    [House Hearing, 116 Congress]
    [From the U.S. Government Publishing Office]

       CLEARED FOR TAKE-OFF? IMPLEMENTATION OF THE SMALL BUSINESS RUNWAY
                                 EXTENSION ACT

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

                                    HEARING

                                   BEFORE THE

                          COMMITTEE ON SMALL BUSINESS
                                 UNITED STATES
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED SIXTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  HEARING HELD
                                 MARCH 26, 2019

                                   __________

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                Small Business Committee Document Number 116-012
                 Available via the GPO Website: www.govinfo.gov

                                   __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    35-608                      WASHINGTON : 2019

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                       HOUSE COMMITTEE ON SMALL BUSINESS

                     NYDIA VELAZQUEZ, New York, Chairwoman
                             ABBY FINKENAUER, Iowa
                              JARED GOLDEN, Maine
                              ANDY KIM, New Jersey
                              JASON CROW, Colorado
                             SHARICE DAVIDS, Kansas
                              JUDY CHU, California
                               MARC VEASEY, Texas
                           DWIGHT EVANS, Pennsylvania
                            BRAD SCHNEIDER, Illinois
                          ADRIANO ESPAILLAT, New York
                           ANTONIO DELGADO, New York
                         CHRISSY HOULAHAN, Pennsylvania
                             ANGIE CRAIG, Minnesota
                       STEVE CHABOT, Ohio, Ranking Member
       AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member
                            TRENT KELLY, Mississippi
                              TROY BALDERSON, Ohio
                              KEVIN HERN, Oklahoma
                            JIM HAGEDORN, Minnesota
                            PETE STAUBER, Minnesota
                            TIM BURCHETT, Tennessee
                              ROSS SPANO, Florida
                            JOHN JOYCE, Pennsylvania

                    Adam Minehardt, Majority Staff Director
         Melissa Jung, Majority Deputy Staff Director and Chief Counsel
                       Kevin Fitzpatrick, Staff Director

                               C O N T E N T S

                               OPENING STATEMENTS

                                                                       Page
    Hon. Jared Golden................................................     1
    Hon. Pete Stauber................................................     1

                                   WITNESSES

    Mr. David Black, Partner, Holland & Knight, Tysons, VA...........     5
    Ms. Megan C. Connor, Partner, PilieroMazza PLLC, Washington, DC..     6
    Mr. Brian Morales, President, ProCal Lighting, Vista, CA,
      testifying on behalf of the National Electrical Contractors
      Association....................................................     8
    Ms. Erin Allen, President, Contemporaries, Inc., Silver Spring,
      MD, testifying in her role as a board member on behalf of the
      Montgomery County Chamber of Commerce..........................     9

                                    APPENDIX

    Prepared Statements:
        Mr. David Black, Parnter, Holland & Knight, Tysons, VA.......    18
        Ms. Megan C. Connor, Partner, PilieroMazza PLLC, Washington,
          DC.........................................................    35
        Mr. Brian Morales, President, ProCal Lighting, Vista, CA,
          testifying on behalf of the National Electrical Contractors
          Association................................................    42
        Ms. Erin Allen, President, Contemporaries, Inc., Silver
          Spring, MD, testifying in her role as a board member on
          behalf of the Montgomery County Chamber of Commerce........    49
    Questions for the Record:
        Questions from Hon. Jared Golden to Mr. David Black and
          Answers from Mr. David Black...............................    56
        Questions from Hon. Jared Golden to Ms. Megan C. Connor and
          Answers from Ms. Megan C. Connor...........................    70
    Additional Material for the Record:
        Statement of EA Engineering, Science, and Technology, Inc.,
          PBC........................................................    73
        Statement of Dr. Richard Amos, President, COLSA Corporation,
          Huntsville, AL.............................................    76

       CLEARED FOR TAKE-OFF? IMPLEMENTATION OF THE SMALL BUSINESS RUNWAY
                                 EXTENSION ACT

                                  ----------

                            TUESDAY, MARCH 26, 2019

                      House of Representatives,
                   Committee on Small Business,
        Subcommittee on Contracting and Infrastructure,
                                                        Washington, DC.
        The Subcommittee met, pursuant to call, at 10:05 a.m., in
    Room 2360, Rayburn House Office Building. Hon. Jared Golden
    [chairman of the Subcommittee] presiding.
        Present: Representatives Golden, Balderson, Hagedorn, and
    Stauber.
        Chairman GOLDEN. Good morning. The Committee will come to
    order.
        I want to thank everyone for joining us this morning, and I
    especially want to thank the witnesses for being here today. I
    also wanted to take an opportunity to thank my Ranking Member,
    Representative Stauber. I am glad to be getting to know you and
    I look forward to working together to create bipartisan
    solutions to help small businesses all across the country, from
    Belfast, Maine, and hopefully I get this right, to Brainerd,
    Minnesota.
        Mr. STAUBER. Brainerd, you did.
        Chairman GOLDEN. All right. There we go.
        America's small businesses are economic engines that drive
    growth and jobs in the U.S. economy. The nearly 30 million
    small firms in the U.S. represent 99.7 percent of all employers
    and generate two-thirds of all new jobs. Back home in the state
    of Maine where I come from this is very much the case. What is
    very interesting is how many of our small businesses are truly
    very small. We are talking 10 employees or less that make up
    the great majority.
        Firms like this play such a crucial role in our economy,
    and it is critical that Congress enact policies that promote
    small business entrepreneurship, job creation, and also provide
    opportunities for growth. In fact, Congress has created tax
    preferences and loan programs to help small businesses thrive,
    and as one of the largest purchasers of goods and services in
    the world, the Federal Government is in a unique position to
    support small businesses by providing contracting opportunities
    to help small businesses succeed.
        When we establish policies aimed at helping small
    businesses, one of the decisions that Congress has to make is
    how to define a small business. I think very much the subject
    of this hearing as you all know, how we define that business
    will determine who is eligible for contracting opportunities
    and other incentives designed to help small businesses compete.
    Getting that target right is important as I can be too narrow,
    pushing a firm outside the size standard, or it can be too
    broad, allowing a large firm to compete in these programs and
    overpower the small business. The end result is the same--small
    firms deprived of Federal contracting opportunities.
        Last year, this Committee, and Congress as a whole,
    addressed this very issue by passing the Small Business Runway
    Extension Act, which requires SBA to use the gross receipts of
    a small business over 5 years as opposed to 3 years when
    considering granting Federal contracts. This change was
    designed to assist small businesses successfully bridge the gap
    between competing in the small business space and the open
    marketplace against larger companies. The Small Business Runway
    Extension Act is a move in the right direction to ensure that
    small businesses can mature, become prosperous, and create
    additional jobs that spur economic growth without having one or
    two particularly good years or contracts bump that firm out of
    the small business category before it is ready to compete with
    larger firms.
        Unfortunately, since the Runway Extension Act became law
    last year, its interpretation and implementation has been
    contested. Shortly after the bill was passed, questions arose
    as to whether the bill was to take immediate effect. Businesses
    benefitting from the 5-year change hoped, and I believe
    anticipated that the change would take effect immediately so
    they may continue to certify as a small business in 2019.
    Surprisingly, the SBA has suggested that the Runway Extension
    Act applies to every other agency adopting its own size
    standard but not to the SBA itself.
        While the merit of that argument is debated by legal
    experts, the SBA is working on regulations to implement the
    law, and we are doing our own analysis by holding today's
    hearing. It is my intent that this hearing ensure that
    congressional intent is not thwarted and small businesses have
    the Federal contracting opportunities that Congress decided and
    determined last year that they deserve.
        I look forward to hearing from our witnesses and exploring
    the controversies surrounding the implementation of the act,
    discussing potential solutions to mitigate these challenges,
    and examine additional steps, if any, that may be necessary to
    ensure that this Committee and Congress's intent is fully
    implemented and in a timely manner.
        I thank all the witnesses for their attendance and insights
    into this important topic. I would now like to yield to the
    Ranking Member, Mr. Stauber, for an opening statement.
        Mr. STAUBER. Thank you, Mr. Chair. And I, too, look forward
    to working with you, and I appreciate this opportunity.
        The Small Business Runway Extension Act, led by the former
    Chairman of this Subcommittee, was intended to be uncomplicated
    and straightforward. In fact, it changes only one word in the
    Small Business Act. Unfortunately, as simple as that was, the
    actual implementation of the law has been equally difficult.
        The purpose of the Runway Act was to allow graduating small
    businesses more time to build their competitive edge when
    competing against titans of industry in the open market.
    Recognizing the significance of this bill for small businesses,
    the Runway Act easily passed through both the House and Senate,
    becoming law on December 17, 2018. Quickly following the law's
    passage, the Small Business Association put the brakes on its
    implementation. The SBA sent an information notice to all
    Federal agencies halting the switch to the 5-year rule as
    mandated by the Runway Act. The SBA decided they would keep in
    place the previous 3-year calculation currently in regulation
    until the agency could undertake an assessment of the law
    through the rulemaking process.
        Unfortunately for small businesses fluctuating between
    small and ``other than small,'' this conflict in the law versus
    regulation poses significant, real-world challenges in the form
    of potential size protests and uncertainty facing small
    businesses and their recertifications. Advocate for the
    immediate implementation of the Runway Act criticized the SBA's
    reasoning on what they view as a straightforward and helpful
    piece of legislation.
        However, businesses facing declining revenues applaud the
    SBA's cautious and transparent approach. Who is or is not
    considered small is up for debate, and understanding how to
    best achieve clarity in the law may help alleviate this
    uncertainty.
        Regardless of who prevails in the legal arguments
    surrounding this debate, it is important that this Committee
    take a practical, policy-oriented approach to this issue and
    identify how best to respond to the concerns of our small
    businesses.
        At the end of the day, our primary responsibility is to
    small businesses, and we must take the greatest care to uphold
    and protect their ability to compete and succeed.
        I hope through our testimony and our witnesses today that
    we can come to a greater understanding of the problem and
    discover ways to quickly resolve the issue in a manner that
    will provide clarity and consistency for small businesses.
        Thank you, Mr. Chair, and I yield back.
        Chairman GOLDEN. Thank you, Mr. Stauber. The gentleman
    yields back.
        And if Committee members have an opening statement
    prepared, we would ask that they be submitted for the record.
        I will take just a few minutes to explain the timing rules.
    Each witness will get 5 minutes to testify, and each member
    gets 5 minutes for questioning. There is a lighting system to
    assist you. I do not know if you have done this before so I
    will go ahead and lay it out for you. The green light will be
    on when you begin. The yellow light will come on when you have
    1 minute remaining. The red light will come on when you are out
    of time, and we ask that you stay within that timeframe to the
    best of your ability. It goes by quick.
        I would now like to introduce our witnesses. Our first
    witness is Mr. David S. Black. David Black is a partner with
    the law firm Holland and Knight, LLP, in Tysons, Virginia, and
    Co-Chair of Holland and Knight National Government Contracts
    Group. Mr. Black's practice involves serving as a trusted
    advisor, problem solver, and advocate for Federal contractors,
    awardees, and subcontractors in every stage of growth. He
    provides legal advice and representation to help his clients
    secure opportunities, enhance performance, mitigate risk, and
    respond to threats. Mr. Black serves contractors and awardees
    in a broad array of industries with an emphasis on innovative
    technology, cutting age products, professional services, health
    care, and research and development. Welcome, Mr. Black.
        Our second witness is Ms. Megan C. Connor. Megan Connor is
    a partner with the law firm--I am going to get this wrong.
    Perhaps you want to just go ahead and tell us what it is.
        Ms. CONNOR. PilieroMazza.
        Chairman GOLDEN. PilieroMazza, PLLC, in Washington, D.C. In
    that role, she counsels companies on a variety of government
    contracting and business matters. For small businesses in
    particular she assists contractors with regulatory compliance,
    like affiliation issues, limitations on subcontracting, and how
    to maintain size and status. Ms. Connor also represents
    contractors in state and Federal court concerning government
    contracts, business and employment matters. Ms. Connor received
    her Bachelor of Science degree Magna Cum Laude from Boston
    University, and received her law degree Magna Cum Laude from
    the University of Miami, School of Law. Welcome, Ms. Connor.
        Our third witness today is Mr. Brian Morales. Brian began
    his career in the electrical industry at the age of 21 after
    finishing his education at San Diego Christian College. After
    obtaining his contracting license in 2008, Brian began working
    as a regional manager for an energy efficiency company based
    out of Connecticut and has managed large public projects in
    Alaska, Hawaii, Washington, Arizona, California, and Colorado.
    Today, Brian is the proud owner of ProCal Lighting, a minority-
    owned small business with a focus on providing equal
    opportunity to all genders, races, and education levels.
    Because of this approach, ProCal Lighting employs amazing
    individuals who represent the best California has to offer.
    Welcome Mr. Morales. Thank you.
        I would now like to yield to our Ranking Member to
    introduce our final witness.
        Mr. STAUBER. Thank you, Mr. Chair.
        Our final witness today is Ms. Erin Allen. Ms. Allen is the
    president of Contemporaries, Inc., a small business owner
    operating locally in Silver Spring, Maryland, and is testifying
    today in her capacity as Vice Chair of the Small Business
    Committee of the Montgomery County Chamber of Commerce. In her
    role as president of Contemporaries, Inc., Ms. Allen provides
    extraordinary staffing services to clients in the D.C.
    metropolitan area, receiving outstanding recognizing from
    satisfied government clients such as the National Institutes of
    Health. In her role as part of the Executive Committee of the
    Montgomery County Chamber of Commerce Board of Directors, she
    has been instrumental in identifying legislative and regulatory
    issues impacting small businesses and advocating for policies
    that benefit the small business community. Welcome, Ms. Allen.
        Chairman GOLDEN. All right. Thank you very much.
        Mr. Black, you are recognized for 5 minutes.

    STATEMENTS OF DAVID BLACK, PARTNER, HOLLAND & KNIGHT; MEGAN C.
     CONNOR; PARTNER, PILIEROMAZZA PLLC; BRIAN MORALES, PRESIDENT,
          PROCAL; ERIN ALLEN, PRESIDENT, CONTEMPORARIES, INC.

                        STATEMENT OF DAVID BLACK

        Mr. BLACK. Good morning. First, I want to say thank you,
    Chairman Golden, thank you Ranking Member Stauber for the
    invitation. It is an honor and privilege to be here today to
    try to assist the Subcommittee look at the implementation of
    the Runway Extension Act.
        Points I would like to make today are, first, Congress did
    a really good thing back in December. The current status is
    that it changed the 5-year standard. That is a law that went
    into effect. I have a little bit more on that in a moment. And
    small businesses have been relying on that change in the law.
    For the past 3 months, small businesses that would be large
    under the 3-year standard but are small under the 5-year
    standard have been submitting proposals for set-aside
    contracts, and they put a representation in their proposal
    stating that based on the change in the law, we are an eligible
    small business under the 5-year standard. And contracting
    officers are within their discretion to recognize that. And so
    it has been a good thing. And I think when the Subcommittee
    looks at the status quo, it needs to realize this is something
    that has been completed. It is done. It is in the books. And
    you know, from my perspective as a mid-tier contractor lawyer,
    the community has been relying on that. And so to delay
    effectiveness or push that back at this point would be to take
    something away from the mid-tier small business contracting
    community that Congress has already provided. And so it is a
    good thing and it should stay in effect.
        So what has been happening is basically, SBA has been
    kicking up some sand and dust. And they have sort of put forth
    two arguments that have pretty easy solutions in the existing
    law. First, in the information notice that you alluded to they
    say, well, you read the Runway Extension Act and there was no
    effective date. So that means it is not effective until we
    issue our regulations. Well, the Supreme Court has an answer to
    that, and this is sort of basic principles of statutory
    construction. That when Congress passes the law, the omission--
    this is a quote from Johnson v. United States, a 2000 case. You
    should feel comfortable about what you did in December because
    the omission of an express effective date simply indicates that
    absent clear congressional direction, it takes effect on its
    enactment date. And everybody knows this. And so the small
    business contracting community has relied on the absence of an
    effective date. There is no clear direction that Congress
    intended to delay it. Quite the contrary. And so, you know,
    this ship has sailed. And SBA is just legally erroneous when
    they claim that it did not take immediate effect.
        And so the other thing they say is that Section 3 of the
    Small Business Act, and that is where Congress has put these
    size regulations, the provision that sets forth the parameters
    for size standards, that is where the 3- and 5-year standards
    are, were and are, that somehow that does not apply to SBA. And
    I think everyone was surprised to hear this position. I mean,
    when you read the statute, that subsection says that no
    department or agency may prescribe a regulation that conflicts
    with that. And there is a definition of Federal agency in the
    statute that clearly includes SBA. And so the only carve out
    from this is unless specifically authorized by statute. So
    Congress said, well, we might for another agency specifically
    authorize by statute. There is a subsection SBA points to.
    There is nothing in there that specifically says you are exempt
    from the size standard requirements that are in subsection
    (a)(2)(C).
        So, again, the solutions are clarifying amendments at most.
    Congress has done a good thing. It is not to push the deadline
    back. You do not want to take something away that is
    benefitting the community and push it back. Keep it in effect.
    You do not really need to clarify the effective date but you
    could. December 17, 2018. And then the other thing is to
    clarify that the subsection C, (a)(2)(C), when you talk about
    Federal agency, you could just put a little carrot there and
    say ``including the administrator of SBA.'' And these are
    clarifying amendments that are not changing the law, so they
    apply retroactively. You would just be clarifying what Congress
    has meant for decades, that SBA does not have this license to
    come up with its own size standards. And it maintains
    Congress's hook. You all want to set the policy in this area.
    You set it by applying it to every Federal agency in that
    subsection and you want to maintain that mechanism.
        So with that, again, thank you for the opportunity, and I
    look forward to answering the Subcommittee's questions.
        Chairman GOLDEN. Thank you, Mr. Black. Ten seconds to
    spare.
        Ms. Connor, you are next. Thank you.

                      STATEMENT OF MEGAN C. CONNOR

        Ms. CONNOR. Good morning. Good morning, Chair Golden,
    Ranking Member Stauber, and distinguished members of the
    Subcommittee. My name is Megan Connor, and I am a partner at
    PilieroMazza, a law firm serving government contractors for
    over 30 years. We represent companies of all sizes in a variety
    of industries, and our firm supports the Runway Extension Act,
    and specifically changing how small businesses calculate their
    receipts from a 3-year basis to a 5-year basis.
        However, we believe in implementing this change there are
    three issues that need to be addressed in order to avoid
    negative impacts on small businesses. First, small businesses
    deserve clarity as to the effective date of the change from 3
    years to 5 years. Second, we strongly recommend a transition
    period during which firms may adjust to the new 5-year
    calculation. Third, the System for Award Management database
    must be updated to account for this change. I will address each
    of these issues in turn.
        First, there is widespread confusion in industry as to the
    effective date of the Runway Extension Act. Although it was
    signed into law on December 17, 2018, as Mr. Black stated, the
    SBA has taken the position that it is not presently effective.
    While we would normally advise clients that Federal law
    supersedes SBA's regulations, SBA's regulations still state
    that 3 years is the basis of calculation and the information
    notice that SBA published has left contractors in a state of
    confusion.
        To illustrate the confusion this is creating, a client of
    ours submitted a proposal in October 2018, when the company was
    small under a 3-year calculation. As of January 1, 2019, that
    company is no longer small under a 3-year calculation but is
    small under a 5-year calculation. It recently had to update its
    representations and certifications for that same proposal. The
    company reiterated that it was small at the time of its initial
    proposal with price, which is the relevant date for size
    purposes, and also stated that it remains a small business
    pursuant to the Runway Extension Act.
        This company, and others like it, should be able to take
    advantage of the Runway Extension Act now. Accordingly, we
    recommend that Congress make clear its intent as to the
    effective date of the Runway Extension Act. It is my
    understanding that the Committee is currently drafting
    legislation to address this. We appreciate the Committee's
    efforts and urge the Committee to ensure that firms that are
    benefitted by the act may take advantage of it as of the date
    it became law.
        The second issue the Committee should address in
    implementing the Runway Extension Act is a transition period,
    which would allow firms that are small under a 3-year
    calculation, but not small under a 5-year calculation, to
    adjust to this change. The reality is that the Runway Extension
    Act unintentionally may harm small businesses that are
    experiencing financial downturns. For example, if a contractor
    unexpectedly loses a valuable follow-on contract or graduates
    from the SBA's 8(a) program and is no longer eligible for 8(a)
    contracts; in both scenarios the contractor often experiences a
    decrease in revenues after years of increases.
        Fluctuations also could be driven by the types of contracts
    a contractor has. For instance, if the company is a contract
    holder on a large contract vehicle and has won large dollar but
    short-term task orders in some of the recent fiscal years but
    not every year, then it could experience these types of swings.
    Small businesses should be given the option to choose which
    calculation is most favorable for them, 3 years versus 5 years,
    for a short transition period. In this way, firms that are no
    longer considered small under a 5-year calculation will have
    time to prepare to compete as a so-called mid-size firm in the
    unrestricted marketplace.
        Lastly, in implementing the Runway Extension Act, the
    System for Award Management database (SAM) should be updated to
    account for the change from 3 years to 5 years. When completing
    SAM registration, contractors must insert one amount
    representing their 3-year average receipts. To conform to the
    Runway Extension Act, SAM should be updated to request a 5-year
    average receipts calculation.
        In conclusion, the Runway Extension Act is a positive
    change for government contractors, but in implementing it, any
    potential negative impacts should be mitigated through clarity
    for industry, a transition period for firms that are not
    benefitted by the change, and an update to SAM.
        On behalf of PilieroMazza and the government contractors we
    represent, I would like to commend the Committee for continuing
    to consider how best to implement the Runway Extension Act, and
    I would like to thank the Committee again for the opportunity
    to appear before you today. I look forward to your questions.
        Chairman GOLDEN. Thank you, Ms. Connor.
        Mr. Morales?

                       STATEMENT OF BRIAN MORALES

        Mr. MORALES. Thank you, Chairman Golden, Ranking Member
    Stauber, and members of the Subcommittee, for inviting me to
    testify today.
        On behalf of the National Electrical Contractors
    Association (NECA) and ProCal Lighting, I greatly appreciate
    the opportunity to submit a statement for the record. The
    Subcommittee is to be commended for holding this hearing to
    better implement and enact a prudent bipartisan reform signed
    into law in the previous Congress.
        My name is Brian Morales. I am the president and CEO of
    ProCal Lighting, which is located in Vista, California. As a
    second generation Mexican American and a participant of the
    NECA IBEW program, I founded my company in 2014 with my father,
    Anthony Morales, a Purple Heart recipient and a Vietnam War
    veteran. Since that day, ProCal Lighting has provided energy-
    efficient design and installations to public schools,
    government buildings, and some of our Nation's largest private
    industries. We at ProCal Lighting are proud members of the
    National Electrical Contractors Association, which serves as
    the voice of the 4,000 electrical contractors who make up the
    $171 billion electrical construction industry that brings
    power, light, and communication technology to buildings and
    communities across the U.S.
        Risk is inherent with any business venture, and a
    successful entrepreneur knows how to navigate this risk. In
    order to build a sustainable business and avoid undue risk, a
    business owner needs to be informed. For my company to continue
    to grow, our estimating team needs to consider the
    competition's approach and determine what level of risk
    exposure we have through formal requests for information and by
    receiving clear deliverables. The small business classification
    has allowed, and continues to allow ProCal Lighting and many
    other NECA contractors the opportunity to understand this risk,
    learn from it, and be better suited to grow.
        On a personal note concerning ProCal Lighting, the small
    business classification has opened numerous opportunities for
    us to sit at the table of government procurement and
    competitively offer our services. Thanks to our small business
    classification, we, as a company, have seen benefits including
    access to various workshops, increase relationships with
    vendors and industry resources like Federal small business
    loans, and complementary SBA training. These resources have
    aided our company in competitively securing government
    subcontracts, working on energy efficiency projects such as the
    Marine Corps Recruit Depot in San Diego, as well as the Customs
    and Border Patrol facilities in San Diego and Orange Counties.
        We at NECA and ProCal Lighting were pleased to learn about
    the bipartisan legislation from last Congress, the H.R. 6330,
    which extended the small business calculation for average
    receipts from 3 to 5 years. This legislation is of particular
    benefit to companies like my own, who can say over a 5-year
    period given the measure of our current anticipated revenues
    for this year and the following, ProCal Lighting would still
    hold its certification as a small business. If the same were to
    be evaluated over a 3-year period, we would lose our
    certification after year 2020. If we were to engage in
    discovering projects with the Federal Government, by the time
    the projects were funded and released for 8(a) certified
    contractors, we would be disqualified from participating and
    lose all that investment in developing and promoting this work.
    The new 5-year period, when combined with a finite phase-in
    period benefits companies like mine by providing a measure of
    flexibly in determining our small business status. It also
    allows ProCal Lighting the ability to hold its small business
    certification for a longer period of time.
        This phase-in period would allow both contractors and the
    SBA time to properly account for the 5-year calculation, while
    preparing businesses for the full implementation of the rule.
    Upon enactment of the previous Congress's legislation, ProCal
    Lighting can begin to acquire new clients on long-term
    contracts, having them become long lasting revenue sources and
    subsequently move our company into a safer financial position.
        With nearly 80 percent of NECA's contractor members
    classified as small businesses, legislation allowing our
    contractors to fully benefit from a small business
    classification is of utmost importance. As a small business
    contractor, I am extremely encouraged by this Committee's
    efforts to revise and strengthen the Small Business Runway
    Extension Act. The further clarification and guidance of this
    legislation will be a key component for small business owners
    like myself and the 3,200 NECA small business contractors in
    mitigating the inherent risk of competing in our industry.
        Thank you again for the opportunity to testify. Both ProCal
    Lighting and NECA applaud the Committee's unwavering efforts to
    reexamine the benefits of government programs for small
    businesses, and I look forward to answering any questions you
    may have.
        Chairman GOLDEN. Thank you, sir.
        Ms. Allen?

                        STATEMENT OF ERIN ALLEN

        Ms. ALLEN. Good morning. Thank you, Chair Golden and
    Ranking Member Stauber. I want to thank you for the opportunity
    to testify on this very important topic.
        My name is Erin Allen. I am the president of
    Contemporaries, and I am testifying today on behalf of the
    Montgomery County Chamber of Commerce out of the state of
    Maryland.
        I am here for two reasons. First, to thank you so much for
    the Committee to work with us to pass the Small Business Runway
    Extension Act last year. And also, to press for expedited
    implementation on this important law which affects millions of
    businesses all over the country just like mine.
        As government contracts become larger and small business
    grow, it is inevitable that they will face very tough choices,
    the first being to grow beyond the small business programs to
    compete with large companies. The second is to stay small to
    avoid the difficulties of competing in the full and open
    market. Another option is to sell, and unfortunately, the last
    and rather tragic option is to go out of business. As a result,
    there are only 1,700 mid-size businesses doing Federal work
    today. These firms compete not only with very large businesses,
    but also with small businesses who receive set-aside Federal
    work.
        Before I go any further I want to tell you a little bit
    about my company and our story and why it is important to me.
    Excuse me. Allergies are crazy.
        I am a second generation business owner. My parents started
    the company back in 1991. When I was tapped as president back
    then, we had just $4 million in sales. Fifteen years later, we
    are one of the largest providers of staffing services to the
    NIH and as a result of that steady growth, we find ourselves at
    the top of our size standard, which is revenue based. Our size
    standard is $7.5 million, which is microscopic in comparison to
    the very large businesses in our industry. My concern comes
    from having the time to accommodate future growth in a steady
    manner. The last few years have been really good for us, but
    the downside of that is that we risk losing that momentum
    should I continue that growth or be awarded a large contract.
    If the Runway Extension Act goes into effect, I will have a few
    more critical years to build my infrastructure, develop talent,
    and comply with some costly new cybersecurity requirements. In
    the end, my goal is to grow the company, to create new jobs,
    and to contribute to the economy.
        Last year, a fellow chamber member, Steve Ramaley,
    recommended changing the formula for small business eligibility
    to the lowest of 3 of 5 years to this Committee. Ultimately,
    the legislation simply changed the current 3-year revenue
    average to 5 years for the purposes of determining size. The
    rationale behind this proposed change can be stated simply--
    competitiveness takes time to build. Revenue is not an
    indicator of present competitiveness. It is an indicator of
    future competitiveness. Having a good year or even a couple of
    good years does not mean that a company will continue to grow.
    Moving from the current 3-year lookback to a 5-year lookback
    would give firms more time to adjust to the full and open
    market.
        Not just bigger small companies and midsize companies
    benefit from the Runway Extension Act. Any small business that
    intends to grow will eventually benefit from these changes.
    Further, having more well-qualified firms under the revenue
    standards will increase the chance that solicitations will be
    set aside and therefore, will give all firms more opportunities
    to compete. Large businesses will also benefit because it
    increases the pool of well-qualified subcontractors.
        The Runway Extension Act as passed by the last Congress
    addresses these issues. We expected the change to be effective
    immediately. However, since its passage into law, the SBA has
    posed the argument that the size determination changes would
    not take effect immediately as the agency should first be able
    to utilize the rulemaking process and seek public comment. This
    decision by the SBA puts businesses in limbo.
        According to the Administrative Procedures Act, an agency
    can issue a final rule without publishing a proposed rule. And
    I quote, ``Congress has already directed a specific regulatory
    outcome into law.'' We believe that there is no question as to
    the intent of Congress. There was a hearing. There was a mark-
    up. There was a clear congressional record, and specific
    statutory language leaving no discretion with respect to the
    regulatory outcome.
        While it seems unnecessary for Congress to reiterate its
    intent through this new legislation, we support any effort to
    insist on implementation. The damage caused by the delay is
    impacting small businesses all over the country, not just
    inside the beltway. The longer implementation takes, the more
    uncertainty and confusion there is for all small business
    owners. On behalf of small business owners everywhere, I
    implore you to press for implementation of the Runway Extension
    Act.
        Thank you for the opportunity to testify today.
        Chairman GOLDEN. Thank you very much, Ms. Allen.
        I appreciate all the testimony that you have all just
    shared with us, and I will begin now by recognizing myself for
    5 minutes of questions.
        One of the recommendations that we just heard to deal with
    the delay and the implementation of the Runway Extension Act is
    for Congress to pass legislation providing for an interim
    period in which the 3-year and 5-year formula would apply,
    leaving to contractors to decide which one to use. And this
    interim period would sunset on the date when the Runway
    Extension Act became effective or when the SBA issues their
    rules, whichever happens first. I believe, Ms. Connor, this is
    an approach that you have advocated for, and I see you are
    reaching for your button. But I think in the interest of having
    more opportunity for all of you to kind of talk about your
    different proposed solutions, I also want to lay out an
    alternative to deal with the delay would be to pass a
    legislative amendment, something that Mr. Black talked about.
        So in the interest of furthering the discussion for
    everyone, I might ask Mr. Black what you think the advantages
    and/or disadvantages of the proposed interim rule may be.
        Mr. BLACK. Sure. Well, you know, I think it is not a bad
    thing to help what we call backsliding businesses, businesses
    that have emerged from small and may be struggling to compete
    and are experiencing a reduction in revenues.
        At the same time, I think if Congress wants to help that
    part of the community, it needs to keep what it has done in
    place. It needs to maintain that continuity for the growing
    small businesses who are relying on this law that went into
    effect on December 17th. And so there is a way to do that where
    you clarify that the 5-year amendment went into effect on
    December 17th but then we are doing a new amendment to add back
    at the 3-year standard for a period of time. And these are all
    sort of judgment calls.
        So, you know, anecdotally in my practice I think you are
    helping more small businesses who are the growers. I do not
    have hard data. Just I have my experience in my day to day. And
    my experience says, this law is benefitting--there are more
    businesses who are large under the 3 but small under the 5, and
    then there is a subset of the community. I just think it is
    smaller. And so this is one of those where Congress wants to
    think about are we letting the tail wag the dog? If we do want
    to help the backsliders, let us do it in a way that makes sure
    we keep the help in place that we have given to the growing
    small businesses.
        Chairman GOLDEN. Thank you, Mr. Black.
        Ms. Connor, I thought I would ask you a similar question.
    If you could put a different cap on maybe and think a little
    bit about the proposed solution that Mr. Black has. What are
    some of the flaws with that approach or any potential benefits
    from your perspective?
        Ms. CONNOR. Well, the benefit is that, obviously, SBA is
    not implementing this change, and so the major benefit would be
    that they would have no choice. I think it is unfortunate that
    it has come to that because that subsection of the act, when
    you read it, it is clear that it applies to SBA because it
    speaks to a Federal agency issuing size standards. And to my
    knowledge, there is no other Federal agency that issues size
    standards besides the SBA. And it speaks to the SBA's
    rulemaking process for doing so. So it is unfortunate that the
    Committee and Congress are put into that position by another
    branch of government that they are refusing to implement this
    very simple change.
        But with that said, I think my one concern would be that
    the SBA size standard process is so slow and it does not, in my
    opinion, capture small businesses fairly. The current size
    standards have been in place since 2012 and are based on data
    from 2010-2011, and if you look at businesses now, it is 9
    years later. They have different expectations, different
    operating costs. It is just not a fair representation. So I
    would hate for anything that would slow down the size standard
    process any further.
        Chairman GOLDEN. Thank you, Ms. Connor.
        You know, in light of the delay that is taking place I just
    thought I would ask if you have any questions as well in the
    last few seconds that I am leaving you here. You know, what
    confidence might the Committee have that taking, you know, the
    approach that you propose would not result in further delays of
    the process from SBA?
        Ms. CONNOR. The transition period creates all winners. That
    is what is so great about it. If you are small under 3 years,
    you are still small until some date in the future. If you are
    small under 5 years, you are small and you can continue to
    pursue procurements for the next, whatever the transition
    period is, and then thereafter, when the 5-year rule is
    permanent and effective. So the transition period in my mind
    just creates a pool of winners instead of winners and losers.
    And I do not know what SBA's intent is and why they have issued
    that information notice and why they are slow to act. But if I
    had to speculate, I suspect that they might be concerned about
    the losers under the Runway Extension Act, i.e., the businesses
    that are small under 3 years but are not small under 5. And the
    transition period addresses what I think could be their
    concern. So I understand the delay but once it is in the act,
    and then if the Congress says that this is to be an interim
    final rule and comments would be allowed, then it is done.
        Chairman GOLDEN. Thank you very much. My time has expired.
        I now recognize the Ranking Member of the Subcommittee, Mr.
    Stauber, for 5 minutes.
        Mr. STAUBER. Thank you, Mr. Chair.
        A couple of questions or comments before I ask a question.
        The passion is, I hear loudly and clearly, to immediately
    implement it. Mr. Black, you made a couple of comments that
    really resonate. Sometimes the intention or what we desire in
    Congress does not make it to the implementation the way it
    should. And so this hearing is to change it. I, as one member,
    hear loudly and clearly, so the goal is to make this happen, to
    work with the SBA to make sure that it is understood, that it
    helps a small business. Each and every one of you talked about
    how it will help us. NECA is very involved. That is very
    important for us to hear that. I have been a small business
    owner for 28 years. I get it.
        And so a couple of questions I will ask Ms. Allen. You
    know, you mentioned in your testimony the administrator
    committed the agency to start working on the rulemaking
    immediately. Are there any consequences, both long term or
    otherwise for firms that might lose their small business status
    during these months but gain it back once the SBA issues its
    final ruling?
        Ms. ALLEN. So, you know, uncertainty is never good, right,
    in small businesses. And so I would just urge honestly,
    whatever decision is going to be made, just make it and get it
    done and over with. I mean, honestly, that to me is the
    biggest, if I can say nothing else, it is that. But insofar as
    small businesses, the wishy-washy is a problem. For me as a
    small business, I know that it was the greatest Christmas gift
    I could have ever gotten because this has been weighing heavily
    on my head for a long time over what is going to happen to us?
    And we have been planning and making infrastructure changes and
    hiring new employees, and I know that a lot of my colleagues
    within the business community are doing the same. So it is
    super critical for us and I think that the 5-year lookback is
    going to be huge for us.
        I do not know if that answers your question. Does that?
    Yes? No?
        Mr. STAUBER. Not allowing our small businesses to be in
    limbo is critically important. That is where you are right now.
        Ms. ALLEN. Absolutely.
        Mr. STAUBER. And to Mr. Black, your point of looking and
    researching other case law, it makes sense that the intention
    was to have it enacted immediately.
        One of the questions that I had was I know that in the
    small business community there are ups and downs. In any
    lookback, give me both a positive and a negative lookback from
    either the implementation or nonimplementation of this
    immediately. So what is the positive and what is the negative?
    You alluded to it but I want to hear it again.
        Mr. BLACK. Okay. Well, the positive, of course, is that
    businesses--the small business size standard is relevant on the
    date you submit a proposal for contracts. That is the date. If
    you are small on that date and you win the contract, you are
    small for the rest of the life of the contract. And so that
    date, the benefit, if you are small, if you are small under the
    5 year but not the 3 year, that means in 2019, you have
    opportunities that you would not otherwise have. And if there
    is ambiguity or SBA's Office of Hearings Appeals reaches a
    different opinion and a business loses a size protest, these
    opportunities are not coming back. 2019, they will lose the
    revenue. Contracts for programs are typically awarded every 5
    years. It will not be coming around. They will not be small.
    And so it is critical. The positive and the negative are the
    same thing. When it is clear you are small, you have
    opportunities now. When it is unclear or you are not small, you
    lose those opportunities and you will not get them back.
        Mr. STAUBER. I just go back to the fluctuation in the
    mindset of the small businesses. Our goal is to make sure that
    you know where you sit and the rules are present today and the
    standards are there for the small businesses. I think all in
    all I really appreciate your comments and your success in small
    business. It is not easy.
        I have said this many times in this Committee that small
    businesses are the engine of our economy, and I know that the
    Chair and I feel the same way. Coming from rural America, you
    are Main Street businesses and I really appreciate your
    testimony today.
        Mr. Chair, I yield back.
        Chairman GOLDEN. Thank you. The gentleman yields back.
        We will now recognize the gentleman from Ohio,
    Representative Balderson, Ranking Member of the Subcommittee on
    Innovation and Workforce Development, for 5 minutes.
        Mr. BALDERSON. Thank you, Chairman.
        Good morning, everyone. This question is for Ms. Allen.
    Good morning, Ms. Allen.
        In your testimony you talked about the midsize crisis of
    the contractual growth. Can you share how these 2 extra years
    from the Runway Act can help a small business successfully
    integrate into the open market without kicking the can down the
    road?
        Ms. ALLEN. Yeah, though I would like to kick it further
    down the road. But yes.
        It really helps because it gives us an opportunity to, as I
    said, to grow our infrastructure, to hire new employees. If we
    want we could acquire other small businesses to make us larger
    or more competitive, or to joint venture with them, to develop
    some of those relationships that we would not have otherwise
    needed. As a small business, you can kind of do your thing. You
    do not need to be, you know, Mammoth. You do not need to have
    as many joint ventures to operate. But when you are competing
    against the Lockheed Martins and the SAICs and Leidos of the
    world, you need to have a whole army of folks with you. So it
    would give us time to put that consortium of people together.
        Mr. BALDERSON. Thank you. I have one follow-up question for
    you. In your opinion, how has the over the 3 or 5 year affected
    contracting firms' willingness to hire new employees and expand
    their work force?
        Ms. ALLEN. Sure. I mean, any uncertainty as a business
    owner, you know, if I am in a position of, okay, well, so next
    month I am going to be small or am I going to be large? I am
    not going to take that risk and hire new employees. It just
    does not make sense to the bottom line, and then have to turn
    around and get rid of them because, oh, my gosh, now I cannot
    afford, I am not going to be able to compete for those
    businesses because I am no longer small. And so that really
    puts huge pressure on businesses. And so, yeah, whether you are
    large or small, that uncertainty is not good.
        Mr. BALDERSON. Thank you very much for your answers. And I
    yield back my remaining time.
        Chairman GOLDEN. The gentleman yields back his time.
        We will now recognize for 5 minutes Representative Jim
    Hagedorn.
        Mr. HAGEDORN. Well, thank you, Mr. Chair, and Ranking
    Republican Member Stauber, fellow Minnesotan. It is pleasure to
    be here. Thanks to the witnesses and the staff and everyone.
        I would first like to recognize a friend of ours who is in
    the audience, former Congressman Tom Davis. Tom, appreciate
    your public service. It is nice to see you today. Hope things
    are going well.
        Ms. Allen, so the concept here, I guess, is that small
    business begins to grow, you are involved in these contracts
    and other things, and we should maybe set some different
    limitations or, you know, expand it so we do not have to just
    stop the whole process. I get that. We want businesses to grow.
    We do not want to disrupt the apple cart and all that. But, and
    by the way, I thought the concept of maybe the 3 lowest years,
    that might make more sense if you are looking over 5. But if
    this is a good concept and we do not want to have businesses
    run out of business or limited because of bad government, why
    do we not apply it to everything else that the government
    mandates? I mean, look at labor laws. Look at health care with
    Obamacare.
        I have spoken to a lot of business owners in southern
    Minnesota who are concerned that their business is getting too
    good. They are starting to grow. They are starting to hire more
    people. They were thinking about going out and buying other
    businesses and, you know, doing all sorts of things. But
    because of the limits that are imposed on them and Obamacare
    and other statutes by the Federal Government, they had to think
    twice about that. And oftentimes they deferred and decided not
    to.
        What do you think about that concept? Should we be maybe
    looking at other statutes and seeing how it impedes small
    business progress?
        Ms. ALLEN. Absolutely. Amen. Let us do it.
        You know, I think that anything that impedes the growth of
    particularly small businesses is, you know, welcome. You know,
    are there other statutes and limitations? I am sure there are,
    and I think that, yeah, that would be valuable. I think all of
    us would applaud that. You know, what are the right ones to
    change and monkey with? I will leave that in your very capable
    hands.
        Mr. HAGEDORN. I am just saying, if this is a good idea, if
    this is a good bill, it seems to be bipartisan, maybe we should
    look to apply it to all other aspects of government to make
    sure our small businesses can prosper, thrive, and grow and
    expand and compete ultimately with bigger businesses.
        With that, I yield back. Thank you.
        Chairman GOLDEN. The gentleman from Minnesota has yielded
    back.
        I will now move into a second round of questioning for
    those who want to. And I think I will start myself for an
    additional 5 minutes.
        I wanted to ask Mr. Morales, I think if I understood
    correctly, during your testimony you were saying that under the
    3-year rule in 2019, you are small. By 2020, you would have
    grown out of that. So I wanted to ask, or just give you another
    opportunity to tell us about how the delay in implementing this
    law has left you in limbo with a little bit of uncertainty. How
    is that going to impact your planning for what you do compete
    for or take on in 2019 looking beyond to 2020?
        Mr. MORALES. I think some background information about our
    company would be beneficial in this case. We started in 2014,
    so we are a relatively new company. Because of our tremendous
    growth, we have been able to go through a lot of processes that
    the SBA programs have helped us go through and understand. This
    current year is going to be our largest revenue year to date
    and when I was mentioning that if we continued this same type
    of revenue for the following year, under the 3-year rule we
    would lose our small business status. Now, that is not to mean
    the previous years in which I started the business were even
    close to breaching that. We just had a really good successful
    year this year. So again, the idea is we are a small 5-year-old
    company who just had a tremendous year and still are learning
    from the process of contracting with the government that we
    need to understand more formally. A big part particular to our
    company is we began our 8(a) application last year, midyear
    last year. It has been quite a bit of time that we have
    divested into this program. A lot of office time, a lot of
    monies trying to get that 8(a) certification. It is currently
    in the part of being processed, and if we were to continue our
    revenues, we would get the 8(a) in 2019 just to lose it after
    2020. And that is under the 3-year rule. So if we were to have
    the 5-year rule implemented immediately, that would help us
    plan. It would help us to look at what kind of solicitations we
    need to do. What type of contract engagements we need to have
    and patriciate in. We also want to start in right away with
    creating mentorship programs under the 8(a). And if we began
    that process only to lose that certification because we are no
    longer a small business, then it would be a lot of wasted time
    and effort and monies also.
        Chairman GOLDEN. I thought I might ask if you would just
    follow up in your experience. Probably you know businesses,
    maybe even your own, struggling with the same kind of
    uncertainty and challenges that Mr. Morales was talking about.
    But I was wondering if there are other common repercussions
    that you might speak to as a result of the delay of the act.
        Ms. ALLEN. The delay really puts us in a precarious
    position because there are contracts that we would love to go
    after. But if we are going to be considered large we cannot.
    And teaming arrangements that we have put together. We do a lot
    of mentoring with--not formal mentoring relationships but
    mentoring of other small businesses that we help and they
    subcontract under us. And if that change happens, not only does
    it affect me but it affects all those other smaller small
    businesses that no longer can team with me. And some might say,
    well, we could reverse it. They are not in a position to be
    able to prime a contract. They are not large enough. They are
    not a large enough small to be able to prime those small
    businesses. So it really puts all of us in this really wonky
    period. So, yeah.
        Chairman GOLDEN. Thank you all very much.
        I want to thank all the witnesses for taking the time out
    of their schedules to be here with us today. I understand there
    are no additional questions.
        I will say that ensuring that small businesses can thrive
    is the number one priority of this Committee. We have heard
    today the SBA's delay in the implementation of the Runway
    Extension Act is creating widespread confusion and uncertainty.
    It is clear from our hearing that there are several
    alternatives that can be implemented to address this issue. I
    look forward to working with my colleagues on both sides of the
    aisle to ensure that small businesses have access to Federal
    contracting opportunities that Congress intends so these
    companies can continue to grow and add jobs to the economy. I
    think that the Ranking Member and I agree that we are looking
    for the fastest solution to provide the quickest clarity for
    everyone that is out there that will be impacted either by
    further delay or hopefully a quick resolution.
        With that, I would ask unanimous consent that members have
    5 legislative days to submit statements and supporting
    materials for the record.
        Without objection, so ordered.
        If there is no further business to come before the
    Committee, we are adjourned. Thank you very much.
        [Whereupon, at 10:56 a.m., the Subcommittee was adjourned.]

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