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


                   SBA MANAGEMENT REVIEW: OFFICE OF 
                   GOVERNMENT CONTRACTS AND BUSINESS 
                              DEVELOPMENT

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

                                HEARING

                               BEFORE THE

               SUBCOMMITTEE ON CONTRACTING AND WORKFORCE

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                            FEBRUARY 3, 2016

                               __________

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            Small Business Committee Document Number 114-040
              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. Mark Takai..................................................     2

                                WITNESS

Mr. John Shoraka, Associate Administrator, Office of Government 
  Contracts and Business Development, United States Small 
  Business Administration, Washington, DC, accompanied by Mr. 
  Eugene Cornelius, Deputy Associate Administrator for Field 
  Operations, United States Small Business Administration, 
  Washington, DC.................................................     3

                                APPENDIX

Prepared Statement:
    Mr. John Shoraka, Associate Administrator, Office of 
      Government Contracts and Business Development, United 
      States Small Business Administration, Washington, DC, 
      accompanied by Mr. Eugene Cornelius, Deputy Associate 
      Administrator for Field Operations, United States Small 
      Business Administration, Washington, DC....................    17
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.

 
                   SBA MANAGEMENT REVIEW: OFFICE OF 
                   GOVERNMENT CONTRACTS AND BUSINESS 
                              DEVELOPMENT

                              ----------                              


                      WEDNESDAY, FEBRUARY 3, 2016

                  House of Representatives,
               Committee on Small Business,
         Subcommittee on Contracting and Workforce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 3:00 p.m., in 
Room 2360, Rayburn House Office Building. Hon. Richard Hanna 
[chairman of the subcommittee] presiding.
    Present: Representatives Hanna, Hardy, Kelly, Takai, and 
Clarke.
    Chairman HANNA. I call this hearing to order. Thank you, 
everyone, for being here.
    The Small Business Committee has spent the past month 
conducting intensive oversight of the Small Business 
Administration. Today, this Subcommittee is going to examine 
the Office of Government Contracts and Business Development 
(GCBD), which faces similar challenges, as do other parts of 
the agency. Specifically within this program, SBA needs to do a 
better job with human capital management, information 
technology, and reducing organizational duplication. SBA's 
untargeted use of voluntary early retirement authority and 
voluntary separation incentive payments appear to have left the 
GCBD without the personnel required to perform a statutory 
mission. It is unclear why the SBA offers buyouts to 
procurement center representatives (PCRs) knowing that under 
the current law they would only replace a fraction of the 
employees who just left. Likewise, why would the SBA buy out 
the individual responsible for drafting procurement regulations 
at the time when the SBA is not meeting its own statutory 
deadlines? Similarly, the Inspector General found that the 
GCBD's attempt to implement a unified IT system to track 
HUBZone and 8(a) participants violated contract law and failed 
to meet the office's requirements. The fact that a system 
designed to reduce fraud and implement program oversight has 
not yet been put into use is not acceptable. We can do better, 
and we will do better. Additionally, GCBD seems to have offices 
with duplicative and unclear missions, and too frequently 
relies on evaluated field staff. Given that in Fiscal Year 2014 
nearly 40 percent of all Federal contract dollars went to small 
business, taxpayers deserve an organization that can 
effectively manage prime contracting, subcontracting, 8(a) 
HUBZones, women-owned businesses, and service-disabled veteran-
owned businesses contracting programs.
    Indeed, GAO identified seven open recommendations with 
which the GCBD agreed but had not yet done anything towards 
implementation. Some of these requirements are simple to 
accomplish since they would only require that the SBA take 
actions already required by the law. These include submitting 
the annual bundling and consolidation reports or tracking post-
completion success rates for participants in the mentor-protege 
relationships. I also hope today we will get an honest answer 
and candid answers from the SBA on what we need to do to fix 
these problems.
    With that, I yield to Ranking Member Takai for his opening 
remarks.
    Mr. TAKAI. Thank you, Mr. Chairman, and aloha. I know we 
were supposed to have this hearing last week. I was looking 
forward to it. I want to wish you a happy belated birthday.
    Chairman HANNA. You got snowed in in Hawaii?
    Mr. TAKAI. Yes. Last week, Monday was a very eventful day 
for many of us, but yeah, happy birthday, Chairman.
    The Federal Government is spending almost half a trillion 
dollars annually on the purchase of goods and services needed 
for its daily operations. As such, the U.S. Government remains 
a consistent and reliable client, yet the Federal marketplace 
is a hard space to break into. Recognizing the need for a 
diverse market, Congress included goals for small business 
participation in Federal procurement, and created a variety of 
contracting programs to help small firms compete in the 
marketplace.
    The SBA Office of Government Contracting and Business 
Development plays a vital role in this process. The GCBD Office 
works with agencies to help them meet the small business goals. 
It also implements and oversees programs used by many small 
firms to start contracting with the government, and they have 
been somewhat successful in these tasks. In Fiscal Year 2014, 
the government surpassed the small business goals, awarding $91 
billion, or almost 25 percent of the dollars to small 
businesses. These awards allow the government to receive 
quality goods and services at competitive prices and strengthen 
its industrial base. However, as the Chairman noted, there is 
always room for improvement, and this office is no exception. 
The government as a whole and some agencies have failed to meet 
all of the small business participation prime and 
subcontracting goals. These failures deprive small business of 
billions in contracting dollars.
    Additionally, the Committee has seen a continued use of 
bundling and consolidation through the years. Contract values 
have risen so high that only a limited amount of businesses are 
able to bid, resulting in fewer large firms receiving 
contracts. It appears this trend has impacted the participants 
in the SBA contracting programs as the number of firms in these 
programs has also declined.
    The ability of small businesses to compete in the Federal 
marketplace has been adversely affected by the lack of staff in 
the GCBD office as it continues to be understaffed. There are 
currently only 50 procurement center representatives and 30 
commercial market representatives overseeing millions of 
contracting actions. Small businesses cannot be adequately 
advocated for with such few numbers promoting their use and 
ensuring that agencies are following the small business set-
aside procedures.
    Lastly, SBA has been slow to implement changes made by this 
Committee to SBA's contracting programs. These changes have 
been aimed at increasing participation by small businesses and 
removing barriers these firms face in competing for contracts. 
This inaction has caused confusion among firms and contracting 
personnel. Therefore, I am particularly interested in what the 
GCBD office is doing to make sure these changes are made 
quickly so that small businesses can start taking advantage of 
these changes.
    Mr. Chairman, we are seeing small businesses leave the 
marketplace at high rates. As such, this hearing is critical to 
determine what can be improved upon at the SBA to ensure that 
these firms have equal access to contract opportunities. I look 
forward to hearing from Mr. Shoraka about how SBA plans to 
address some of these issues and determine how this Committee 
can work with the SBA to see what can be done to ensure that 
small businesses have access to the Federal marketplace.
    Thank you, Mr. Chairman, and I yield back.
    Chairman HANNA. Thank you.
    I will not bother to explain the timing. You have been here 
many times.
    Our first witness today is Mr. John Shoraka, the Associate 
Administrator for the Government Contracts and Business 
Development. He has been in this role since December of 2011, 
and of course, has testified before this Committee before.
    Welcome back, and you may begin.

 STATEMENT OF JOHN SHORAKA, ASSOCIATE ADMINISTRATOR, OFFICE OF 
 GOVERNMENT CONTRACTS AND BUSINESS DEVELOPMENT, SMALL BUSINESS 
                         ADMINISTRATION

    Mr. SHORAKA. Thank you, Chairman Hanna, Ranking Member 
Takai, and members of the Subcommittee. Thank you for having me 
and giving me the opportunity to testify here today.
    Small businesses are agile, innovative, and affordable 
partners for the Federal Government. Through small business 
contracting, the Federal Government acts as a catalyst for 
small business growth and innovation while supporting economic 
security for the nation. Over the past 7 years, the 
administration, Congress, SBA, and Federal agencies have been 
focused on increasing small business contracting opportunities 
across the Federal Government. This increased focus has 
resulted in over $550 billion in Federal contracting dollars 
being awarded to small businesses from Fiscal Year 2009 to 
2014. Of that, $91.7 billion was awarded in Fiscal Year 2014, 
which represents an incredible impact to the American economy, 
that drives innovation, growth, job creation, and supports over 
550,000 jobs across the nation.
    In Fiscal Year 2013 and 2014, the Federal Government 
exceeded the 23 percent goal, representing 2 consecutive years 
of this achievement for the first time since 2005. Current 
year-to-date performance for Fiscal Year 2015 demonstrates that 
the Federal Government should again exceed the 23 percent goal, 
along with three of the four socioeconomic categories. If 
achieved, this would be the first time since the program's 
inception that the women-owned small business goal of 5 percent 
has been met. It would also be the 21st consecutive time the 
small disadvantaged business goal has exceeded, and the fourth 
consecutive year for achieving the small disadvantaged service-
disabled veteran-owned small business goal. These achievements 
are the result of the dedicated and focused efforts of the 
Small Business Administration and Federal agencies to support 
small businesses as they play a critical role in building and 
sustaining the nation's industrial base and strengthening our 
economy.
    Over the last few years, the SBA's Office of Government 
Contracting and Business Development has begun a variety of 
streamlining efforts to enhance and improve customer service, 
create efficiencies, and reduce administrative burden on small 
businesses. These efforts include significant improvements in 
processing of HUBZone, 8(a), and Mentor-Protege applications, 
and finalization of the HUBZone, 8(a), and WOSB standard 
operating procedures. In addition, GCBD initiated efforts to 
invest in IT solutions, which will provide efficiencies for our 
interactions with our small business customers. Furthermore, as 
we continue to support small business contracting 
opportunities, Administrator Contreras-Sweet authorized the 
hiring of 10 additional PCRs (procurement center 
representatives) for oversight of Federal buying activities.
    Of great importance, SBA implemented over 25 provisions 
found in the Small Business Jobs Act of 2010 and subsequent 
National Defense Authorization Act and is making great progress 
on the remaining statutes. Provisions implemented include the 
WOSB Industry Study; the WOSB Sole Source Rule; accountability 
of senior executives; total and partial set-asides and reserves 
under multiple award contracts; revisions to the reporting 
structure of the Offices of Small and Disadvantaged Business 
Utilization; including of overseas contracting in the Fiscal 
Year 2016 goaling base; and increased training and 
certification for our staff. We are also making significant 
progress on implementing the Mentor-Protege Program to offer an 
expanded program to all small businesses and have issued an 
Advanced Notice of Proposed Rulemaking for the certification of 
women-owned small business firms.
    While we continue to support and improve contract 
opportunities for small businesses, there are always 
opportunities to build upon our strengths and improve in 
certain areas. We acknowledge the recommendations from the 
General Accountability Office and Inspector General that remain 
open and need to be closed with urgency. Closure of open 
recommendations is one of my highest priorities, and we are 
actively working with the IG and the GAO to come to meaningful 
resolutions that will benefit small businesses through improved 
SBA policies and programs. We initiated and scheduled regular 
face-to-face meetings with GAO and IG leaders, resulting in the 
closure of nine GAO and three IG recommendations within the 
past 12 months. The recently closed recommendations include 
improving monitoring of and procedures used in assessing the 
continuing eligibility of 8(a) firms and assessing resource 
allocation of PCRs and commercial market representatives to 
successfully carry out our duties. We take the remaining open 
GAO and IG recommendations seriously and are committed to 
resolve all of them.
    In closing, I would like to recognize the commitment to 
small business from Congress; in particular, from the House 
Small Business Committee. I would also like to acknowledge the 
commitment from the administration, our Federal agencies which 
have recognized the value of small business, and remain 
committed to providing meaningful contracting opportunities. 
Led by Administrator Contreras-Sweet, we will continue to fight 
for small business, to improve participation for firms to 
compete for and successfully win contracting opportunities. 
Thank you.
    Chairman HANNA. Thank you.
    Are you saying there is nothing wrong and that you are on 
schedule and that you agree with everything that was alleged to 
be wrong or incomplete? You still have final rules from 2013, 
2014, and 2015. So why are we here? I know why we are here, but 
what I hear you saying is that you are on schedule. Do you 
agree with GAO?
    Mr. SHORAKA. Sure.
    Chairman HANNA. So do you agree with them completely?
    Mr. SHORAKA. I think on their recommendations, we have 
agreed to implement them. I do want to point out that a lot of 
those recommendations that are still outstanding are from 
before the time that I was with the SBA.
    Chairman HANNA. But would not that mean that would be the 
first thing you did when you got there, not the last thing?
    Mr. SHORAKA. I think we want to make sure that we 
prioritize in a way that achieves our objectives. In other 
words, we prioritize in a way where we expand participation of 
small businesses in the procurement world, and we achieve our 
goals. I think indicated by our progress against the goals, we 
have been pretty successful. And as I said, that is not to say 
that there is not additional recommendations necessary to be 
implemented, and we certainly, as I mentioned in the last 12 
months, have been successful in sitting down face-to-face with 
the IG and GAO, and we are certainly committed, as our 
administrator said, to work through the remaining IG and GAO 
recommendations.
    Chairman HANNA. So to read between the lines, are you 
saying that the timing and the order of the recommendations, 
just because some are older, some are newer, that you have 
prioritized them in a way that makes them logical and 
concurrent?
    Mr. SHORAKA. I think that is fair to say. I think it is 
fair to say that as we look at these couple of things. One is 
you mentioned the rulemaking process and reaction to the 
statutes, and I want to clearly acknowledge that working with 
this Committee and working with the Hill, there is a lot of 
statutes and provisions in statutes that has helped level the 
playing field for small businesses to participate in Federal 
contracting, and we have worked diligently to implement a lot 
of those provisions.
    Chairman HANNA. Can you explain why you are buying people 
out and then hiring new people at the same time to do the same 
job?
    Mr. SHORAKA. Yes. So obviously, as you know, the agency 
went through a VERA/VSIP program. I am not the head of our HR 
and I certainly do not want to comment on that topic, which is 
something that our human resources office is responsible for, 
but what I will say is the mention that you make with respect 
to PCRs, we have done a significant analysis of where PCRs 
should be located based on buying activity small business 
opportunities and based on some of the folks that have retired 
have reramped up in areas that were not previously covered. So 
as you mentioned previously, obviously we have thousands of 
buying activities to cover with limited resources. It is 
important for us to analyze buying activities and the small 
business opportunity that resides at the different types of 
buying activities and readjust our coverage to make sure that 
we are hitting the most opportune centers.
    Chairman HANNA. So what you are really saying is that the 
people who retired were not relevant to the workload 
geographically?
    Mr. SHORAKA. No. I think what I am saying is that it gave 
us an opportunity to identify places where we might make a 
significantly bigger impact.
    Chairman HANNA. And presumably you bought people out rather 
than ask them to move?
    Mr. SHORAKA. No. Again, I would not tie the VERA/ VSIP 
directly to the reassignment of PCRs. The VERA/VSIP decision is 
a decision that was made by HR and the agency. What I am saying 
is that in staffing back up with respect to PCRs, we have had 
the opportunity to actually analyze where the greatest buying 
activities are.
    Chairman HANNA. I can appreciate that, but did their job 
descriptions not allow you to move them around?
    Mr. SHORAKA. Certainly.
    Chairman HANNA. So again, the same question, why are we 
laying them off?
    Mr. SHORAKA. Right. I would have to get back to you, but 
again----
    Chairman HANNA. Can you do that for this Committee? I mean, 
it is a legitimate question, especially when you are going to 
go out and hire 10 more people, which you said----
    Mr. SHORAKA. Sure. Happy to do that.
    Chairman HANNA. Thank you very much.
    Mr. Takai?
    Mr. TAKAI. Thank you, Mr. Chair.
    Last year I introduced legislation that was included in the 
Fiscal Year 2016 NDAA, which allowed the Native Hawaiian 
organizations to qualify for the HUBZone program. Understand, 
this is my second year, but I understand this has been many 
years in the making. Can you give me a timeline as to when SBA 
will be able to release the corresponding regulations for this 
particular change?
    Mr. SHORAKA. Sure. I have been here now for 4 years, but I 
come from the private sector, and coming to this side of the 
fence, it is awakening a little bit with respect to the 
rulemaking process. Not only do we have to draft the rule 
internally and get it cleared through our building and through 
our general counsel's office, but then it has to get 
interagency clearance throughout all Federal agencies, right? 
Because our rules oftentimes have an impact upon our sister 
agencies. Interagency review period on a proposed rule 
oftentimes is 90 days. Then we get it back and we make 
adjustments, but then I think it is important, and I think you 
would all agree, that we have a public comment period. Because 
when we make rules, we want to make sure that our constituents 
understand the impact with how it is going to impact their 
business. And not only that, we want to make sure that we 
gather their comments and incorporate that in. So that is 
another 90 days. So that is two 3-month periods, so that is a 
total of 6 months right off the back, and that is not even the 
rulemaking process. Drafting, right? Once we have incorporated 
the comments from the public, we will go out for a final 90 day 
period for our interagency, our sister agencies to comment. 
That is a total of 9 months, not including any drafting of 
rules in that respect.
    I will add that with respect to provisions where the intent 
of Congress is very clear, as an example, the women-owned small 
business sole sourcing provision or removal of the caps in the 
Women-Owned Small Business program, we were able to work with 
our sister agencies with OMB, to issue an interim final rule to 
go out relatively quickly in a matter of 6 months. What we are 
doing right now with respect to the NHO provisions and the 
HUBZone provisions is trying to determine if we can move in an 
interim final rule process or do we need to go through the 
entire rulemaking process.
    Mr. TAKAI. Okay. So notwithstanding the 9 months that you 
mentioned, and this amendment also included disaster zones and 
BRACs, so there are three components, I am assuming you are 
going to move them altogether?
    Mr. SHORAKA. Yes.
    Mr. TAKAI. How much time is it going to take for your 
office to get up to the 90 days? I am sorry, the 9 months?
    Mr. SHORAKA. We work closely with our Office of General 
Counsel. As was mentioned earlier, we have a number of 
provisions that we are working to finalize, including the 
mentor-protege rule, limitations on subcontracting, et cetera. 
I think we can work, you know, I do not want to commit to a 
timeframe, but I think relatively speaking, 3 months, 4 months 
to draft something that could go out for interagency comment is 
reasonable.
    Mr. TAKAI. Okay. Great. Thank you.
    Over the past few years we have seen the average dollar 
value of small business contracts go up and fewer small firms 
participating in the marketplace. This is especially true with 
some of the SBA programs in which we have seen the number of 
participants actually decline. Why do you think this trend is 
occurring, and what actions is the SBA taking to reverse it?
    Mr. SHORAKA. Thank you. Thank you for that question. I 
think that is a really important question in the sense that the 
Federal Government, as we all know, has to buy smarter. We need 
to figure out how to reduce budgets and buy smarter. Sometimes, 
what that has looked like, is consolidation of requirements 
into larger requirements and more complex requirements. What 
happens then is you have a more complex and larger requirement 
that sometimes a small business cannot pursue. We have been 
working closely with the Office of Federal Procurement Policy 
and GSA to make sure that when that happens, when a requirement 
comes out that is consolidated or more complex, two things. One 
is we received authority from Congress to allow for better 
teaming for small businesses. In other words, opportunities for 
small businesses to team up and jointly go after these larger 
and more complex projects. That is one that we are working on 
and hope to have finalized shortly. The other is if we are 
setting up vehicles that are multi-year and very broad, are we 
casting a broad enough net to bring in small businesses to 
participate? And do we have on and off ramps? In other words, 
if a limited number of small businesses are participating and 
we are hitting our small business goal, that is a good thing, 
right? But we want more small businesses to participate. So do 
we have on and off ramps to allow new small businesses to come 
on to do the work while the ones that have grown can graduate 
from that particular vehicle? So there are certain things that 
we are trying to implement in this environment to ensure that 
small businesses play a fair share in the marketplace.
    Mr. TAKAI. Thank you.
    Thank you, Chairman.
    Chairman HANNA. Mr. Hardy?
    Mr. HARDY. Thank you, Mr. Chairman.
    You know, as I sit here, I truly believe that the SBA is 
doing some great work, but there are some major deficiencies 
that I have concerns about. The GAO highlighted some specific 
things that were to happen. I would just like to read a few of 
these highlighted spots. It says, ``Provide clear and complete 
guidance to PCRs and CMRs.'' That was a 2011 report. Also 2011, 
``Require monthly GCAR data are verified.'' The 2013 report, 
``While SBA agreed that the recommendation had not been 
complied with at the time of the management report prompting 
GAO to again recommend that the SBA file the required 
reports.'' Then we go back here to the 2011 report again. It 
talks about, ``There was little or no tracking of the prodigy 
firms to see if the programs produced lasting benefits.''
    Now, as a former small business owner myself, I just want 
to explain this is really frustrating to me how this could 
happen because it is not like we are short of manpower or like 
there is not an obligation. I know it is a different type of 
business, but it is still a business the way things operate. I 
had a construction business, I had a concrete and aggregate 
business, I had a golf course, and I had a restaurant. None of 
them hardly fit in most cases together. But through that 
process--I will just give you an example, my construction firm. 
Within less than 3 years, I knew exactly, to the penny almost, 
what it was going to cost me to lay a piece of pipe in the 
ground, what size pipe, the depth. Every foot that I put in, I 
knew what the cost was going to be. Just using that as an 
example. I knew the difference between soil types, what it was 
costing me. I knew which different teams were better at putting 
certain things in the ground, and so we tracked that. That is 
what the private sector does. In the restaurant business, you 
know, when you are losing on something, you track it and find 
out why certain things are not moving. You have to be flexible 
and move and you have to respond. In the concrete and aggregate 
business, we have to make sure that materials that we spend we 
do not lose money on. And it is tracked. The private sector 
does that in-house with their foreman, with whatever, people 
that are already hired to make that happen. This is the 
frustration in me. Why is this not happening at the SBA level 
in whatever tracking is getting done?
    Mr. SHORAKA. Thank you, Congressman.
    I think that it is happening in a lot of instances. Again, 
I do not want to discount the fact that we have, through our 
staff, through the very people that work in these offices, have 
been able to, for the first time in a long time, met the goals 
with respect to the statutory requirements. I will say that 
with respect to the GAO recommendations, there are a lot of the 
recommendations where we have actually submitted material to 
the GAO and are waiting for a response with respect to the 
acceptability of have we met the requirements of that 
recommendation.
    Mr. HARDY. I just want to follow up. This Mentor-Protege 
Program, as we know, 64 percent of this nation was employed by 
small businesses, and now it is beyond decline. It is 
collapsing. I think your program, this Mentor-Protege Program, 
it is very important that we track that to find out which 
businesses are succeeding and why, and how can we help, or 
where are we getting in the way. I want to make sure that those 
small businesses are successful, and I think that is what your 
job is, to make sure that we get those reports so we can do our 
job here.
    So my frustration is, and only being here a year I cannot 
really be too angry, but it cannot go on longer. We have got to 
make sure what we can do to help those small businesses 
succeed, find out why they are failing, so we can move in a 
different direction to help those situations, and I think we 
will see an economy grow again and move again. That is why the 
SBA is so important to me.
    Mr. SHORAKA. Thank you. Just one last comment on that. We 
also feel, with the authority given with respect to expanding 
the Mentor-Protege Program, not just in the 8(a) program but to 
all small businesses, is an excellent vehicle for helping small 
businesses grow and become acclimated with the Federal 
procurement process. We are looking to implement that program 
over the summer.
    Mr. HARDY. Well, you know, in my area there are still the 
small businesses and the chambers and folks that still meet 
with me and have frustration. We have about $260 million worth 
of military projects that go on out in our area with Nellis and 
Creech out there. Very little of that goes to the small 
businesses. It ends up being so convoluted and being involved 
that it is very challenging for them to get some of those 
projects. We need to maybe look at different avenues, how we 
can team these small businesses together to make them maybe a 
big business that have the opportunity to have some of the same 
successes. So just an idea. Thank you for your time.
    Chairman HANNA. Ms. Clarke?
    Ms. CLARKE. Thank you very much, Mr. Chairman, and to our 
ranking member. And, of course, to Mr. Shoraka, thank you so 
much for coming and briefing us, bringing us up to speed with 
where you are with respect to all the recommendations that have 
been before you and your agency.
    I wanted to just comment that through your testimony, you 
indicated that you have closed nine GAO recommendations and 
three Inspector General recommendations in the last 12 months. 
That is great. That is really good. I commend that effort that 
you have put into addressing the list of recommendations. What 
would you say are your next most pressing recommendations that 
you are working on closing, and how much time do you expect 
that those recommendations would take? And then finally, can 
you just update us a bit more on the progress that you have 
made in expanding and implementing the Mentor-Protege Program?
    Mr. SHORAKA. Sure.
    Ms. CLARKE. Thank you.
    Mr. SHORAKA. Thank you, Congresswoman.
    I think one of the areas where we are looking to finalize 
some of the recommendations, and they touch on multiple 
recommendations, both from the GAO and the IG, is the 
finalization of our SOPs, our standard operating procedures, 
around the 8(a) program, around the HUBZone program, and around 
the Women-Owned Small Business program. I think that is 
important for our sister agencies, our contracting community to 
understand how the programs work. It is important for our 
field, and it is important for our own staff. So we are looking 
to finalize those SOPs within the next 6 months.
    With respect to the Mentor-Protege Program, we had the roll 
out last year for public comment. We received significant 
public comments on the Mentor-Protege Program and wanted to 
make sure that we incorporated industry's concerns in 
finalizing a program. We think it is important to make sure 
that we get it right. We think it is going to be a very useful 
program. We have heard from industry about how soon can we get 
involved in this Mentor-Protege Program, and we think it is 
going to be very useful, but we wanted to make sure we got it 
correct. The rule should be out in the final interagency review 
process by the end of this month. That will take 3 months in 
the interagency review process, so sometime over the summer the 
rule should be published as a final rule.
    But we did not stop there. We have had a parallel working 
group for institutionalizing the programs. So we did not say, 
let us wait until the rule is finalized and then we will figure 
out how to institutionalize this program; we have actually had 
a working group engaged from our field staff, engagement from 
our general counsel's office, because it affects everybody, 
right? To make sure that as we roll this out, as we 
institutionalized it, we could dedicate the necessary resources 
and that we had the processes, the workflow processes, the 
approval processes, and I think something that was mentioned 
before, the tracking processes. As we roll this out, do we have 
a way to track what is the impact with respect to the program? 
And not only the mentor-protege relationship with the benefits 
flowing from the mentor to the protege, but also the joint 
ventures that happen under that Mentor-Protege Program. Is the 
protege getting their fair share of that contract? We want to 
make sure the systems are there to be able to track that. But 
we hope, and are planning, to have the program itself up and 
running in a limited fashion by the end of the summer as well.
    Ms. CLARKE. Are you looking at particular, I guess, sort of 
regions in which you think that you can get it up and running 
quicker and that you could sort of do a test trial, if you 
will? Have you thought about that? What conditions would be the 
best to really be able to drill down on the effectiveness of 
it?
    Mr. SHORAKA. The proposed rule when it went out, it 
actually asked some questions around how do we create a--I do 
not want to say pilot, but a limited roll out? And there were 
questions about maybe focusing on areas where our goals had not 
been met, like the women-owned small business or the HUBZone. 
But the predominant feedback that we got is that there is a lot 
of industry waiting for this to happen, and they felt it unfair 
if we focused on one area rather than the other. We are going 
to roll it out in some fashion at the end of the summer, and we 
will see what the impact is to our resources to determine how 
do we become gatekeepers to not overwhelm the staff that we 
have.
    Chairman HANNA. Thank you.
    Mr. Kelly?
    Mr. KELLY. Thank you, Mr. Chairman, and thank you, Ranking 
Member Takai. I thank the witness for being here.
    Over 3 years ago, as part of the 2013 National Defense 
Authorization Act, Congress changed the process by which SBA is 
to set size standards. On January 26, 2016, your office 
published a final rule establishing size standards for 
industries with employee-based size standards not part of 
manufacturing, wholesale trade, or retail trade. In that rule, 
your office stated that it was going to continue limiting the 
number of size standards to anchor standards even though the 
2013 National Defense Authorization Act said SBA may not limit 
the number of size standards. While I maintain that this latest 
rulemaking violated the Small Business Act, I was particularly 
surprised to read in the rule that, I quote, ``As part of the 
preparation for the next round of size standards review as 
required by the''--and this is mine, 2010 Jobs Act, ``SBA is 
currently reviewing and updating its current size standards 
methodology white paper to incorporate the provisions of the 
2013 National Defense Authorization Act to the extent 
possible.'' This suggests that SBA believes it is acceptable to 
pick and choose provisions of the NDAA so as not to upset its 
white paper. Is your position, or is it the position of the 
Small Business Administration that you think that a white paper 
trumps a statute passed by Congress?
    Mr. SHORAKA. No.
    Mr. KELLY. Well, please explain why this is contrary to 
that then.
    Mr. SHORAKA. Sure. The Small Business Jobs Act of 2010 
required the Small Business Administration to do a 
comprehensive study on all of its size standards every 5 years. 
In moving forward with that review--and it had not been done 
for decades--in moving forward with that review, we went 
through a public comment period with respect to our white 
paper. So we drafted a methodology that we thought was 
responsive to the Small Business Jobs Act of 2010, and we put 
it out for public comment because, obviously, it is going to 
affect our constituents. It is going to affect our small 
businesses. We wanted to make sure it reflected their input as 
well. That methodology, that white paper, was used for the full 
cycle of the reviews based on the 2010 Small Business Jobs Act. 
We thought it was not necessarily appropriate to change the 
rules of the game in the middle of the game. What we wanted to 
do was make sure that we did the entire 5-year review process, 
and in fact, with these last three rules, we did come in 
exactly on target with respect to doing a comprehensive review 
in 5 years. And the rule actually said, the Small Business Jobs 
Act of 2010, said once you are done you are going to have to 
keep doing it over and over again every 5 years. That is why we 
are going out with a white paper, incorporating the provisions 
of NDAA 13, and going to public comment to make sure we are 
getting it correct in the next full comprehensive revisions.
    Mr. KELLY. I would just, as a lawyer by trade, I would tell 
you that law changes all the time, and as a former district 
attorney, I could not rely on a 2010 law when a 2013 law 
superseded it. So you have to agree with the most current law, 
whether you want to or not. The most current, even if they 
conflict, you go with the most current that the ruling body 
has.
    My next question is in your testimony you talk about the 
percentage of small business eligible dollars that went to 
small businesses. From the staff, I understand that about 19 
percent of all Federal contract dollars are excluded from these 
goals, but the SBA does not consider these small business 
eligible. However, I understand that the 2013 National Defense 
Authorization Act required that SBA revise and publish its 
goaling guidelines by June of 2013 and that the new guidelines 
required to eliminate most of these exclusions. Why has the SBA 
not done this yet?
    Mr. SHORAKA. We did revise the goaling base in 2014. We did 
an analysis. After the National Defense Authorization Act of 
2013, we actually had our Office of General Counsel conduct an 
analysis of what is excluded and what is not excluded, and do 
we have any justification for excluding anything. Based on that 
analysis, there were revisions to the goaling base in 2014, and 
then the one major change, which would have a significant 
impact on agencies, particularly with agencies doing work 
overseas, was overseas contracts, contracts performed overseas. 
That change in inclusion of the overseas goaling base will be 
effective in 2016, but we wanted to make sure we engaged our 
sister agencies because of the impact it is going to have on 
the procurement workforce, and we spent the better part of the 
latter half of 2014 and 2015 working with the procurement 
workforce to make sure we got it right.
    Mr. KELLY. I thank you for your testimony. Mr. Chairman, I 
yield back.
    Chairman HANNA. I will ask another question if no one 
minds. We will be called for votes very soon.
    One of the issues with all of this is the time it takes to 
get things done, right? You know that. That is part of why you 
are here today. This Committee wants to help. We are all in the 
same place here in terms of our desire to help small 
businesses. But what are you doing? The time it takes for small 
business rules to get through the FAR Council, and you 
mentioned that you expect some final rules to be issued soon on 
2013, and we know that once these rules are written, it can 
take more years, maybe even 2 or 3 more years. So that is 
partially a statement but partially I want to ask you how can 
this Committee help you change that? Because that is really a 
lot of why we have these hearings is complaints over 
performance implying that you are not doing your job. You think 
you are. We are saying, ``Okay, but.'' My question to you is, 
are there things we can do to help you get this done assuming 
everyone is in earnest in terms of their desire to finish what 
they start?
    Mr. SHORAKA. I think you mentioned the FAR Council. I think 
the FAR Council has competing priorities, right? So they are 
responsible for Federal acquisition, not only just small 
business acquisition and the Federal acquisition rulemaking 
process. If there is a clearer or cleaner way with the 
administrator working with the FAR Council might be something 
that would be helpful.
    Chairman HANNA. Are you prepared to write something and 
tell us what that would look like?
    Mr. SHORAKA. Certainly. I would be happy to consider that 
and come back with some recommendations.
    The other point that, you know, obviously, we have touched 
on today, there are always competing priorities within the 
agency with respect to what is most important? What can have 
the most significant impact for our small business 
constituents? We feel they are our customers, as I am sure you 
do. So what do we focus on? And quite frankly, some of the 
times it can be a resource question because we have limited 
resources, so we are going to focus on the things that we feel 
are going to have the biggest impact with respect to small 
business participation in the Federal marketplace.
    Chairman HANNA. So you can get back to us and let us know?
    Mr. SHORAKA. Sure.
    Chairman HANNA. I realize you have to speak to, perhaps, 
Ms. Sweet.
    Mr. SHORAKA. Of course.
    Chairman HANNA. Is there anyone else who would like to ask 
additional questions?
    Mr. Takai? Go ahead. Votes have not been called yet, so if 
you are here, we would just as soon keep going.
    Mr. TAKAI. Thank you, Mr. Chairman.
    The 8(a) program is the main vehicle in which minority-
owned businesses enter the Federal marketplace. However, there 
have been a number of cases that have challenged the 
constitutionality of the 8(a) contracting program, and some 
such as the Roth case have been successful. What steps is the 
SBA taking to protect this important program from 
constitutional challenges?
    Mr. SHORAKA. Thank you. Our Office of General Counsel is 
very much involved with the Department of Justice, as well as 
Commerce. We worked closely with Commerce. We worked very 
closely with some very well-known and nationally-recognized 
statisticians to defend the program with respect to how the 
program works to serve an underserved community and what the 
disparity is with respect to the underserved community actually 
participating in the Federal marketplace. We are absolutely 
committed in making sure that this program benefits the 
underserved community. We are absolutely committed in defending 
the program, and we have worked very closely with Commerce, as 
well as the Department of Justice to make sure that the program 
is protected. I will add that when we did the Women-owned Small 
Business Study with respect to industries where women-owned 
small businesses are underrepresented, we used the same 
methodology that proved to be very successful in the Rothe 
case, to make sure that our study in underrepresentation in the 
Women-Owned Small Business program was similar to how the 8(a) 
program was defended.
    Mr. TAKAI. Okay. And a follow-up. Is the SBA currently 
collecting on circumstances in which non-8(a) businesses have 
claimed that they have been discriminated against?
    Mr. SHORAKA. I could not answer that off the top of my 
head, but I am happy to get back. Not that I am aware of, but 
happy to get back on that.
    Mr. TAKAI. Okay. Thank you.
    In October 2014, a report on the Women-Owned Small Business 
program, the GAO has previously recommended that the SBA should 
establish and implement comprehensive procedures to monitor and 
assess performance of third-party certifiers in the women's 
procurement program. What is the progress that you have made in 
implementing this recommendation?
    Mr. SHORAKA. Thank you. We actually conducted--we do 
reviews of women-owned small business firms in the WOSB 
repository, and this past year we implemented the reviews of 
the third-party certifiers. And as I mentioned earlier, we are 
in the process of finalizing our standard operating procedures 
around the Women-Owned Small Business program, and those 
standard operating procedures will have incorporated in them 
the review of the third-party certifiers. So we have conducted 
one review already this past year, and moving forward we intend 
to conduct them on a regular basis.
    Mr. TAKAI. Okay, thank you. And then one last question, Mr. 
Chairman.
    You had mentioned including overseas contracts in the near 
future as part of its baseline use to rate small business 
goaling at each agency. I am just curious to find out what 
outreach has been made to other agencies to alert them of this 
change and what steps they can do to increase the small 
business participation in this effort.
    Mr. SHORAKA. Yes, thank you. That is one of the reasons 
when we talk about the National Defense Authorization Act of 
2013 and the effective date with respect to increasing overseas 
contracts in 2016. One of the things that we have done over the 
last couple of years is engage the agencies most affected by 
this. And as you can imagine, Department of Defense is one of 
them, State is one of them, and USAID, U.S. Agency for 
International Development is the other. We have been working 
very closely with their Office of Small and Disadvantaged 
Business Utilization, with their chief acquisition officers, to 
make sure that they understand this impact. As we establish 
their goals for 2016, their goals reflected the impact. State, 
for example, when we include overseas performance, they have a 
significant reduction in performance when it comes to small 
business procurement. So, of course, we want to give them a 
stretch goal, but we do not want to give them a goal that is 
not reasonable. We have worked with them very closely in 
establishing a goal. Same with Department of Defense and USAID.
    Mr. TAKAI. Okay, thank you. Thank you, Mr. Chairman.
    Chairman HANNA. Mr. Hardy?
    Mr. HARDY. Thank you, Mr. Chairman.
    Last year, the GAO recommended that the SBA take better 
steps to better ensure that firms are notified of the changes 
in HUBZone 1 designations that may affect their participation 
in the program. However, the mapping tools on the SBA website 
appear to be out-of-date and hard to use. I guess I would like 
to know what the SBA is doing to improve those for the next 
round of redesignation.
    Mr. SHORAKA. As part of our overall government contracting 
IT solutions, the mapping solution is one of the areas we will 
be focused on. But in the interim, we have implemented a lower 
tech way of informing all our firms with respect to 
redesignation. So on an ongoing basis, we send out emails to 
our firms to make sure that they are aware of any 
redesignations, and even though you mentioned that the maps 
could potentially be out-of-date from time to time, we also 
have spreadsheets of all the zip codes that include the 
designation areas. But this will be part of the IT solution 
package for government contracting and business development 
that we are speaking of.
    Mr. HARDY. Thank you. What is the status of the one track 
system SBA purchased several years ago to track participants in 
the 8(a) and the HUBZone 1 program, and why did the IG and the 
GAO object to the procurement of what SBA is doing to ensure 
that there is no solid monitoring system for these firms?
    Mr. SHORAKA. So with respect to the systems that exist, 
there are legacy systems that exist that monitor both the 8(a) 
program and the HUBZone program. The one track system, which 
went through the development process of identifying 
requirements, both in the 8(a) and the HUBZone program, was a 
system that did not necessarily meet all of the requirements as 
had been identified. What happened with those requirements is 
that that is what has been rolled up into the new IT for SBA, 
or we call SBA-1 for government contracting. So those 
requirements that were identified through that process are 
being implemented through the SBA-1 initiative. What I would 
say is that, you know, I cannot speak obviously to our 
acquisition team at the SBA and some of the findings form the 
OIG with respect to the acquisition process, but what I would 
say is that as we move forward with this project, the IT 
improvement or SBA-1, we have engaged the White House's Digital 
Services team to make sure that we do a solid roadmap, and we 
have engaged a small business firm to implement it in what they 
call ``agile development.'' I am not an IT person, but I have 
been briefed on what that means, but it means that we get a 
deliverable or something to test every 2 to 3 weeks, and we 
have seen that working already around the Women-Owned Small 
Business program. So we are encouraged with the progress so 
far, and that is a system that will be rolled out to the 8(a) 
and the HUBZone programs as well.
    Mr. HARDY. Thank you. I would just like to make a 
statement. You know, I truly believe some of the economic 
values that have happened in the recent year or so has come 
from the SBA and some of its improvements that it has done. I 
believe this program is vital to small businesses, which is 
vital to our economy, so I believe that you guys are a vital 
asset that needs to continue to evolve and become more 
efficient, more effective, which will again help in some 
avenues with the growth of our economy. So please continue to 
try to be innovative and help us help you whatever we can. So 
that is a statement I truly believe or I would not say it.
    Mr. SHORAKA. Thank you, sir.
    Chairman HANNA. Thank you.
    Of course, we are aware that 2016, the National Defense 
Authorization Act has a whole new package of things for you to 
deal with, right?
    Mr. SHORAKA. Absolutely.
    Chairman HANNA. We have not finished 2013. We are piling on 
again. What we would like to do is not see it take 3, then 2 or 
3 more years, 6 or 7 years to implement this. Anything we can 
do to help you to that end. I learned that your HR person--I 
was going to ask you to go back and you why they were buying 
people out and hiring people when they can move them around. I 
learned that whoever that person was works for the Department 
of Homeland Security now. And I would ask you to get back to us 
with any recommendations.
    Mr. SHORAKA. Absolutely.
    Chairman HANNA. Like Mr. Hardy said clearly, we are here to 
help.
    Mr. SHORAKA. Thank you.
    Chairman HANNA. If there are on further questions for our 
witness, I would like to thank you for your time and testimony. 
As I have said before, given the hundreds of billions of 
dollars in Federal contracts that are at stake each year, 
ensuring small businesses have the opportunity to compete for 
Federal, prime, and subcontracting is very important. This will 
not happen without properly structured staffing of the GCBD. I 
am glad that H.R. 4341, which this Committee has successfully 
marked up in this past month, I would ask that the GAO do a 
deeper dive, take a look at this, get back to us, and let us 
know how we can help organizationally and going forward because 
as Mr. Hardy said, it is critical, and I run into people every 
day in my private life that take advantage of the services the 
SBA provides.
    I would ask unanimous consent that every member has 5 
legislative days to submit statements and supporting material 
or the record. Without objection, this hearing is closed. Thank 
you.
    [Whereupon, at 3:56 p.m., the subcommittee was adjourned.]
                            
                            A P P E N D I X


[GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 

    To Chairman Hanna, Ranking Member Takai, and members of the 
Subcommittee, [to Chairman Chabot, Ranking Member Velazquez, 
and member of the full committee present] thank you for the 
opportunity to testify.

    Small businesses are agile, innovative, and affordable 
partners for the federal government. Through small business 
contracting, the federal government acts as a catalyst for 
small business growth and innovation, while supporting the 
economic security of the nation. Over the past seven (7) years, 
the Administration, Congress, SBA, and federal agencies have 
been focused on increasing small business contracting 
opportunities across the federal government. This increased 
focus has resulted in over $550.7 billion in federal 
contracting dollars being awarded to small businesses from 
Fiscal Year (FY) 2009-2014, with $91.7 billion of small 
business eligible contracting dollars being awarded in FY 2014. 
The $91.7 billion in small business contracts represents an 
incredible impact to the American economy that drives 
innovation, growth, job creation, and support for over 550,000 
jobs across the Nation.

    In FY 2013 and 2014, the federal government exceeded the 23 
percent small business prime contracting procurement goal, 
representing two (2) consecutive years of this achievement for 
the first time since FY 2005. Current year-to-date performance 
for FY 2015, demonstrates that the federal government should 
again exceed the 23 percent goal, along with three (3) of the 
four (4) socio-economic goals--Women Owned Small Business 
(WOSB), Service Disabled Veteran Owned Small Business (SDVOSB), 
and Small Disadvantaged Business (SDB). If achieved, this would 
be the first time since the program's inception that the WOSB 
goal of 5 percent has been met. It would also mark the 21st 
consecutive time the SDB contracting goal is exceeded and the 
4th consecutive year of achieving the SDVOSB contracting goal. 
The past and expected achievements for FY 2015 are the result 
of the dedicated and focused efforts by the SBA and federal 
agencies to support small businesses, as they play a critical 
role in building and sustaining the nation's industrial base 
and strengthening the economy.

    Over the last few years, the SBA Office of Government 
Contracting and Business Development (GCBD) has begun a variety 
of programmatic streamlining and process improvements efforts 
to enhance and improve customer service, create efficiencies, 
and reduce the administrative burdens on small business firms. 
These on-going efforts include, but are not limited to, 
significant improvements in processing both HUBZone and 8(a) 
Program applications, reduced timelines for 8(a) Mentor Protege 
agreements, and finalization of the HUBZone, 8(a), and WOSB 
programs' Standard Operating Procedures, which are nearing 
final agency approval. In addition, GCBD initiated efforts to 
invest in technological solutions, which will provide 
efficiencies for our interactions with small businesses. 
Furthermore, as we continue to support of small businesses 
contracting opportunities, Administrator Contreras-Sweet 
authorized the hiring of 10 additional Procurement Center 
Representatives (PCRs), to support oversight of federal buying 
center activities to ensure compliance with small business 
regulations.

    Of great importance, SBA has implemented over twenty-five 
provisions from the Small Business Jobs Act of 2010 and the 
National Defense Authorization Acts (NDAAs) of 2013, 2014 and 
2015, and is making great progress on all other remaining 
statutes. Provisions implemented to date include completion of 
the WOSB Industry study, finalization of the WOSB sole source 
rule, accountability of senior executives, total and partial 
set-asides and reserves under multiple award contracts, 
revisions to the reporting structure of Office of Small 
Disadvantaged Business Utilization (OSDBU), inclusion of 
overseas contracting in the FY16 goaling base, and increased 
training and certification for staff. Also, we have been making 
significant progress on implementing the Mentor Protege Program 
(MPP) to offer an expanded program to all small businesses, and 
issued an advanced notice of proposed rulemaking for 
certification of WOSB firms.

    While we continue to work to support and improve 
contracting opportunities for small businesses, there are 
always opportunities to build upon our strengths and improve in 
certain areas. We acknowledged the recommendations from the 
Government Accountability Office (GAO) and Inspector General 
(IG) that remain open and need to be closed with urgency. 
Closure of open recommendations is one of my highest priorities 
and we are actively working with the IG and GAO to come to 
meaningful resolutions that will benefit small businesses 
through improved SBA policies and practices. We have initiated 
and scheduled regular face-to-face meetings with GAO and IG 
leaders resulting in closure of nine (9) GAO recommendations 
and three (3) IG Recommendations within the last 12 months. The 
recently closed recommendations include improving monitoring of 
and procedures used in assessing the continuing eligibility of 
8(a) firms and assessing resources allocated for PCR and 
Commercial Center Representatives (CMRs) to successfully carry 
out their duties. We take the remaining open GAO and IG 
recommendations seriously and are committed to resolving them.

    Additionally, we are highly committed to implementing any 
remaining statutes and programmatic improvements to reduce 
unnecessary burdens placed on small businesses in SBA's 
processes and procedures. We are working intensely to 
incorporate the remaining statutes from past NDAAs into 
approved policies and regulations intended to allow an even 
playing field for small businesses. We expect many of the 
remaining statutes to be finalized in 2016, including the WOSB 
certification rule, teaming and joint venture rules, and the 
final MPP rule, along with a functioning MPP program. Further, 
we will review program processes, including the 8(a) annual 
review, and the HUBZone and WOSB Programs.

    In closing, I would like to recognize the commitment to 
small businesses from the Congress, in particular, the House 
Small Business Committee. I also acknowledge the commitment 
from the Administration and federal agencies, which have 
recognized the value of small businesses, and remained 
committed to providing meaningful contracting opportunities. 
Led by Administrator Contreras-Sweet, we will continue to fight 
for small businesses to improve participation for firms to 
compete and successfully win federal contracting opportunities.

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