[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]




 
   GAO AUDIT REVEALS HALF-MEASURES TAKEN BY SMALL BUSINESS ADVOCATES

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

                                HEARING

                               before the

               SUBCOMMITTEE ON CONTRACTING AND WORKFORCE

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                            OCTOBER 25, 2017

                               __________
                               
                               
                               

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                            





                               

            Small Business Committee Document Number 115-043
              Available via the GPO Website: www.fdsys.gov
              
              
              
              
              
                             _________ 

                U.S. GOVERNMENT PUBLISHING OFFICE
                   
 27-254 PDF                 WASHINGTON : 2018       
____________________________________________________________________
 For sale by the Superintendent of Documents, U.S. Government Publishing Office,
Internet:bookstore.gpo.gov. Phone:toll free (866)512-1800;DC area (202)512-1800
  Fax:(202) 512-2104 Mail:Stop IDCC,Washington,DC 20402-001     
              
              
              
              
              
              
                   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 Knight................................................     1
Hon. Stephanie Murphy............................................     2

                               WITNESSES

Mr. William B. Shear, Director, Financial Markets and Community 
  Investment, United States Government Accountability Office, 
  Washington, DC.................................................     4
Mr. Robb N. Wong, Associate Administrator, Office of Government 
  Contracting and Business Development, United States Small 
  Business Administration, Washington, DC........................     5
Mr. Kevin Boshears, Director, Office of Small and Disadvantaged 
  Business Utilization, Department of Homeland Security, 
  Washington, DC.................................................     6

                                APPENDIX

Prepared Statements:
    Mr. William B. Shear, Director, Financial Markets and 
      Community Investment, United States Government 
      Accountability Office, Washington, DC......................    15
    Mr. Robb N. Wong, Associate Administrator, Office of 
      Government Contracting and Business Development, United 
      States Small Business Administration, Washington, DC.......    38
    Mr. Kevin Boshears, Director, Office of Small and 
      Disadvantaged Business Utilization, Department of Homeland 
      Security, Washington, DC...................................    41
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    GAO Report...................................................    44
    Responsible Business Lending Coalition.......................   201
    Social Security Administration...............................   233


   GAO AUDIT REVEALS HALF-MEASURES TAKEN BY SMALL BUSINESS ADVOCATES

                              ----------                              


                      WEDNESDAY, OCTOBER 25, 2017

                  House of Representatives,
               Committee on Small Business,
         Subcommittee on Contracting and Workforce,
                                                    Washington, DC.
    The Subcommittees met, pursuant to call, at 11:00 a.m., in 
Room 2360, Rayburn House Office Building, Hon. Steve Knight 
[chairman of the Subcommittee] presiding.
    Present: Representatives Knight, Chabot, Comer, Evans, and 
Murphy.
    Chairman KNIGHT. Good morning. This hearing will come to 
order. And we will see as members will be coming in as we get 
going.
    Okay, we have heard time and time again that small business 
contractors are good for the government and good for the 
economy. They are innovators. Job creators increase competition 
and save taxpayer dollars in the process. That is why there is 
a statutory goal of awarding at least 23 percent of prime 
contract dollars to small businesses. Given their importance, 
we need to ensure that they have every opportunity to compete.
    Today we are here to talk about a critically important 
advocate for small contractors within our federal procurement 
ecosystem, the Office of Small and Disadvantaged Business 
Utilization, or OSDBUs, operate on the front lines of 
government procurement, acting as a protector and champion of 
small businesses within the federal contracting space.
    These offices are charged with the implementation and 
execution of contracting assistance, related functions and 
duties, specifically fighting against unjustified contract 
bundling. In order to protect and preserve the interests of 
small businesses across the Federal Government, each agency 
with procurement powers has its own OSDBU office. Thus, it is 
important to access whether these offices are faithfully 
executing the responsibilities given to them.
    The GAO conducted a comprehensive audit of 24 federal 
OSDBUs, accessing their compliance with the requirement laid 
out in section 15(k) of the Small Business Act. While the 
report indicated widespread and varying degrees of 
noncompliance, some of GAO's results are particularly 
troubling. GAO found several agencies were not complying with 
specific functional requirements in the Small Business Act. We 
will explore those in more detail today. Furthermore, OSDBU 
directors are continuing to report to persons other than the 
head or deputy head of the agency, and some directors are 
holding collateral duties.
    Each of the section 15(k) requirements serve a unique and 
essential function. Any noncompliance may impede the OSDBU's 
ability to effectively advocate for small contractors.
    With that said, agencies responded to GAO's findings in 
various ways. Many agreed, stating that they would begin 
complying with the section 15(k) requirements. However, some 
disagreed and argued that due to the nature of the requirement 
and the office, that particular requirements are unsuitable for 
them. Some further argued that the internal structure of the 
agency poses barriers to compliance, and that noncompliance can 
be attributed to the agency seeking efficiencies among its 
programs and offices.
    Agencies should not be allowed to flout the law. It is our 
responsibility to conduct proper oversight by asking them to 
explain why they are noncompliant, and explore options to 
remedy the situation. However, I also understand each agency 
has its own set of challenges, particularly OSDBUs in some of 
the smaller ones. I hope to gain a deeper understanding today 
of what these challenges might be.
    Lastly, it is important for us to examine the Small 
Business Procurement Advisory Council, or SBPAC. Led by the SBA 
and comprised of OSDBU directors, SBPAC undertakes annual 
reviews of OSDBU's compliance with its statutory requirements. 
Discrepancies were found between GAO and SBPAC's review. This 
is troubling since SBPAC's reviews influence SBA's small 
business scorecard grades for each agency. Inaccurate SBPAC 
reviews may ultimately impede Congress' ability to conduct 
effective oversight over agency OSDBUs. Understanding this, we 
should explore ways in which the SBPAC review process can be 
improved and what additional controls can be put in place to 
ensure objectivity and fairness in its future reviews.
    Now, if you understood all that, great. We are halfway 
there.
    Ultimately, the lessons we take from examining today's GAO 
report will help us understand how OSDBUs impact small 
contractors nationwide. I look forward to hearing from our 
witnesses. We will benefit from your perspective and I thank 
you for being here today.
    I now yield to the ranking member, Ms. Murphy, for her 
opening statement.
    Ms. MURPHY. Thank you, Mr. Chairman.
    Each year the Federal Government procures more than $400 
billion in goods and services from businesses around the 
country through government contracts. The Small Business Act 
established a governmentwide goal of awarding at least 23 
percent of prime federal contracts to small businesses to 
ensure that they receive their fair share of federal 
contracting opportunities. Additionally, Offices of Small and 
Disadvantaged Business Utilization, or OSDBUs, were created at 
every federal agency to increase small business participation 
in the federal procurement marketplace.
    OSDBUs promote small business inclusion within an 
individual agency's mandate and ensure that small firms are 
treated fairly and equitably in the contracting process. In 
this capacity, OSDBUs serve as one of the primary advocates for 
small firms and offer them information and guidance on 
contracting opportunities, both for prime contract awards and 
subcontract awards. Additionally, they work with the SBA and 
other agency officials to determine contracting goals for their 
agency. Overall, OSDBUs serve a critical role in the 
procurement process because they are well positioned to help 
small businesses compete more successfully for Federal 
Government contracts.
    To ensure that these offices are fulfilling their mission, 
the GAO has reviewed each agency's compliance with their 
statutorily mandated functions. This hearing will address the 
most recent report on efforts to encourage agencies to 
voluntarily comply with reporting structure requirements for 
the OSDBU director.
    The GAO concluded that several agencies failed to comply 
with the statute in a variety of ways, which may have 
interfered with their ability to fully advocate for small 
businesses as Congress had intended. Findings like these leave 
us all concerned about the lack of assistance for small 
contractors, many of whom rely on OSDBUs.
    With the recent growth in federal contract spending, small 
firms should be receiving opportunities commensurate with this 
increase. However, the dollars and actions awarded to small 
businesses have been somewhat stagnant since fiscal year 2005. 
Moreover, small business contracting programs are vastly 
underutilized as only 25 percent of these actions were awarded 
through a small business set-aside or sole source contract.
    Pursuant to statutory requirements, OSDBUs must work with 
small businesses to ensure that they receive the maximum 
practicable opportunity to compete for contracts. This 
Committee shares that priority and, therefore, must hold OSDBUs 
who do not meet these statutory requirements accountable for 
their shortcomings. Today's hearing will provide background and 
ideas needed to guide the Committee as we draft legislation to 
address this problem.
    I thank the witnesses for being here and look forward to 
gaining more insight as to how we can make OSDBUs more 
effective in meeting their mission. Thank you, and I yield 
back.
    Chairman KNIGHT. Thank you very much. And if Committee 
members have an opening statement prepared, I ask that they be 
submitted for the record.
    Okay. I am going to take a minute to explain the timing. 
Mr. Shear and Mr. Wong know exactly what I am going to say. You 
have got 5 minutes. The lights will come on, when it goes to 
yellow you have a minute, and then just start wrapping it up 
when it gets to red, and then we will keep this thing moving.
    Okay. I would now like to introduce our witnesses. Our 
first witness is no stranger to us. It is Mr. William Shear, 
director of Financial Markets and Community Investment Team at 
the GAO. Mr. Shear has testified before this Committee on a 
number of occasions, and been engaged with this Committee on a 
wide range of small business topics. We again look forward to 
Mr. Shear and hearing his perspective on finding this important 
GAO report and we welcome you back today. It is always good to 
see you.
    Our second witness today is Mr. Robb Wong. Mr. Wong serves 
as the associate administrator for the U.S. Small Business 
Administration Office of Government Contracting Business 
Development. He is responsible for advocating for small 
businesses in the federal marketplace and oversees more than 
$500 billion in total federal spending. This will be Mr. Wong's 
second time testifying before this Subcommittee, and we are 
very happy that he has come back and we look forward to your 
statements.
    Our third witness today is a newcomer, so we will break you 
in easy, Mr. Kevin Boshears. Mr. Boshears serves as the 
director of the Department of Homeland Security's Office of 
Small and Disadvantaged Business Utilization and has served in 
the position since May of 2003. Prior to that he served as the 
director of Treasury Department OSDBU and worked as a 
procurement analyst, providing guidance to small business 
specialists located in Treasury's 12 bureaus. Mr. Boshears has 
enjoyed a long and respectable career as an instructor, 
teacher, and dedicated public servant in the small business 
procurement arena. Needless to say, he brings a wealth of 
knowledge and experience to the table. We welcome you to the 
Subcommittee, and we look forward to your statements today.
    Mr. Shear, you are now recognized for 5 minutes.

STATEMENTS OF WILLIAM B. SHEAR, DIRECTOR, FINANCIAL MARKETS AND 
 COMMUNITY INVESTMENT, UNITED STATES GOVERNMENT ACCOUNTABILITY 
   OFFICE; ROBB N. WONG, ASSOCIATE ADMINISTRATOR, OFFICE OF 
GOVERNMENT CONTRACTING AND BUSINESS DEVELOPMENT, UNITED STATES 
SMALL BUSINESS ADMINISTRATION; KEVIN BOSHEARS, DIRECTOR, OFFICE 
OF SMALL AND DISADVANTAGED BUSINESS UTILIZATION, DEPARTMENT OF 
                       HOMELAND SECURITY

                 STATEMENT OF WILLIAM B. SHEAR

    Mr. SHEAR. Thank you. Chairman Knight, Ranking Member 
Murphy, and members of the Subcommittee, I am pleased to be 
here today to discuss our recent work on the Office of Small 
and Disadvantaged Business Utilization, often called OSDBUs.
    The Federal Government has a longstanding policy to 
maximize contracting opportunities for small businesses. To 
help increase small business visibility among federal agencies, 
in 1978, Congress amended the Small Business Act to require 
that all federal agencies with procurement powers establish an 
OSDBU to advocate for small businesses. Section 15(k) of the 
Small Business Act contains provisions related to OSDBUs.
    We recently completed a report containing findings from an 
extensive compliance audit where we examined 15(k) requirements 
at 24 agencies. In addition, we examined the review by the 
Small Business Procurement Advisory Council, called the SBPAC, 
of OSDBU compliance with section 15(k) requirements. This 
statement is based on our recent report.
    With respect to our examination of compliance, demonstrated 
compliance with selected section 15(k) requirements for the 
OSDBU varied across the 24 agencies surveyed. Examples of GAO 
findings include the following.
    Five agencies did not demonstrate compliance with the 
requirement to limit collateral duties of OSDBU directors.
    Six agencies did not demonstrate compliance with the 
requirement for compensation and seniority of OSDBU directors.
    Nearly all agencies, 23 to be specific, demonstrated 
compliance for four requirements on OSDBU director experience, 
supervisory duties of the OSDBU director, identifying and 
addressing significant bundling of contracts, and providing 
assistance on payments.
    Fifteen agencies demonstrated compliance with the 
requirement to respond to notification by small business that a 
solicitation unduly restricts the ability of the small business 
to compete for the award.
    For the one requirement for which we reviewed only 10 
agencies, four OSDBU directors did not report directly to the 
agency head or deputy head.
    SBA chairs SBPAC and its members are nearly all OSDBU 
directors. With respect to our examination of the SBPAC's 
annual peer review, we found that SBA's assessment of 
compliance differed from ours. Specifically, when we considered 
the same section 15(k) requirements as the SBPAC review, our 
compliance determinations did not align with SBPAC's 2016 
organizational success factor scores. Other than reviewing 
documentation agencies choose to provide, SBA's guidance for 
the review panel does not indicate any other means by which 
reviewers could obtain or clarify information about agencies' 
compliance with section 15(k) requirements. We recognize that 
neither the SBPAC nor any other entity, including ourselves, 
can conduct this type of compliance audit that we have just 
completed. However, we do think that the SBPAC should consider 
our findings as it continues to work on a more in-depth review 
process.
    For the 19 of 24 agencies that did not demonstrate 
compliance with section 15(k) requirements, we recommended that 
they comply or report to Congress on why they had not complied, 
including seeking any statutory flexibilities or exceptions 
believed appropriate. We made one recommendation to SBA to 
include more detailed guidance to SBPAC members for the annual 
reviews.
    Chairman Knight, Ranking Member Murphy, and members of the 
Subcommittee, this concludes my statement. I would be pleased 
to answer any questions that you may have.
    Chairman KNIGHT. Thank you, Mr. Shear.
    And Mr. Wong, you are now recognized for 5 minutes.

                   STATEMENT OF ROBB N. WONG

    Mr. WONG. Thank you. Good morning.
    Thank you, Chairman Knight. Thank you, Ranking Member 
Murphy. I appreciate the opportunity to testify today, 
particularly alongside Mr. Bill Shear from GAO and my 
colleague, Kevin Boshears of DHS. SBA is fortunate to have a 
good and constructive relationship with both of them.
    In my role as Associate Administrator for SBA's Office of 
Government Contracting and Business Development, I also chair 
the SBPAC, which works collaboratively with the OSDBUs to 
achieve the governmentwide small business goals. I hope to 
bring a fresh set of eyes and perspective.
    When I reviewed the GAO report I made several observations.
    One, I see that the government, through the hard work of 
the OSDBUs, has hit its small business goals for prime 
contracting in each of the past 4 years. That is a noteworthy 
achievement because these are seasoned, committed, small 
business professionals and they do their job well.
    Two, the GAO reports that several agencies and their OSDBU 
programs are not in overall compliance with portions of the 
15(k) requirements. This is a concern to me, particularly as a 
lawyer. I believe that full compliance with the law is 
essential.
    In my opinion, the SBPAC must work collaboratively together 
to balance both of these needs.
    The purpose of the GAO report in this hearing is to make 
the OSDBU program function even better, and SBA certainly 
shares that goal. Of the 20 recommendations made in the report, 
there is only one for SBA. The report recommends that we 
provide more detailed guidance in our SBPAC review process. 
Otherwise, the remaining recommendations involve other 
agencies. For SBA's part, we have already begun to implement 
changes in our review process through changing the scorecard 
weighted goals and percentages as outlined in my written 
testimony. Also, we have implemented peer review changes in 
factoring in compliance requirements as part of our scorecard 
process. Those changes will be in place for the upcoming fiscal 
year 2017 evaluations.
    Aside from the scorecard and peer review, I also mentioned 
in my written testimony that I intend to use the SBPAC to 
increase collaboration between SBA and the OSDBU directors. I 
want us to share best practices and opportunities to increase 
access across agencies. The bottom line is that I want us 
collectively to best serve our small business customers.
    Thank you, Mr. Chairman, and members of the Committee for 
your continued interest in this program. I look forward to your 
questions, and I yield back the balance of my time. Thank you.
    Chairman KNIGHT. Thank you, Mr. Wong.
    And Mr. Boshears, you are now recognized for 5 minutes.

                  STATEMENT OF KEVIN BOSHEARS

    Mr. BOSHEARS. Chairman Knight, Ranking Member Murphy, and 
distinguished members of the Subcommittee, I welcome the 
opportunity to discuss with you today the Department of 
Homeland Security's, DHS, award-winning small business 
contracting program.
    Since its inception, DHS has always been committed to small 
business inclusion in its contracting program. And as the 
director of the Office of Small and Disadvantaged Business 
Utilization, OSDBU, I work throughout the department to promote 
and develop strategies for small business participation in the 
DHS contracting program and with other OSDBU directors, SBA and 
the SBPAC, to promote federal-wide small business 
participation.
    Some of the innovative and inclusive initiatives DHS uses 
include maintaining a web presence with helpful and timely 
resources for small businesses, publishing an annual forecast 
of contracting opportunities, and setting and monitoring DHS-
wide and component small business goals.
    As this Committee knows very well, small businesses make 
substantial contributions to the American economy and taxpayers 
through innovation, job creation, cost savings, tax revenue. 
For these reasons, the DHS OSDBU plays a key role in the 
Department's efforts to promote meaningful communications with 
industry. DHS is proud of its successful small business 
contracting program, which has benefitted from strong support 
from DHS senior leadership. For example, Acting Secretary 
Elaine Duke and Undersecretary for Management Claire Grady, the 
senior official performing the duties of the deputy secretary, 
are both long-time supporters of the federal small business 
contracting program throughout their distinguished careers. 
They continue to offer strong support to the DHS OSDBU in their 
current positions. DHS is also proud of its results from the 
SBA's annual small business procurement scorecard. DHS has 
received a grade of A or A+ each year between fiscal year 2009 
and fiscal year 2016, making DHS the largest federal agency to 
have such a consistent success record.
    Finally, as evidence of the Department's efforts to 
maintain a small business contracting program that promotes 
small business prime contracts and small business subcontracts 
under DHS large business prime contractors, DHS demonstrated 
compliance with all of the section 15(k) requirements selected 
by GAO for the review during a recent audit that is the topic 
of this hearing.
    Chairman Knight, Ranking Member Murphy, and distinguished 
members of the Subcommittee, thank you again for the 
opportunity to testify today on this important topic. I look 
forward to your questions. Thank you.
    Chairman KNIGHT. Quick and to the point.
    We do have the Chairman of the Small Business Committee 
here with us today, and we will ask him for all of the really 
smart questions to be coming out.
    I will start questions, and I will recognize myself for 5 
minutes.
    So I will ask just kind of a general question across the 
board, and Mr. Shear, we will start with you. Some agencies 
have stated in response to the GAO's findings that certain 
functional requirements are unmet because those functions are 
performed by another office within the agency. In light of 
other competing priorities and limited budgets, should this be 
of concern, particularly of small agencies?
    Mr. SHEAR. The answer to that is yes. I think that whenever 
any agency is not in compliance--cannot demonstrate 
compliance--it raises the concern because the requirements are 
there to serve a purpose. I was very glad to hear Robb Wong say 
that. It is important that agencies be in compliance. One of 
the things that we did in our interactions with the agencies 
and that we raise as possibility in terms of asking for, let's 
say, exceptions or things of that nature, is that there can be 
circumstances in which it might make sense to create an 
exception or to create some flexibility around some 
requirements. But it is at the starting point, and many times 
at our finishing point, there is the lack of compliance, of 
demonstrated compliance that is a concern for us.
    Chairman KNIGHT. And let me take that a little further. And 
Mr. Wong, maybe you can help me out with this. What happens 
with noncompliance? What is the mechanism now? If you are 
finding out there is noncompliance, what is the next step?
    Mr. WONG. So I can really only speak to the way that I have 
been handling this for the last couple of months. But the first 
thing I have done is try to educate myself about how many 
Agencies have been out of compliance and then we seek to wonder 
why. But in general, I will assure you, at least at this point, 
that from my dealings with the OSDBUs, they are committed small 
business professionals, and I do not think that anyone 
willfully wants to be or is trying to willfully flout the law. 
But when we do find someone that is out of compliance, I think 
that it is important that they become compliant. I do believe 
that if an exception is necessary, then we can obviously 
advocate for that. But in general, if we find that somebody is 
out of compliance, we will certainly try to, in my mind, I look 
at things that because all of the 15(k) requirements are 
complied with at some point by all of the agencies that we 
have, so they are a good roadmap and they certainly serve a 
purpose. So what we want to be able to do with the agencies 
that are out of compliance is to educate them by collaborating 
with them with best practices and trying to use the SBPAC to 
share information to help others that are out of compliance to 
get in compliance by following the example of other agencies 
that have been able to comply.
    Chairman KNIGHT. And I think that is the perfect answer. I 
really do. I think that so many small businesses, you know, 
whatever their dealings are with government, one of their 
issues and one of the things that they talk to us about is 
government is not working with me or they are not trying to 
help me and figure out why I am not doing the right thing or 
why I missed something. I could talk for my home State in 
California. I dealt with an awful lot of agencies that were 
more on the heavy-handed instead of the education. And a small 
business is in business of making money so that they can 
produce jobs and they can produce opportunities. And so I think 
that part of our job, or at least the government's job, should 
be let's help them get to a place where they will be in 
compliance and they will understand what we are trying to do 
and why this is so important. So I think that is a perfect 
answer.
    One last question and then I will go to Ms. Murphy. Given 
that federal contracting has moved towards practices that may 
be unfriendly to small business, such as strategic sourcing and 
category management, how important do you think these section 
15(k) requirements are to address concerns regarding small 
businesses? And I will go to Mr. Boshears or Mr. Wong or 
whoever wants to jump on in on that.
    Mr. BOSHEARS. In my experience at DHS, and I believe this 
will relate to your question about strategic sourcing.
    I am sorry.
    Chairman KNIGHT. No, you are good.
    Mr. BOSHEARS. In regard to your question about strategic 
sourcing and category management, I will reflect just briefly 
on my experience at DHS with regard to section 15(k). What I 
have observed is that being in compliance with section 15(k) 
establishes the foundation and the framework to implement the 
small business contracting program. I found that to be very 
important in my work.
    And then in terms of strategic sourcing and category 
management, we have to use the current federal contracting 
system as our launch pad to understand how small businesses can 
participate in that environment. For a small business advocate, 
the small business constituents that are interested in doing 
business with a federal agency like mine, DHS, or any federal 
agency, what they want to know about is how can they identify 
meaningful opportunities to participate? So if that comes in 
the form of strategic sourcing, they would want to learn about 
that, for example. If they are looking at the way an agency has 
bought something in the past, they want to consider that. So 
all of these types of things factor into their decision on how 
to participate. So with this new landscape, those types of 
things will still come into play.
    Chairman KNIGHT. Thank you very much.
    And I am going to move on to Ms. Murphy. And I recognize 
her for 6 minutes and 32 seconds.
    Ms. MURPHY. Thank you, Mr. Chairman.
    Mr. Shear, the OSDBU reporting structure described in 
section 15(k)(3) of the Small Business Act is in place to 
ensure that those charged with advocating for small businesses 
are in a position to influence contracting opportunities. In 
multiple GAO reports concerning OSDBUs, you have emphasized the 
correlation between an office's reporting structure and its 
ability to effectively advocate on behalf of small businesses. 
Can you elaborate on how an OSDBU's reporting structure can 
affect an agency's ability to achieve small business 
contracting goals?
    Mr. SHEAR. Let me use one example that comes to mind 
immediately and that is something that Kevin Boshears was just 
talking about, strategic sourcing. So even though the report I 
am discussing here is not addressing strategic sourcing, 
certainly a lot of the apparatus around OSDBUs created by the 
Small Business Act is to give a certain stature to the OSDBU 
director to really affect, to really have resources in place to 
reach out to small businesses, to influence policy of the 
agency, whether it is talking about market research or whatever 
other mechanisms there are, to make sure that there are 
appropriate opportunities for small businesses.
    So let me just refer back to we did a report now 3 years 
ago on strategic sourcing and inclusion of small business. So 
from the moment of going into DHS--I hope I do not embarrass 
you, Kevin--but I will just say it was clear that he was at the 
table with the DHS strategic sourcing working group and even 
making decisions of when strategic sourcing would be used. So 
that stature became even more important than when we talk about 
just simple single award contracts. It became very important 
that way. It became very important that they were using set-
asides within strategic sourcing in a way that I thought was 
more pronounced than some of the other agencies used. So that 
gives an example of where this structure can be very effective. 
So, I think I will end it there unless you want to ask a 
follow-up.
    Ms. MURPHY. No, thank you. I appreciate that.
    Well, Mr. Boshears, first, let me commend your office for 
being the highest complying OSDBU, and thank you for being 
here. Are there, from your perspective, having run a successful 
program, are there any statutory changes you would recommend to 
increase utilization of small business contracting programs?
    Mr. BOSHEARS. Thank you for the question. In my work 
effort, I get a tremendous amount of feedback directly from 
small business owners and representatives themselves. So over 
the past year or two, when I am having these discussions, and I 
have them like on a daily basis, it is one of the joys of my 
work. I listen for patterns. You know, if companies are 
bringing up the same topic to me repeatedly from different 
individual companies, it gets my attention. So I would say over 
the past year or so, maybe a 2-year period, what the small 
business that I have spoken with, they want to be able to 
continue to have meaningful opportunities to participate.
    Like, for example, suppose a small business has served as a 
prime contractor on a small business set-aside contract and 
they have done a really, really good job, they want to be able 
to have, at least make an effort to keep doing that contract. 
Like, if there is a recompetition later for the same work. 
Well, in areas like strategic sourcing or category management 
or governmentwide contracts, if the agency is changing 
contracts, you know, moving from one method to another and that 
small business is not on the second contract of choice, then 
the company does not have an opportunity to, in their words, 
rebid their work. So these are the types of things that have 
come on my radar screen in the past couple of years because I 
have heard that from hundreds of companies in my daily and 
weekly phone calls and email exchanges. So as Mr. Shear 
mentioned on one of GAO's reviews from several years ago on 
strategic sourcing, when these discussions are taking place, it 
is very important for the OSDBU director to use Mr. Shear's 
words, ``have a seat at the table.'' Because, see, that is the 
only way in my experience one can be an effective advocate.
    You see, I hold the small business community in such high 
regard. At DHS, for over 14 years now, the small business 
community, they have done a magnificent job for us in support 
of our mission and they are very, very good in what they do in 
a wide variety of industries. So I want to be able to continue 
to offer these meaningful opportunities to participate.
    Experienced small business owners will tell you they 
understand that there are different contract vehicles and 
different ways of buying for the Federal Government, and they 
will tell you, and they try to keep abreast of it. But it is 
very important to keep that meaningful opportunity to 
participate because that is where they flourish. And that is 
where all the good things happen as a result of securing those 
contracts.
    Ms. MURPHY. Great. Thank you very much. And I will yield 
back.
    Chairman KNIGHT. Okay. And we will go to Mr. Comer for his 
questions.
    Mr. COMER. Thank you, Mr. Chairman.
    Mr. Wong, first question. Once the SBPAC finds that a 
statutory requirement is not met by OSDBU, what happens next? 
Does the SBA conduct any oversight or investigation into 
identified instances of noncompliance?
    Mr. WONG. Thank you for the question, Congressman.
    As I said before, I can only tell you what I have done over 
the last couple of months since I have been there. But 
compliance with the law is critical to me. I agree with Kevin 
and Mr. Shear that it provides a framework upon which we can 
analyze the small business community and that is the way that 
we can help them the best. But when we find somebody that is 
out of compliance, honestly, the first question I want to know 
is why.
    And what I have found is that in general, if somebody is 
out of compliance and wants to be in compliance or needs to be 
in compliance, then we have to be collaborative. We are not in 
a supervisory position and we do not want to be I do not think, 
but we have to work collaboratively as a community to work 
together to bring them in compliance. One of the things I had 
mentioned before is we like to team them with other agencies 
that are in compliance with those goals so that they can share 
best practices and simply just strategize on how to become 
compliant and still be effective.
    Mr. COMER. Okay. In the memo it says, ``Across the board, 
agencies cited inadequate staffing levels, organizational 
structural barriers, and limited budgets as reasons for 
noncompliance.'' Could anyone on the panel answer this? If 
anyone would like to elaborate on any of those particular 
issues and what stands out the most. Would anyone like to 
comment on that?
    Mr. SHEAR. Hearing silence I will be brave and try to 
answer the question.
    Mr. COMER. There you go.
    Mr. SHEAR. No, I appreciate the question. It is a very good 
question. Where I think that for some agencies that have lower 
levels of contracting activity, some of the granularity in the 
requirements might be something that this Committee might want 
to consider in its interactions. But for the most part I come 
back to what has already been stated. There is a severe 
concern, as a starting point, and many times as an ending 
point, there is a severe concern when an agency is not in 
compliance, especially I would say to some of the larger 
issues, whether it is dealing with bundling, whether it is the 
level of seniority of the individual, the reporting 
relationship, those are very important factors here.
    And even though we had agencies that came forward and said 
this requirement, let's just say for example on collateral 
duties, does not make sense for us, and we can be sympathetic 
to a point with that and really consider what they are saying. 
I would be glad to answer questions about that type of 
situation.
    There is a real concern when it is, to use an expression 
that Kevin just used, having a place at the table, of really 
being an advocate, it is a concern. And when we asked, at every 
interview we had with agencies, so across the 24 agencies, we 
asked the question, ``Are there any of these provisions in the 
Small Business Act that we are examining that you think are 
less important than some of the others and maybe should be 
considered for statutory changes?'' We got silence.
    So the only time where we got input directly saying 
something had to be done, it was very specific to that agency. 
And so there was a lack of the agencies coming forward and just 
saying this is what we think should be done, at least for the 
smaller contracting shops.
    Mr. COMER. Thank you, Mr. Chairman. I yield back.
    Chairman KNIGHT. Mr. Shear, just real quickly, or Mr. 
Evans, when the GAO does its audit report and it comes out, how 
much of the findings can you then go back to the agencies and 
say these are the corrections that we think are the best 
corrections or the best steps you can take? Or is it up to the 
agencies to figure out what steps you need to take to correct 
this?
    Mr. SHEAR. It is a great question. Okay, thanks. It is a 
great question. I will answer it in a general way first.
    Whenever we make recommendations, agencies are not required 
to implement our recommendations, but they tend to have a 
pretty high rate of addressing our recommendations. So in this 
case we have one case where we have not been very successful. I 
mean, our last OSDBU report was now 6 years ago. And in our 
recommendations we had a statement that the agency should come 
into compliance or explain to Congress why not. So the general 
answer is we are always willing to work with agencies and we do 
not want to make recommendations that micromanage them, that 
says you shall do this, such as stating you should put this 
person in place or you should institute this specific 
procedure. But we try to make them general enough that they can 
incorporate our recommendations within the context of how they 
run their agencies.
    So when we are asked, and I note there is a lot of 
interaction between SBA and us on open recommendations, when 
they ask us we will say these are the types of things that we 
are looking for. We tend to look for general actions that are 
in the spirit of recommendations, of taking actions to address 
deficiencies that we have identified in our reports. So I know 
this is a very high-level answer, but that generally 
illustrates how things can work with agencies, whether it is in 
this arena or with other types of recommendations.
    Chairman KNIGHT. Okay. Very good.
    Mr. Evans, you are recognized.
    Mr. EVANS. Thank you, Mr. Chairman.
    This is to the panel. How are each of you and your entities 
engaged with efforts to supply diversity and diversity among 
your outreach within the contracting programs?
    Mr. SHEAR. I feel like it is a question that is more about 
what OSDBUs and the agencies do in their small business 
programs.
    Mr. EVANS. Correct.
    Mr. SHEAR. I will just state that we, on behalf of this 
Committee, and I have testified on HUBZone and on different 
programs that are meant to reach out to different socioeconomic 
categories, we have certainly done work on the 8(a) business 
development program and those various programs. So we evaluate. 
So I always say we evaluate. We do not actually go out and 
administer anything. But we have had a focus over the years 
with our body of work on how well those programs work.
    Mr. WONG. Thank you for the question. I would say from 
SBA's point of view, we do focus on the how. And my job that I 
look at very simply is we want to make it easier for the public 
and the companies who want our certifications, make it easier 
for them to get them. But I think that we also have a 
responsibility to help them to make more money by using them. 
So I take a look at the socioeconomic categories every day and 
I have a lot of familiarity over the last 25, 30 years with 
those programs. I am constantly thinking of additional things, 
either through process, through policy, or through advocacy to 
make more opportunities, and effectively, to increase the 
supply of contracts that can be executed by these small 
businesses. I can certainly talk to you at another time about 
the specific things I have in mind. Thank you.
    Mr. BOSHEARS. At DHS, for the past 14 years, we have a 
history of supporting all of the small and socioeconomic 
programs available to the Federal Government. And we found that 
to use the private sector phrase, ``supplier diversity,'' that 
that has been a tremendous strength to us. By actively engaging 
with the small business community as part of our overall effort 
on industry engagement and participating in a number of 
outreach activities all around the country, including some we 
host ourselves, we found that by helping to identify these 
meaningful opportunities, supporting the various small business 
set-aside programs, we have a very diverse pool within our 
small business contractor base that has stepped forward, took a 
very sincere effort to understand the DHS mission, and then 
through their contract work, in effect, support the mission. So 
it has been a tremendous benefit to us, and we certainly plan 
to continue that effort.
    Mr. EVANS. Let me just follow up a little bit then. What 
areas do you feel can be strengthened?
    Mr. BOSHEARS. Within our program?
    Mr. EVANS. Yes.
    Mr. BOSHEARS. Well, we always want to look for improvement. 
What I would like to see within the DHS framework is really a 
continuation of things that we started years ago, but that we 
are putting more emphasis on now. Like, for example, industry 
engagement and communication with the industry is important for 
all size businesses who want to operate in federal contracting, 
but it is especially important for the small business community 
because they, again, I talk to so many companies, they share 
their thoughts with me so they are always with me. You know, 
they do not have big marketing budgets. You know, they have 
scarce resources so they have to find ways to be effective in 
those efforts.
    So one of the things that they have told me is that if by 
targeting three to five federal agencies as potential 
customers, they can focus their efforts. And with the 
consideration of various teaming arrangements that are very 
common in federal space, small businesses can actively engage 
with target agencies, including DHS as an illustration. And 
then on the federal and DHS side of the fence, if we can 
continue to identify these meaningful opportunities that I 
mentioned briefly a few minutes ago, we can continue to do 
this. And again, it is a benefit to DHS because these firms 
help us meet the mission.
    Mr. EVANS. Thank you, Mr. Chairman. I yield back the 
balance.
    Chairman KNIGHT. Thank you, Mr. Evans.
    Well, it has been a fruitful meeting. I appreciate all the 
members. I think Ms. Murphy and I have worked kind of in a 
teamwork to try and understand some of these issues and try and 
correct some of these problems. Some of these are very 
difficult and they are difficult to understand. You throw out a 
thousand acronyms at us. It is like being on Armed Services and 
trying to understand everything that is going on. But the crux 
of it is understanding what small business is going through and 
how small business can kind of work through a problem, work 
through an issue.
    And I love what Mr. Wong said. Be educated on something and 
try not to make the same mistake and be able to comply in the 
future. So it is very important that we talk about this and 
that maybe we make some changes to this.
    So today's hearing is a perfect example of the critical 
oversight function of this Subcommittee on Contracting and Work 
Force. It is the responsibility of the OSDBUs to advocate for 
small contractors, and it is Congress' duty to ensure that 
these statutory responsibilities are being met. GAO's work with 
this report and the valuable testimony from all of our 
witnesses allows us to identify where the gaps are and pinpoint 
weaknesses where legislative action or continued oversight may 
be necessary. What we have learned today will be critical in 
promoting small business success in the federal contracting 
space.
    I ask unanimous consent that members have 5 legislative 
days to submit statements and supporting materials for the 
record.
    Without objection, so ordered.
    This hearing is now adjourned.
    [Whereupon, at 11:51 a.m., the Subcommittee was adjourned.]
    
                A P P E N D I X

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Chairman Knight, Ranking Member Murphy, and Members of the 
Subcommittee, thank you for inviting me to testify before you 
today. SBA and the Offices of Small and Disadvantaged Business 
Utilization (OSDBU) at the federal agencies work side by side 
and play a critical role in helping small businesses obtain 
access to federal contracts.

    The Administrator, through the Office Government 
Contracting & Business Development, chairs the Small Business 
Procurement Advisory Council (SBPAC). The purpose of the SBPAC 
is to discuss government contracting policies and share best 
practices with the OSDBU directors at the federal agencies to 
further promote contracting opportunities for small business. 
The SBPAC meets on a monthly basis. SBA, as the agency 
responsible for reporting on small business federal government 
contracting achievement, establishes federal agency goals; so 
goaling, performance, and sharing of best practices are regular 
topics of discussion for the SBPAC. Many years ago, SBA created 
the Scorecard, which was intended to evaluate federal agency 
effectiveness on achieving their small business contracting 
goals against performance. Over the years, it has changed as 
Administrations have changed. The Scorecard has also increased 
senior executive level engagement with small business 
contracting, as it is a matter of public record, and has 
significantly contributed toward the federal government meeting 
its statutory small business prime contracting goal for the 4th 
year in a row in FY 2016. In FY 2016, the government exceeded 
the Small Disadvantaged Business goal, and for the fifth 
consecutive year, the Service-Disabled Veteran Owned Small 
Business goal; achieving its highest performance ever in awards 
to concerns owned and controlled by service-disabled veterans.

    Prior to FY 2017, each agency received a letter grade based 
on its performance as follows: 80% of the grade was small 
business prime contracting performance in each of the 5 socio-
economic categories, 10% of the grade was the agencies' 
subcontracting performance in each of the 5 socio-economic 
categories, and 10% of the grade was a peer review of success 
factors, essentially steps and actions that federal agencies 
should take to meet the small business prime contracting and 
subcontracting goals.

    The success in meeting the small business prime contracting 
goal has been accompanied by a review of the number of 
contracts actually awarded to individual small business 
concerns. Thus, in Section 868 of the National Defense 
Authorization Act of 2016, Congress directed SBA to adjust the 
Scorecard rating values and bring greater balance to better 
understand small business engagement. As a result, beginning in 
FY 2017, the small business prime contracting weighted goal is 
lowered from 80% to 50% of the agency's grade, subcontracting 
is raised from 10% to 20%, and a new required factor is the 
comparison of the number of small business concerns awarded 
prime contracts in one fiscal year compared to a prior fiscal 
year. In FY 2017, this comparison will account for 10% of an 
agency's grade. In addition, the National Defense4 
Authorization Act of 2013 directed the SBPAC to conduct a peer 
review of OSDBU compliance with the requirements of Section 
15(k) of the Small Business Act. For FY 2017, SBA has 
implemented OSDBU peer review changes as part of the Scorecard 
process. As the Government Accountability Office (GAO) noted, 
this OSDBU peer review will now account for 20% of an Agency's 
grade (in FY 2017). In accordance with GAO's recommendations, 
SBA will provide agencies with more detailed guidelines on the 
peer review process. The Scorecard and peer review process is 
an iterative process, and we annually adjust various aspects in 
response to changes in law, policies or priorities. The point 
of all of this, SBA, the OSDBUs, and the Scorecard process, is 
to encourage agencies to provide small businesses access to 
government prime contracts and subcontracts.

    The Scorecard is typically released in the spring or 
summer, several months after conclusion of the fiscal year. 
There are several reasons for this. Agencies are given several 
months to validate their data in the Federal Procurement Data 
System. Large Prime Contractors and contracting officers are 
also given several months to enter and validate data in the 
electronic subcontract reporting system. At a point to be 
determined in February 2018, we will receive the official data 
for FY 2017 prime contracting. Subcontracting data will follow 
and we will use this information to calculate the agencies' 
performance for goaling purposes and for the number of 
contracts awarded to small businesses. While this is going on, 
the peer review process will be going on. At some point in the 
spring or summer of 2018, we will announce the FY 2017 
scorecard performance.

    As the Associate Administrator for Government Contracting 
and Business Development, I intend to use the SBPAC to increase 
collaboration between SBA and the OSDBU directors to serve our 
customers, the agencies that award contracts to small business 
concerns. Sharing best practices but also sharing opportunities 
so that we can increase access across agencies. Collaboration 
between the OSDBUs and SBA will enable us, as advocates for 
small business, to pivot and meet the challenges of the ever-
changing marketplace. For example, as work shifts to category 
management, we need to shift our focus to ensure open and on-
going small business access to these prime contracts and to 
also focus on small business subcontracting, holding prime 
contractors accountable if they do not meet their 
subcontracting plan goals. With the help of the OSDBU 
community, we can work together to find solutions and ideas 
that will ensure and improve small business participation.

    Thank you once again for your support of SBA and the small 
business community, and for the opportunity to appear before 
you today.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Introduction

    Chairman Knight, Ranking Member Murphy, and distinguished 
Members of the Subcommittee, I appreciate the opportunity to 
appear before you today as the Department of Homeland 
Security's (DHS) Director of the Office of Small and 
Disadvantaged Business Utilization (OSDBU) to discuss DHS's 
small business contracting program. I am honored to serve in 
this role and the others I have enjoyed as a career public 
servant for over 27 years, which includes my time with the 
Department of Treasury and Justice.

    In support of the DHS mission, the primary role of the 
OSDBU is to promote and develop strategies for small business 
participation in the DHS contracting program. In accordance 
with the Small Business Act, similar offices exist in all major 
federal agencies because small business inclusion in federal 
contracting is a government-wide policy objective. Small 
businesses make substantial contributions to the American 
economy and taxpayers through innovation, job creation, cost 
savings, and tax revenue.

    DHS has a robust, award-winning small business contracting 
program that promotes small business prime contracts and small 
business subcontracts under large business prime contractors. 
In fiscal year (FY) 2009, the U.S. Small Business 
Administration (SBA) developed the annual Small Business 
Procurement Scorecard for the 24 Chief Financial Officer 
federal agencies. The scorecard uses a letter grade based 
methodology with six potential grades (A+, A, B, C, D, and F). 
The scorecard measures small business prime contracting 
accomplishments, small business subcontracting accomplishments, 
and other factors prescribed by SBA. DHS has received a grade 
of ``A'' or ``A+'' each year between FY 2009 and FY 2016, 
making DHS the largest federal agency to have such a consistent 
success record. Based on DHS's FY 2017 anticipated achievements 
and DHS's understanding of SBA's methodology, the Department 
anticipates receiving another favorable score for FY 2017 when 
SBA releases its scorecard in 2018.

    Implementation

    Since its inception, DHS has always been committed to small 
business inclusion in its contracting program. To implement the 
program, the DHS OSDBU Director reports to the Deputy 
Secretary, and works closely with the Under Secretary for 
Management, the Chief Procurement Office, and each of the 
Component Heads of Contracting Activity. Also, the DHS OSDBU 
Director serves as a member of the Small Business Procurement 
Advisory Council (SBPAC) and actively participates in the 
monthly SBPAC meetings hosted by SBA. Moreover, the DHS OSDBU 
plays a key role in the Department's efforts to promote 
meaningful communications with industry.

    Acting Secretary Elaine Duke and Under Secretary for 
Management Claire Grady, the Senior Official Performing the 
Duties of the Deputy Secretary, are both long-time supporters 
of the federal small business contracting program throughout 
their distinguished careers. They continue to offer strong 
support to the DHS OSDBU in their current positions.

    Over the years, the DHS small business contracting program 
has been successful due to a number of innovative and inclusive 
initiatives, such as:

           Maintaining a web presence with helpful and 
        timely resources for small businesses;

           Supporting Small Business Specialists in 
        each contracting activity;

           Publishing an annual forecast of contracting 
        opportunities;

           Conducting outreach activities, including 
        monthly vendor outreach sessions featuring pre-arranged 
        15 minute appointments with DHS Small Business 
        Specialists and DHS Large Business Prime Contractor 
        representatives;

           Listing large business prime contractors 
        with subcontracting opportunities;

           Promoting the DHS Mentor-Protege program;

           Hosting an annual small business awards 
        ceremony to recognize DHS small business contractors 
        and DHS employees;

           Overseeing a small business review process 
        for all procurements expected to exceed $150,000 in 
        order to ensure contracting to small businesses is 
        considered prior to using unrestricted competition;

           Setting and monitoring DHS-wide and 
        Component small business goals;

           Conducting an annual three-day small 
        business training session for DHS Component Small 
        Business Specialists and OSDBU personnel; and

           Helping design DHS-wide multiple award 
        contracts with built-in set aside authority (using 
        Section 1331 of the Small Business Jobs Act).

    In a recent U.S. Government Accountability Office (GAO) 
report titled, ``Actions Needed to Demonstrate and Better 
Review Compliance with Select Requirements for Small Business 
Advocates,'' DHS demonstrated compliance with all 12 of the 12 
requirements selected by GAO for review. The GAO report had no 
recommendations for DHS.

    Conclusion

    Chairman Knight, Ranking Member Murphy, and distinguished 
Members of the Subcommittee, thank you again for the 
opportunity to testify today and I look forward to your 
questions.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]