[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
___________
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99-715 WASHINGTON : 2016
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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
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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]