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


FIELD HEARING IN PALMDALE, CA: CHALLENGES FOR SMALL DEFENSE CONTRACTORS

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

                                 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
                              APRIL 5, 2016

                               __________

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
                               

            Small Business Committee Document Number 114-053
              Available via the GPO Website: www.fdsys.gov
              
              
                               ___________
                               
                               
                           U.S. GOVERNMENT PUBLISHING OFFICE
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman
                            STEVE KING, Iowa
                      BLAINE LUETKEMEYER, Missouri
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                         CHRIS GIBSON, New York
                          DAVE BRAT, Virginia
             AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                        STEVE KNIGHT, California
                        CARLOS CURBELO, Florida
                         CRESENT HARDY, Nevada
               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, Chief Counsel
                  Michael Day, Minority Staff Director
                            
                            
                            C O N T E N T S

                           OPENING STATEMENT

                                                                   Page
Hon. Steve Knight................................................     1

                               WITNESSES

Mr. Don Rhea, Vice President, Clancy JG International, Lancaster, 
  CA.............................................................     3
Mr. Kirk Flittie, General Manager, Unmanned Systems, Simi Valley, 
  CA.............................................................     5
Ms. Virginia Villa, Owner, West Pacific Electric Company, 
  Lemoore, CA....................................................     6

                                APPENDIX

Prepared Statements:
    Mr. Don Rhea, Vice President, Clancy JG International, 
      Lancaster, CA..............................................    23
    Mr. Kirk Flittie, General Manager, Unmanned Systems, Simi 
      Valley, CA.................................................    25
    Ms. Virginia Villa, Owner, West Pacific Electric Company, 
      Lemoore, CA................................................    27
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.

 
                CHALLENGES FOR SMALL DEFENSE CONTRACTORS

                              ----------                              


                         TUESDAY, APRIL 5, 2016

                  House of Representatives,
               Committee on Small Business,
     Subcommittee on Contracting and the Workforce,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, 2:00 p.m., at the 
Palmdale City Hall Chamber Room, 38300 Sierra Highway, 
Palmdale, California, Hon. Steve Knight, presiding.
    Present: Representative Knight.
    Also present: Representative Valadao.
    Mr. KNIGHT. Good afternoon. Thank you all for coming. This 
hearing will come to order.
    Before we begin, I would like to sincerely thank everybody 
for coming, and a special thanks to our witnesses for giving up 
some of their time today. I appreciate your willingness to take 
time out of your schedules and appear before this Subcommittee 
to talk about the barriers small contractors face when working 
with the Department of Defense.
    I would like also to extend a warm welcome to my friend and 
colleague, Congressman David Valadao, from the 21st District. 
He has a lot of Bakersfield and Hanford, and a lot of those 
other little cities that you drive by on the 5.
    [Laughter.]
    I appreciate David coming down and helping us out with 
this.
    Government contracting offers a unique opportunity to 
invest in small businesses while also stimulating our economy. 
Small businesses play a critical role in our economy and job 
growth, creating 7 out of every 10 private sector jobs. With 
our economy continuing to sputter along, it is more important 
than ever to invest in the small firms that support our 
communities and provide opportunities for our families. It is 
difficult to build a strong economy when its foundation, 
America's small businesses, is not strong itself.
    Small business contractors are good for the government and 
good for the economy. Small businesses tend to be more nimble, 
responding to market changes more rapidly than larger 
counterparts, and they drive the innovation sector that makes 
America more agile in the global economy. They increase 
competition and innovation, create jobs, and save taxpayer 
dollars, which is why there is a statutory goal of awarding 23 
percent of prime contract dollars to small businesses.
    Having a healthy small business industrial base means that 
taxpayers benefit from the increased competition, innovation, 
and job creation. It also means that we can securely support 
programs crucial to our national defense instead of relying on 
foreign-made goods.
    The percentage of dollars awarded to small businesses is a 
good measure of success, but it is not the only measure. Over 
the last 4 years, while the percentage of dollars being awarded 
to small businesses was increasing, the number of contract 
actions with small businesses fell by almost 60 percent. At the 
DOD the number fell by almost 70 percent. The size of the 
average individual small business contract action increased by 
230 percent during the period, and by nearly 290 percent at the 
DOD. The percentage of some contracted work going to small 
businesses has also fallen by nearly 2.5 percent.
    These statistics are all alarming in their own way, but one 
of the more clear-cut and disturbing figures is that there are 
over a hundred thousand fewer small businesses registered to do 
business with the Federal government than there were in 2012. 
These data points suggest we have a problem with our small 
business defense industrial base.
    Right here in California's 25th district, we are in a 
unique position of having a huge presence of defense 
contracting companies as well as a large number of small 
businesses that are seeking government contracts. We have 
around 480 small businesses seeking to do business with the 
Federal government here in this district. This means there are 
many opportunities for small companies to be Federal prime and 
subcontractors, but there are also significant challenges and 
barriers for them.
    We have asked our witnesses today to discuss some of these 
barriers and suggest ways to reduce them. I look forward to 
hearing these ideas and taking their recommendations back to 
Washington where I can work with my colleagues to make things 
easier for small firms to enter the defense contracting arena 
and ensure a healthy, vibrant defense industrial base. Again, I 
want to thank each of our witnesses for taking the time to be 
with us today, and I look forward to hearing your testimony.
    We have three witnesses here today, and we do have some 
rules. We will abide by them as well as I can do. We have 5 
minutes for you to chat, and when you start going over that, I 
will look at you. If you do not respond, then I will start 
going like this.
    [Laughter.]
    [Gavel.]
    At that point if you do not respond, we will escort you 
out. No, we will be as lenient as we possibly can, but if we 
can adhere to around 5 minutes, that would help us.
    Let us get right into it with our witnesses. A couple of 
the witnesses I know. I have worked with them, have been with 
their businesses, have seen what they do, and have talked with 
them. This is exciting for me to have two witnesses come in 
that I have a good relationship with. Then David will introduce 
our third witness.
    Our first witness today is Mr. Don Rhea, Vice President of 
Clancy JG International in Lancaster, California. Mr. Rhea has 
a bachelor's degree from Chapman University followed by 
graduate study work at University of Southern California. His 
background includes working for the National Aeronautics and 
Space Administration--``NASA'' for all of you--followed by a 
career as a contractor supporting the Department of Defense.
    His knowledge and experience includes engineering analysis, 
air traffic control, air space management, unmanned aircraft 
systems, simulation training, flight tests, test ranges, and 
business management.
    Clancy JG International has been awarded more than $18.5 
million in private contracts since their inception in 2007. It 
is geographically diverse with locations across the United 
States as a Small Business Administration certified 8(a) 
program participant, and as a service-disabled veteran-owned 
small business.
    Mr. Rhea.

       STATEMENTS OF DON RHEA, VICE PRESIDENT, CLANCY JG 
  INTERNATIONAL, LANCASTER, CALIFORNIA; KIRK FLITTIE, GENERAL 
     MANAGER, AEROVIRONMENT UNMANNED SYSTEMS, SIMI VALLEY, 
  CALIFORNIA; AND VIRGINIA VILLA, OWNER AND CEO, WEST PACIFIC 
             ELECTRIC COMPANY, LEMOORE, CALIFORNIA

                     STATEMENT OF DON RHEA

    Mr. RHEA. Thank you, Congressman Knight, Congressman 
Valadao. I appreciate you taking the time to entertain this 
topic, a very important one to us.
    I would like to open today by expressing my appreciation 
for all the small business specialists within the Department of 
Defense who tirelessly search and evaluate opportunities for 
small businesses to participate in government contracts. These 
individuals engage in active dialogue with the small business 
community on a regular basis through industry days, outreach 
events, and regular office visits by small businesses, and 
we've greatly benefitted by their support.
    I acknowledge that opportunities for small business 
participation in the Department of Defense acquisitions are 
present. Many opportunities result from the small businesses 
developing and submitting capability statements in response to 
sources sought and market surveys. Small businesses spend many 
hours traveling to customer facilities and networking to 
identify opportunities where our talents and expertise can 
contribute to the mission.
    With this approach, as stated, we have succeeded in 
building a business base. Roughly 80 percent of our 2015 
revenues were as a prime contractor and with customers, as 
mentioned, from Alaska to Washington, D.C. We've done that 
because we have a committed and dedicated staff.
    I have direct experience working with small businesses that 
range from startups to more sizable ones around $30 million and 
above. As a services company, Clancy JG International targets 
technical support services opportunities with selected NAICS 
codes, North American Industry Classification System codes, 
which we also refer to as size standards.
    One of those that we pursue as a NAICS code is 48190, which 
is ``other support activities for air transportation'' with a 
size standard of $32 and a half million. To pursue 
opportunities under this NAICS code, a company must have an 
average revenue over the most recent 3-year period of $32 and a 
half million or less. And as a company approaches a $32 and a 
half million average, they are much larger. They have more 
resources, and they enjoy a significant competitive advantage 
over companies our size; that is, companies of less than $5 
million in annual revenues.
    It's very difficult for a $5 million small business to 
compete with a $32 and a half million small business as a prime 
contractor. But, as you see, we've had some success. To 
overcome these challenges, small business will typically search 
for opportunities to provide subcontract support, thus 
increasing revenues and developing a corporate past performance 
portfolio, which is needed to be a credible prime.
    Small businesses awarded contracts under any small business 
set aside or NAICS, regardless of the size standard, do not 
provide any subcontracting opportunities. However, if the 
contract is full and open in competition with a small business 
subcontractor requirement, then opportunities for small 
businesses do exist assuming that the company has the correct 
technical skill to contribute. We have seen prime contracts 
with as much one-third of the work designated for small 
business. These contracts provide opportunities for several 
small businesses to participate.
    Over the past decade, there's been significant momentum 
towards contract consolidation. Small business contracts 
absorbed into large contracts, and multiple small business 
contracts consolidated into a sizeable small business contract.
    Over my career, I've been party to both of these scenarios. 
In the case of a large contract, a follow-on subcontract might 
be available. However, the opportunity for a small business to 
pursue the next step in becoming a prime contract has been 
eliminated.
    In order for a small business to grow as a prime 
contractor, they must have the ability to bid as a prime 
contractor. While contract consolidation still exists today, it 
is limiting small business opportunities. There have been 
recent instances within the Department of Defense where tasks 
were removed from small business contracts removed from a large 
business, set aside for a small business, which provided a 
great opportunity for a small business prime. We've seen some 
of that in the other direction, mostly the Navy.
    Finally, government regulations are causing significant 
challenges for small businesses. The Affordable Care Act is 
driving up the costs of healthcare. We have witnessed far 
greater increases in health insurance premiums than we saw in 
prior years before the ACA implementation with reduced coverage 
and much higher deductibles. The challenges in bidding a 
multiyear firm fixed price contract--as a services company 
that's what we pursue--for indirect cost control is vital.
    Other challenges are associated with access to capital. 
Since the financial collapse in 2008, regulations have 
prevented small businesses' access to capital through the 
typical borrowing route. As a result, many small businesses are 
faced with utilizing the services of receivables financing 
companies to fund expenses while waiting for invoices to be 
paid, which is an expensive proposition.
    As small business leaders, we understand that these 
challenges exist. Small business leaders are typically 
entrepreneurs and are adept at solving problems and thriving. 
Addressing these challenges is becoming more difficult in 
recent years and deter many small businesses from pursuing 
Department of Defense contract opportunities.
    I appreciate the opportunity to testify and provide my real 
world insight into this topic and the challenges that face 
small business defense contractors. Thank you.
    Mr. KNIGHT. Thank you, Mr. Rhea.
    Second on the docket is Mr. Kirk Flittie, Vice President 
and general manager of Unmanned Aircraft Systems at 
AeroVironment, Incorporated.
    With more than 25 years of experience in the commercial and 
defense business segments, he was promoted to vice president 
and general manager for unmanned aircraft systems at 
AeroVironment in May of 2015. Before assuming his current 
position, he was Vice President for the HALE UAV business area.
    Prior to joining AeroVironment, Mr. Flittie worked for the 
American Rocket Company, a commercial space launch company, for 
8 years as an operations director, program manager, and senior 
engineer. Mr. Flittie also worked at Northrop Aircraft 
Corporation as a design and test engineer on the F-20 fighter, 
the Tigershark, several classified programs, and advanced 
hypersonic aircraft.
    He holds a Master's of Science in aeronautical and 
astronomical engineering from the Massachusetts Institute of 
Technology and a Bachelor's of science in aerospace engineering 
from the University of Notre Dame.
    Mr. Flittie.

                   STATEMENT OF KIRK FLITTIE

    Mr. FLITTIE. Thank you, Congressman Knight and Congressman 
Valadao. Please allow me to thank you, Congressman Steve 
Knight, for inviting me to testify in front of the Small 
Business Subcommittee on Contracting and Workforce. I'm honored 
to represent the 650 proud employees of AeroVironment in Simi 
Valley, California.
    AeroVironment is a technology solutions provider that 
designs, develops, produces, supports, and operates an advanced 
portfolio of unmanned aircraft systems and electric 
transportation solutions. Agencies of the U.S. Department of 
Defense and allied military services use the company's electric 
powered hand launched unmanned aircraft systems extensively to 
provide situational awareness to tactical operating units 
through real time airborne reconnaissance, surveillance, and 
communications.
    AeroVironment's electric transportation solutions include a 
comprehensive suite of electric vehicle charging systems, 
installation of network services for consumers, automakers, 
utilities, and government agencies, power cycling and test 
systems for EB developers, and industrial electric vehicle 
charging systems for commercial fleets, and unmanned aircraft 
systems.
    With over 25 years of experience developing, supplying, and 
supporting small, unmanned aerial systems, AeroVironment is a 
prime contractor and supplier to all U.S. Department of Defense 
programs of record for this category of unmanned aircraft 
systems, and has delivered more than 20,000 new and replacement 
air vehicles to customers in the U.S. and elsewhere.
    AeroVironment's family of small U.S. air vehicles includes 
Raven, Wasp, Puma, and Strike. These backpackable manned 
portable hand-launched unmanned aircraft systems are carried 
and used by our armed forces, who frequently operate across 
large geographic areas, often far removed from their bases, and 
are dependent mainly on what they carry in their packs or 
vehicles. They deliver frontline real time situational 
awareness to increase combat effectiveness and force 
protection.
    By transmitting livestreaming, color, and infrared video 
from onboard cameras directly to a common hand-held ground 
control station with an embedded color monitor, AeroVironment's 
aircraft systems provide real-time information that help U.S. 
and allied armed forces operate more safely and effectively.
    Mr. Chairman, thank you for the opportunity to be here 
today to discuss the opportunities and challenges of business 
for the Department of Defense. I'd be happy to answer any 
questions that you might have.
    Mr. KNIGHT. Thank you very much. Now, I will let 
Congressman Valadao introduce our third witness.
    Mr. VALADAO. Thank you, Chairman Knight. Our third witness 
is Ms. Virginia Villa, CEO of West Pacific Electric Company in 
Lemoore. In her capacity at West Pacific, Ms. Villa is in 
charge of day-to-day operations, purchasing, human resources, 
and development of technical proposals, among other tasks. 
Previously she was CEO of Covenant Services, Incorporated, in 
Lemoore, and the supervisor of D Electric also in LeMoore.
    A federal contractor for over 25 years, Ms. Villa is a 
member of the United States Women's Chamber of Commerce and the 
Hispanic Chamber. Born and raised in Central Valley, Ms. Villa 
lives there with her husband and six children.
    Ms. Villa, thank you for being with us today, and welcome.

                  STATEMENT OF VIRGINIA VILLA

    Ms. VILLA. Good afternoon, Congressman Knight and 
Congressman Valadao. I appreciate the invitation to testify 
here today, and I'm honored to provide you with insight into 
the obstacles faced by a small woman-owned defense contractor.
    My name is Virginia Villa, and I am the CEO of West Pacific 
Electric Company located in Lemoore, California. Located in 
California's Central Valley, Lemoore is home to the Naval Air 
Station and surrounded by many rural communities that are 
traditionally underserved. The Central Valley is also home to 
many small business and minority-owned companies struggling to 
grow and provide jobs for their employees.
    My firm, West Pacific Electric Company, is an electrical 
firm which currently employs 11 full-time employees. Our 
services include all phases of electrical with a special 
emphasis on high voltage electrical distribution. Currently we 
bid on federal, state, municipal, and commercial projects 
throughout California and neighboring states. When opportunity 
permits, we bid as a prime contractor, but the majority of our 
bidding is as a subcontractor.
    As Chief Executive Officer of West Pacific Electric 
Company, I have attended numerous events sponsored by various 
Federal agencies, such as the Society of Military Engineers, 
SAME, and the Minority Business Development Agency, also known 
as MBDA. I attended each of these events with the assumption 
that I would be given the same opportunities as other 
contractors to bid on Federal, State, and local contracts.
    While these events provided more insight and information 
regarding submitting bids for defense contracts and were 
marketed as providing opportunities for all interested in 
seeking government contracts, the reality is that each event 
shared one common message. It is recommended that the small 
defense contractors reach out to large contractors for 
subcontracting opportunities.
    As those of us here today understand, small businesses and 
businesses owned by minorities face unique challenges when 
competing for contracts and jobs for their employees. These 
challenges are most apparent when larger companies and major 
projects leave out the small business firms and ignore the 
potential to include them in this serious bidding process.
    I understand large contractors may find it easier to work 
with proven subcontractors, but this leaves out growth 
potential for qualified companies to compete. Many in my 
position wonder why small businesses are expected to pull on 
the coattails of large contractors just to get an opportunity 
to bid while it should be the large contractors reaching down 
into the large pool of small businesses that can perform the 
work.
    As CEO of West Pacific Electric, accessing federal 
contracts is a challenge I face every day. In addition to 
attending informational events sponsored by SAME and MBDA, I 
also have taken the initiative to meet with small business 
representatives of various agencies to present my firm's 
proposals and capabilities. Furthermore, I have aggressively 
worked to expand my own network in an effort to better position 
my company. I am a member of the United States Women's Chamber 
of Commerce, MBDA, SAME, and the Hispanic Chamber of Commerce, 
which provides with networking opportunities to work with large 
contractors.
    To contribute to my qualifications, I hold the following 
certifications: Economically Disadvantaged Woman-Owned Small 
Business, CPUC, State of California Small Business, Small 
Disadvantaged Business, SDB, and GSA contract holder, all of 
which are contract vehicles when bidding on government 
projects. Despite these efforts, my company continues to face 
obstacles when applying for government contracts. I will 
provide you with one reoccurring example.
    When a large government contract is released, our firm does 
preliminary research to confirm that a subcontracting plan is 
incorporated within the solicitation. If a subcontracting plan 
is incorporated and my company decides to bid on the project, a 
lot of work and man-hours go into preparing a bid. We 
oftentimes later find out that the majority of the contractors 
that have been awarded a subcontract are large firms. This 
leads me to believe that subcontracting plan is ignored and 
discourages me from bidding on the next project.
    While larger established companies have an advantage, there 
are still opportunities for small businesses and minority-owned 
companies throughout the state and in the Central Valley. It is 
critical that my company has access to projects close to home 
in the Central Valley. Potential projects include the 
development of the California high-speed rail, a $68 billion 
project, and the renovations at Lemoore Naval Air Station, $1.6 
billion. General construction projects are a deal for 
businesses to participate in and help subcontracting and job 
creation opportunities.
    I believe there are many common sense solutions that should 
be considered in order to encourage the involvement of small 
businesses, and I'm happy to have the opportunity to discuss 
those further at today's hearing.
    In closing, again, I want to thank you for the opportunity 
to testify before the Committee today. I hope that my testimony 
provides you with further insight and information regarding the 
challenges faced by small business defense contractors. Thank 
you.
    Mr. KNIGHT. Thank you very much. Part of what we do in this 
hearing is coming out to the district, coming out to southern 
California instead of having everybody go to Washington, D.C. 
to testify in front of Congress. It's very beneficial. We get 
to hear right here. You can drive right to City Hall in 
Palmdale, and we did one in Pasadena this morning, and we plan 
on doing some of these across the State. And so, that makes it 
a little bit, well, less costly for you, less intimidating, and 
more down home, and just real answers to real problems.
    At our hearing in Pasadena today, we had four woman-owned 
small businesses. We talked about access to capital, some of 
the barriers, and none of them were defense companies, but all 
of them had the same exact barriers they were trying to get 
past. It was fruitful, and I think we are going to get 
something out of it, and we are going to work with something. 
That was very helpful that couple of hours that we spent in 
Pasadena.
    I will start off with Mr. Flittie. I understand that 
AeroVironment has had success internally developing innovative 
solutions that were embraced by the DOD and subsequently 
fielded by our U.S. forces. By getting the department's focus 
on better buying power, are you finding the department 
recognizes the contributions of your internal investments and 
compensate you accordingly for your IP?
    Mr. FLITTIE. One of the approaches that we do at 
AeroVironment that we have done historically, is to invest 
heavily internal research and development funds. Typically 
about anywhere 10 to 15 percent of our revenue goes back into 
internal research and development to develop products, improve 
them, and position them to the point where we are ready to 
compete.
    One of the barriers that we find when we go into these 
competitions with much larger organizations than we are, is 
that oftentimes the requirements to compete are that we are 
required to share our intellectual property that we have 
developed on our IRAD with other companies to try to level the 
playing field. That is one of the reasons we used the IRAD to 
develop this is to bring it to high, what is called, technology 
readiness levels so that we are prepared to compete, but we 
also want to retain intellectual property as well as part of 
that.
    That creates a barrier for us because it is seen as an 
unfair advantage for us especially when we are competing 
against much larger organizations. We have to be able to share 
the data rights in intellectual property of things that we 
developed internally. That is a barrier for us because it is 
that intellectual property, that intellectual capital that we 
use to grow our business.
    Mr. KNIGHT. Let me push a little further on that. Basically 
what you have created there is your intellectual property, and 
that is what you have developed; that is, the program or the 
product that has been developed by your company. To go a little 
bit further on that, if there is not a way of more or less 
protecting this without going into this process, what does that 
do to the company? You do not go out and try and produce or 
create something new, or change something and make it better?
    Mr. FLITTIE. Some of the protections that we will seek are 
traditional ones through patent protection, but oftentimes the 
protection is just an internal trademark or just protected 
intellectual property that we do not share. So what we will try 
to do is we will try to use that intellectual property and 
their designs in their competitions, and try to restrict it the 
best we can to be able to compete effectively without having to 
share it with our competitors.
    Mr. KNIGHT. I will go on to Mr. Rhea. About what is your 
success rate in winning contracts from the Federal government? 
Are there any particular agencies or particular part of the DOD 
that are better to work with than others, or maybe better 
services that are better to work with than others?
    Mr. RHEA. We won our first prime contract with the FAA in 
2009. We bid against six other companies, and it was a service-
disabled veteran-owned small business set aside, and we were 
awarded the contract. That was our first prime contract award.
    Since then, the bulk of our awards have been as a result of 
briefings or sole sources through the 8(a) program. We do some 
work with the Army National Guard, and we do some work with the 
Navy China Lake. China Lake is the organization I mentioned 
earlier that has been taking work off of some of the large 
consolidated contracts set aside for small businesses. We have 
been up there several times giving briefings, and as a result 
of the briefings, they have selected somebody and then 
negotiate a contract with them. Even though it is an 8(a) set 
aside, it has been somewhat of a competition to get it. So 
those are the opportunities that I have seen only the Navy 
pursue.
    In my previous companies I have had work at Edwards Air 
Force Base, but most of that work had been consolidated with 
the large contracts, and there really are not opportunities for 
some contractor on a contract at NASA Armstrong. That is one of 
my two subcontracts. The other one I am a subcontractor to a 
company in Washington, D.C. for the FAA. The rest of our 
contracts with the DOD are all prime contracts, but they have 
been limited solicitations.
    It is really difficult. We have bid on a lot of contracts, 
back to your question on how many we have won. We have bid on a 
lot of larger contracts, but because we do not have relevant 
past performance, and they define ``relevancy'' in terms of the 
size of your company. Being a company of 30 employees and less 
than $5 million in annual revenues, and you are bidding against 
somebody that has got several hundred employees, it is very 
difficult to compete.
    We just bid on fairly large contract at NASA Armstrong, but 
some of that is you just have to keep going. You bid on these 
knowing that you probably do not have a probability to win, but 
you want them to know you are interested so that when something 
else comes up, you may have another opportunity.
    As a small business you get really creative trying to get 
your name out, trying to get to know people, trying to 
influence what is coming out. We responded to a lot of market 
surveys. Some of them we decided to bid on when they come out. 
Some of them we do not. But you are trying to get people to 
know who you are and just get the word out there, because as 
small businesses we have a lot of talent. It is just getting 
through those hurdles of relevant past performance and similar 
contracts.
    I just got a solicitation this last week to bid on some 
transit alert stuff, which is not typically what we do, but it 
is our NAICS code, for 44 bases throughout the U.S. The way it 
was written, you had to have two contracts where you did the 
same exact work. When the contracting officer called and said 
are you going to bid it, we said, no, because you are too 
restrictive on your past performance. We can meet one 
requirement, which is past performance of similar contracts, 
but you required in addition to that two specific past 
performance citations, which we cannot meet, so we are not 
bidding.
    Those are the things that we have a challenge with. As 
small businesses, it is really difficult to find opportunities. 
When you bid them, you bid some of them knowing you do not have 
a chance of winning, but you bid them anyway just to get some 
experience, some knowledge, some insight. As a small company, 
when you have two or three people doing all the work, you have 
a very limited number you can bid on. So you are very selective 
as to which ones you pursue.
    Mr. KNIGHT. On a scaling percentage, how much more 
difficult is it on certain products, certain bids that you are 
trying to bid on because of the scale, because of some of the 
larger companies that can do these things, that can do four, 
five, six bids, and do multiple programs, and maybe some of 
those programs are similar, and so they can use similar things. 
They can use similar products, and that makes it easier for 
them to scale down maybe a price or something like that.
    Mr. RHEA. The larger your base is, the more competitive you 
can be. In our case, we have a very small business base, so our 
ability to adjust our rates and become more competitive is very 
restrictive because there are certain costs of running the 
company. I mentioned the medical insurance. The cost of 
benefits is by far the largest expense we have, and if we 
cannot control indirect costs in our fringe costs, we have a 
tough time competing against the big companies.
    Most of these contracts are coming out firm fixed price. 
The ones that have been set aside have been time and materials 
converted to firm fixed price once we negotiated them. But most 
of them that are coming out, they want to put together a firm 
fixed price bid. That one I just mentioned, that we chose not 
to bid on, that was one of those that was going to be firm 
fixed price.
    It is very difficult in this market to predict where things 
are going to be over the next 5-year period because they are 
all a base period and four options period.
    Mr. KNIGHT. Ms. Villa, again, we spoke this morning about 
some of the obstacles and some of the access to capital issues 
that have been happening with woman-owned businesses, with 
businesses that have not had a lot of access to capital, 
minority-owned businesses, disabled vet-owned businesses. Are 
you finding that that is an issue in your business?
    Ms. VILLA. Absolutely, it is an issue. In fact I get calls 
all the time from non-banking, Wells Fargo, and 20 percent 
interest, because they target us because as a small business we 
do not have access to the original type of working capital.
    Currently we are working with a bank to where they want to 
put a lien on the receivables; in other words, take the 
receivables as collateral. It is a struggle because that is a 
hard notion to bring into any type of federal agency or any 
other customer that you are working with is to let them know, 
there is a possibility that my receivables may be used as 
collateral; therefore, you have to send the money directly to 
the bank.
    It is a struggle. It is a continued struggle.
    Mr. KNIGHT. I am going to let Congressman Valadao ask the 
next series of questions if you would like. When it comes back 
to me, I am going to get a lot more specific on helping us help 
you. You have a couple of congressmen here that sit on several 
committees, so when I start asking the next series of 
questions, it will be on, because a lot of times we come in 
front of businesses, and businesses will say regulations are 
killing us, or this is killing us, or this or that. Then I say, 
okay, well, help us out with that, and they say, oh, well, it 
is just, you know, everything. Everything is killing us. I 
cannot go back and say, hey, everything is killing them.
    If we can delve down there, or as we move forward in the 
next week or 10 days and you have time to kind of push forward 
on, what is really stopping me from expanding my business, from 
getting more contracts. I cannot help you become bigger. I 
cannot do that, but we might be able to soften some of the 
barriers or get rid of some of the barriers.
    Mr. VALADAO. Since you have got the mic still, Ms. Villa, 
you mentioned some commonsense reforms that could be 
implemented to help small businesses. Can you expand on what 
some of those might be, and what can we do in Washington to 
help you with that process?
    Mr. KNIGHT. Eyes on your own paper.
    [Laughter.]
    Ms. VILLA. Absolutely. Very familiar term: accountability. 
It is all about accountability. As a contractor that 
traditionally bids maybe 20 percent prime, 80 percent 
subcontract, I am looking for accountability from contracting 
officers and general contractors. So when I see that there is 
an implementation within the solicitation for a small business 
utilization plan and it is not being met, and I go to a job 
site and I see all large contractors, it is frustrating because 
at the end of the day there are no sanctions, nothing being 
done, and it is continually happening.
    I have thought about this. I think about this every day. 
One thing that I think would work is in the construction 
industry, after we are awarded a project, we have what they 
call the submittal phase. In the submittal phase is when you 
turn into the government your environmental plan, safety plan, 
QC plan, the type of equipment that is in compliance with the 
solicitation.
    I think there also needs to be a plan that the general 
contractor has to submit to all the subcontractors that they 
are using. Show the contract amount. Show its discipline. Then, 
like all the other sections, it either gets denied or it gets 
approved. At the end of the project when you do the wrap-up, 
the warranty letter, all the other documents that you have to 
give to the federal government, do a follow-up plan with the 
steps. Make sure that there was not, we see commonly used a 
lot, a lot of the bait and switch. Make sure that does not take 
place.
    I think if general contractors and contracting officers see 
that they have to continue to do that, I think a lot will 
change because there is no room for error. They have to comply, 
and they have to be in compliance with the solicitation. I 
think that will help a lot of the small businesses.
    Mr. VALADAO. Mr. Rhea, how familiar are you with the SBA's 
contracting assistance programs, and have they been helpful to 
you?
    Mr. RHEA. I am familiar with it, we have been down to some 
of their training programs. Having been a small business 
contractor for 30 years, we understand the environment. When we 
go down to a training class, it is really not very informative.
    The biggest challenge we have is not in learning how to be 
a small business and how to operate. It is identifying 
opportunities we can bid. We have demonstrated our ability to 
win as a prime and win in a competitive environment. There are 
just very few ducks to shoot at. We are always having the 
challenge of trying to identify those opportunities. We have 
recently put more emphasis into being a subcontractor because 
there are more opportunities there.
    I go to SBA meetings. In fact, I am going to one next month 
down in Anaheim. We participate because we are supportive of 
the small business community. Does it provide us much benefit? 
No. Even the PTAC, we do not get much out of the PTAC except 
for the ability to work with other companies and potentially 
find other opportunities. We go to those primarily to network, 
not because there is something we can gain from that.
    Part of the problem for us is we have been around here for 
a long time, so we do not need to learn how to do what we are 
doing. We just need to find more opportunities to go chase.
    Mr. VALADAO. Mr. Flittie, your company has been very 
successful contracting with the Defense Department. Can you 
offer any advice to some of our younger, smaller companies?
    Mr. FLITTIE. The key things that we have done as a small 
company, most of the competitions that we compete on, are under 
the NAICS code for aircraft manufacturing. Companies that are 
under 1,500 employees or less are classified as small business 
even though we are much larger than most of my counterparts. We 
oftentimes compete with the Boeings, the Lockheeds, the very 
large aerospace companies. We face similar barriers in trying 
to take the next steps.
    The key thing that has helped us be successful. one thing I 
talked about earlier, is that we have found that to try to 
compete at the next level, trying to raise the capital as to 
IRAD or external capital to develop the products, and 
technologies, or services to a certain level where the 
Department of Defense is ready to adopt it. For example, they 
characterize it by, the technology readiness level. If we can 
get it to a TR level of 5 or 6, then the government is more 
willing to put in the incremental investment to take it to the 
next level then to put it out operationally.
    We found that to be a very successful model over the years, 
getting to that level, and then we can compete and win on 
programs both as prime and as suppliers to win contracts that 
basically take it to an operational level, to a much higher TR 
level. That is a strategy that we have used.
    We often faced similar things, too, trying to identify the 
opportunities out there. Some of the barriers that we face are, 
again, trying to identify opportunities that we can go pursue 
as a prime because we are oftentimes limited by not being 
considered large enough or having the capabilities to go to the 
next level. We are even limited to the prime opportunities, and 
so we oftentimes are pursuing subcontracting opportunities as 
well.
    Even though we are all different sized small businesses, 
there are similar barriers as we are all trying to grow to the 
next level in the Department of Defense.
    Mr. VALADAO. Do I have time for one more, Mr. Chairman?
    Mr. KNIGHT. You do.
    [Laughter.]
    Mr. VALADAO. I have been in Congress longer than him, and I 
have to ask him for permission.
    [Laughter.]
    He is loving this. Ms. Villa, have you utilized the 
Procurement Technical Assistance Center, PTAC, and what was 
your experience?
    Ms. VILLA. Yes, I have. Our local PTAC is out of Monterey. 
It has been favorable. In fact, the gentleman that I work with, 
he has offered a lot of insight, a lot of recommendations, and 
it has been helpful. In fact, I just signed up for bid 
matching. We will see the results of it. He does email me 
probably twice a month to see if there are any, needs, any way 
that they can help me, so it is favorable.
    Mr. VALADAO. All right, thank you. I yield back.
    Mr. KNIGHT. I am going to go back to Ms. Villa on 
accountability. So we did a bill in the California legislature 
that looked at roofing contractors. A lot of roofing 
contractors in California had not done the things that we 
expected of them. They did not have, unemployment insurance, or 
a business license, or, they just were not allowed to work. Yet 
they were doing an awful lot of roofing in California.
    The roofers were very upset at this, and they said, people 
have to play by the rules in order for our bid to be equitable 
because if I go in there and I bid and I have to do everything 
by the accords of law and some folks do not, I am never going 
to win a bid.
    If I get what you are saying about accountability and 
talking about prime contractors and them not following maybe a 
percentage or not following something, what happens there?
    Ms. VILLA. The problem is nothing.
    Mr. KNIGHT. Okay.
    Ms. VILLA. That is the complaint is because as a small 
contractor, I have limited resources in my estimating 
department. When it continually happens, you no longer bid to 
the general contractor.
    Mr. KNIGHT. I am an apples for apples kind of guy because 
if you are going to bid, then you have to be on the same level 
playing field. If you are not, then somebody is going to 
probably win a lot more bids than you if they are undercutting 
something, or they are not paying for something, or they are 
not doing something.
    I am going to move right down the line. I have been to 
AeroVironment several times, and even launched one of your 
vehicles that you said I could not hurt, and I did my best. I 
did not hurt it, but it did not launch because I did not do it 
correctly. You are dealing with an awful lot of the big 
companies and big contracts on kind of a small to medium level 
company. You are competing, and you are doing fairly well, 
probably not as well as you want to do.
    You have to put a lot of investment in certain projects and 
certain things that you want to go out there, and you have got 
to show a demonstrator, you have to show this, you have got to 
prove something. All of that is coming out of your pocket to do 
that in order to bid. How difficult is that to deal with a big, 
big company and you are trying to deal with these types of bids 
when you are leveraging your company quite a bit?
    Mr. FLITTIE. The types of investments we make, I mentioned, 
are IRAD type investments, like capital, or bid and proposal, 
the marking costs to pursue. We find that we have to be very 
selective on the ones that we go after because most of the 
prime work that we will try to compete for at the next level is 
against larger aerospace, and they do have larger resources to 
draw upon. We cannot go and pursue everything, so we have to be 
selective on the things that we think we can be very 
competitive on, then develop a good strategy, then deploy our 
investment resources, and go compete.
    The key is being very selective. We cannot go and pursue 
all the things. Even though we think we would be very 
competitive on a lot of them, we just do not have the resources 
to do that, to go be competitive on all of them.
    Mr. KNIGHT. That in itself becomes a problem for small 
business because you are going to put a lot of effort into bid. 
You just do not go over there and say, yeah, I can do this. It 
is a process, it takes manpower to do this, and it takes an 
awful lot of money and know-how. If you are only getting a bid 
out of 10 bids or something like that, then it is taking an 
awful lot of effort to continue to move on. I think that is one 
of the things that we understand with smaller businesses in the 
aerospace industry, especially in the defense industry.
    I will go back to this, and this could be for any one of 
you. Since I have been on the Armed Services Committee now for 
16 months and I have seen all the services and what they do and 
what they do not do, and some do it better than others--I 
firmly believe that--is there someone that you work better with 
in contracting, or is there a service branch that has figured 
it out, because I can tell you just up front, the Air Force 
does things a lot differently than everybody else does, and not 
because we are an Air Force town, but I can say this, I think 
they do it pretty well. The Air Force does it pretty well. They 
do it completely different than the Navy and the Marines and 
the Army, or the Navy and the Army.
    Are you finding any of that? Are you finding anybody who 
does it better?
    Mr. FLITTIE. I am willing to go. We do find there is a 
large variation between services and how they approach the 
federal acquisition regulations and implement them and actually 
implementing their competitions. They all follow the law, but 
in how they actually implement them, there are large variances.
    We find that a lot of the customers that we tend to pursue 
are what we call for us early adopter customers. These are like 
intelligence agencies, NASA, DARPA, organizations that tend to 
have acquisition strategies that are more rapid and quick to 
field shorter cycles that are more culturally aligned with the 
way we try to do business and break in, whereas we see that we 
need to win those first to have a shot at the more traditional, 
the longer-term acquisitions because the longer-term 
acquisitions may go on for 5, 15 years, and to go even go and 
compete on those.
    Those can be multiyear competitions, and so we are in a few 
of those right now where we have to have a sustained capture 
strategy investment for two or three years to position to 
compete on something. Again, you have to be very selective and 
you have to be very focused to go after that type of business.
    Mr. RHEA. I would make a couple of comments from the 
services side because we focus just on services contracts. 
Edwards has two primary large services contracts. One is just 
up for recompete now, and we managed to get on the team as a 
subcontractor for that one. The other is one of those extremely 
large small business contracts where there are no opportunities 
for subcontracting.
    We have found that as far as Edwards Air Force Base, we 
have not had many opportunities to go penetrate that market 
even though in my previous life I had gotten a $25 million sole 
source contract as an 8(a) company. There used to be more. 
Those had been consolidated 10 years ago when they pulled 
everything together and came up with these large consolidated 
contracts.
    We have had a little success in the Air Force. We have had 
a little bit more with the Navy because the Navy has done just 
the opposite of China Lake where they have pulled some of the 
large task order contracts, pulled some work off, set it aside 
for small business to compete as a prime. We have some small 
business primes less than $5 million that go for 5 years that 
have a few people on them. We have seen more out of the Navy 
than we have the Air Force as a prime.
    Ms. VILLA. My experience has just been with the Department 
of Navy, specifically NAS Lemoore. The majority of it, I am 
probably priming maybe 10 percent right with NAS Lemoore where 
the remainder is as a subcontractor.
    Mr. KNIGHT. Does that ever push down into the China Lake 
area or any of that with the Navy?
    Ms. VILLA. It does not. Previously my husband owned a firm 
back in 1991 where he used to be an 8(a) contractor, and we did 
have a lot of experience--China Lake, NAS Lemoore, NASA, Point 
Hueneme--all the agencies. But specifically now, no, it does 
not. It specifically just stays at NAS Lemoore.
    Mr. KNIGHT. Then lastly, my broad question, we just 
announced one of the biggest contracts in quite some time with 
the new bomber. As this unfolds this next year or year and a 
half, how does that unfold for small or subcontractors? Is it 
going to be released? Are there going to be jobs or parts that 
come down that can be bid on? Are there going to be 
subcontracting availabilities for certain parts of the new 
bomber, or is it going to be all cloak and dagger until the 
end?
    Mr. FLITTIE. It is interesting. For our business what we 
are seeing, that is, that we are saying with Northrop weighing 
that, that they are potentially abandoning some of their other 
markets because they want to focus on the long-range bomber and 
other stuff. There are opportunities for us to potentially move 
into some other markets and other competitions for things that 
they traditionally have been in because they are looking to 
focus on those. Not so much directly, but we are looking to 
subcontract components or systems on long-range bomber.
    But the shift in maybe their emphasis is potentially 
opening up other opportunities for us to compete, so maybe a 
different look at that.
    Mr. KNIGHT. Okay.
    Mr. RHEA. Our only opportunity would be probably in the 
flight test aspect of that, and it would be indirect. It would 
not be Northrop directly, but with our customers we support 
potentially with some opportunities of support to flight 
program. But other than that, there is nothing that we expect 
to be able to support because we are not in that business. We 
do not manufacturer anything. That is not really where the 
focus and where the money is going to be for quite a while. We 
do not expect to see anything that is going to benefit us 
except to keep----
    Mr. KNIGHT. Quite a while.
    Mr. RHEA.--except to keep the flight test activity alive 
for a number of years in the future.
    Ms. VILLA. I have not researched any opportunity, so I have 
no information.
    Mr. KNIGHT. It was just an open-ended question since this 
is such a huge contract and this is going to go on for 35 
years, that you would think that there would be opportunities 
there.
    Again, my homework is specific to us, of how we can change, 
how we can do better. I think we got a couple of ideas this 
morning from talking to the woman-owned businesses and talking 
about the barriers and the issues. We even talked about capital 
issues that are happening today with crowdfunding, and peer-to-
peer, and groups like that that they can raise capital, and 
some of the businesses had done that. I know that probably does 
not fit your category at all, but it was a little bit of out of 
the box thinking there.
    Do we have businesses in the audience? I know this young 
lady has been shaking her head a whole bunch. Every time Ms. 
Villa says something, she is shaking her head. Here in the area 
that have had similar problems, similar barriers? You can come 
on up since I am the chairman.
    [Laughter.]
    I can do whatever I want.
    Ms. Robison Whitcomb. Good afternoon. Thank you for giving 
me the opportunity to come speak. My name is Rebecca Robison 
Whitcomb. I am the owner of She Marine Veteran Supply in 
Bakersfield. I am a service disabled veteran and small 
business. After 22 years in the marines and combat tours, I 
decided to come back home and become a small business owner, 
and Kern County has been fantastic to me in that way. But I 
have been trying to make the decision about a move into Federal 
contracting and how do I get there from here as a retiree and 
as a small businessperson.
    I did participate in the Boots to Business and many of the 
Small Business Administration education programs to make 
veterans prepared to be small business owners because we are 
generally entrepreneurial and opportunistic by nature. And I 
have noticed just going out to Edwards Air Force Base the 
answer is, drop off your capability statement, your line card 
aligned with your NAICs codes, and do not call us, we will call 
you.
    As a small business that is a bummer because that is a 70-
whatever mile drive from Bakersfield there, and you are hoping, 
okay, well, I am still going to look on fedbizopps, and I am 
going to look for all the regular resources that we have and 
mine for opportunity. But, as a super micro business that is 
really just starting, the answer is exactly what these 
colleagues of mine are saying, that unless you have some kind 
of coattail experience with another business, you are not going 
to get to emerge on your own.
    Then the State has been giving many different opportunities 
in terms of access to the marketplace that I think would 
benefit. To go to your question about specificity is that when 
you can report participation and you are not just requiring 
each individual report, but you are requiring the prime to 
report their disadvantaged business partners and how that goes, 
and establishing federally reinforceable teaming agreements.
    This is exactly what Ms. Villa said. In terms of the high-
speed rail, they have decided that they are going to make the 
primes that win the different discrete contracts report who 
their small business partners are. I show up to those meetings 
routinely, and they do not actually want to commit to you 
because it is a designed build, and so they do not know how you 
are going to go about it. But you cannot progress in supporting 
them until you know if you are on the team, and you do not know 
if you are on the team.
    It is a very big stop and start situation, and it is no 
different when you get into the federal environment. I happened 
to be given the opportunity to be with one of the 8(a) 
companies that was nationally recognized as a woman-owned small 
business. They are coaching me before I am even making the 
decision to go into the 8(a) program to make sure that it is 
the right step for me because am I more productive in 
California because the access to business in California is much 
greater than in the federal government for a brand new person 
like me. My company is a very, very small micro business, and I 
have six employees.
    Thank you.
    Mr. VALADAO. Do you mind if I ask a question----
    Ms. ROBISON WHITCOMB. Yes, go ahead.
    Mr. VALADAO. I have known Ms. Villa for a long time and we 
have talked about other issues before in the same realm. Do you 
feel when you have an opportunity to talk to some of these or 
see some of these opportunities, do you feel like you are 
provided all the information you need to make a proper bid?
    Ms. ROBISON WHITCOMB. Occasionally yes. I have had much 
good fortune with some prime contractors, specifically Manson, 
even though I do not live on a waterway. Bakersfield is pretty 
far from a reasonable waterway. But Manson as a large firm has 
offered a lot of outreach to be able to participate in the RFP 
process and to be a competitive teammate for them.
    Even though you might not be a Manson type person, because 
I do some construction supply, it gave me that opportunity to 
go, okay, so how do I write so that I am in support of what the 
overall advantages are, or how do I make this better coming as 
a small business. I am not sure what other things I could 
individually do as a super tiny business. Just what you guys 
said a little earlier about being so small, like do you have 
enough money.
    I get opportunities every single day that come to my email, 
that says we want to DBE or we want a DBE to participate in a 
Cal Trans job, what have you. I call and I say, okay, I am 
interested, I checked the box, I sent back the email, what is 
the next step? I do not know. Then now you are past the time to 
put in your part of the participation, so is that participation 
actually real? Does it exist?
    Mr. VALADAO. Do you feel that they do that just so they 
could check the box about the woman-owned business?
    Ms. ROBISON WHITCOMB. Absolutely. Absolutely, because it 
takes it to the next step. It is just like anything else. If 
you do not want someone to come to the party, you give them the 
invitation the night before. It is. It is absolutely true.
    We get to the invitation to the party within 5 days of PB 
being----
    Mr. VALADAO. Due, released.
    Ms. ROBISON WHITCOMB.--released--thank you--or submitted, 
and then you do not have the time to, prioritize that, where is 
that going to go. My development dollars for proposal writing, 
you are looking at my proposal writing shop.
    [Laughter.]
    That gets really tough because then you go, okay, I am 
going to call this guy and say is this a real opportunity or is 
this so you can say we looked and we could not find it.
    What I do know California has done, especially on the 
Federal part, in the National Guard for the State of 
California, because sometimes it is Title 10 money and 
sometimes it is state money, is that they just tell the prime 
contractors go back until you find them.
    When you are talking about accountability, I really 
appreciated that when I was in Sacramento and I said how do I 
qualify for a Title 10 opportunity and for State opportunity. 
They said, here is a list of every one that is a prime. They 
are looking for you. They have been helpful in helping to turn 
around, go back out to go find those opportunities, and they 
just will not accept you tried. You did not try enough. Try 
harder and continue to try until you get it right. I am proud 
of California for doing that.
    Thank you.
    Mr. VALADAO. Thank you.
    Mr. KNIGHT. Thank you. Anyone else? Come on up. It is your 
chance to testify in front of the City of Palmdale.
    [Laughter.]
    Mr. SHARKEY. Good afternoon. My name is John Sharkey. I am 
a retired NASA aerospace engineer. I used to work with Kirk 
several years back. Now I am an owner of a small business here 
in Palmdale, Sharkey Technology Group. It is basically a 
machine shop right now.
    I have two comments. One would be a small area, but it is 
specific, that you might be able to help with, and that is on 
the ITAR restrictions. In order for us to compete on a lot of 
the jobs, we have to have something called the DDTC 
registration. It costs $3,000 for a small company. I think it 
is the same fee that you have.
    There ought to be some mechanism for small companies like 
us--we are a million bucks a year--or waive the fee so we can 
get into the program and start getting some of the contracts. 
If we do not get, say, $50,000 back in business, it is kind of 
lost money for us.
    When I talked to the State Department about waiving those 
fees, they say, talk to your congressman, so I thought I would 
bring that up.
    Mr. KNIGHT. You just did.
    [Laughter.]
    Mr. SHARKEY. We make shafts, housings, you know, small 
components. I do not know why that is considered a munition or 
defense article, but they do, or at least the State Department 
says it is so.
    Mr. KNIGHT. We are talking about ITAR quite a bit, not so 
much that, but the restrictions of ITAR and all of the----
    Mr. SHARKEY. It is complicated.
    Mr. KNIGHT.--problems that come.
    Mr. SHARKEY. It is complicated. It is hard for a small 
business because there is a lot of overhead that goes with it. 
But just getting into the door and getting through that DDTC 
registration thing, that would be helpful.
    Mr. KNIGHT. Okay.
    Mr. SHARKEY. I understand ITAR because when I was with 
Northrop Grumman and with NASA, I went through the whole 
indoctrination, and so I understand that part of it. But for a 
small company, it is on the other side. In fact, I thought it 
would be easier going from government, the primes, to being a 
small business owner. It is tough especially right now in 
today's market. It is really tough. In fact, one thing that hit 
us really hard was the sequestration budget cuts in this area 
here. It really put a damper on the businesses here.
    Another problem that we had recently was with the HubZone. 
We have the HubZone, actually a pretty good one, here in 
Palmdale in Antelope Valley. We incentivize our employees to 
move into HubZone areas so we could qualify. We went through 
the process. About a year and a half into the approval process 
we were strongly advised to withdraw our application or they 
were going to kind of stonewall it forever and make sure we 
never got it through.
    I never quite understood what was behind it other than 
there was some complication on our profit sharing plan. They 
viewed it as an employee stock ownership plan. I could not get 
over that hurdle, and I know it is not.
    Mr. KNIGHT. Okay.
    Mr. VALADAO. They had a problem with you having----
    Mr. SHARKEY. Basically I took my government retirement 
plan, my thrift savings plan, and used that to buy a business. 
They called that an employee stock ownership plan, which it is 
not. But because of that, every employee in our company had to 
be a U.S. citizen in the HubZone.
    I had to provide a lot of information on every employee 
whereas you only really have to provide information on 33 
percent of your employees to be qualified. That went on for 
like a year and a half, and then they said, no, you better pull 
it out or you are never going to get through. We have been 
incentivizing employees for more than 2 years to live in the 
HubZone, but it has not paid out yet.
    Then the third thing I would like to bring up is on the 
machine shop side of things. We are a tier 5 contractor. You 
are a tier 1. Tier 2.
    We are tier 5, so Boeing and Honeywell, Parker Hannifin, 
Stork Aerospace, S-4. We are the parts. We are down at the part 
level, tier 5. A lot of the business in that the tier 4, tier 
5, they go overseas to get all their stuff, so we are really 
competing with Mexican shops, Indonesian shops, for DOD work. 
To me, it is really hard for us to compete. We have to compete 
with a part that maybe takes us 10 bucks a part to make and 
they are going to do it for 2 bucks for a U.S. job. It is 
really hard to understand.
    A lot of those companies, they are doing the reshoring or 
they are bringing it back onshore, but they still want the same 
rate that they got before because they have the contract 
before. But it is very difficult for us to compete with that 
kind of sourcing.
    Mr. KNIGHT. Okay. Make sure you get us your information--
Lisa back there in the red jacket--and we can follow up with 
you.
    Mr. SHARKEY. On the HubZone thing?
    Mr. KNIGHT. On everything you just said.
    Mr. SHARKEY. I can send you a letter or something?
    Mr. KNIGHT. No, we are not going to ask for a dissertation. 
We are going to follow up with you.
    [Laughter.]
    Mr. SHARKEY. Okay.
    Mr. KNIGHT. I know you are an engineer, and we do not want 
that.
    [Laughter.]
    Mr. SHARKEY. Somebody told you about me in advance. No, you 
are right about that. Thank you for your time.
    Mr. KNIGHT. Thank you. Sir?
    Mr. FLITTIE. I would like to make one comment on Mr. 
Sharkey's comment about the ITAR. A big part of our supply 
chain in our environment is small business primarily here in 
the southwestern United States, and we do see that one of the 
big barriers for them, a supplier to us, is the ITAR controls, 
on parts that really do not need to be ITAR controlled.
    As you know, all the FAR requirements, ITAR, they all have 
to flow down to the lowest level. We are figuring out a way 
where we can help even the smaller businesses that we use in 
our supply chain as well as be able to compete, not only cost 
competitive, but there are enormous costs associated with being 
ITAR compliant, all the documentation and things. If there is a 
way to reduce those burdens on the small business, that is 
another way to help make them more competitive so they can be 
part of the broader supply base as well.
    Mr. KNIGHT. If it is a part, why do we need the ITAR 
controls?
    Mr. FLITTIE. It is a long, complex thing, but it is----
    Mr. KNIGHT. Is it is a long, complex thing that I am going 
to understand, or is it a long, complex thing that I am going 
to go why we do need it on the part?
    Mr. FLITTIE. The latter.
    Mr. KNIGHT. Okay.
    [Laughter.]
    Mr. FLITTIE. The latter.
    Mr. SHARKEY. I believe it is in the definition, and maybe 
it was published in the Commerce Business Daily or somewhere. 
It is the definition.
    Mr. KNIGHT. I understand the restrictions for many of the 
things that go into our products, but on a part, I am a little 
lost. Okay. Yes, ma'am?
    Ms. CHAVEZ. I believe----
    Mr. KNIGHT. Come on up.
    Ms. CHAVEZ. Thank you.
    Mr. KNIGHT. You have a few minutes.
    Ms. CHAVEZ. Thank you very much. My name is Marilupe 
Chavez. I am with JCJ Chavez. We are also a woman-owned small 
business in construction. I understand where Ms. Villa is 
coming from.
    Mr. KNIGHT. Here?
    Ms. CHAVEZ. I am actually out of Ridgecrest, China Lake.
    Mr. KNIGHT. Okay.
    Ms. CHAVEZ. I just recently received my 8(a) certification, 
and there are a lot of areas. Part of it is bonding. I want to 
compete as a prime contractor. I have a past performance as a 
subcontractor. But the bonding, it is now my dilemma.
    I have certain amount of bond, but in order for me to get a 
job contract or an IDIQ, I have to be at a higher bond. I 
believe that being a small business, and, again, I do not call 
myself a small business. I actually call myself a micro 
business still. I feel that there should be a cost set aside 
for companies like mine that are just coming up in the 
construction business.
    Everything that Ms. Villa said, I am 100 percent there.
    Mr. KNIGHT. She was a good witness.
    Ms. CHAVEZ. Yes. All the barriers that she talked about, I 
am facing all those barriers also.
    Mr. KNIGHT. Okay, thank you. Thank you all for coming 
today. I want to thank our witnesses. It is very important that 
Congress gets to hear from the people who are actually doing 
the day-to-day business from the businesses that are dealing 
with the dilemmas, the barriers, the problems, from the shops 
that have two people in there to the shops that have 499 or 699 
people in there.
    We want to know what the barriers are because if you 
continue to have those barriers, that means you continue to not 
be able to create more opportunities, and opportunities are 
jobs, and opportunities are a better place for someone to learn 
a trade, learn a skill, or use their education. If that is not 
there, then they look elsewhere, and sometimes elsewhere is not 
inside the United States of America, and we do not want that to 
happen.
    As this hearing comes to a close, I want to thank Mr. 
Valadao for coming all the way up here. I am going to take him 
over and see the joint strike fighter line now so he can see 
that and see some of the things that happen here in Palmdale, 
but also happen in southern California and affect his district, 
and affect his businesses on a daily basis.
    A strong defense industrial base is critical to both our 
national security and to our economy, and a strong industrial 
base is only strong when it comprises a robust and active small 
business component. Small firms are ready, willing, and able to 
quickly provide the DOD with new technologies that can save 
lives on the battlefield and provide a better return on 
investment for our taxpayers. I look forward to going back to 
Washington, D.C. and to discussing these issues with my 
colleagues. I look forward to hearing from all of you on issues 
that we can work on in Congress.
    I will leave you with this. Understand that Congress has a 
lot of people that are doing a lot of different things, and the 
more specific you get with us, the better it is. The better you 
can put a pin on that issue and say if you helped us with this, 
it would help our industry, the easier it is for David and I to 
go back and get a coalition and to work together with people to 
make sure that we can do something better. I know that David's 
and my goal is to make things better, not to stand in the way 
of opportunities.
    Unless anyone else has anything to say, I ask unanimous 
consent that members have 5 legislative days to submit 
statements and supporting materials for the record.
    Mr. KNIGHT. Without objection, we are adjourned. Thank you 
all.
    [Whereupon, at 3:10 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X


    FIELD HEARING - APRIL 5, 2016 2:00 P.M.
    Committee on Small Business Subcommittee on Contracting and 
the Workforce
    Hearing: Challenges for Small Defense Contractors
    Witness: Donald C. Rhea, Vice President, ClancyJG 
International

    Thank you, Chairman Hanna and Members of this Subcommittee 
for the opportunity to testify.

    I'd like to open today by expressing my appreciation for 
the small business specialists within the Department of Defense 
who tirelessly search and evaluate opportunities for small 
businesses to participate in Government contracts. These 
individuals engage in active dialog with the small business 
community on a regular basis through industry days, outreach 
events, and regular office visits by small businesses, and we 
have benefited greatly from their support.

    I acknowledge that opportunities for small business 
participation in Department of Defense acquisitions are 
present. Many opportunities result from the small business 
developing and submitting capability statements in response to 
sources sought solicitations and market surveys. Small 
businesses spend many hours traveling to customer facilities 
and networking to identify opportunities where our talents and 
expertise can contribute to the mission. With this approach 
ClancyJG International has succeeded in building a business 
base with approximately 80% of our fiscal year 2015 revenues 
self-performing as the prime contractor, with customers from 
Alaska to Washington, DC., and a committed and dedicated staff 
of talented individuals.

    I have direct experience working with small businesses that 
range from startups to more sizeable small businesses with more 
than $30M in annual sales. As a services company, ClancyJG 
International targets technical support service opportunities 
within selected North American Industry Classification System 
(NAICS) Codes, also referred to as size standards. These size 
standards define the small business criteria in terms of annual 
revenues and/or number of employees. For example, one of many 
NAICS Codes we perform services under is 488190, Other Support 
Activities for Air Transportation with a size standard of 
$32.5M. To pursue opportunities under this NAICS Code a company 
must have an average revenue over the most recent three fiscal 
years under $32.5M. A company with revenues approaching the 
$32.5M average is much larger, has more resources, and enjoys a 
significant competitive advantage over companies of our size, 
that is companies with revenues of less than $5M. It is very 
difficult for a $5M small business to compete against a $32.5M 
small business as a prime contractor, but we try and as you can 
see have had some success.

    To overcome this challenge, a small business would 
typically search for opportunities to provide subcontract 
support, thus increasing revenues and developing a corporate 
past performance portfolio which is needed to be a credible 
prime contractor. Small businesses awarded contracts under any 
small business set-aside, regardless of the NAICS Code and 
associated size standard, do not provide subcontracting 
opportunities. However, if the contract was a full and open 
competition with a small business subcontracting requirement 
then opportunities for small business exist, assuming they have 
the correct technical skill set to contribute. We have seen 
prime contracts with as much as one third of the work 
designated for small business. These contracts provide 
opportunities for several small businesses to participate.

    Over the past decade there has been significant momentum 
toward contract consolidation, small business contracts 
absorbed into a large contract and multiple small business 
contracts consolidated into a sizeable small business contract. 
Over my career I have been a party to both of these scenarios. 
In the case of the large contract, a follow-on subcontract 
effort was available. However, the opportunity for a small 
business to pursue the next step in becoming a prime contractor 
was eliminated. In order for small businesses to grow as a 
prime contractor they must have the ability to bid a prime 
contractor. While contract consolidation still exists and is 
limiting small business opportunities, there have been recent 
instances within the Department of Defense where tasks were 
removed from a large contract and set-aside as a small business 
prime, a great opportunity for entry into the market by a small 
business.

    Finally, Government regulations are causing significant 
challenges for small business. The Affordable Care Act (ACA) is 
driving up the cost of health care. We have witnessed far 
greater increases in health insurance premiums than what we saw 
in the years prior to the ACA implementation, with reduced 
coverage and much higher deductibles. The challenge is in 
bidding a multi-year firm fixed price contract where indirect 
cost control is vital. Other challenges are associated with 
access to capital. Since the financial collapse of 2008 
financial regulations prevented small business access to 
capital through the typical borrowing route. As such small 
businesses are faced with utilizing the services of a 
receivables financing companies to fund expenses while waiting 
for invoices to be paid, an expensive proposition.

    As small business leaders we understand that these 
challenges exist. Small business leaders are typically 
entrepreneurs and adept at solving problems and thriving. 
Addressing these challenges is becoming more difficult in the 
recent years and deter many small businesses from pursuing 
Department of Defense contract opportunities. I appreciate the 
opportunity to testify and provide my real world insight as to 
the challenges that face small defense contractors.

    Thank You.
    [GRAPHIC] [TIFF OMITTED] T9715.001
    
    Please allow me to thank Congressman Steve Knight for 
inviting me to testify in front of the Small Business 
Subcommittee on Contracting and the Workforce. I am honored to 
represent the 650 proud employees of AeroVironment.

    AeroVironment is a technology solutions provider that 
designs, develops, produces, supports and operates an advanced 
portfolio of Unmanned Aircraft Systems (UAS) and electric 
transportation solutions. Agencies of the U.S. Department of 
Defense and allied military services use the company's 
electric-powered, hand-launched unmanned aircraft systems 
extensively to provide situational awareness to tactical 
operating units through real-time, airborne reconnaissance, 
surveillance and communication. AeroVironment's electric 
transportation solutions include a comprehensive suite of 
electric vehicle (EV) charging systems, installation and 
network services for consumers, automakers, utilities and 
government agencies, power cycling and test systems for EV 
developers, and industrial electric vehicle charging systems 
for commercial fleets.

                   Unmanned Aircraft Systems

    With more than 25 years of experience developing, supplying 
and supporting small UAS, AeroVironment is a prime contractor 
and supplier to all U.S. Department of Defense (DoD) programs 
of record for this category of UAS and has delivered more than 
20,000 new and replacement air vehicles to customers in the 
U.S. and elsewhere. AeroVironment's family of small UAS 
includes Raven, WaspTM, PumaTM and 
Shrike VTOLTM. These back packable/man portable, 
hand-launched unmanned aircraft systems are carried and used by 
armed forces--who frequently operate across large geographic 
areas, often far removed from their bases and dependent mainly 
on what they can carry in their packs or vehicles--and deliver 
front-line, real-time situational awareness to increase combat 
effectiveness and force protection. By transmitting live, 
streaming color and infrared video from onboard cameras 
directly to a common, hand-held Ground Control System with an 
embedded color monitor, AeroVironment's UAS provide real-time 
information that helps U.S. and allied armed forces operate 
more safely and effectively.

    Mr. Chairman, thank you for the opportunity to be here 
today to discuss the opportunities and challenges of business 
with the Department of Defense. I would be happy to answer any 
questions.
    Good Afternoon Chairman Chabot and Ranking Member Nydia 
Velazquez. I appreciate the invitation to testify here today 
and I am honored to provide you with an insight into the 
obstacles faced by a Small Women Owned Defense Contractor.

    My name is Virginia Villa, and I am the CEO of West Pacific 
Electric Company, located in Lemoore, California. Located in 
California's Central Valley, Lemoore is home to a Naval Air 
Station and surrounded many rural communities that are 
traditionally underserved. The Central Valley is also home to 
many small businesses and minority-owned companies struggling 
to grow and provide jobs for their employees.

    My firm, West Pacific Electric Company, is an electrical 
firm which currently employs eleven full time employees. Our 
services include all phases of electrical work with a special 
emphasis on High Voltage (Electrical Distribution). Currently, 
we bid on Federal, State, Municipal, and Commercial Projects 
throughout California and neighboring States. When opportunity 
permits we bid as a Prime Contractor, but the majority of our 
bidding is as a Subcontractor.

    As Chief Executive Officer of West Pacific Electric 
Company, I have attended numerous events sponsored by various 
federal agencies such as the Society of Military Engineers 
(SAME) and the Minority Business Development Agency (MBDA). I 
attended each of these events with the assumption that I would 
be given the same opportunities as other contractors to bid on 
federal, state, and local contracts.

    While these events provided more insight and information 
regarding submitting bids for defense contracts, and were 
marketed as providing opportunities for all interested in 
seeking government contracts, the reality is that each event 
shared one common message: it is recommended that small defense 
contractors reach out to large contractors for subcontracting 
opportunities.

    As those of us there today understand, small businesses, 
and businesses owned by minorities, face unique challenges when 
competing for contracts and jobs for their employees. These 
challenges are most apparent when larger companies and major 
projects leave out small business firms and ignore the 
potential to include them in the ``serious'' bidding process.

    I understand large contractors may find it is easier to 
work with proven sub-contractors, but this leaves out growth 
potential for qualified companies to compete. Many in my 
position wonder why small businesses are expected to pull on 
the ``coat tails'' of large contractors just to get an 
opportunity to bid, while it should be the large contractors 
reaching down into the large pool of small businesses that can 
perform the work.

    As CEO of West Pacific Electric, accessing federal 
contracts is a challenge I face every day. In addition to 
attending informational events sponsored by SAME and MBDA, I 
have also taken the initiative to meet with small business 
representatives of various agencies to present my firms' 
proposals and capabilities. Furthermore, I have aggressively 
worked to expand my own network in an effort to better position 
my company. I am a member of the United States Women Chamber of 
Commerce, MBDA, SAME, and the Hispanic Chamber of Commerce, 
which provides me with networking opportunities to work with 
large contractors. To contribute to my qualifications, I hold 
the following certifications: Economically Disadvantaged Women-
Owned Small Business, CPUC, State of California Small Business, 
Small Disadvantaged Business (SDB) and GSA Contract Holder--all 
of which are contract vehicles when bidding on government 
projects.

    Despite these efforts my company continues to face 
obstacles when applying for government contracts. I will 
provide you with one reoccurring example:

          When a large government contract is released, our 
        firm does preliminary research to confirm that a 
        subcontracting plan is incorporated within the 
        solicitation. If a subcontracting plan is incorporated, 
        and my company decides to bid on the project, a lot of 
        work and man hours go into preparing a bid. We 
        oftentimes later find out that a majority of the 
        contractors that have been awarded a subcontract are 
        large firms. This leads me to believe the 
        subcontracting plan is ignored and discourages me from 
        bidding on the next project.

    While, larger, established companies have an advantage, 
there are still opportunities for small businesses and minority 
owned companies throughout the state, and in the Central 
Valley.

    It is critical that my company has access to projects close 
to home, in the Central Valley. Potential projects include the 
development of the California High Speed Rail ($68B) and the 
renovations at Lemoore Naval Air Station ($1.6B). General 
construction projects are ideal for small businesses to 
participate in, and help develop sub-contracting and job 
creation opportunities.

    I believe there are many common-sense solutions that should 
be considered in order to encourage the involvement of small 
businesses and I am happy to have the opportunity to discuss 
those further throughout today's hearing.

    In closing, I again want to thank you for the opportunity 
to testify before the committee today. I hope that my testimony 
provides you with further insight and information regarding the 
challenges faced by Small Business Defense Contractors.

                                 [all]