI contracts, because those contracts that are 
going out are so large, there are actually very few small 
businesses attached to these contracts.
    I am pretty sure if any competent PCR looks at them, they 
could find other small businesses to break out contracts for.
    Mr. KELLY. Is there any other member of the panel that 
would like to comment on that?
    Ms. BALAZS. Would it be okay if I added something to that? 
When I think about PCRs reviewing the consolidated contracts, 
the thing I think I can offer is a perspective on what the 
small business owner experiences, perhaps we both can offer 
that.
    If you think about how long it takes to prepare, if you can 
qualify, to propose on one of those, some of our colleagues 
have told us that it takes half a man year to write one of 
those proposals.
    If you have a small business, it is 20 people, and they are 
writing one of these proposals, where they might get work and 
they might not, that is half a year, that is five percent of my 
workforce, let's say I am a 20 person company. Often, the 
profit, the fee, that I can charge on a contract is five or six 
percent.
    It becomes unreasonable to think even when there are these 
kinds of contracts that small business can go after, that most 
of your small businesses will not. I think I am again 
emphasizing your points, but I did want to give that context.
    Mr. KELLY. Mr. Chairman, I yield back.
    Chairman HANNA. Thank you. It is worth noting that Mr. 
Kelly will be introducing a bill to ensure PCRs can review 
consolidated contracts, so this bill was written with the 
ranking member's staff.
    Ms. Styles, how unusual is it that a company would have 
what Ms. Balazs has? Clearly, you have reached a critical mass 
to do what you have done. Is it unusual?
    Ms. STYLES. Very unusual for a company that size or a small 
business to have a chief compliance officer or head of 
compliance.
    Chairman HANNA. It makes a big difference?
    Ms. STYLES. Huge difference.
    Chairman HANNA. But extremely rare?
    Ms. STYLES. Very rare because it is a person, and you have 
to pay.
    Chairman HANNA. It is expensive?
    Ms. STYLES. Yes.
    Chairman HANNA. That only emphasizes again what you do, the 
importance of what you do, and the importance of PCRs in 
general. Amazing.
    How much of an impetus do you think this has towards moving 
to bundling and more consolidation, hence, as Ms. Mackey said, 
the difficulties associated with getting contracts in general? 
To anybody who would like to comment.
    We have seen the loss of 100,000 businesses; right? That is 
pretty severe.
    Ms. BALAZS. If I may, bundling creates a situation where 
the cost and the volume of all the contracts are so large that 
small businesses generally are not able to support that volume. 
However, I have heard through speaking with some OSDBUs and 
understanding through small businesses that there could be a 
tiered system in which when you look at the size for small 
businesses, the largest size standard currently is $38 million. 
That is a three year average.
    Anybody who is within that could be considered a small 
business, but that is a hospital standard size, for those who 
are in health care, this is a size that we bid under.
    I believe the largest size for research and development is 
500 person. We are at 250, but we are still a small business. 
As we continue, we will outgrow that size, but could still be a 
small business depending on the types of personnel we support.
    I believe the largest size for temporary services is $27.5 
million, and the IT services is like $25 million.
    If there were an opportunity to look at these contracts 
that are coming out as a bundled contract, to be able to say 
okay, if there are small businesses in the mid-tier area that 
may be above these sizes, that they can come together possibly 
and be able to work on some of these contracts if it was 
offered to them. Right now, it is even full and open for 
billion dollar companies or small.
    If you do not have enough small's that can say they can do 
it, along with their teaming partners, it will always go full 
and open for these bundled contracts.
    Chairman HANNA. Do you agree with that?
    Ms. STYLES. Yes, I definitely agree with that. I would say 
just on the bundling piece, I am seeing some recognition at the 
Department of Defense that at least on the compliance side, it 
does not really solve the problem, because the small 
businesses, if you bundle, many of these small businesses end 
up being in the supply chain, right.
    Whether they are a prime and bidding or whether they are in 
the supply chain, we have to fix these problems with 
compliance.
    I do think at least in some sense, there is a recognition 
at the Department of Defense that it is not the solution that 
maybe they thought it was, not that it does not make their life 
easier, right, to bundle things and just have one company.
    Chairman HANNA. One tends to think of bundling from the top 
down, but what Ms. Balazs is suggesting is from the bottom up, 
which is different than frankly I had thought about it before.
    Ms. Velazquez?
    Ms. VELAZQUEZ. Yes, I have another question. Ms. Balazs, in 
your testimony, you talked about the lack of standardization of 
SBA policies that could lead to inappropriate actions on the 
part of small businesses.
    I would like to hear from your own experience, do small 
businesses usually rely on the business opportunity specialists 
to steer them in the right direction?
    Ms. BALAZS. The business opportunity specialists, ma'am, 
are really assigned to those certified companies that are in 
the 8(a) program. They are very specialized in supporting those 
8(a) contractors.
    I have two examples of misinterpretation of some of the 
statutes and some of the policies. It comes down to the 
financial eligibility of small businesses on sole source. This 
is just an experience that I have had, and in talking with my 
contemporaries, that they may not have realized the same 
experience.
    When a sole source opportunity is approved and granted to 
an 8(a) company, the contracting officer must double check with 
the BOS to make sure that person, that company, is viable, that 
they are eligible, and they are able to support.
    There is a financial aspect of that where they will ask the 
8(a) company to present their tax returns to make sure they are 
within the size standards to receive that sole source award. 
Usually, it is based on the tax returns.
    Unfortunately, from my experience, and this is where I am 
saying interpretation is different amongst the BOSs--my BOS was 
extremely dedicated to her job, she was extremely by the book. 
I am not sure if this particular rationale is part of policy, 
but she asked for interim financials, a moment in time of what 
my financials are today before I can be awarded a sole source.
    If we are a growing company, that is ever changing, and 
hopefully it is growing. It is not based on the tax returns of 
the previous year. Therefore, I have been denied sole source 
contracts because we have reached a threshold during that 
growth period.
    Other SBA BOSs have not asked for interim. It is a surprise 
to them that we would be asked for interim financials.
    Ms. VELAZQUEZ. Let me ask you, do you see the fact that 
there is a lack of direct BOS oversight from headquarters a 
contributing factor to the lack of standardization, for 
example?
    Ms. BALAZS. I do not believe that is 100 percent true. I 
think it is just understanding the statutes and the policies 
and the rules and how they interpret them and express it to 
their 8(a) organizations.
    I think what is there is a statute, and maybe they are just 
misrepresenting in the way they are explaining that to an 
organization, and I am seeing that it happens within the same 
organization, same office, as well as across state lines where 
other businesses are.
    As a mentor, I am working with a BOS that is in another 
state. My protege is in another state. Therefore, some of the 
things they have said to us is a little bit different than the 
instructions and guidance I had received as an 8(a) certified 
company.
    Ms. VELAZQUEZ. Thank you. Thank you, Mr. Chairman.
    Chairman HANNA. Thank you. Implicit in that is there is 
some arbitrary and capricious opportunities because of the 
complexity, and the lady you talked to who wanted you to do 
interim financials, that is a lot of work and a lot of expense, 
and you thought it was not required, but you had no choice.
    Ms. BALAZS. I had no choice. I had to provide--the one 
other aspect, if I may, is audited financials. The 8(a) 
requires a company who is over $10 million and is a certified 
8(a) to have audited financials. Audited financials are 
extremely expensive. That is mandatory for you to sustain your 
8(a) certification.
    Most small businesses do not have that requirement to have 
audited financials, but it is important to make sure that 
company is sustainable. I have spoken with 8(a) companies that 
have never been requested to have audited financials, and in 
the entire nine years of my term in the 8(a) program, it cost 
me about $30,000 a year to have audited financials, and then I 
am working against other organizations who do not have audited 
financials.
    Chairman HANNA. If someone says to you you need it as of 
yesterday, then basically that $30,000 you spent for year-end 
does not even help you.
    Ms. BALAZS. Correct. It was not an issue that we had to 
provide audited financials because we are compliant, we do what 
we are told. There was no issue with that, although I found it 
rather expensive, but it was the fact that it was not 
standardized across all the BOS offices.
    Chairman HANNA. Thank you very much. Those FSSI contracts 
displaced 500 plus small businesses in exchange for a handful 
of small businesses. In one case, we went from 1,000 small 
businesses regularly competing to only 30. This is something 
that the PCRs should review.
    If there are no further questions, I want to thank 
everybody for being here today, and for your ideas for solving 
some of these problems and potential solutions.
    It seems that some common sense reforms to PCR, OSDBU, BOS, 
and CMR programs would go a long way to helping our small 
businesses compete. I look forward to working with my 
colleagues, and there are a number of ideas on this Committee, 
along with one we have heard from Mr. Kelly.
    I ask unanimous consent that the members have five 
legislative days to submit statements and supporting materials 
for the record, without objection.
    I want to thank you all again. This hearing is now 
adjourned.
    [Whereupon, at 12:02 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X


                 STATEMENT OF ANGELA B. STYLES

  TESTIFYING ON BEHALF OF THE DEFENSE INDUSTRY INITIATIVE ON 
                  BUSINESS ETHICS AND CONDUCT

          BEFORE THE HOUSE COMMITTEE ON SMALL BUSINESS

           SUBCOMMITTEE ON CONTRACTING AND WORKFORCE

                        DECEMBER 9, 2015

    Chairman Hanna, Congressman Takai, and Members of the 
Subcommittee, I appreciate the opportunity to appear before you 
today as the Coordinator of the Defense Industry Initiative on 
Business Ethics and Conduct (``DII'') to discuss ways to 
empower small businesses to comply with the multitude of 
requirements they are required to follow as contractors in the 
federal marketplace.

    DII is a nonpartisan, non-profit 501(c)(3) association of 
U.S. defense companies who are committed to a culture and 
practice of ethics and integrity in all business dealings with 
the United States Department of Defense. In 1986, the Chief 
Executive Officers and senior officials of 18 defense 
contractors (please see Attachment A for a list of founding 
Signatories) led by Jack Welch from General Electric 
voluntarily met to create DII and draft self-governance 
principles. Mr. Welch and the other pioneering defense 
contractors were guided by the ``The President's Blue Ribbon 
Commission on Defense Management'' for defense contractors to 
improve the defense acquisition process through greater self-
governance. By July 1986, 32 major defense contractors had 
pledged to adopt DII's core principles. Today, 76 defense 
contractors--including both small and large businesses--are 
Signatories to the DII principles (see current list of DII 
Signatories at Attachment B):

          We, the members of the Defense Industry Initiative on 
        Business Ethics & Conduct (DII), affirm our commitment 
        to uphold the highest ethical standards in all our 
        business dealings with the government, as expressed 
        through the following principles:

          (1) We shall act honestly in all business dealings 
        with the U.S. government, protect taxpayer resources, 
        and provide high-quality products and services for the 
        men and women of the U.S. Armed Forces.

          (2) We shall promote the highest ethical values as 
        expressed in our written codes of business conduct, 
        nurture an ethical culture through communications, 
        training, and other means, and comply withy and honor 
        all governing laws and regulations.

          (3) We shall establish and sustain effective business 
        ethics and compliance programs that reflect our 
        commitment to self-governance, and shall encourage 
        employees to report suspected misconduct, forbid 
        retaliation for such reporting, and ensure the 
        existence of a process for mandatory and voluntary 
        disclosures of violations of relevant laws and 
        regulations.

          (4) We shall share best practices with respect to 
        business ethics and compliance, and participate in the 
        annual DII Best Practices Forum.

          (5) We shall be accountable to the public, through 
        regular sharing and reporting of Signatory activities 
        in public fora, including www.dii.org. These reports 
        will describe members' efforts to build and sustain a 
        strong culture of business ethics and compliance.

    As part of its mission, DII provides resources and 
assistance to help train hundreds of thousands of defense-
industry employees in ethics and compliance, with DII's website 
providing free access to ethics training, instructional videos, 
and webinars on emerging ethics issues for defense-industry 
companies. DII also holds regular meetings and conferences to 
share best practices. As well, DII mentors suppliers and new 
firms in how to comply with the laws and regulations that 
govern U.S. defense companies.

 Small Businesses in the Federal Marketplace Lack Resources to Develop 
                          Compliance Programs


    In an ideal world, all businesses that participate in the 
federal marketplace would have the wherewithal to understand 
and comply with all of the obligations that go hand-in-hand 
with federal contracting. This is not an ideal world. The scope 
and complexity of regulations faced by contractors are enough 
to regularly challenge even the largest federal contractors 
with robust compliance and ethics programs.

    With less resources (measured both by money and manpower) 
and less experience with government contracting, the hurdles 
faced by small businesses in even setting up compliance 
programs are monumental. As a result, the federal government is 
undoubtedly contracting with small businesses that do not know 
the full extent of the laws, regulations, or provisions with 
which they are supposed to comply (let alone understand them), 
are not monitoring their compliance against these requirements, 
and have no process to voluntarily disclose violations to the 
appropriate authorities.

    Although there are numerous federal government agencies, 
centers, and offices that work with small businesses engaged in 
federal contracting, DII has extensively searched and has not 
found government sources that provide guidance to small 
businesses to aid in the adoption of codes of conduct or the 
establishment of broader compliance and ethics programs. Some 
offices, like small business development centers, which are 
administered by the Small Business Administration, provide 
management assistance to current and prospective small business 
owners, but have been statutorily tasked only in general terms 
with providing counseling and technology development for 
complying with environmental, energy, health, safety, and other 
federal, state, and local regulations. 15 U.S.C. 
Sec. 648(c)(3)(H).\1\ The statutes underlying other similar 
programs, like the Procurement Technical Assistance Centers and 
the Department of Defense ``DoD'' Office of Small Disadvantaged 
Business Utilization (also known as the DoD Office of Small 
Business Programs), do not speak to helping ensure small 
business compliance with laws at a high-level like this, let 
alone the establishment of ethics and compliance programs.
---------------------------------------------------------------------------
    \1\ The Small Business Act provides that ``Services provided by 
small business development centers shall include, but shall not be 
limited to--(h) maintaining current information concerning Federal, 
State, and local regulations that affect small businesses and counsel 
small businesses on methods of compliance. Counseling and technology 
development shall be provided when necessary to help small businesses 
find solutions for complying with environmental, energy, health, 
safety, and other Federal, State, and local regulations.'' 15 U.S.C. 
Sec. 648(c)(3).

---------------------------------------------------------------------------
          DII's Past and Current Outreach to Small Businesses


    Because federal resources for assisting small business with 
ethics and compliance programing appears to be woefully 
lacking, DII recently undertook several significant initiatives 
to provide ethics and compliance resources to small business 
contractors. In 2014, DII published a Model Code of Conduct for 
suppliers, which I have provided to the Subcommittee as 
Attachment C. DII learned from a 2013 survey of its Signatories 
that such a code would be a helpful resource when dealing with 
supply chain integrity issues. DII's Model Code of Conduct 
includes such topics as compliance with laws, human rights, 
employment practices, anti-corruption, conflicts of interest, 
and information protection. For those already with a supplier 
code, this Code is a benchmarking tool. For Signatories as well 
as small suppliers without a code of conduct, the Code is 
capable of being adopted for use as-is or as a foundation to 
the creation of a new supplier code of conduct. Ideally, this 
Code will come to serve as common core code with company 
specific addenda and achieve the ultimate objective of limiting 
the number of codes flowed to common suppliers.

    DII also undertook in 2014 to provide a Supplier Toolkit. 
The Toolkit's purpose is to provide helpful tips and guidance 
on how to put together an effective ethics and compliance 
program, support suppliers in becoming compliant with Federal 
Acquisition Regulation 52.203-13 Contractor Code of Business 
Ethics and Conduct requirements, engage the supplier community 
in the ethics discussion, and strengthen the defense industry. 
The Supplier Toolkit can be found on our website at 
www.dii.org.

    Following the publication of DII's Model Code of Conduct 
and Supplier Toolkit, multiple suspension and debarment offices 
from agencies across the federal government invited DII to 
discuss difficulties faced by small businesses in understanding 
and complying with their obligations as federal contractors. As 
a result of these meetings, DII has committed to provide 
additional resources specifically developed with small 
businesses in mind. To that ed, DII has recently published a 
webinar on small business issues on its website; I have also 
provided today as Attachment D to my testimony the slides for 
this webinar.

    Finally this spring, DII plans to launch a robust Small 
Business Toolkit, which will touch upon the following four 
features of a compliance program:

           Structure and organization of a compliance 
        program--DII will provide examples of various models 
        that can be used in building a compliance program;

           Code of conduct, policies & procedures--DII 
        will develop models of the types of policies that small 
        businesses which contract with the government should 
        consider implementing;

           Training and communications--DII will 
        publish sample training videos and other 
        communications;

           Monitoring and auditing--DII will provide 
        templates for small businesses to use to monitor the 
        effectiveness of their compliance programs.

    DII is also developing a mentor-protege program for ethics 
and compliance issues that will provide names of companies and 
individuals that small contractors can contact as a resource. 
DII is taking these steps in furtherance of its mission to help 
improve the defense acquisition process through greater self-
governance and will be analyzing how best to conduct outreach 
to make these resources more broadly available to non-Signatory 
small businesses.

                             In Conclusion


    Given the scarcity of federal government resources 
dedicated to helping small businesses establish ethics and 
compliance programs, DII has committed to creating and making 
available resources to help small businesses understand and 
comply with federal contracting requirements. We are certainly 
hopeful that these education and training efforts can be done 
in coordination with our Department of Defense and Small 
Business Administration colleagues. The small business 
advocates can play an important role in helping to ensure that 
small businesses have ethics and compliance programs and 
provide guidance on the resources available to develop them. 
Together, the public and private sectors should ensure that 
small businesses have the resources and tools to wisely, 
legally and ethically perform contracts for the federal 
government. This concludes my prepared remarks. I am happy to 
answer any questions you may have.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]





                              STATEMENT OF


                    DAVY LEGHORN, ASSISTANT DIRECTOR


          NATIONAL VETERANS EMPLOYMENT AND EDUCATION DIVISION


                          THE AMERICAN LEGION


                               BEFORE THE


               SUBCOMMITTEE ON CONTRACTING AND WORKFORCE


                   OF THE COMMITTEE ON SMALL BUSINESS


                 UNITED STATES HOUSE OF REPRESENTATIVES


                                   ON


      ``SUPPORTING SUCCESS: EMPOWERING SMALL BUSINESS ADVOCATES''


                            December 9, 2015


    Good morning Chairman Hanna, Ranking Member Velazquez and 
members of the subcommittee. On behalf of our National 
Commander, Dale Barnett, and over 2 million members of The 
American Legion, we thank you for this opportunity to testify 
at this hearing on the challenges facing veteran owned small 
businesses seeking federal contracts.

    The American Legion identifies three issues that pose 
obstacles for veteran owned small businesses and service-
disabled veterans seeking federal contracts:

          1) The Federal Strategic Sourcing Initiative;

          2) The Differences between Small Business 
        Administration and Department of Veterans Affairs 
        procurement policy standards; and

          3) The abuse and lack of accountability in purchase 
        card.

    Federal Strategic Sourcing Initiative:

    The American Legion has never thought that the Federal 
Strategic Sourcing Initiative (FSSI) was good for small 
business. While this initiative was crafted around assisting 
federal agencies meet their small business goals faster, it is 
flawed, in that it drastically reduces competition for 
government spending. To a certain extent, we've internalized 
that the current generation of FSSI is here to stay. So rather 
than fight it, perhaps it's time to see if we can work with 
this Committee to ensure that veterans small businesses can 
actually benefit.

    Starting with the procurement process itself, it takes two 
years and thousands of man hours to successfully submit a 
responsive proposal which does not guarantee an award. This 
expenditure of company resources will only position a firm as a 
potential prime under the FSSI. The process of just getting in 
position to bid is a huge gamble, overly burdensome and cost 
prohibitive to the majority of small businesses.

    Another issue is that the agencies that committed to use 
this procurement vehicle prior to issuing the solicitation have 
failed to utilize the FSSI contract vehicle; therefore the few 
dozen small businesses that invested in the contract process 
have lost more money in comparison to firms that did not bother 
to bid and firms that bid, but did not receive awards. This is 
on account of the drastic measures a firm has to take to lower 
their prices in order to compete for an award, but after the 
award, not receiving the increase in volume the firm was 
promised prior to the bid.

    Nearly two years ago, the General Services Administration 
(GSA) promised to buy an estimated $20 million of their 
janitorial supplies through the FSSI. To the dismay of many 
small supply retailers that have positioned themselves to be 
primes under the FSSI, GSA has bought very little through their 
own FSSI contracting vehicle. Anecdotally, this is not an 
occurrence relegated to just the GSA and that this is happening 
within other agencies as well, because the agencies habitually 
use their preferred and trusted suppliers.

    Procurement Center Representatives:

    Procurement Center Representatives are supposed to be the 
small businesses' advocates, they ensure a fair proportion of 
purchases, contracts & subcontracts are allocated to small 
business. With SBA being underfunded, there are not enough 
Procurement Center Representatives (PCRs). In order to work 
expediently, they are not able to review every contract for 
compliance. Currently, PCRs do not review outgoing FSSI 
delivery orders with small business options already built in. 
However, the contracts that go out in the FSSI are so large 
that The American Legion believes that it will be to the small 
business community's advantage if PCRs are required to review 
outward-bound FSSI contracts.

    The American Legion Recommends:

          1) Making FSSI bidding process easier and shorter for 
        small business.

          2) Larger number of awards under FSSI.

          3) Restrict FSSI to small businesses.

          4) Increasing SBA budget for training and hiring more 
        PCRs.

          5) PCRs to start reviewing FSSI contracts.

    Purchase Card Abuse:

    The American Legion believes VA, when they tell us that the 
money spent on the purchase cards were used to provide adequate 
medical care and services to veterans. We don't' question why 
VA spent the money, we are concerned with the problems that 
result from the way they decided to spend the money.

    This issue is of the utmost importance to The American 
Legion as it directly effects the care of our most vulnerable 
constituents. Federal contracts protect veteran patients with 
terms and conditions; contracts also hold the supplier or 
healthcare administrator accountable for defective equipment 
and mal-practice. None of these protections are in place when 
medical equipment and services are purchased on the fly without 
contracts. So never mind the fact that VA is probably being 
overcharged, because no effort has been made to compete for 
best prices, or that the abuse of purchase cards is unfair to 
small business, this is foremost a safety issue that absolutely 
has to be addressed.

    All purchases below the simplified acquisition threshold of 
$150,000 but not below $3500, are exclusively reserved for 
small businesses. VA's use of the purchase card for medical 
services and devices took away money that should have been 
considered for small businesses. Furthermore, VA's procurements 
made by the purchase cards were not factored into what was 
reported to the SBA for small business goal purposes. The 
percentage of the dollar amount that was reported set-aside for 
small business is flawed because an estimated $6 billion per 
year was not reported in Federal Procurement Data System 
according to the Jan Frye's memorandum to Secretary 
McDonald.\1\
---------------------------------------------------------------------------
    \1\ Jan Frye's memorandum to Robert McDonald, Secretary of the U.S. 
Department of Veteran Affairs, March 2015, accessed December 3, 2015, 
http://files.ctctcdn.com/8daee019001/1db6a9ca-27ae-4bcc-ab00-
9ef060d9d2c2.pdf

    In the past, VA mentioned that they needed additional 
contracting staff to write and oversee contracts. According to 
the Frye Memo, the Bronx VA Medical Center spent $54 million on 
prosthetics paid with $24,999 increments on the purchase cards. 
The American Legion believes that VA contracting officials rely 
on purchase cards as procurement shortcuts like they did in 
---------------------------------------------------------------------------
this instance because of short staffing and a high workload.

    The American Legion also believes that purchase card abuse 
likely stems from bad training. Contracting personnel are 
trained and taught the same way, they know the small business 
rules and regulations. But anecdotally, when they get to the 
VAMCs, they are taught to take shortcuts because this is the 
way their supervisors have done it and their supervisors are 
sometimes unknowingly perpetuating an established culture of 
shortcuts. Which is why many employees who are abusing the 
purchase cards don't even know that they are breaking the law 
or realize that there might not be a need to get around regular 
contracting vehicles. Sometimes, the shortcuts created are not 
any faster than expediting purchases through VA's sole source 
authority under Title 38.

    Further, The American Legion believes that VA is not the 
only party that keeps purchase card expenses off of Federal 
Procurement Data System (FPDS). We're confident other agencies 
are doing the same thing. A March 2008 GAO Report \2\, lists 
several other agencies' cardholders who were bypassing Federal 
Acquisition Regulations and making noncompetitive procurements 
with purchase cards.
---------------------------------------------------------------------------
    \2\ U.S. Government Accountability Office, Governmentwide Purchase 
Cards: Actions Needed to Strengthen Internal Controls to Reduce 
Fraudulent, Improper, and Abusive Purchases, by Gregory D. Kutz, GAO-
08-333. 2008

    There seems to be a recurring theme with the need for 
additional personnel to write, oversee and monitor contracts. 
Whether they are contracting specialists, contracting officers 
or PCRs, much of the problems our constituents have had with 
FSSI and purchase card abuse all stem from a lack of well-
trained contracting employees. The contract bundling through 
FSSI, reverse auctions and large Indefinite Delivery, 
Indefinite Quantity contracts (IDIQs) were all aimed in part to 
alleviate the workload of contracting employees, but clearly 
it's not working because they are still looking for shortcuts 
---------------------------------------------------------------------------
and workarounds.

    The American Legion Recommends:

          1) Hiring more contracting staff.

          2) Ensure that agencies must train and re-train 
        contracting employees.

          3) Agency must account for purchase card expenditures 
        and start reporting it to FDPS.

          4) GAO report on whether purchase card abuse is 
        agency-wide and what is so onerous about small business 
        rules that they seek shortcuts or why there is such an 
        appeal for cardholders to make noncompetitive 
        procurements with purchase cards.

    Department of Veterans Affairs Verification:

    Recently, the Center for Veterans Verification and 
Evaluation (CVE) has implemented a pilot verification process, 
which includes the assignment of a case manager to each case 
and provides counseling to the applicant prior to adjudication. 
The American Legion applauds VA efforts in engaging the 
applicant prior to the final adjudication. In 2013, The 
American Legion testified that there needs to be a human 
element in the pre-verification process to help an applicant 
understand why more documentation was warranted as opposed to 
just denying an application based off of insufficient evidence 
to establish ownership and/or control. In providing pre-
adjudication emails regarding missing information and now 
incorporating counseling services to applicants, we see that VA 
has been responsive to our previous testimony.

    Over the last two years, VA has made tremendous steps in 
improving the verification process. The American Legion would 
be remiss if we did not mention that CVE has significantly cut 
down the time it takes for a small business owner to receive an 
initial decision to less than 30 days. This is a stark contrast 
to 2012, when it took approximately 85 days for CVE to make a 
determination on an initial application.

    However, there are several items left that CVE cannot 
address without legislative action and The American Legion 
believes that HR 3945, Improving Opportunities for Service-
Disabled Veteran-Owned Small Businesses Act of 2015 introduced 
by Representative Mike Coffman, a veteran himself, would tie up 
the remaining loose ends with this program.

    HR 3945 would align the definitions of VOSB and SDVOSB, 
ensuring that differences between the Small Business Act and 
the Vets First Program are consistent. Furthermore, this bill 
requires the VA to follow the Small Business Administration 
regulations when verifying size and control standards of an 
applicant's company. Last and most importantly, this bill 
creates an independent appeals process for SDVOSBs to challenge 
the agency's denials.

    Aside from the fact that SBA's Office of Hearings and 
Appeals has the legal expertise in determining size and 
control, the intention of this move is to incentivize VA to 
improve their verification process in order to minimize the 
cases that are appealed. Under the proposed funding mechanism, 
VA would pay SBA by the case load; therefore, VA could 
potentially stop paying when VOSB and SDVOSB firms no longer 
have reasons to appeal.

    The American Legion impresses upon the Committee that (1) 
including SBA in the appellate process would ensure more 
consistency in the final decisions being made and ensure 
impartiality in not having the agency of original adjudication 
review their previously denied claim and (2) the intention of 
moving appeals to SBA has nothing to do with an attempt to 
create a new preference group within the existing federal small 
business set-aside programs.

    The American Legion believes that Rep. Coffman's bill 
addresses some of the shortcomings brought to light by GAO's 
November 2015 testimony before the Committee on Small Business' 
Subcommittee on Contracting and the Workforce and the Committee 
on Veterans' Affairs' Subcommittee on Oversight and 
Investigations.\3\
---------------------------------------------------------------------------
    \3\ U.S. Government Accountability Office, Veteran-Owned Small 
Businesses: Preliminary Observations on Verification Program Progress 
and Challenges, by William B. Shear GAO-16-179T, 2015. http://
www.gao.gov/assets/680/;673511.pdf (accessed December 3, 2015).

    This bill addresses the three major concerns the veterans' 
community had regarding the verification process as outlined by 
our previous testimony in 2013. Compared to issues elsewhere in 
VA, CVE and the verification process has been a low hanging 
fruit for improvement. With this legislative change, this is an 
instance, when the stakeholders can potentially claim VA's 
---------------------------------------------------------------------------
improvements since 2013 as a marked victory.

    American Legion Recommends:

    Support for H.R. 3945 Improving Opportunities for Service-
Disabled Veteran-Owned Small Businesses Act of 2015 and 
establish the formal appeals process under SBA OHA.

    Conclusion:

    As always, The American Legion thanks this committee for 
the opportunity to explain the position of the over 2 million 
members of this organization. Questions concerning this 
testimony can be directed to Matthew J. Shuman, Assistant 
Director in The American Legion's Legislative Division at (202) 
861-2700, or [email protected]
        TESTIMONY FOR THE HOUSE SMALL BUSINESS COMMITTEE

    ``Supporting Success: Empowering Small Business Advocates''

    Wednesday, December 9, 2015

    ML Mackey, CEO & Co-Founder, Beacon Interactive Systems
    Legislative Affairs & Policy Committee Chair, NDIA Small 
Business Division

    Good morning Chairman Hanna, Ranking Member Velazquez and 
Members of the Subcommittee. My name is ML Mackey. I am the CEO 
of Beacon Interactive Systems, a Small Business with offices 
located in Waltham, MA and Norfolk, VA. I am also the 
Legislative Affairs & Policy Committee Chair for the Small 
Business Division of the National Defense Industrial 
Association, NDIA. With each of these roles, my motivation is 
the same; to utilize Small Business effectively to increase 
innovation, cost savings, and competition in the Federal 
acquisition ecosystem.

    NDIA membership is composed of nearly 90,000 individuals 
and more than 1,600 companies, over half of which are Small 
Businesses. Beacon Interactive Systems is one of those Small 
Businesses. For the past 11 years Beacon has delivered 
innovative, cost effective, and highly competitive systems to 
improve the U.S. Navy's situational awareness and operator 
performance.

    Chairman Hanna, Ranking Member Takai, I appreciate your 
leadership and the efforts of your Subcommittee, taking the 
form of your obvious interest in and commitment to leveling the 
playing field for Small Businesses to compete in the Federal 
marketplace, and the many pieces of legislation you have 
authored and passed to that end. My role at NDIA places me in 
regular discussions of Small Business legislation. The 
overwhelming response of my colleagues to your efforts and your 
Committee's efforts is sincere appreciation. So please let me 
begin by saying thank you.

    As I said, this Subcommittee has demonstrated a deep 
commitment to leveling the playing field for Small Business. 
This concept is important to today's discussion because if one 
accepts that Small Businesses have a lot to offer, and that in 
many cases Small Businesses are where innovation occurs, what 
we are all fighting for makes sense--this level playing field. 
Your efforts make it possible for the best--not just the 
biggest--to rise to the top.

    The goal of your efforts is not to make it easy on Small 
Business--and it's not--but rather to ensure that we have a 
diverse industry that supplies the government with the very 
best goods and services possible at the best possible price. 
Unfortunately, the level playing field is as difficult to 
create as it is important to maintain for the well-being of the 
government contracting ecosystem.

    Fortunately for those of us that advocate for Small 
Business interests, we have strong advocates like this 
Committee. Your efforts in the recent legislation regarding 
Small Business Federal Contracting in the Fiscal Year 2016 
National Defense Authorization Act demonstrates once again that 
Small Businesses can depend on Congress to work for a fair and 
healthy acquisition system.

    Of course, new legislation is just the beginning of the 
process. Each one of your provisions must be written into clear 
regulations and policies that each Agency can implement. Next, 
the Congress, the Small Business Administration, and each 
Agency must oversee the implementation of those regulations and 
policies to be sure they are being followed.

    With that in mind, what I can offer today is some feedback 
from experience with my own company as well as some of my NDIA 
colleagues' experiences with their Small Businesses.

    I make five recommendations in my prepared testimony, but 
the interest of time, I will read two of them today and submit 
the others for the record.

    Lack of PCR involvement on Consolidated Contracts

    Problem: Lack of PCR review on consolidated contracts 
limits Small Business participation.

    Suggestion: Clarify that PCRs should actively advise on 
consolidated contracts. Inviting PCRs to advise on the 
consolidated acquisition strategy will help better identify 
those requirements where small businesses can best perform and 
help structure the solicitation such that more small businesses 
can compete. Over the recent decade, the federal government has 
seen widespread and far-reaching changes in the way it procures 
services and technology. There has been significant growth of 
consolidated contracts. Although this has helped the government 
cope with the reduction in the acquisition workforce through 
fewer contracts, it tends to bundle requirements that are out 
of reach of most small businesses. For example, technology 
contracts are generally the result of consolidating multiple 
disciplines and requirements into a single solicitation for 
large business team competition. Empowering PCRs to advise on 
consolidated contracts will help to ensure that the 
requirements are within the reach of small business.

    Impact: Increased Small Business participation and 
competition resulting in more cost-effective and innovative 
solutions for our warfighters.

    Post Award Compliance

    Problem: The government has created barriers to entry into 
the Federal market and thus is not getting all the companies 
participating that it would like to have. Many entrepreneurial 
Small Business owners do not want to deal with the compliance, 
headache and risk of engaging with the Federal government. To 
be clear, Beacon became a Federal government contractor when, 
after ten years of running a successful private sector software 
company, and in the wake of the tech bubble burst, our market 
dried up. We engaged with the Navy SBIR's Program to accomplish 
this pivot into the Federal market. Once we got through the 
initial burden of understanding some of the Federal contracting 
compliance issues it has wound up being a net positive 
experience for both our company and our Federal customers. But 
overcoming the barriers was really hard at first. Honestly, it 
still is at times now.

    Suggestion: Develop paths and provide resources for non-
traditional, entrepreneurial Small Businesses to drive the 
innovation, cost-effectiveness, and improved competition so 
desperately needed in Federal procurement.

    Impact: Increased Small Business participation and improved 
quality across the board; not just in the high quality of what 
these entrepreneurial Small Businesses will directly provide 
but also by the competition they will incite across the 
government supplier base.

    Job Descriptions

    Problem: Small Business advocates in government may not 
always understand the specific challenges that Small Business 
contractors are facing at any given time, and how to 
effectively advocate in the Agencies to overcome those 
challenges.

    Suggestion: I would encourage the SBA and Small Business 
liaisons in the Agencies to continue to meet with Industry 
Associations like NDIA to get real world feedback about the 
current challenges and issues surrounding Small Business 
Federal Contracting. Solicit input from those of us in the 
trenches about how to bet address these challenges. One of the 
things I find fascinating about my conversations at the NDIA 
Small Business Division meetings is the breadth of experience 
across our Small Business, Large Business and Government 
members. I find that outcome of these discussions usually quite 
practical as they are informed with more than one stakeholder 
perspective. But I would also offer this word of caution from 
my experience of managing employees: please legislate rather 
than regulate the content of the job descriptions--give SBA the 
parameters but let them fill in the details. While we should 
encourage a common understanding of the role and 
responsibilities of these Small Business Advocates in 
government, each advocate will do best when he or she is 
allowed to determine how best to specifically achieve a 
commonly understood set of objectives and goals. We need to 
create and protect a nimble and responsive SBA workforce.

    Impact: Stakeholders in Federal Acquisition processes will 
more effectively cross-communicate to resolve challenges. This 
will increase both Small Business participation and the 
efficiency of Small Business contracting; something that can be 
a painful, long and drawn out process.

    SBIR Transitions

    Problem: Lack of understanding and low willingness to fully 
utilize SBIR authorities for Small Businesses during the 
acquisition process, especially due to concerns around 
legislated preference and sole source contract awards.

    Suggestion: Train Procurement Center Representatives, PCRs, 
on the SBIR contracting provisions as well as Congressional 
intent of the SBIR Program, and create a system to refresh 
their knowledge and remain current on any changes in 
legislation and regulation. Ensure that PCRs understand the 
capability and importance for using sole source contracts for 
follow-on work begun with SBIR investments. As Small Businesses 
that have won SBIR awards have already met a highly competitive 
threshold in the initial phases of the SBIR Program, PCRs 
should strongly encourage follow-on work, or closely related 
work, for the same Small Business that initiated the work. 
Train the PCRs to explain the relevant provisions of the FAR to 
Program Managers and Contracting Officers to reduce their fears 
and concerns over using the authority, which might seem risky 
but is really an innovative acquisition approach. Address the 
fact that follow-on work to the SBIR companies is not risky and 
actually meets congressional intent.

    Impact: Increased Small business participation and 
insertion of cost-effective, competitively successful, 
innovative capabilities for our warfighters as well as 
increased ROI of Federal SBIR investments.

    Lack of Regulatory Action

    Problem: Some regulation has been slow in coming to 
implement new laws authored by this Committee. The uncertainty 
of what the rules actually guide the market to do can cause 
businesses to stagnate, hire and fire personnel in a haphazard 
fashion in anticipation of or reaction to unpredictable rule-
makings, and can limit which companies will participate. While 
no business likes uncertainty, it is especially onerous for 
Small Businesses that typically do not have the deep pockets to 
hold up through uncertain market fluctuations.

    Suggestion: Provide a level of resources to Agencies that 
can accommodate the writing of regulation at the same rate as 
new legislative changes are made. Congress must match the 
resources it provides to Agencies to the requirements it places 
on those Agencies.

    Impact: A more stable, predictable business environment 
enables better planning and a more efficient, cost-effective 
federal acquisition ecosystem.

    Mr. Chairman, on behalf of both the National Defense 
Industrial Association and myself, I hope that these 
suggestions will be useful in your ongoing work. I would like 
to thank you and the Committee for your leadership. We 
appreciate your efforts to increase the utilization of Small 
Business to drive innovation, cost savings and increased 
competition within Federal Procurement.

    Thank you for your tine and attention to these matters. And 
I would be pleased to respond to any of your questions.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Good Morning Chairman Hanna, Ranking Member Velazquez, and 
members of the Subcommittee on Contracting and Workforce of the 
Committee on Small Business. Thank you for this opportunity to 
provide testimony regarding my personal experiences as a woman-
owned small business owner who has graduated from the SBA 8(a) 
program and is now an approved SBA Mentor.

    My name is Tracy Balazs. I am the Founder, President and 
Chief Executive Officer of Federal Staffing Resources, LLC, 
also known as FSR. I am also a retired Registered Nurse. I am 
testifying today on behalf of FSR regarding the advocacy and 
support from the Small Business Representatives from the 
following departments in which I have had experience: 8(a) 
Business Development Program- Business Opportunity Specialists 
(BOS), the Procurement Center Representatives (PCRs), and the 
Office of Small and Disadvantaged Small Business Utilization 
(OSDBU).

    As a member of US Pan Asian American Chamber of Commerce 
(USPAACC), an organization whose mission is to be the gateway 
to corporate and government contracts, while opening doors and 
making connections for Asian Americans, minority businesses and 
their partners on all levels, I am grateful for their 
recommendation that FSR should provide testimony today.

    Federal Staffing Resources is a successful business with 
250 employees due in large part to the programs, guidance, and 
support provided by the SBA.

    FSR has been a federal contractor since its inception in 
February 2004. Our core competency has been in support of those 
who have sacrificed for our freedoms: the active duty men and 
women and veterans of the U.S. Armed Forces, by providing the 
best in class healthcare personnel and program management 
expertise to the Department of Defense and the Veterans Health 
Administration. We strongly believe that the SBA has given FSR 
the opportunity to provide these services to the best of our 
ability by giving us the support we needed.

    The 8(a) program was crucial to our early survival as a 
business. Within the first 6 months of starting FSR, I engaged 
in extensive research on the SBA 8(a) program for government 
contractors. I immediately applied for this program and was 
granted certification through a waiver in October of that same 
year. My experiences have been extremely positive, and FSR has 
benefited greatly from the 8(a) certification. It has not been 
without challenges however, since the compliance requirements 
of 8(a) certified companies are rigorous.

    The government contracting process is complex and 
confusing. Most small businesses do not have the time or the 
money it takes to fully understand how to succeed as a 
government contractor. The SBA provides essential guidance for 
business owners. To better understand the complexities of 
government contracting, resources available to those who seek 
them out. Hard work and focus is required of the leadership and 
their team. To be fortunate enough to have been a certified 
8(a) company and to do work under the aegis of a federal 
agency, FSR recognizes that as a federal contractor and as a 
mentor to other small businesses, a duty is impressed upon us 
to respect the terms of our contracts and adhere to their 
terms. This duty has required substantial time and investments 
on the part of leadership and its team to ensure such 
compliance. My relationship with by BOS when I was in the 8(a) 
program was based on trust that FSR could and would be able to 
do the work that we were granted through a sole source 
contract. The SBA acts a guarantor. They must approve the award 
and are essentially confirming that the contractor is capable 
of doing work as awarded. Our BOS was our greatest advocate 
during the 9 year certification term.

    One issue that I encountered when I was working with the 
SBA is the interpretation and implementation of the 
standardized policies and procedures. They are handed down from 
Headquarters to the regional offices and in turn, to the local 
district offices, and finally, to the individual SBA 
representative. Even within the same office, but mostly across 
state lines and districts, interpretations of the policies may 
differ. I have had conflicting experiences regarding how the 
SBA reviews financial eligibility and size standards and how it 
applies these criteria to award or deny contracts. Some 
guidance are misleading, conflicting, or misinterpreted which 
can result in inappropriate actions, such as improper awards. 
Increased training for the representatives as well inviting 
industry to offer their experiences may help mitigate the 
confusion and ensure uniform compliance. Since the number SBA 
representatives is limited and the workload is increasing, the 
SBA has done an excellent job in updating their website. The 
website is much more robust than it was during the early years 
of my 8(a) term, and I use the site often as a resource.

    Non-compliance and lack of attention to the rules may be 
potentially fatal for a small business. Even from the 
beginning, I knew that the relevant statutes and regulations 
must be respected and never ignored. We take compliance very 
seriously, so much so that FSR has a Director of Compliance. I 
have met many leaders of small organizations with a laissez-
faire attitude regarding compliance. The choice to ignore can 
result in suspension or disbarment. Since the 8(a) program is 
highly regimented, certified 8(a) contractors are under greater 
scrutiny for compliance than any other small businesses that do 
not have a certifying body mandating an annual update of their 
business or financials. FSR is a Mentor in the 8(a) Mentor-
Protege program. Part of our duties is to educate our Protege 
and make them aware of the pitfalls of non-compliance. We work 
with our Protege-leadership and team to ensure that they 
understand the relevant statutes, as an example, the Service 
Contract Act, and regulations thereunder; know the available 
resources to answer their questions; and to be available for 
guidance.

    The SBA helped us grow our business pipeline and our 
business network. The OSDBUs and PCRs were essential to 
creating opportunities over the past decade. The OSDBUs work 
closely with the SBA and small businesses to ensure that they 
are aware of the federal opportunities and know the governing 
statutes and regulations. As a small business, we make it a 
point to meet with as many OSDBUs as we can to let them know of 
our capabilities as a prime or a potential subcontractor. The 
PCRs work with the federal agencies and contracting officials 
in many areas. Two areas that the PCR would have direct impact 
for small businesses is to make recommendations for small 
business set-asides and also to review the small business 
subcontracting plans and goals of large businesses for full and 
open requirements.

    The monitoring of the small business subcontracting plans 
may merit review. The concern is that large businesses are not 
being fully assessed for compliance in their percentage of 
small business utilization as specified in their contract. I 
understand from speaking with both the OSDBUs and PCRs, that 
large businesses are expected to meet their small business 
subcontracting goals, however, due to insufficient number of 
government personnel, they are unable to ``police'' all of the 
plans. Therefore, these percentages are reported only by the 
large businesses without verification from the subcontractor 
small businesses. The government's receiving the report of 
subcontracting revenue directly from the small businesses 
themselves may verify that this objective has been met.

    In closing, I would like to acknowledge the SBA programs 
and their personnel for their assistance in helping me achieve 
business success and on behalf of thousands of other small 
business owners say--keep up the good work.

    Chairman Hanna, Ranking member Velazquez, and members of 
the Subcommittee on Contracting and Workforce of the Committee 
on Small Business, thank you for asking for testimony from 
small businesses that currently work with the federal 
government. FSR appreciates that our contributions and personal 
experiences may impact the way the SBA interacts with small 
businesses, monitor and educate to ensure more compliance. As a 
minority women-owned small business, I have tremendous 
gratitude for the SBA's support while I was in the 8(a) 
program. FSR would not have grown as quickly had we not been 
certified.

    Thank you for you very much for this opportunity. I am 
available for any questions.