[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
SERVING SMALL BUSINESSES: EXAMINING THE EFFECTIVENESS OF HUBZONE
REFORMS
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
SEPTEMBER 13, 2017
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 115-035
Available via the GPO Website: www.fdsys.gov
______
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HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
TRENT KELLY, Mississippi
ROD BLUM, Iowa
JAMES COMER, Kentucky
JENNIFFER GONZALEZ-COLON, Puerto Rico
DON BACON, Nebraska
BRIAN FITZPATRICK, Pennsylvania
ROGER MARSHALL, Kansas
RALPH NORMAN, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
DWIGHT EVANS, Pennsylvania
STEPHANIE MURPHY, Florida
AL LAWSON, JR., Florida
YVETTE CLARK, New York
JUDY CHU, California
ALMA ADAMS, North Carolina
ADRIANO ESPAILLAT, New York
BRAD SCHNEIDER, Illinois
VACANT
Kevin Fitzpatrick, Majority Staff Director
Jan Oliver, Majority Deputy Staff Director and Chief Counsel
Adam Minehardt, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Steve Chabot................................................ 1
Hon. Nydia Velazquez............................................. 1
WITNESSES
Ms. Shirley Bailey, Co-Owner-Executive Vice President and Chief
Operating Officer, GCC Technologies, LLC, Oakland, MD,
testifying on behalf of the HUBZone Contractors National
Council........................................................ 5
Mr. Robert A. Schuerger, II, Principal and Attorney at Law, Law
Offices of Robert A. Schuerger Co., LPA, Columbus, OH.......... 6
Mr. Dennis DuFour, President, TDEC, Oakland, MD.................. 8
Mr. Carlos Melendez, Chief Operating Officer and Co-Founder,
Wovenware, San Juan, P.R....................................... 9
APPENDIX
Prepared Statements:
Ms. Shirley Bailey, Co-Owner-Executive Vice President and
Chief Operating Officer, GCC Technologies, LLC, Oakland,
MD, testifying on behalf of the HUBZone Contractors
National Council........................................... 24
Mr. Robert A. Schuerger, II, Principal and Attorney at Law,
Law Offices of Robert A. Schuerger Co., LPA, Columbus, OH.. 32
Mr. Dennis DuFour, President, TDEC, Oakland, MD.............. 35
Mr. Carlos Melendez, Chief Operating Officer and Co-Founder,
Wovenware, San Juan, P.R................................... 40
Questions and Answers for the Record:
Question from Representative Radewagen to Ms. Shirley Bailey. 48
Question from Representative Radewagen to Mr. Carlos Melendez 49
Additional Material for the Record:
None.
SERVING SMALL BUSINESSES: EXAMINING THE EFFECTIVENESS OF HUBZONE
REFORMS
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WEDNESDAY, SEPTEMBER 13, 2017
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 11:00 a.m., in Room
2360, Rayburn House Office Building, Hon. Steve Chabot
[chairman of the Committee] presiding.
Present: Representatives Chabot, Luetkemeyer, Kelly, Blum,
Comer, Bacon, Fitzpatrick, Marshall, Norman, Velazquez, Evans,
Clarke, Adams, and Schneider.
Chairman CHABOT. Good morning. The Committee will come to
order.
We are here today to talk about H.R. 3294, the HUBZone
Unification and Business Stability Act of 2017. This bipartisan
bill implements important reforms of the Small Business
Administration's Historically Underutilized Business Zone
Program, more commonly known as the HUBZone Program. The
program's core mission is to bring economic hope, independence,
jobs, and businesses to depressed areas marked by high
unemployment and poverty. This is accomplished through the use
of Federal contracting preferences.
H.R. 3294 helps the program achieve its mission objectives
by providing legislative solutions to the challenges and
weaknesses identified by small businesses and government
watchdogs. Measures proposed in this bill would create more
opportunities for our rural communities by potentially
expanding the number of rural areas qualified for HUBZone area
designation. Certified firms operating within economically
distressed rural and urban communities would benefit from the
consistency this bill would bring to the ever-changing HUBZone
area designations. These measures would encourage small
businesses currently deterred by these issues to now seek their
HUBZone certification, which would promote greater competition
within the Federal contracting landscape. The bill would also
create an extra layer of protection for areas devastated by
natural disasters or catastrophic events by potentially
prolonging the area's HUBZone designation. This is intended to
promote revitalization and economic growth within those unique
areas.
This change is particularly relevant in light of what our
neighbors in Texas and Louisiana and Florida have faced
following Hurricanes Harvey and Irma.
Ms. VELAZQUEZ. Puerto Rico, too.
Chairman CHABOT. Yes, and in Puerto Rico as well, and in
many of the islands in the Caribbean.
Additionally, the bill would strengthen performance
assessment and fraud prevention measures recommended by the
Government Accountability Office, GAO. This includes mandating
the collection of critical performance measures and requiring
the SBA to verify recertification information. These are among
a few of the provisions in the bill intended to benefit
HUBZones, small businesses, and the communities in which they
operate.
I have always said that this Committee is a rare place
where bipartisanship is the norm and crafting good policy for
the betterment of small businesses knows no party lines. This
has truly been a bipartisan effort to begin fixing the core
issues facing the HUBZone Program. And I would like to
especially thank our ranking member, Ms. Velazquez, for leading
this important piece of legislation, and I hope that this is a
positive first towards reforming the HUBZone Program.
I look forward to hearing from our witnesses here this
morning. We have a very distinguished panel, all of whom are
HUBZone small business owners themselves.
We want to thank all of you for being here today, and I
would now like to yield to the ranking member, Ms. Velazquez,
for her opening statement.
Ms. VELAZQUEZ. Thank you, Mr. Chairman, and I, too, echo
your comments. We enjoy a very good working relationship. We
know our responsibility in this Committee is to work on behalf
of small businesses and that is what we do. And in that spirit,
we craft bipartisan legislation, and when we do that we have a
better product and we are all very proud of it.
Each year, the federal government procures more than $400
billion in goods and services from businesses around the
country through government contracts. The Historically
Underutilized Business Zone Program, or HUBZone Program, was
created in 1997 to provide federal assistance to firms located
in economically distressed areas. By lowering barriers to entry
into the federal marketplace for these firms, the HUBZone
Program has fostered competition while helping rebuild
communities. Businesses in HUBZones play a large and vital role
in our nation's economy because they create jobs for those
residing both inside and outside of these economically
distressed areas.
However, since its implementation, the HUBZone Program has
not reached its full potential. From ensuring that only
certified businesses enter the program, to being able to
present evidence that the program is meetings its mission, SBA
has largely failed in the basic operation of this program. This
Committee has heard from the GAO on a number of occasions, each
time they report on the program's problems. Most disappointing
to me was the poor oversight that allowed GAO investigators to
get fake businesses certified even though they did not meet
eligibility requirements. In most instances, those
certifications could have been verified by SBA simply asking
for additional information on the location of the business.
While GAO's most recent report shows that there have been
improvements in the certification process, these changes are
not enough to ensure that businesses are adhering to the
program's requirements. This shows a clear need for
legislation. That is why I introduced H.R. 3294, the HUBZone
Uniformity and Business Stability Act of 2017, or HUBS Act,
along with Chairman Chabot. This bill will help ensure that
small firms in underutilized business areas have fair and equal
access to the federal marketplace. Many areas will likely lose
status this year because of changing data, crippling many rural
economies.
H.R. 3294 will forestall this change in many affected
areas. The HUBS Act will establish a 5-year cycle for
determining the geographic boundaries of HUBZones, creating
greater certainty for companies. It will also change the
calculations for how certain geographic areas qualify for the
program, potentially adding as many as 1,000 rural and nonurban
counties. This alone has the potential to help more businesses
avail themselves of the HUBZone initiative benefits. Most
importantly, the legislation includes new performance metrics
to ensure the data collected by the SBA will allow us to
measure the program's success and economic impact.
I look forward to hearing from our witnesses today about
how the proposed legislation can improve the HUBZone Program
and provide sufficient oversight for initial certification,
recertification, and business development to ensure new
businesses enter the program. Nearly 90 percent of the HUBZone
areas still do not have a business participating in the area.
This low participation rate has resulted in the failure to meet
the 3 percent prime and 3 percent subcontracting goals.
The dollars and actions awarded through these programs have
continually decreased since fiscal year 2008. Only 82,000
actions worth $6.8 billion, negative 1.67 percent of prime
contracting dollars, were awarded to HUBZone firms in fiscal
year 2016. It is my hope that this Committee can work together
to reverse this trend.
I want to take this opportunity to thank all the witnesses
who are going to be offering their insights on making the
program more effective and helping economically challenged
areas.
Thank you, Mr. Chairman. And I yield back.
Chairman CHABOT. Thank you very much. The gentlelady yields
back.
And if Committee members have opening statements, we would
ask that they be submitted for the record.
Without objection, so ordered.
And I will take this time now to explain our timing limits
here and the lighting system which will assist you in keeping
to the time limits. It is pretty simple. You get 5 minutes and
then we will have 5 minutes each of us to ask questions. And
there is a lighting system that will help you a bit. The green
light will stay on for 4 minutes. The yellow light will come on
to let you know you have a minute to wrap up. And then the red
light will come on and we would ask you to, you know, try to
stick within that if at all possible. We will let you go over a
little bit, but not too much. So try to stay within that if at
all possible.
I would now like to introduce our panel here. The first
witness will be Shirley Bailey. Ms. Bailey appeared before the
Subcommittee on Contracting and Workforce earlier this year,
and we welcome you back here today. Ms. Bailey is testifying
today in her capacity as a board chair of the HUBZone
Contractors National Council. Ms. Bailey has been deeply
involved in the HUBZone Program for many years, both in her
service as a HUBZone Council board member and in her personal
experience as a small business owner. Ms. Bailey is the co-
owner, executive vice president, and chief operating officer of
GCC Technologies, a successful HUBZone-certified small business
located in Garrett County, Maryland. We are looking forward to
hearing your testimony here this morning. Welcome.
Our second witness is Robert Schuerger. Mr. Schuerger is
the founder and lead attorney for a successful HUBZone-
certified law firm based in Columbus, Ohio, with an office in
Wilmington, Ohio.
Why not Cincinnati, too? My goodness.
In addition to serving various public sector clients,
including local governments, hospitals, and universities, Mr.
Schuerger's firm also works with the United States Department
of Education. His firm was recently awarded a prime contract
with the United States Department of Justice, in large part due
to his HUBZone certification. We thank you for being here and
we look forward to your testimony, as well.
And our third witness is Mr. Dennis DuFour. Mr. DuFour
joined The Data Entry Company, or TDEC, 20 years ago after a
career in the insurance industry and is the third generation
within his family to serve as president of the company. TDEC is
a HUBZone-certified small business providing labor-intensive
services to the public and private sectors, such as document
management and call center assistance. Under Mr. DuFour's
leadership, the company tripled its revenues and expanded its
growth in the Federal sector to include over a dozen Federal
clients. Some of these clients include the Department of
Homeland Security, Department of Labor, Department of Justice,
and Department of Defense. And we also welcome and thank you
for your testimony.
And I would now like to yield to the ranking member to
introduce our fourth witness.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
It is my pleasure to introduce Mr. Carlos Melendez, the COO
and cofounder of Wovenware, an 8(a) and HUBZone-certified small
business located in San Juan, Puerto Rico. Since 2003,
Wovenware has been developing custom software solutions for
enterprises in the telecommunications, healthcare, and
distribution industries. Today, Wovenware has more than 90
employees in Puerto Rico that are mostly engineers, computer
scientists, and data scientists. Wovenware has been part of
Inc.'s 5,000 list of the fastest-growing private companies in
the U.S. three times, and 60 percent of its revenue comes from
customers located outside Puerto Rico. Mr. Melendez has a
bachelor's degree in electrical engineering and a juris doctor,
both from the University of Puerto Rico. Mr. Melendez is also
the vice chairman of the board of ConPRmetidos, a nonprofit
organization that connects people to faster commitment with
personal, social, and economic development of Puerto Rican
communities wherever they are. Thank you, and welcome.
Chairman CHABOT. Thank you very much. We welcome all the
witnesses here, and Ms. Bailey, you are recognized for 5
minutes.
STATEMENTS OF SHIRLEY BAILEY, CO-OWNER-EXECUTIVE VICE PRESIDENT
AND CHIEF OPERATING OFFICER, GCC TECHNOLOGIES, LLC; ROBERT A.
SCHUERGER, II, PRINCIPAL AND ATTORNEY AT LAW, LAW OFFICES OF
ROBERT A. SCHUERGER CO., LPA; DENNIS DUFOUR, PRESIDENT, TDEC;
CARLOS MELENDEZ, CHIEF OPERATING OFFICER AND CO-FOUNDER,
WOVENWARE
STATEMENT OF SHIRLEY BAILEY
Ms. BAILEY. Thank you. Good morning, Chair Chabot, Ranking
Member Velazquez, and members of the Committee. My name is
Shirley Bailey, president and board chair of the HUBZone
Contractors National Council. I appreciate the opportunity to
testify before you today.
The council's membership includes HUBZone-certified small
businesses, other small businesses, prime contractors, and
other organizations interested in the HUBZone Program. In
addition, the HUBZone Council is an advocate as it relates to
procurement and entrepreneurial policy and continues to seek
needed modernization of the program. To that end, the Council
fully supports H.R. 3294, the HUBZone Uniformity and Business
Stability Act of 2017.
During the Subcommittee on Contracting and Workforce's
March 2 HUBZone hearing titled ``Learning from History: Ideas
to strengthen and modernize the HUBZone Program,'' the
council's testimony revolved around the lack of business
certainty, constantly changing area designations, and lack of
performance metrics. I am pleased to see that the Committee has
taken steps to address these issues and others in H.R. 3294.
The first important reform in H.R. 3294 that I would like
to discuss is the transition from the annual ACS designation
updates to a 5-year cycle beginning in 2020. Freezing
designation changes with the exception of disaster area and
BRAC declarations will provide businesses operating in HUBZones
the stability and certainty that they need to make the
necessary investments in their communities without worrying
that they will lose their HUBZone designation the following
year.
The second major reform included in section 3 of the bill
eliminates the qualifier nonmetropolitan from State median
income when determining area eligibility. Currently, a
nonmetropolitan county must have a median income below 80
percent of the State's nonmetropolitan median income to qualify
for HUBZone designation. Of our Nation's 1,984 nonmetropolitan
counties, only 207 currently qualify for HUBZone designation
under this income formula. However, 89 percent of all of our
nonmetropolitan counties in the U.S. have median incomes less
than 80 percent of their State median incomes. We believe that
this change will go a long way toward creating jobs in rural
America and assist in bridging the income gaps by providing
opportunities and economic development in our Nation's most
distressed areas.
I would like to give you a few State examples of the number
of additional nonmetropolitan areas qualified as HUBZone areas
as a result of the income calculation reform in this bill.
There will be 6 counties in Ohio; 13 counties in New York; 39
counties in Missouri, including Montgomery County in Missouri's
Third Congressional District; 20 counties in Kentucky,
including 9 counties in Kentucky's First Congressional
District; 28 counties in Kansas, including 13 counties in
Kansas's First Congressional District; 6 counties in
Mississippi, including Calhoun, Choctaw, and Oktibbeha, sorry
about that, in Mississippi's First Congressional District; 21
counties in Florida, including Putnam County in Florida's
Seventh Congressional District; 5 counties in South Carolina,
including Cherokee County in South Carolina's Fifth
Congressional District; 11 counties in Iowa, including Floyd,
Monona, Webster, and Wright counties in Iowa's Fourth
Congressional District.
Another critical reform pertains to qualified disaster
areas. In light of recent Hurricanes Harvey and Irma, H.R. 3294
includes a timely provision that empowers the SBA administrator
to extend the HUBZone designation of a qualified disaster area
that has not fully recovered. As we know from past national
disasters, recovery can take months, and sometimes even years,
before communities are made whole again. Our hearts go out to
the victims of these historic storms, and it will take all of
us to help these areas truly recover. We believe the extended
HUBZone designation can play an important role in recovery
efforts.
As I stated in March, many areas are going to lose their
HUBZone status by the beginning of 2018. Our members need
Congress to act this year to avoid a major disruption in the
program. As this bill suggests, the HUBZone Program cannot
succeed with eligibility constantly in flux. Any delay will
result in substantial loss of HUBZone firms. Not only is this
difficult for small HUBZone companies, it is also a setback for
the HUBZone qualified areas that need the business income and
job generation this program encourages.
As a point of personal privilege, I would like to
acknowledge Vivian Ling of Chair Chabot's staff and Helena
Locke on Ranking Member Velazquez's staff for their hard work
in collaboration with the council in drafting this important
reform legislation.
Again, I would like to thank you for allowing the council
to testify at this very important hearing, and I look forward
to answering any questions. Thank you.
Chairman CHABOT. Thank you very much. Our staff loves those
shout outs, so thank you very much. They do not get enough, so
we appreciate their hard work.
Mr. Schuerger, you are recognized for 5 minutes.
STATEMENT OF ROBERT SCHUERGER, II
Mr. SCHUERGER. Thank you. Good morning, Chairman Chabot,
Ranking Member Velazquez, and members of the Committee. My name
is Robert Schuerger, and I am the founder and lead attorney for
the Law Offices of Robert A. Schuerger. Founded in 2008, we
have been a HUBZone-certified law firm since August 2016. I am
also a member of the HUBZone Council. Thank you for giving me
the opportunity to testify today.
Chairman Chabot, it gives me great pride to know that the
Committee is led by a fellow Buckeye. Thank you.
Schuerger Law's principal office is based in a HUBZone in
urban downtown Columbus, Ohio. We also maintain an office and
11 employees in Wilmington, in rural Clinton County, Ohio.
Since our founding, Schuerger Law has grown to 52 employees.
This job increase is directly attributable to our HUBZone
status as it has allowed us to become a Federal subcontractor
to the Department of Education and a prime contractor for the
Department of Justice.
The Clinton County office was uniquely qualified to be our
satellite office as DHL had just moved out of the regional
airport, leaving thousands without jobs. We have stepped in and
taken over a space in the airport with a target to grow the
business through our Federal procurement to at least 40 jobs.
I am pleased the Committee has undertaken the task of
changing a program badly in need of change. In my view, H.R.
3294, the HUBZone Uniformity and Business Stability Act of
2017, provides much needed stability to companies like mine.
Clinton County, home of Wilmington, will lose its HUBZone
designation in 2018. I certainly favor the approach in H.R.
3294 which freezes the current HUBZone eligibility maps until
2020. It would provide us with the transition time our firm
needs while we decide how to keep our valued employees and find
a new office. Transitioning from the annual ACS to a 5-year
process will enable our firm to find that location and make the
capital investments necessary to continue bringing economic
development to the hard-working people of Ohio.
The HUBZone online tool, that requires the SBA to ``clearly
and conspicuously provide access to the data used by the
administrator to determine whether or not an area is a
qualified area in the year in which the online tool was
prepared'' is also a significant requirement.
It will assist HUBZone firms that maintain offices in
multiple locations, like Schuerger Law. This tool, updated
every 5 years, would ensure HUBZone firms have the latest
information on HUBZone eligible areas. This bill also ensures
that the SBA administrator removes redesignated areas that are
no longer qualified, which has been a problem in the past with
many companies who have undergone the extensive certification
process only to find the HUBZone qualified area lost its
designation.
Another provision of the bill, including subsection
31(d)(6) provides a firm who loses certification 30 days to
submit documentation to the SBA to reestablish eligibility.
Since the certification process is time-consuming, this is a
commonsense approach to the process. We believe it will
incentivize HUBZone participation. Firms that may be hesitant
to become HUBZone certified have clear recourse should they
feel that their certification was unjustly revoked.
I would note that the Federal Government has never met its
goal of contracting 3 percent of its contracts to HUBZone
companies. I would urge the Committee to keep up its oversight
of Federal agencies and encourage them to contract with HUBZone
firms. It is certainly important to Clinton County, Ohio, and
many other areas in this country. Adoption of this legislation
is critical to the success of the program, and time is of the
essence. We really need action this year to ensure that firms
like mine can continue to work in the program.
In closing, I want to emphasize that the HUBZone Program is
an important economic development program. Incentivizing
companies to locate in depressed areas is a good policy
approach. However, changes must be made to the program, such as
those in H.R. 3294.
Thank you for the attention you have brought to this
critical issue, and for all of your work supporting our
Nation's small businesses and those in Ohio. I look forward to
answering any questions.
Chairman CHABOT. Thank you very much.
Mr. DuFour, you are recognized for 5 minutes.
STATEMENT OF DENNIS DUFOUR
Mr. DUFOUR. Chairman Chabot, Ranking Member Velazquez, and
members of the Committee, my name is Dennis DuFour and I am the
president of The Data Entry Company, TDEC. I appreciate this
opportunity.
TDEC was started in 1958 by my grandfather, who was an
insurance agent. He sold a group hospitalization policy to the
National Active and Retired Federal Employee Association and
needed a way to process applications, so he started TDEC to
open mail, enter application data onto punch cards, and deposit
checks. Shortly thereafter, my dad went to work for TDEC,
adding customers like the National Geographic Society, Citibank
Credit Cards, and the Republican National Committee. A
stressful time was had when the FBI decided to investigate a
break-in in the Watergate and wanted to see the data we had
collected. That investigation ultimately ended in the
resignation of Richard Nixon.
Today, 59 years later, my brother and I run TDEC, focusing
on similar services as the founding, including data entry. We
have 300 employees and do not take lightly the fact that we run
a third-generation business, which statistically only survives
12 percent of the time.
In March of 2002, I applied for HUBZone certification. The
program analyst assigned to our application was Mariana Pardo,
who I note is now the director of the HUBZone Program. After a
thorough examination of our application, we were welcomed into
the program shortly thereafter. We began to market this
valuable certification to the Federal Government and to large
prime contractors. Five years later, we won our first prime
contract with the National Oceanic and Atmospheric
Administration, providing administrative support services to
the Northwest and Alaska Fisheries Science Centers. We were re-
awarded this contract in 2012. We continue to serve for this
valuable customer today.
For 15 years, we have continuously maintained our HUBZone
certification through examinations, recertifications, and even
a protest. We are proud to report that 47 percent of our
employees live in HUBZones, which is significantly higher than
the 35 percent requirement of the program. We achieve this
because we continually seek to hire, attract, and retain
employees in underserved, economically distressed areas.
In 2018, 4 months from now, Garrett County, where my and 11
other businesses are located, will no longer be a HUBZone. I
was wondering if this was an isolated event, so my team and I
researched and found that there are 15 other counties similar
to Garrett that will lose their HUBZone certification in
January. We also found another 71 counties will lose their
certification in July of 2018.
Knowing that I was not alone, I started a campaign to reach
out to HUBZones. I called this ``Save our HUBZone.'' And I
asked a very simple question to other HUBZone firms like TDEC,
``How will losing your HUBZone status affect your business?'' I
received many replies. Here are a few.
From Detroit, ``HUBZone communities need HUBZone companies.
No one better understands the community than those who are in
it. Take away the lifeline of the community and the community
itself will wither.''
Atlanta, ``I am looking to hire students that come from a
community that needs assistance, public assistance. We are
providing jobs because of our HUBZone certification.''
Hamilton County, Ohio; Cincinnati, Ohio, ``HUBZone firms
are vital to creating jobs and employment opportunities for the
citizens who reside in HUBZones, most of whom are not highly
skilled, but are hardworking, dedicated, and want to learn.''
So my message is simple: We need stability. Stability will
be achieved by freezing the HUBZone map until 2020 and then
adjusting it every 5 years thereafter. Remember, it took us 5
years to get our first prime contract.
In the coming weeks, we need to decide whether we stay in
our current location in Garrett County or move. If we move,
many people will lose their jobs, coupled with the fact that we
have been in Garrett County for over 50 years. Frankly, it is
difficult, costly, and a distraction to move a business. So I
ask you to act immediately on H.R. 3294 and give HUBZone
communities stability. It is the most important economic issue
facing rural American today.
Again, I appreciate this opportunity, and I am available to
answer any questions.
Chairman CHABOT. Thank you very much.
Mr. Melendez, you are recognized for 5 minutes.
STATEMENT OF CARLOS MELENDEZ
Mr. MELENDEZ. Thank you. Good morning, Chairman Chabot,
Ranking Member Velazquez, members of the House Small Business
Committee. Thank you for the opportunity to speak today as the
Committee examines the effectiveness of HUBZone reform.
My name is Carlos Melendez, and I am the cofounder and
chief operating officer of Wovenware, an 8(a) and HUBZone-
certified business located in San Juan, Puerto Rico.
As you all know, Puerto Rico was seriously affected by
Hurricane Irma 1 week ago today. Most of the island has been
without power and water at different points, but as you can
attest from my presence here today, we are resilient and do not
let these types of setbacks stand in our way of achieving
economic development for our U.S. territory.
Since 2003, my company, Wovenware, has been developing
custom software solutions for enterprises in industries such as
telecommunications, healthcare, and distribution.
It took us 3 months to organize and fill the application
for the HUBZone Program and 3 additional months to get
certified. We are grateful for the help provided by our local
PTAC, the Puerto Rico Federal Contracting Center, before and
during the process.
Here at Wovenware, we have recently been highly focused on
developing smart and predictive software solutions that use
artificial intelligence, predominantly Deep Learning, to help
companies derive greater insights from their data and automate
key functions. This deep expertise has allowed Wovenware to
enter the Federal market and conduct AI-related projects for
the National Geospatial Intelligence Agency. Today, Wovenware
employs more than 90 people, most of whom are software
engineers, computer, and data scientists.
Despite the fact that Wovenware has been part of the Inc.
5000 list of the fastest-growing companies for 3 years, and
that 60 percent of our revenue comes from customers outside our
physical island boundaries, it is only recently that we were
given the opportunity to work with the Federal Government as a
subcontractor on a DigitalGlobe NGA contract. We need more out-
of-the-box thinkers like DigitalGlobe's executives Rob Torres
and Tony Frazier, who gave us the opportunity to win this
Federal contract.
``Lead with quality, not certification,'' was the
recommendations Mr. Robb N. Wong, associate administrator of
the SBA, gave companies like ours during a previous hearing of
this Committee. A fair recommendation, but one in my opinion
that underestimates the difficulty of getting your first
Federal contract, despite years of high-quality, referenceable
private business experience, especially in an economically
depressed area like Puerto Rico.
It has taken Wovenware almost 4 years and significant
investments to get our first Federal contract. I hope the
proposed new performance metrics outlined in the HUBS Act put a
spotlight on this problem and help SBA develop initiatives to
stimulate the opportunities that originally inspire hope for
HUBZone companies.
While we are pleased to have received HUBZone certification
late last year, there is much more that can be done to ensure
that it accomplishes its original goal, to give small
businesses in underserved areas a chance to succeed. It is our
hope that a reformed HUBZone Program lowers the barrier of
entry for Federal contracts for companies like ours.
While currently one-third of Federal contracts are filled
right here in Washington, D.C., and the remainder elsewhere in
the U.S. States, Wovenware's success serves to prove that there
is enormous untapped potential for making Puerto Rico and other
HUBZone areas the next frontier for outsourced Federal
projects.
Three key amendments on the HUBZone reform bill have the
potential to generate this environment. These amendments are
the new performance metrics, new 5-year time model, and grace
period. The new performance metrics will highlight the use, and
not use, of the program by Federal agencies and how effective,
or ineffective, the program is in helping businesses sell to
the Federal Government.
The 5-year time model that will allow the SBA to
recalculate HUBZone areas in 5-year increments and the grace
period for firms dropping below the 35 percent threshold for
employees from a HUBZone will provide Federal agencies
certainty into the number of HUBZone companies available for
their contracting opportunities. It is my hope that this
certainty will translate into additional HUBZone-only
opportunities and will thus increase the use of the HUBZone
Program to the point where the 3 percent contracting mandate be
achieved.
Revising the provisions of the HUBZone Program so that it
remains true to its original intentions, to jumpstart
opportunities for small businesses to succeed, would empower
small businesses not only in Puerto Rico but across the country
with a path to revitalized growth.
The spirit of innovation, entrepreneurship, and
inspiration, combined with a steadfast perseverance, that
Hurricane Irma proved so well, is alive and well in Puerto
Rico. A reinvigorated HUBZone Program would be just the right
spark, not only for Puerto Rico, but for small businesses
everywhere to ignite hope, confidence, and ultimately growth
that will stimulate healthy economies across the country. Thank
you.
Chairman CHABOT. Thank you very much.
And I will now recognize myself to begin the questioning
for 5 minutes.
Mr. DuFour, I think I am going to start with you. I had,
quite frankly, kind of a boring technical question I was going
to ask you. Then you talked about Nixon and Watergate. Tell us
about that. How was your company involved in that? That has got
to be interesting?
Mr. DUFOUR. So, the Republican National Committee, back in
the day when they solicited donations, they would solicit
donation checks and basically a remittance slip. And our firm
would enter the donation information--name, address, other
information that needed to be filed with the Federal Election
Commission--and deposit the check for the RNC.
And so one summer we were on vacation and my dad got a call
from the office. And the office said, ``Mr. DuFour,'' who he is
here today, ``The FBI is in the lobby and they want to see the
data that we have collected for the RNC.'' And he said, ``I
will be right there.''
Well, it was an 8-hour drive and he got right there. And he
said to the FBI, ``Well, this is not public information. I do
not think I can share this with you.'' And they retorted,
``Then we are going to shut down your business.'' And he said,
``Here is the data.''
So ultimately, that did lead to extend the investigation,
and unfortunately, the resignation of our sitting president.
Chairman CHABOT. Thank you very much.
Now I will get to my boring questions and things of that
nature.
Ms. Bailey, I am going to start out with the boring
questions with you. You have highlighted that this bill may
extend the number of rural areas qualified for HUBZone
designation. Could you describe some of the challenges that
your firm and other rural firms encounter that may differ from
those located in urban areas? And how will this legislation
help to alleviate those issues?
Ms. BAILEY. Okay, definitely. Many of the rural areas, one
of the major issues that they have is, one, they do not have
the population density. People tend to be spread out. They are
not around a central major industry such as the Federal
Government. They tend to be further around 50, you know,
further past 50 miles from those distance, so you have larger
commute type things. They do not have the access to the
infrastructure in a lot of the cases. You do not have strong
connections with broadband, those types of areas, where we need
the encouragement of additional companies coming into these
areas to make it feasible and more cost-effective for agencies
to come in and put the infrastructure in place. So you are
looking at these types of areas where you are dependent upon
these companies, and the HUBZone Program, if we can get
companies to relocate and help with the economic development of
these rural areas, then we are going to be able to add the
infrastructure and the training and the capacity for these
employees and have other opportunities that may be in the areas
that these individuals are actually locating.
A lot of rural areas are not interested in relocating to
the cities for employment. They have to travel long distances
to do that, and although I am not saying that they do not,
because a lot of them do it out of necessity, but from a family
standpoint and from them being able to keep their unit
together, and for us to be able to encourage our children to
stay in their hometowns, to go to college, come back to their
hometowns and invest in their hometowns, the HUBZone Program is
a great way to do that and to help with the economic
development in these areas.
Chairman CHABOT. Thank you very much.
Mr. Schuerger, one of the reasons the Federal Government
has not met its 3 percent HUBZone small business goal is
because there is some belief, I think, among some that among
the agencies that the HUBZone small businesses are limited to a
certain type of work, like janitorial services, for example.
Could you talk about your experiences, kind of overcoming such
obstacles? And do you have any suggestions on how to reverse
that type of thinking?
Mr. SCHUERGER. Yes. Thank you for the question.
In our situation, it was a unique opportunity because we do
a lot of inbound/outbound call center work, collections work,
and we were able to team up with Franklin County and their res
care operation, and actually, they helped us recruit potential
employees for the firm that we would then bring in, train, and
then a number of them would become full-time employees for the
law firm. So I think the goal is to, with this bill, allowing
other types of companies to pursue HUBZone opportunities by
increasing the geographic region of that will, in essence, help
more different types of companies to go after the HUBZone
status.
Chairman CHABOT. Thank you very much.
I apologize, Mr. Melendez, I have run out of time. So I now
recognize the ranking member for 5 minutes.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
Mr. Melendez, the federal government has yet to meet the 3
percent prime contracting goal or the 3 percent subcontracting
goal for the HUBZone Program. Furthermore, only 25 percent of
dollars awarded to HUBZone firms come from a HUBZone contract.
What do you recommend Congress do to spare agency use of the
sole source and set-aside authority given to them through the
HUBZone Program?
Mr. MELENDEZ. Yes. My first recommendation is that the
performance metrics will help a lot to shine a spotlight on
that problem. I think first of all it is going to be a data
problem, getting the information out there. Then it is going to
be how the SBA and Congress can help show that information in a
useful way that tells a story of how HUBZones are really not
being used. That should pressure agencies to take a hard look
into what they are doing and think outside the box and just
bring more opportunities for sole source and HUBZone-only
contracts because they will see that there are companies that
can actually provide those services.
Ms. VELAZQUEZ. Thank you.
Ms. Bailey, as we discussed before, program participation
dropped immensely following the release of the 2010 census
data, and the program now also incorporates the ACS data that
updates every year causing more uncertainty. Furthermore,
nearly 90 percent of HUBZones do not have a single certified
firm. How will the proposed 5-year cycle impact HUBZone Program
participation from a business owner perspective?
Ms. BAILEY. Definitely, it is going to give us more
certainty because knowing that you have 5 years and the
requirement to have the available data there will give the
business owner the opportunity to be able to assess areas that
if he has to move, where he could go to and have more
information. It is going to allow companies to consider when
they are coming into the HUBZone Program how much time they
have. And also, in addition, even if they do come within that
5-year period and the area does get redesignated, they still
have the 3 years, which will give them that period of time to
make these decisions. The 5-year is going to provide people who
are entering into long-term leases. A lot of our leases are 5-
year terms. Contracts are 5-year terms. So that will give us
the ability to make those decisions on doing that.
Ms. VELAZQUEZ. Thank you.
Mr. Schuerger, would you like to comment on the same
question?
Mr. SCHUERGER. I would, yes, echo Shirley's sentiments that
the 5-year, you know, someone like myself, it is a critical
part because you invest in infrastructure. You invest in job
training. You create jobs in areas that, you know, that jobs
need to be created. And then, you know, 6 months later, or a
year later as is current, the rug gets pulled out from under
you. So I believe strongly in this bill that that 5-year window
will then allow more companies to pursue the HUBZone status to
create those jobs knowing that there is stability within the
program.
Ms. VELAZQUEZ. Thank you.
And Mr. Schuerger, I would like you to comment on the
following question. SBA does not currently send individual
notices to businesses to notify them of changes affecting their
HUBZone eligibility. SBA has stated that it is a business
owner's duty to keep up to date. How realistic is it for small
firms to be aware of every change potentially affecting their
status?
Mr. SCHUERGER. I think it is very tough, particularly when,
you know, I mean, obviously, it is our responsibility as
companies to try to stay up to date, but it is also the SBA's
responsibility to make sure that timely information is produced
in order to stay up to date and not when you check something
changes after you have checked and then all of a sudden they
say it is your responsibility. That is what, you know, those
are the types of issues that make the program tough and
probably allows people to believe that they, you know, it is
not worth them participating in.
Ms. VELAZQUEZ. Mr. DuFour?
Mr. DUFOUR. I better turn that on.
It is incumbent upon the small business to stay on top of
regulation. It would be an added benefit if it was more
proactively coming from the SBA, yes.
Ms. VELAZQUEZ. We are going to make it more proactive. But,
yeah.
Mr. DUFOUR. Brilliant.
Ms. VELAZQUEZ. So my question is does the legislative
requirement that SBA refresh the HUBZone map every 5 years and/
or any time there is a base closure and qualified disaster help
fix this notification problem?
Chairman CHABOT. The gentlelady's time is expired, but you
can answer the question, whoever----
Ms. VELAZQUEZ. Mr. Schuerger.
Chairman CHABOT. Mr. Schuerger?
Mr. SCHUERGER. Yes, absolutely.
Ms. VELAZQUEZ. Thank you. Thank you.
Chairman CHABOT. Thank you very much. The gentlelady's time
is expired.
The gentleman from Missouri, Mr. Luetkemeyer, who is vice
chairman of this Committee, is recognized for 5 minutes.
Mr. LUETKEMEYER. Thank you, Mr. Chairman. And I would be
remiss if I would not mention my predecessor of my being here
in Congress is here this morning, and I want to mention Kenny
Hulshof is in the audience. And he left some really big shoes
to fill, and the only way I am coming close is I do have big
feet. So, welcome, Kenny.
Thank you all for being here this morning. It is an
interesting conversation we are having on the HUBZones here.
And you know, my first question, obviously, we have got 19,000
census tracks, 828 counties, 108 base closures, 593 qualified
Indian lands covered by HUBZones, and only 6,000 certified
small businesses. Why are we having difficulty getting
businesses in the program I guess is the first question?
Ms. BAILEY. Can I take part of that?
Mr. LUETKEMEYER. Yeah, fire away.
Ms. BAILEY. One of the major problems is the lack of
HUBZone set-asides. When we have the contracting vehicles
there, it is going to encourage more firms to participate in
the program. So, you know, over the years, we are not making
anywhere near. We are actually going down in meeting the 3
percent goal. And you find that when we start to meet that 3
percent goal, more and more firms will enter the program. They
do not see that this investment in this program is going to pay
off if there is no set-aside programs.
Mr. LUETKEMEYER. Okay. So do you see the program actually
enticing businesses into the zone or are you just picking up
businesses that are already in the zone itself?
Ms. BAILEY. No, I think it is enticing businesses into the
zones.
Mr. LUETKEMEYER. Do you have some numbers on that?
Ms. BAILEY. No, I do not have anything in particular, but
we can use us for an example. The reason that we are in Garrett
County is because it was a HUBZone. We looked. We are actually
out of Frederick County to begin with. We moved to Allegheny;
it lost its designation. And when we were looking to move to
another HUBZone, that was one of the major factors we were
looking at. And Garrett County is why we moved to Garrett
County. Go ahead.
Mr. LUETKEMEYER. Because in my mind what would look like a
pretty small number of businesses that are actually qualified
for HUBZone, is there enough competition for contracts set away
so that we actually have a good competitive bid from somebody
in that zone? Or is it single source? And maybe we are
overpaying for services.
Ms. BAILEY. Well, at one point there were over 13,000
HUBZone firms until the census came and a lot of them were
removed from the program because of the changes in the census
data. And we believe that at that point in time there was
definitely two or more in every NAICS code. Right now we have
roughly 6,000 firms, which is pretty equivalent to some of the
other set-aside programs as well. So, you know, I think that by
encouraging more contracting, HUBZone contracting, we can
encourage more firms to get in there. Yes.
Mr. LUETKEMEYER. Okay. Let us take that a step farther. So
if you wind up with more businesses coming into the HUBZone, is
that going to hurt existing businesses that are HUBZone with
more competition?
Ms. BAILEY. Well, competition is good. So, it will
encourage more HUBZones to be competing in different areas,
more diverse markets. We believe that we can open up the number
of market areas that the HUBZones are participating in. One of
the fallacies right now is that still a lot of people believe
it is more in construction and janitorial and those types of
things, but our largest business sector that is growing is the
IT services, so.
Mr. LUETKEMEYER. Well, the reason for my first question
with regard to the lack of competition, if they are not--if our
contracts are vectored with those folks, there is not enough
competition, then competition will drive those prices down and
be impactful.
Ms. BAILEY. Well, you know, I still think that even with
the 6,000 firms and the number of HUBZone set-asides that we
have, we still have a considerable amount of competition
throughout the HUBZone Program at this point.
Mr. LUETKEMEYER. Very good.
In the bill, it extends the time period for which a
qualified disaster area is considered as such and proposes to
modify the definition of base closure area by aligning it with
the definitions of qualified census track and qualified
metropolitan area. Are there other areas that we could
designate similar to a disaster area or base closure area that
we could add to this list that you are aware of? I guess my
question is, are we complete with the way we are designating
this? Are there other problem areas that we could see that
could help by expanding the definition of a HUBZone that would
be helpful?
Ms. BAILEY. At this point, I do not have any answer to that
at this point. I have not thought about that.
Mr. LUETKEMEYER. Rest of the panel got any ideas?
Questions? Are we spot on with what we are doing here?
Mr. DUFOUR. I think you are spot on. I think that 3294
really clarifies the BRAC, it clarifies the disaster location,
and it incentivizes companies to go into those locations. I
think you nailed it.
Mr. LUETKEMEYER. Okay, perfect. My time is expired. Thank
you, Mr. Chairman.
Chairman CHABOT. The gentleman's time has expired.
The gentleman from Pennsylvania, Mr. Evans, who is the
ranking member of the Subcommittee on Economic Growth, Tax, and
Capital Access, is recognized for 5 minutes.
Mr. EVANS. Thank you, Mr. Chairman.
Ms. Bailey, how important is the certainty that H.R. 3294
attempts to legislate to the types of businesses which your
council is composed of?
Ms. BAILEY. As far as from the certainty standpoint, it is
from the investment. These HUBZone firms are going in. They are
investing in buildings that need renovation. They are going in
and investing their financial assets in hiring and training
HUBZone employees. One of the additional costs when you hire, a
lot of the HUBZone employees do not have the required
skillsets. So this encourages these firms to go in and develop
training programs, to hire individuals in those areas, and
provide them with the skillsets. But you are investing in long-
term leases. You are helping the economic development of those
areas by renovating buildings. We actually bought a building
from the county and renovated that building. And so those
investments, you need that amount of time in order to start to
recover that and to be able to get your business off the
ground.
Mr. EVANS. Can you give an example of the types of
businesses?
Ms. BAILEY. We are actually a professional services
business, IT businesses. We went into Garrett County where
right now there was only one other HUBZone firm at the time we
went in there. We now have 11 businesses. There are several
different, a variety. We have some IT businesses. We have
professional services businesses. Higher skill level businesses
are coming into the area as a result of the HUBZone Program.
Mr. EVANS. Mr. Melendez, I read your testimony and share
your frustration at the challenges in getting Federal
contracts. I have no question, but simply applaud your patience
and your resolve in making it here under extremely trying
circumstances. So just talk a little bit about, this is your
chance to, if you had to say something to us, specifically ways
that we can really assist you.
Mr. MELENDEZ. Yes, for us it has been a long journey, like
I said in the testimony. It has been 4 years, almost 4 years in
the making of us trying continuously, coming here to D.C.,
establishing contacts. Like I said in my testimony, I think a
third of the contracts are competed here in the D.C. area, and
I will tell you that probably 85 or 90 percent of them have to
start or at least at some point start here. So it does take
considerable time and investment for companies like ours to
come here and establish those contacts. Make sure that all
private experience is taken into consideration when a
contracting officer is gambling with an opportunity with us.
Like I said in my statement, we can have 10 years of private
experience, but for the contracting officer I have nothing. So
getting that message out is important.
There are companies like ours that are HUBZone companies
that have serious and good experience and letting them know
that it is really not a gamble to give them their first chance.
It is just kind of the wedge into starting your Federal
contracting process. I think that help will be greatly
appreciate.
Mr. EVANS. I thank you, too, for all you have tried to do.
Mr. MELENDEZ. Thank you.
Mr. EVANS. Thank you, Mr. Chairman.
Chairman CHABOT. The gentleman yields back. Thank you.
The gentleman from Kentucky, Mr. Comer, is recognized for 5
minutes.
Mr. COMER. Thank you, Mr. Chairman. And let me begin by
saying the HUBZone Program is very important to small business
and economic development in my congressional district in
Kentucky. I have 13 of my 35 counties, as you mentioned. One of
the challenges that we have in rural America is trying to
sustain our best and brightest people in those areas, and I
think this is part of the solution. HUBZones, economic freedom
zones. We have to incentivize businesses to want to stay or
want to relocate into the rural areas.
So my first question is to Ms. Bailey. In your testimony,
you described the impact that H.R. 3294 might have on rural
small businesses. From the perspective of the HUBZone Council,
can you tell us how H.R. 3294 might benefit those firms that
are located in urban areas?
Ms. BAILEY. Definitely. The one major impact for those in
urban areas is going to be the freezing of the maps. That will
enable them in those areas to be able to have more certainty,
because the urban areas, the numbers probably change quicker.
You know, the map probably changes, you know, quicker than the
rural areas do. But it is a census area consideration and I
think that by freezing that for 5 years will give a lot more
certainty to those firms as well and be able to encourage more
firms to move into those areas as well.
Mr. COMER. One of the complaints I would hear when I was a
member of the Kentucky General Assembly from the legislators
representing the urban areas is that, you know, they are
subsidizing the rural areas with the fact that the rural areas
do not have an adequate tax base, and I think that it is
important to note that this can help urban areas in many ways
and that being one way. So I appreciate that.
I also have to highlight a HUBZone contractor in my
district, Geo Consultants in Kevil, Kentucky, which is in
Ballard County. They specialize in environmental and disaster
cleanups. They are going to be very busy in the coming weeks
and months to take care of trying to fix those areas in the
aftermath of the hurricanes, but this is a program I strongly
support.
I appreciate you all's testimony here today and we look
forward to working with you in the future.
Thank you, Mr. Chairman. I yield back.
Chairman CHABOT. Thank you very much. The gentleman yields
back.
The gentleman from South Carolina, Mr. Norman, is
recognized for 5 minutes.
Mr. NORMAN. Thank you so much. Thank you all for taking
your time to come testify.
I guess this is for any of you. I am a developer. I have
been in private business for a lot longer than I have been in
politics; fraud and abuse, inflated contracts. Mr. Luetkemeyer
mentioned competitive bids. Does this bill have safeguards that
prevent fraud and abuse and the system from being abused, in
your opinion?
Ms. BAILEY. Well, I think that the inclusion of putting in
some performance metrics and a little bit more information will
provide that assurance against fraud and abuse, also. And not
only that, from the HUBZone Council perspective, we do a lot of
our own policing as well to make sure through the education and
the training and the constant reassurance that we have with
even our members and outside, that we help police in those
areas to ensure that the fraud and abuse does not come into
this program. So I think that by including more stringent
performance metrics and information reporting, I think that we
can control that throughout the industry.
Mr. NORMAN. Give me an example of a metric that you think
would have teeth.
Ms. BAILEY. I think that one metric that might have teeth
is a reporting of, let us just say, as new contract awards come
up, stronger program exams from the SBA's perspective to ensure
that they are checking those who are winning these contracts.
The recertification program, restrengthening the
recertification of the SBA to ensure that firms are compliant
and continuing to be compliant. And I think that those are the
major ways to help to ensure that we are continuing to reduce
the fraud, waste, and abuse in the program.
Mr. NORMAN. Anybody else?
Mr. SCHUERGER. Yes. I think one of the key areas this bill,
you know, focuses on, you know, the payroll snapshot for the
business, because at any point in time the HUBZone or the SBA
can come in and request your existing payroll, which then,
obviously, if you are not following or even close to the
guidelines of the HUBZone Program then you would be violating
the program and kicked out. So I think strengthening that
ability will definitely help alleviate some of the fraud and
abuse you talk about.
Mr. NORMAN. Has that happened, the checks and balances that
you talk about?
Mr. SCHUERGER. I think that is part of what the bill is
beginning to empower the SBA to do now.
Mr. NORMAN. Okay.
Mr. SCHUERGER. Is to allow them to begin to do that more
aggressively, whereas before I think there was more
lackadaisical oversight of that; hence, the opportunity now to
strengthen it.
Mr. DUFOUR. Let me just add that the Federal Acquisition
Regulations also has a provision to protest. So when a HUBZone
set-aside procurement, if an award goes to a HUBZone firm and
another HUBZone firm says I do not think they are a HUBZone,
there is a process that is followed. It escalates to the SBA
and it is incumbent upon the SBA to basically do a complete
examination. They are going to ask you if the business is still
in a HUBZone and they will verify it. They are going to want to
see that you have 35 percent of your employees living in a
HUBZone, and they will verify it. And then finally, they are
going to want to know that the ownership is 51 percent U.S.
citizen, and they verify that.
I have been through that protest process. It works. I have
also been on the opposite where I have protested and the award
was retracted from a firm that was actually not a HUBZone. So I
think there are good checks and balances, not just in this
bill, but in the FAR.
Mr. MELENDEZ. I would add that reporting that includes
comparative analysis between the other SBA programs and the
whole Federal contracting as a whole will actually help to
provide those checks and balances and give a spotlight to those
possible fraud and abuse cases particularly.
Mr. NORMAN. Well, you all are in the trenches and as we
move forward, as you see things that can be added, whether it
gets amendments in this bill or not, it would be great to let
your thoughts be known in proving this.
Thank you, Mr. Chairman. I yield back.
Chairman CHABOT. Thank you. The gentleman yields back.
Ms. Adams, would you want to go now or do you want to--we
will come back to you after one or--I do not know. Your feet
are on the ground. Are you good?
Ms. ADAMS. They are good.
Chairman CHABOT. Okay. The gentlelady from North Carolina,
Ms. Adams, who is the ranking member of the Subcommittee on
Investigations, Oversight, and Regulation, is recognized for 5
minutes.
Ms. ADAMS. Thank you, Mr. Chairman. I had a major overlap
this morning. And I want to thank all of the witnesses for
being here today and taking the time to share. Thank you for
your testimony.
Mr.--is that Schuerger?
Mr. SCHUERGER. Yes.
Ms. ADAMS. Okay. All right. In your testimony you stated
that the HUBZone certification process was at times challenging
due to long wait periods, analysis, analyst changes, and an
understaffed HUBZone office. Through your recertification
experience, have you found these problems to be rectified? And
if you have not, how can we ensure that the process is
efficient and impervious to fraud?
Mr. SCHUERGER. Thank you for the question. I believe my
circumstance was unique in being a law firm because what took
place was in being a law firm, there are lawyers in my law firm
that are agents for other companies. So what happened during my
certification process is that there was an assumption that we
had 20 companies under our ownership when that was not the
case, but as a law firm you exist as an agent for other
entities. So clarifying that confusion with the HUBZone
analyst, what happened was we got handed off to another HUBZone
analyst who then re-explained. So the lack of consistency with
the analyst that you have and then the lack of an ability to
request the same analyst when you resubmit the information,
when it goes to a new analyst, it is a whole, you know, the
process starts all over again.
So in my specific example, I think it has been rectified
from when I first applied back, you know, and then got
certified in 2016 to where it is now is, you know, through the
council we have been able to raise some of those issues with
the current HUBZone director. And I think Ms. Pardo has taken a
look and I think hence the strengthening of here in this
current House bill that is being presented I think will help
that.
Ms. ADAMS. Okay.
Mr. Melendez, in your experience, do small businesses incur
some additional costs when they are located in and employee
workers who reside in economically distressed areas such as
costs to recruit and train workers?
Mr. MELENDEZ. I think there are costs associated to that. I
think there would be other costs if you were in a highly
populated or highly competitive urban area, so I think those
actually in the long run will balance themselves out. There are
definitely a lot of different challenges for being in an
underdeveloped and rural area, like you clearly explained.
Hiring takes a lot more time, so actually, the grace period and
being able to at least add a little bit more time to that would
be greatly beneficial to the bill, I think. But apart from
that, and the training, I think, like I say, it will balance.
It does balance a little bit out.
Ms. ADAMS. Okay. Thank you.
SBA is still in the process of streamlining certifications
through certifysba.gov and perfecting this process. How can
Congress ensure that the HUBZone process changes for the better
once it is incorporated into this new website? That is a
question for anyone who would like to answer it.
Ms. BAILEY. Well, I think one of the major things is
integrating the application process, the maps, and the
recertification process all into this certify.gov, and to be
able to incorporate the requirement for performance metrics. On
behalf of the HUBZone, I can tell you that most of the HUBZone
firms would be happy to provide data if there was an easy way
to do that. And if they could incorporate that within the
system where we could go in and provide periodic information,
this would be a greatly desirable improvement in the overall
HUBZone Program.
Ms. ADAMS. Okay. Does anyone else want to quick answer?
Okay, all right. Thank you very much.
And Mr. Chair, I will yield back.
Chairman CHABOT. Thank you very much. The gentlelady yields
back.
The gentleman from Pennsylvania, Mr. Fitzpatrick, is
recognized for 5 minutes.
Mr. FITZPATRICK. Thank you, Mr. Chairman. Thank you all for
giving us your time today.
I think it is safe to say that in a Nation with 20.1
trillion in debt that growing our economy is far and away the
most significant challenge facing this Congress and this
country. I have no doubt that programs like this help in that
regard, infusing cash into economically distressed areas.
My question is regarding this statute in particular.
Clearly, in addition to Federal incentives, you have State
enterprise zones. You have county economic opportunity zones.
You also have municipal incentives. In your experience, in the
implementation of these programs, how seamless is the
integration in these various programs to hitting the target,
the intended target of making sure that we maximize employment
opportunities for people in these areas?
Mr. SCHUERGER. It is not really a seamless process. You
know, the municipality and the county and the State each have
their own organizations and entities by which they answer up
to, and then to try to integrate that into the HUBZone Program.
One of the things that we have had success with has been
working, like in Clinton County with the Wilmington Port
Authority with the airport. They have been supportive locally
in giving us incentives on top of the HUBZone status in order
to employ there in that economic distressed area. So that is an
example of what you talked about, sort of a seamless working
relationship between the local entities, not exactly hand-in-
hand, but all of those enticements help in creating the jobs in
an economically distressed area.
Mr. FITZPATRICK. So when you say it is not seamless, are we
essentially dealing with a patchwork of programs that are
affecting different types of people, different entities,
different zones in the community?
Mr. SCHUERGER. I would say yes. Through my experience, that
would be correct.
Mr. FITZPATRICK. Is there anything in this legislation on a
Federal level we can do to increase that integration? Because I
would think that if we designate a certain area, that that is
an area in need, then why not pull together all the resources?
Because these are all taxpayer dollars, just on different
levels, hitting the intended target in unison to expand
economic growth.
Ms. BAILEY. I think that is a great idea. And not only that
is that also what we need to be doing is through the education
and the encouragement of these areas that this is one of the
toolkits for them to use for their economic development and the
workforce training. Now, we do see that in a lot of the rural
areas, and SBA has been working on trying to put a toolkit
together that they took around on their HUBZone Destination
Tours to each one of these areas. So I think that we see that
happening. We see that those areas that are in need, they are
trying to work together, and it is a consolidated team as part
of their economic development. But it is an important thing
through the HUBZone, through the HUBZone Program, to encourage
that you are working with economic development groups. You are
working with the educational groups. You are working with your
workforce development groups to make this program successful.
Mr. FITZPATRICK. So is that an amendment you think would be
a good idea for this statute?
Ms. BAILEY. Well, I think it would be a great idea if we
could figure out a way to do that. Yes.
Mr. FITZPATRICK. I yield back, Mr. Chairman.
Chairman CHABOT. Thank you. The gentleman yields back.
And I will now recognize myself for just a couple minutes
to kind of wrap up here.
Two questions. First, for you, Mr. Melendez, since I did
not get around to you the first time. Obviously, Puerto Rico
and, you know, some of our Southern States, Florida in
particular, Georgia to some extent, Louisiana, and especially
Texas, have been hit with major hurricanes of late. Could you
tell us as a practical matter, my understanding is Puerto Rico,
most of it, although not all of it, I think is a HUBZone, what
positive or practical impact of being a HUBZone should it have
in the rebuilding effort down in Puerto Rico, for example?
Mr. MELENDEZ. I think it is a great opportunity. I think a
lot of the relief work, a lot of the reconstruction of these
areas, I think HUBZone companies as a whole should be used and
should be given priority for this. It will definitely help the
underlying communities because I believe a lot, at least in the
case of Puerto Rico and the Virgin Islands, it will not only
impact the work on the destruction that happened, but those
were already economically depressed areas. So helping, having
companies from the same HUBZone areas being able to do the
work, to reinvigorate and to reconstruct the destructed area I
think will have a great impact. So if there is some way that
the reconstruction contracts can be given, some kind of
HUBZone, or at least priority to HUBZone companies, it will,
again, it will definitely help.
Chairman CHABOT. Thank you very much.
And my final question, Ms. Bailey, is kind of a follow-up
to Mr. Norman's question. He was, and I think appropriately so,
talking about making sure that we have as little as possible
fraud and abuse in the program where the government, let us
face it, we are never going to eliminate this kind of stuff as
much as we want to try, but we need to reduce it as much as
possible and hopefully eliminate it. And it is my understanding
that in this legislation and in the original legislation there
are some safeguards in that, some additional things like
reporting requirements and things that the SBA should be able
to oversee.
So on the one hand, we want to do those things. On the
other hand, the SBA sort of has a reputation of being a very
paperwork-intensive organization that can make it difficult for
people to take advantage of the loan programs that are
available out there. So there needs to be a balance between
making sure that we are eliminating that fraud and abuse, while
at the same time we are not just hitting people over the head
with paperwork all the time.
So would you want to maybe just touch on that balance and
let me know what you think about what I just said?
Ms. BAILEY. I think the balance is definitely required. But
I think that by looking at this and automating a lot of these
types of requirements where it does not take a considerable
amount of time for us to go in as we are doing our
recertification, to fill in key data points and performance
metric information, and that SBA then begins accumulating and
using that information and targeting high-risk types of areas
so that if you have contractors and you are measuring awards
that are coming out and you evaluate those contractors as these
awards are happening, then you can start mitigating any fraud,
waste, and abuse at the point in time that this is actually
occurring. So by having us report, you know, maybe as part of
the system the performance metrics here as if you are proposing
on HUBZone set-asides or you are awarded a HUBZone set-aside,
you know, requirement to report that automatically. I mean, you
know, electronically, not by paper and all of that, in a
mechanism where they can measure the risk and assessment of
these awards.
Chairman CHABOT. Thank you very much.
And in closing, I would just note that I think our panel
here has been very helpful in all the Committee's members
understanding the HUBZone Program better, and realizing that it
can be an effective program in combating poverty and increasing
economic independence and job creation, although we will
continue to monitor it and try to make improvements where we
can in a bipartisan manner. And I want to again thank Ms.
Velazquez for her hard work and staffs on both sides for this.
I would ask unanimous consent that members have 5
legislative days to submit statements and supporting materials
for the record.
Without objection, so ordered.
And if there is no further business to come before the
Committee, we are adjourned. Thank you very much.
[Whereupon, at 12:15 p.m., the Committee was adjourned.]
A P P E N D I X
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Written Testimony of
Robert A. Schuerger, II
Prinicipal and Attorney at Law
Law Offices of Robert A. Schuerger Co., LPA
Columbus, OH
Before the
House Committee on Small Business
``Serving Small Businesses: Examining the Effectiveness of HUBZone
Reforms''
September 13, 2017
Good morning Chairman Chabot, Ranking Member Velazquez, and
Members of the Committee. My name is Robert Schuerger and I am
the founder and lead attorney for the Law Offices of Robert A.
Schuerger Co., LPA. Founded in 2008, we have been a HUBZone-
certified law firm since August 2016. I am also a member of the
HUBZone Council. Thank you for giving me the opportunity to
testify today. Chair Chabot, it gives me great pride to know
that the Committee is led by a fellow Buckeye.
Schuerger Law's principal office is based in a HUBZone area
that is in urban downtown Columbus, Ohio. We also maintain an
office and 11 employees, in Wilmington, in rural Clinton
County, Ohio. Since our founding in 2008, Schuerger Law has
grown to 52 employees, growth we attribute directly to our
success in the HUBZone program. Our clients include public
sector entities such as local governments, hospitals and
universities. As a result of our HUBZone certification, we have
hired 23 employees and are a subcontractor for the Department
of Education. We were recently awarded a prime contract with
the Department of Justice.
We learned about the HUBZone program when we were looking
at federal contract opportunities. We had just purchased a
building in 2014 in downtown Columbus that was in the HUBZone
area. We then went through the certification process which at
times was challenging due to long wait periods, analysts
changing on the file and an understaffed HUBZone office.
Director Pardo was instrumental in rectifying those delays and
a year later we were HUBZone certified and eager to begin
pursuing the new opportunities the certification afforded the
business.
Since certification we have grown from a firm of 29
employees to 52 employees. This job increase is directly
attributable to our HUBZone status as it allowed us to become a
federal subcontractor to the Department of Education and a
prime contractor to the Department of Justice. The Clinton
County office was uniquely qualified to be our satellite office
as DHL had just moved out of the Regional Airport leaving
thousands without jobs. We have stepped in and taken over a
space in the airport with the target to grow the business
through our federal procurement to at least 40 jobs.
I am please the Committee has undertaken the task of
changing a program badly in need of change. In my view, H.R.
3294, ``The HUBZone Uniformity and Business Stability Act of
2017'' provides much needed stability to companies like mine.
Clinton County, home of Washington, will lose its HUBZone
designation in 2018. I certainly favor the approach in H.R.
3294 which freezes the current HUBZone eligibility maps until
2020. It would provide us with the transition time our firm
needs while we decide how to keep our valued employees and
finding a new office. Transitioning from the annual ACS to a 5-
year process, will enable our firm to find that location and
make the capital investments necessary to continue bringing
economic development to the hard-working people of Ohio.
The HUBZone online tool, that requires the SBA to ``clearly
and conspicuously provide access to the data used by the
Administrator to determine whether or not an area is a
qualified area in the year in which the online tool was
prepared'' is also a significant requirement.
It will assist HUBZone firms that maintain offices in
multiple locations, like Schuerger Law. This tool, updated
every 5 years, would ensure HUBZone firms have the latest
information on HUBZone eligible areas. This bill also ensures
that the SBA Administrator removes redesignated areas that are
no longer qualified, which has been a problem in the past with
many companies who have undergone the extensive certification
process only to find the HUBZone qualified area lost its
designation.
Another provision of the bill, including Subsection
31(d)(6) provides a firm who loses certification, 30 days to
submit documentation to the SBA to reestablish eligibility.
Since the certification process is time consuming, this is a
common-sense approach to the process. We believe it will
incentivize HUBZone participation. Firms that may be hesitant
to become HUBZone-certified have clear recourse should they
feel that their certification was unjustly revoked.
I would note that the federal government has never met its
goal of contracting 3% of its contracts to HUBZone companies. I
would urge the Committee to keep up its oversight of federal
agencies and encourage them to contract with HUBZone firms. It
is certainly important to Clinton County, Ohio and many other
areas in this country. Adoption of this legislation is critical
to the success of the program and time is of the essence. We
really need action this year to ensure that firms like mine can
continue work in the program.
In closing, I want to emphasize that the HUBZone program is
an important economic development program. Incentivizing
companies to locate in depressed areas is a good policy
approach. However, change must be made to the program, such as
those in H.R. 3294.
Thank you for the attention you have brought to this
critical issue, and for all of your work supporting our
nation's small businesses and those in Ohio. I look forward to
answering any questions.
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Chairman Chabot, Ranking Member Velazquez and members of
the United States House of Representatives Committee on Small
Business:
My name is Dennis DuFour and I am the President of The Data
Entry Company (TDEC). I appreciate the opportunity to testify
at today's hearing titled ``Serving Small Businesses: Examining
the Effectiveness of HUBZone Reforms.''
I want to discuss three things with you today. First, I am
going to give you a brief history of our business and what we
do. Then I am going to discuss how we leveraged the valuable
HUBZone certification to create jobs in underserved parts of
the U.S. And, finally, I am going to explain why the HUBZone
program reform must happen now and in particular the need for
area stability. This is an urgent matter.
About TDEC: TDEC was started in 1958 by Ray DuFour, my
grandfather, who was an insurance agent. His first customer was
the National Active and Retired Federal Employee Association
(NARFE) who had purchased a group hospitalization policy and
Ray needed a way to process each member's insurance
application. So he started TDEC to receive and open mail, enter
applicant data onto keypunch cards and prepare checks for bank
deposit. There weren't computers in the late '50s and '60s like
we see today. Data was entered on a keypunch card and the cards
where fed into machines to create data tapes.
A couple of years later my father, Mo DuFour, went to work
for the company and rapidly expanded our customer base. He
added customers like the National Geographic Society, Citibank
Credit Cards and the Republican National Committee (RNC) to
name a few. I vaguely remember in the early `70s my father
racing back from our summer vacation because someone broke into
the Democratic National Committee Headquarters at the Watergate
Hotel and the FBI wanted to see the data we had collected for
the RNC. This investigation led to the first resignation of a
sitting United States President.
Today, in our 59th business year, my brother John and I
lead TDEC and we focus on serving Federal, State and commercial
customers with their labor intensive functions including, as
our name states, data entry services. We have 300 employees
that provide services at our location in Maryland, Ohio and
Virginia as well as at government offices from Alaska to
Florida and in 21 others states in between. My brother and I
don't take lightly the fact that we operate this business.
Statistically only 12% of businesses survive into the 3rd
generation.
Leveraging the HUBZone Program: In March of 2002, I applied
to the Small Business Administration (SBA) for HUBZone
certification for TDEC. The program analyst at the SBA assigned
to our application was Mariana Pardo, who I note is now the
Director of the HUBZone Program. After a thorough examination
of our application including our ownership, our business size
and the percentage of then 51 employees we have that live in
HUBZones--we were welcomed into the program in November 2002.
We immediately began to leverage this valuable
certification by marketing our new status to the Federal
Government and to large prime contractors. That led to winning
two sub-contracts to large prime contractors and to our first
HUBZone set-aside prime contract with the National Oceanic and
Atmospheric Administration in 2007. On that contract we
provided Administrative Support Services to the Northwest and
Alaska Fisheries Science Centers in the State of Washington and
the State of Alaska. We were re-awarded a competitive contract
to provide similar services to NOAA in 2012 and continue to
serve this important customer today.
For 15 years we have continuously maintained our HUBZone
certification through scheduled and un-scheduled program
examinations, re-certifications and HUBZone protests. We are
proud to report that 47% of our now 300 employees live in
HUBZones--well above the 35% program requirement. We achieve
this high percentage of HUBZone employees because we
continually seek to attract, retain and train well qualified
employees in under-served areas and it is working!
Urgent HUBZone Re-designation Reform: In January 2018, just
4 months from now, Garrett County, Maryland, where TDEC's
principle office is, will no longer be a HUBZone. There are
another 11 businesses in Garrett County that are faced with
this same re-designation problem. In late 2016, I wondered if
this was isolated to Garrett County so my team and I researched
which other counties in the United States had a similar
imminent issue. We found that there are 15 other non-
metropolitan counties that will be re-designated in January
2018 and then 71 more similar counties in July 2018. This is a
total of 86 counties in 2018 spanning 25 States.
The more we dug into the data we found it gets more-dire.
Our research found that 4,700 jobs are at risk at 245 companies
in these under-served economically disadvantaged communities.
Knowing that TDEC was not alone in this timely matter, I
began a campaign to reach out to fellow HUBZone firms to
solicit their support and feedback. This campaign called ``Save
Our HUBZone'' reaches over 4,000 HUBZone firms across the
United States. And this group is not shy to raise their voices.
Here are a few of the hundreds of responses I received to a
simple question: ``How will re-designation affect your
business?''
This is a critical issue to our remaining in this town and
county in Pennsylvania. Without it, we will be forced to lay
people off locally and relocate to another town and probably
another state to continue to do business.
Lake County, California is a poor rural northern California
County with many small businesses, many whom are HUBZone
businesses. This gives our small company and other small
businesses an opportunity to obtain Federal work.
HUBZone communities need the support of HUBZone companies.
No one better understands the community than those who are
there in it. Take away the lifeline of the community and the
community itself will wither. Maintaining HUBZone designation
maintains life within the community. Save a community by
keeping HUBZone designation as is. - Detroit, Michigan
Our small business is a HUBZone qualified small business
and this status helps us get federal projects as a small
business. Without this status we will not qualify as a small
business set-aside anymore and therefore will lose out on some
of the contracts geared for small businesses. This will put us
back in the running with all the large competition and will
directly impact our company and employees. Matanuska-Susitna
Borough/Alaska
I support H.R. 3294 because the reforms proposed will
continue to provide needed opportunity in economically-
struggling areas of our country. I am looking to hire students
from Atlanta Tech College. These students come from a community
of public assistance and various other ailments because of
their socio-economical situations. We are providing jobs,
because of the HUBZone certification. It's an honor and a
privileged and I support H.R. 3294!! - Atlanta, Georgia
HUBZone Small Businesses are vital to the need of creating
jobs and employment opportunities for the Citizens who reside
in the HUBZone areas. Most are not high skilled individuals but
are hard working, dedicated and apt to learning new skills.
Loss of HUBZone status can totally shut the doors of the
HUBZone Small Business and put thousand/millions of people out
of work. - Hamilton County, Ohio
So my message to you echoes what we have heard from my
fellow HUBZone firms. We need you to give HUBZone firms
stability by extending the re-designation period as you have in
HR 3294. This bill, which was introduced by both the Ranking
Member and the Chairman, if enacted now, will freeze the
HUBZone map until 2020 and then only be changed every 5 years.
This will give communities and their businesses time to build
resources to compete in a post HUBZone environment. Remember it
took us 5 years of marketing our services in order to get a
prime contract.
While I am excited and encouraged by all the enhancements
to the HUBZone Program made in HR 3294 I am most interested in
the urgent need to save HUBZone communities by freezing the
HUBZone map until 2020.
Just like you face tough decisions in your job so do I. I
need to decide in the next month whether to lose our HUBZone
status and stay in our current location or to move our business
to another HUBZone. This decision has been weighing on me for
some time because we have loyal long term employees that will
be affected. If we move, our people may lose their jobs and
there really aren't any other viable jobs for them in Garrett
County. Coupled with that is the fact that we have been in
business in Garrett at the very same location for over 50
years. It is difficult and costly to move a business and is a
distraction to the businesses purpose. We also have a ton of
history in our Oakland, MD office. I remember as a little boy
trying to use the key punch card machines to punch holes in
keypunch cards. Let's just say that I was terrible at it.
So I ask you to act immediately on HR 3294 and give HUBZone
communities certainty. I speak for the thousands of HUBZone
workers whose jobs are at stake. There is no more important
economic development issue impacting rural communities in
America! I am available to answer any questions you have and
again, I appreciate the opportunity to speak with you today.
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