[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
GROWING THE SMALL BUSINESS SUPPLIER BASE
IN GOVERNMENT CONTRACTING
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HEARING
BEFORE THE
SUBMITTEE ON CONTRACTING AND
INFRASTRUCTURE
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
OCTOBER 13, 2021
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[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 117-036
Available via the GPO Website: www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
45-780 PDF WASHINGTON : 2022
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELAZQUEZ, New York, Chairwoman
JARED GOLDEN, Maine
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
MARIE NEWMAN, Illinois
CAROLYN BOURDEAUX, Georgia
TROY CARTER, Louisiana
JUDY CHU, California
DWIGHT EVANS, Pennsylvania
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANDY KIM, New Jersey
ANGIE CRAIG, Minnesota
BLAINE LUETKEMEYER, Missouri, Ranking Member
ROGER WILLIAMS, Texas
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
CLAUDIA TENNEY, New York
ANDREW GARBARINO, New York
YOUNG KIM, California
BETH VAN DUYNE, Texas
BYRON DONALDS, Florida
MARIA SALAZAR, Florida
SCOTT FITZGERALD, Wisconsin
Melissa Jung, Majority Staff Director
Ellen Harrington, Majority Deputy Staff Director
David Planning, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Kweisi Mfume................................................ 1
Hon. Maria Salazar............................................... 3
WITNESSES
Ms. Alba Aleman, Chief Executive Officer and Founder, Citizant,
Inc., Chantilly, VA, testifying on behalf of the U.S. Women's
Chamber of Commerce............................................ 5
Ms. Lynn Ann Casey, Chief Executive Officer and Founder, Arc
Aspicio, Washington, DC........................................ 7
Mr. Victor Holt, Chief Executive Officer and Founder, V-Tech
Solutions, Inc., Silver Spring, MD, testifying on behalf of the
HUBZone Council................................................ 8
Ms. Sophia Tong, Chief Executive Officer and Founder, T and T
Consulting Services Inc., Falls Church, VA, testifying on
behalf of the Montgomery County Chamber of Commerce............ 10
APPENDIX
Prepared Statements:
Ms. Alba Aleman, Chief Executive Officer and Founder,
Citizant, Inc., Chantilly, VA, testifying on behalf of the
U.S. Women's Chamber of Commerce........................... 26
Ms. Lynn Ann Casey, Chief Executive Officer and Founder, Arc
Aspicio, Washington, DC.................................... 32
Mr. Victor Holt, Chief Executive Officer and Founder, V-Tech
Solutions, Inc., Silver Spring, MD, testifying on behalf of
the HUBZone Council........................................ 36
Ms. Sophia Tong, Chief Executive Officer and Founder, T and T
Consulting Services Inc., Falls Church, VA, testifying on
behalf of the Montgomery County Chamber of Commerce........ 43
Questions and Answers for the Record:
Questions from Hon. Fitzgerald and Responses from Ms. Tong... 51
Question from Hon. Mfume and Response from Ms. Tong.......... 55
Additional Material for the Record:
National Veteran Small Business Coalition.................... 56
GROWING THE SMALL BUSINESS SUPPLIER BASE IN GOVERNMENT CONTRACTING
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WEDNESDAY, OCTOBER 13, 2021
House of Representatives,
Committee on Small Business,
Subcommittee on Contracting and Infrastructure,
Washington, DC.
The Subcommittee met, pursuant to call, at 12:04 p.m., via
Zoom, Hon. Kweisi Mfume [chairman of the Subcommittee]
presiding.
Present: Representatives Mfume, Newman, Andy Kim, Hagedorn,
Stauber, Meuser, Salazar, and Fitzgerald.
Chairman MFUME. Good morning, ladies and gentlemen. I want
to call the Subcommittee to order.
Without objection, the Chair is authorized to declare a
recess at any time today.
I would like to begin by noting some important
requirements. Let me begin by saying that the standing House
Committee rules will be in practice today and will apply during
these remote proceedings. All Members are reminded that they
are expected to adhere to these standing rules, including
decorum when they are, in fact, participating in any remote
event.
With that said, the technology that we are utilizing today
requires us to make some small modifications to ensure that
Members can fully participate in these hearings. House
regulations require Members to be visible through a video
connection throughout the proceedings, so please keep your
cameras on. If you have to participate in another proceeding,
please exit and then log back in later.
In the event that a Member encounters technical issues that
prevent them from being recognized for their questioning, I
will then move to the next available Member of the same party
and will recognize that Member at the next appropriate time
slot provided that is that they have returned to the
proceedings.
Should a Member be interrupted by technical issues, I will
recognize that Member at the next appropriate spot for the
remainder of their time once those issues have, in fact, been
resolved. In the event that a witness loses connectivity during
testimony or questioning, I will preserve their time as staff
attempts to address whatever technical issue may be at hand. I
may need to recess the proceedings to provide time for
witnesses to reconnect. And finally, please remember to remain
muted until you are recognized to be able to minimize
background noise.
In accordance with staff rules, staff has been advised to
mute participants only in the event that there is inadvertent
background noise. Should a Member be recognized, they obviously
then must unmute themselves to seek recognition again at the
appropriate time.
I want to thank all of you for participating in this
meeting, this hearing, and to say that you that I am hoping
that we make a great deal of progress as we get through the day
and all that we have to do.
The United States Government is the largest purchaser of
goods and services in the world. In fiscal 2020 alone, federal
agencies obligated more than $650 billion in federal contracts.
They did that through their buying power because the federal
government is uniquely positioned to incentivize the economy
and strengthen the industrial base. Thus, it really is vital
that small businesses then have ample opportunity to compete in
this space.
When small firms have the ability to compete and then win
federal contracts, American entrepreneurs and the federal
government all benefit. Unfortunately, the federal small
business supplier base has shrunk a staggering 40 percent over
the last decade. This decline means less opportunity then for
small businesses to support livelihoods and to support the
communities that they, in fact, serve.
Now, while this decrease cannot be attributed to any one
factor, it is safe I think to say that Category Management has
been a driving force behind the decline of the number of small
firms serving as federal prime contractors.
Category Management, or CM as it is known, is a government-
wide procurement initiative that involves buying common goods
and services as a single enterprise. The intended goal as we
know of the initiative is to eliminate redundancies, increase
efficiencies, and deliver more savings by leveraging the
federal government's buying power.
Now, these are all worthy goals, but the policy has
resulted in pushing small businesses in many instances out of
the federal procurement space. Category Management discourages
the use of individual contracts and consolidates requirements
into large contracting vehicles, leading to less competition
and then ultimately fewer contracting opportunities.
In 2020, GAO issued a report showing that while dollars and
contract actions have grown for small businesses within the CM
initiative, the overall number of small businesses and vendors
receiving awards had, in fact, declined.
So to put it mildly, I think it is fair to say that a
select number of small businesses were able to navigate and
benefit this complex system, while many others were pushed out
altogether.
In fiscal year 2016, 92,000-plus small businesses provided
common products compared to just 79,114 of those same
businesses in 3 years, a drop of 17 percent in that 36 month
period. If this trend persists, it will have a severe
consequence, both for the federal government and for the small
business base. Fewer small businesses will lead to less
innovation, higher costs, and then ultimately a weaker supply
chain.
So I think it is not a stretch for me to say that all
Members of this Committee believe in bringing in more
efficiency and less redundancy to our procurement system. Yet,
we cannot advance these goals at the expense of small
businesses, which are still, and will always be, the backbone
of our economy.
That is why we must ensure that the implementation of this
initiative does not run counter to the protections afforded to
small businesses under the Small Business Act. And so I look
forward to the hearing. I look forward to our panel today, to
be able to talk about the challenges that Category Management
continues to pose for small businesses and what, in fact, this
Subcommittee and what Congress can do.
With that, I would like to yield to the Ranking Minority
Member, Ms. Salazar of Florida for her opening statement.
Ms. Salazar?
Ms. SALAZAR. Yes, thank you, Chairman, for being here with
us and for giving me the opportunity to talk to the rest of the
Subcommittee. I appreciate you holding this hearing to support
greater small business participation in federal government
contracting.
As I explained to you, I wanted to do it in person. It is a
lot more warmer and you can definitely share more thoughts but
I understand that now is the time to do as we are doing.
Hopefully, next time we will be able to do it in person in
Washington.
So small businesses are critical to our nation's security,
innovation, and the economy. And because of this, the federal
government needs a strong small business supplier base. We
don't have a strong the small business supplier base, and it is
the federal government's fault.
In the last decade, the number of small contractors shrank
by nearly 40 percent. Let me say it again. We have lost over
one-third of our small contractors in less than 10 years. If
that does not shock us, let me tell you more. In the last 15
years, the number of new entrants to the federal marketplace
declined by nearly 80 percent. Clearly, the federal procurement
environment has become so hostile to new small businesses that
they just do not even try.
We need to act now to stop this axis and we at the federal
level need to figure out what is happening. For instance, we
need to reevaluate the government's use of what you call
contract bundling. That happens when several small contractors
are combined into one unnecessarily large contract.
Another problem is what we call Category Management. That
is when contractors are grouped together in categories, but
this leads to picking winners and losers and that is not our
job at the federal level. That is the marketplace job.
To be fair, Category Management has worked, and as of
recent, small business contracts can now be classified as a
Tier 1 contract, an upgrade from before.
Category Management can also be useful to track federal
purchasing habits, identify efficiencies, and keep contracting
costs down.
With that said, we cannot be naive when it es to how this
will impact our small business suppliers. I want to give you an
example. The government is increasing spending towards Best-in-
Class (BIC) contracts, which according to the government are
the preferred and recommended contracting method. But these
contracting methods at this hour are only benefitting a few
contractors from above the rest, stifling competition, and
reducing opportunities. In other words, the current category's
management efforts appear to be benefitting the few to the
detriment of many. And the end result is the federal
government, while it is desperately looking to save a few
pennies, is destroying the small business supplier space.
Let me share another example. The Office of Management and
Budget, the OMB, eliminated one whole category of contracts
called the Tier 0 contracts. They celebrated this as a major
success. They said that it would only impact 5 percent of small
businesses. But let me tell you something. There was another
fact check conducted by the Government Accountability Office
that it said that that new bracket eliminated thousands of
opportunities for small businesses that had been eliminated by
the Category Management. In other words, it does not work.
I promised my constituents in District 27 that one of my
goals from this office, the Congressional Office, was to make
thousands and thousands of them, thousands of small business
owners vendors of the federal government and it has not
happened.
So let me conclude with this thought. The decline of small
business federal contractors to inflate directly to healthy
competition and innovation. This comes on the heels of another
staff job report in September, last month. The United States
economy added only 200,000 new jobs compared to the 500,000
that were affected. So the federal government must do a lot
more to provide opportunities for the small businesses in this
country.
I thank you. I would like to thank the witnesses for their
expert testimony today, and I yield back.
Chairman MFUME. Thank you very much, Ms. Salazar. The
gentlewoman yields back.
I would like to take a moment now to explain how this
hearing will, in fact, proceed. Each witness will have 5
minutes to provide a statement and each Committee Member will
have 5 minutes for questions. Please ensure as I mentioned
earlier that your microphone is on when you begin speaking and
that you return to mute when you finish.
With that said, I would like to introduce the order of our
witnesses.
Our first witness is Ms. Alba Aleman. And I hope I am
pronouncing that correctly, the founder and CEO of Citizant,
Inc., located in Chantilly, Virginia. Citizant is a certified,
woman-owned business and a former 8(a) firm. The company
specializes in creating solutions to complex government IT
challenges, including application development, testing,
automatization, enterprise, data management, and quality
process improvement. Ms. Aleman has led Citizant through 22
years of successful service delivery on mission critical
government programs. Welcome, Ms. Aleman.
Our next witness will be Lynn Ann Casey, the founder and
CEO of Arc Aspicio, a certified woman-owned small business. Arc
Aspicio is a consulting absolutions company that provides and
solves problems I should say by applying integrated
capabilities in strategy, design, data, capital, behavioral
science, and in technology. Ms. Casey founded Arc Aspicio in
2004 and has a proud career of driving innovation for
government agencies. Welcome, Ms. Casey.
Our third witness today will be Mr. Victor Holt, founder
and CEO of V-Tech Solutions, Inc. V-tech is a HUBZone 1
certified former 8(a) veteran-owned small business that offers
technology, information, and a wide range of professional
services. Mr. Holt founded V-Tech in 2000 after serving in the
United States Air Force and working in the private sector for
Lockheed Martin, Northrop Grumman, and Hewlett Packard. We
appreciate your time and expertise, Mr. Holt. Welcome to you as
well.
I will now yield to the Ranking Member to introduce our
final witness. Ms. Salazar?
Ms. SALAZAR. Yes. Thank you, Mr. Chairman.
Our final witness is Sophia Tong. She is the founder and
chief executive officer of T&T Consulting Services, Inc., a
woman-owned small business. Ms. Tong is also a graduate of the
Small Business Administration's 8(a) program. Under her
leadership, T&T has grown from a small two-person business in
2004 to over 100 employees at this time. Under Ms. Tong's
direction, T&T has achieved numerous, difficult to obtain,
certifications in both a diverse array of federal government
and commercial clients. Ms. Tong holds over 15 years of
experience in software engineering and project manager. She has
earned a Master of Science in Computer Science from the
University of Maryland and her Bachelor of Science in Computer
Science and Information Engineering from the National Chiao
Tung University in Taiwan. She is a certified project manager
professional and also information technology infrastructure
library certificate. Due to her hard work and exemplary
leadership skills, Ms. Tong has received many accolades,
including the 2008 American Business Awards Executive of the
Year Award, the Washington Business Journal 2019 Minority
Business Leader Award, and the 2019 Small Business
Administration's Small Businessperson of the Year in Northern
Virginia. Ms. Tong, I look forward to hearing your testimony
and I yield back. Welcome.
Chairman MFUME. Thank you, Ms. Salazar.
Ms. Aleman, you are now recognized for 5 minutes. Please
proceed.
STATEMENTS OF ALBA ALEMAN, CHIEF EXECUTIVE OFFICER AND FOUNDER,
CITIZANT, INC.; LYNN ANN CASEY, CHIEF EXECUTIVE OFFICER AND
FOUNDER, ARC ASPICIO; VICTOR HOLT, CHIEF EXECUTIVE OFFICER AND
FOUNDER, V-TECH SOLUTIONS, INC.; SOPHIA TONG, CHIEF EXECUTIVE
OFFICER AND FOUNDER, T AND T CONSULTING SERVICES, INC.
STATEMENT OF ALBA ALEMAN
Ms. ALEMAN. Good morning, Chairman Mfume, Ranking Member
Salazar, and Members of the House Small Business Committee,
Subcommittee on Contracting and Infrastructure. Thank you for
the opportunity to speak with you today about the topic of
Category Management.
My name is Alba Aleman, and I am the founder and CEO of
Citizant, Inc., a small government services firm based in
Chantilly, Virginia. We employ nearly 200 professionals who
support federal agencies in 27 states. I am an active Member of
the Women's Chamber of Commerce and serve on their Category
Management Task Force. Citizant has been in business since 1999
and we have weathered many storms--Y2K, 9-11, Katrina, numerous
government shutdowns, continuing resolutions, administration
and policy changes, and the Budget Control Act of 2011. Through
all of these national emergencies and disruptions, we have
diligently continued to serve important missions at the IRS,
Department of Defense, Department of Homeland Security, and the
Department of Justice, just to name a few.
The purpose of my testimony today is to share my first-hand
insights about the detrimental impact that Category Management
is having on the small business supplier base. Category
Management has disproportionally stripped small, minority, and
woman-owned businesses from access to federal contracts. It is
responsible for the erosion of 30 percent of my own business in
the last 2 years. It has widened the gap between small and
large contractors to the detriment of our economy and has
reduced the availability of innovative cost-effective solutions
for our government.
Recent executive orders introduced a concept called
``Tiered Spending'' under which federal procurement departments
are forced to use a small handful of government-wide contract
vehicles, Best-in-Class contract vehicles. These BICs, like
Alliant 2, VETS 2, and OASIS, account for hundreds of billions
of dollars of spend among very small groups of prequalified
contractors. And of these vehicles, only VETS 2 and OASIS
provide a swimlane for a handful of small, minority, and women-
owned businesses.
Category Management and Tiered Spending rules create
significant problems for small businesses. Whereas large
contractors have the experience and credentials to qualify for
nearly every single BIC, small businesses are hard-pressed to
qualify for even one. Competing for these BIC contracts
requires a small business to have already spent hundreds of
thousands of dollars on certifications, have tens of millions
of dollars in prior contracts, and meet dozens of other
requirements that only the largest businesses would ever have.
Here is a sobering statistic. Only .0001 percent of small
businesses--that is, 1 in 100,000--have access to 100 percent
of the BIC spending. And these ``small businesses'' are not
small by most industry standards. They sometimes have $100
million in revenue, have been around for decades, and have
thousands of employees. Of the tens of thousands of small
businesses who might want to pursue a BIC contract, only a few
dozen will ever receive an award. The small businesses that do
not earn a seat at the table in a BIC contract are effectively
barred from competing during the 10-year life of that contract.
At the end of the day, the steering of government spending
to large businesses results in a loss of millions of small
business jobs. Large businesses are offshoring many of the jobs
won on government contracts including BICs. With a
concentration of contracting in the hands of fewer, larger
businesses, the government loses the benefit of competition to
lower prices. Furthermore, when large businesses subcontract to
small companies, they mark up our services by 25 to 40 percent
without additional value to the government.
Innovation is stifled. And let's face it, most of the
innovation in today's economy comes from small businesses and
entrepreneurs. And the hollowing out of small businesses in our
industrial supplier base creates National Security risks in
countless industry sectors.
As an immigrant, I am not deterred by hard work or
challenging times. I view it as my honor and responsibility to
shoulder and protect the future of a vibrant, small business
ecosystem in the U.S. And I am encouraged by the protections
for small businesses included in the National Defense
Authorization Act, including exemptions from Category
Management for small business in all socio economic categories.
Provisions like these are absolutely essential to protecting
the viability of America's small business contractors who have
already been pressed to their limits.
I am immensely grateful for the opportunity to address this
Subcommittee and for the work that you do to preserve diversity
and inclusion in our federal government supplier base.
I will gladly answer any questions. Thank you so very much.
Chairman MFUME. Thank you very, very much, Ms. Aleman. We
appreciate your testimony.
Ms. Casey, you are now recognized for 5 minutes.
STATEMENT OF LYNN ANN CASEY
Ms. CASEY. Chairman Mfume, Ranking Member Salazar, and
Members of the Committee. Thank you for the invitation.
My name is Lynn Ann Casey. I am the founder and CEO of Arc
Aspicio, a woman-owned small business that has provided
innovative professional services to the federal government
since 2008.
I am also a Member of the Board of Directors of the
Professional Services Council and work often with other small
businesses who serve the federal government and this topic is
of particular importance to me.
Category Management is an urgent issue for my company and
other small businesses since it is contributing to the trend of
decreasing the small business supplier base and running counter
to the purpose of the Small Business Act.
In my testimony, I plan to offer some ideas and potential
solutions to help grow the supplier base. All of my remarks
refer to professional services rather than any items or
products.
While Category Management does help increase procurement
efficiencies, our company has seen it reduce the number of
small businesses and the number of opportunities that are
available for companies like mine to compete on. This in turn
reduces innovation that small businesses bring.
In terms of the challenges of Category Management, we have
been competing as a subcontractor and a prime contractor with
the federal government for 13 years who are very experienced.
We have been on several Category Management Best-in-Class
vehicles, and despite our extensive experience and exceptional
performance, we have only won one of those. And that is after
spending hundreds of thousands of dollars.
We are also a mentor to another small business in a Small
Business Administration Mentor Protege program under an 8(a)
program. So both Arc Aspicio and our protege, which are very
different in the stages of maturity in our company, have seen a
significant reduction in the number and size, as well as the
scope of opportunities for us available to compete and pursue
competitively. We love hard work and we love to compete. We
just want the opportunity to compete.
Many new and recompete contract opportunities for Arc
Aspicio have moved to Best-in-Class contract vehicles where we
were not a prime contractor and therefore, could not pursue the
work.
Agencies have raised significant concerns about not being
able to allow their incumbent small businesses to bid for their
recompetes competitively. Allowing small businesses to
recompete on follow-on contracts after successfully delivering
to the government should be a regular practice in small
businesses. And yet, Category Management does not allow this
competition and it prohibits innovation, competition, and it
does not allow for continuous improvement.
In addition to fewer opportunities to pursue, it is very
difficult for small businesses to compete and win Tier 3 BIC
contracts. You have to have hundreds of thousands of dollars'
worth of certifications and these BIC contracts often
disproportionately favor small businesses who have extensive
experience and certifications with the Department of Defense.
And yet, many other departments outside of DoD use these
vehicles but they cannot get access to their current small
business contractors. As a result, there are fewer small
businesses, there is less competition, and while the revenue to
small businesses may be increasing, it is to a much smaller
base of small businesses. So ultimately, very small businesses
are getting acquired or are just dropping out of the market and
we are dramatically reducing the small business supplier base.
There are four potential ideas that I suggest and provide
additional information in my written testimony. I would
encourage the Committee to explore looking at Category
Management for Spend Under Management (SUM) and exempting small
business goals from the Spend Under Management to expand the
opportunities for set-aside contracts.
Legislation to increase simplified acquisition thresholds
from $250,000 to $1 million or more is another idea.
Considering legislation or policy to allow the GSA Multiple
Award Schedules for professional services contracts to be a BIC
is another solution.
Thank you so much for the opportunity to testify today and
I welcome further questions on my testimony. Thank you to the
Committee.
Chairman MFUME. Thank you very much, Ms. Casey. We
appreciate your testimony.
Mr. Holt, you are now recognized for 5 minutes.
STATEMENT OF VICTOR HOLT
Mr. HOLT. Thank you, Chair Mfume, Ranking Member Salazar,
and Members of the Subcommittee. Thank you for the invitation
to testify today.
I am Victor P. Holt, president and CEO of V-Tech Solutions,
Inc. As a minority veteran-owned HUBZone firm, we provide
health, technology, and professional services. We most recently
celebrated our 21st anniversary.
Today, I testify as the Vice Chair of the HUBZone
Contractors National Council. The Council is a nonprofit trade
association that provides information and support for companies
and individuals interested in the HUBZone program. The HUBZone
program provides economic assistance to historically
underutilized business zones by awarding federal contracts to
HUBZone companies that operate and employ workers who live in
designated HUBZone tracts. We would like to thank the Committee
for its commitment and support of small government contracting
businesses. We also thank you for highlighting the topic of
Category Management.
This is a topic that the Council continues to be concerned
about. Council Chair, Shirley Bailey testified in 2018 before
the Committee on this topic. Today, we are here again facing
the same bleak outlook as 2018. The cause for concern remains
simple--small business access to government contracts.
Small businesses are the engine that fuels the American
economy. We bring growth, innovation, and employment
opportunities. We embody the promise, hope, and future of our
country. However, substantial challenges and barriers still
exist. The Council continues to believe that Best-in-Class
contracts create enormous barriers for small businesses. As the
government moves away from direct award contracts, business
opportunities decrease for the small business community. The
large buying contracts used in Category Management require
substantial resources to bid and win. These contract
requirements keep small businesses from competing. This
includes stringent past performance or other requirements that
are impossible for a small business to beat.
Subcontracting comes with its own challenges as well. This
includes small margins and often alignment with a large or mid-
size prime based solely on cost. BIC vehicles also have a
crippling effect on small business competitive opportunities.
Approximately 25,000 small businesses provide IT services to
the government, but for the OASIS Small Business Pool 1, only
30 slots are available. Additionally, some Best-in-Class
vehicles do not have on ramps. This restricts the opportunities
for future on ramping for small businesses. Hence, shutting us
out from high dollar contract opportunities.
According to Bloomberg Government, IT spending represented
more than half of the Best-in-Class market in FY20 with the
Best-in-Class spending goal of FY21 at approximately $48.4
billion. With a large portion of IT spending going through
these Best-in-Class contracts, winning a recompete or direct
award may be even more challenging than before.
Category Management, when applied to broad acquisitions,
does not consider that innovation provides incredible value.
Best-in-Class should not resemble lowest price technically
acceptable. We hope the government does not mistake lowest cost
for best value.
As to popularity of utilizing Best-in-Class contracts
increases, HUBZones and other small businesses have pure
opportunities to compete. In fact, the government has never met
its goal to obligate 3 percent of the eligible prime contract
dollars to the HUBZone community. This represents 23 years of
missed opportunities and unawarded dollars to HUBZone companies
that can train, employ, and mentor constituents within your
HUBZone tracts.
No one would disagree with the goals of efficient
government by and saving taxpayer money. However, we believe
Category Management comes at a cost. It can restrict the
ability of small businesses to grow through federal contracts.
The Council urges the Committee to exercise its authority to
ensure the government's procurement policies, specifically
Category Management, utilize small businesses.
I thank you for the opportunity to speak today and look
forward to engaging in continued dialogue.
Chairman MFUME. Thank you very much, Mr. Holt. We
appreciate your testimony. We will be back to you, obviously.
Ms. Tong, you are now recognized for 5 minutes. Please
proceed.
STATEMENT OF SOPHIA TONG
Ms. TONG. Chairman Mfume, Ranking Member Salazar, and
Members of the Subcommittee, I thank you for the opportunity to
testify before you today. My name is Sophia Tong. I am founder
and CEO of T and T Consulting Services, Inc. (T&T). We are
located in Falls Church, Virginia. T&T is a woman-owned small
business. We specialize in providing strategic IT solutions to
the federal government that allow them to successfully achieve
their mission objectives on time and within budget.
I am testifying today on behalf of the Montgomery County
Chamber of Commerce (MCCC) in Montgomery County, Maryland.
Today's topic is very important for the small business
contracting community. The impact of Category Management is
increasingly evident in my industry and affecting our company.
Agencies are bundling contracts that were previously performed
successfully by small businesses, rolling them into large
contracts and awarding them to large businesses. The outcome of
this action is killing small suppliers like ours. There are
countless examples of this in the IT field.
For example, in August of this year, the Defense Health
Agency (DHA) awarded a large business a single award 10-year,
$2 billion blanket purchase agreement (BPA) to support the
Military Health System's Enterprise IT Services Integrator
requirement. By taking this work and bundling it into a massive
single award contract, a monopoly is created, allowing the
large business to control (and raise) prices on the worked
performed for the government. Large businesses always claim
there is no harm to the small business supplier base as
contract consolidation happens, because they will hire the
small businesses as subcontractors.
However, the fact is large firms often take substantial
cuts. Small businesses are usually given unrealistically low
rates and it makes it difficult to meet requirements, recruit,
and retain resources--the margins are too thin. Additionally,
small business lost the close relationship we had with the
government client when we were prime and now we have become
subcontractors.
Another example, large businesses also use high rates they
receive from the government to steal the workforce from small
businesses. There are numerous instances where Members of my
team have been hired by large business that were awarded my
previous contract, all due to the consolidation efforts.
Unfortunately, my experience is that government clients are
unable to help in resolving those disputes.
And the third one, primes have also bullied small
businesses, leveraging their existing network and relationships
with government clients to try to steal contracts from
successfully performing smalls. For example, we received a sole
source contract to create a minimum viable product (MVP) for an
organization under DHA. The contract is still ongoing, and the
customers are very satisfied with our performance. But, because
the contract is very important and could potentially become a
very large contract, we were contacted by many large businesses
wanting to be a part of this effort. One of them is Google.
When Google found out we were not able to bring them on the
team, Google wrote a ``letter of concern'' to DHA complaining
that DHA awarded this contract to a small business. This type
of behavior is common and increasingly concerning.
Although we have grown to a larger small business, newer
and smaller entrants are particularly hard-hit with Category
Management. Even for mature, well-established small businesses
with a diverse portfolio, like us, contract bundling and
consolidation is hurting these businesses. The cost of getting
on a Best-in-Class contract is substantial and requires
significant investments just to get a slot. Category Management
continues to shift an increasing number of dollars to large
contract vehicles. Additionally, Category Management has
accelerated a decline in diversity of vendors with large dollar
amounts held only by a few companies.
The Chamber applauds inclusion of provision in the FY2022
NDAA by the Committee to combat the effects of Category
Management and any future bundling strategies. MCCC also
understands additional factors are contributing to the supplier
base decline, in addition to Category Management: increasing
transparency and accountability in subcontracting, as well as
increasing R&D investment to maintaining and growing the small
business supplier base.
In conclusion, small businesses are asking for equity, a
fair chance to compete for contracts. We are asking for actions
from this Committee to change the trajectory of contract
consolidation which in our view creates opportunities for large
businesses but results in fewer opportunities for a small
business like us. We need your help and appreciate the
opportunity to bring these issues before you today. Thank you.
Chairman MFUME. Thank you very much, Ms. Tong.
We are going to begin our questioning in just a minute. I
want to again thank all of the witnesses. I know you have much
more to say and hopefully you will get that opportunity as we
go around the table so to speak and have Members join in with
questions.
I will now recognize myself for 5 minutes.
Ms. Aleman, I would like to really just start with you. We
all know that the ultimate goal of Category Management is to
increase efficiencies and to decrease duplication and things
that harm the process. And yet, what we see as we have all
heard today and which many of you have given in your
testimonies, has been an adverse effect on small businesses.
Now, I know some of you, and I want to come to you in just
a moment, had some specific suggestions, but Ms. Aleman, what
do you think we can do to strike the right balance as the
Congress with oversight between the goals of Category
Management and ensuring that we still have a robust small
business base?
Ms. ALEMAN. Thank you. I think that the actions already
taken in the house version of the National Defense
Authorization Act already addresses some of the important
topics that we have been testifying on. For example, an
amendment to the Small Business Act included in the NDA states
that all contracts awarded under the relevant sections of the
Small Business Act will be classified as Tier 0. In essence,
they will not be aligned to Category Management principles and
not be required to be enforced under Category Management rules.
And it further stipulates that these Tier 0 contracts shall not
be included in metrics related to Category Management rules and
that federal agencies shall not re-classify Tier 0 contracts to
Tier 1, 2, or 3 without approval from the SBA administrator.
This is a really important step to preventing future small
business awards from being rolled up into massive procurements
for large businesses as is currently being done with several of
our own task orders at the IRS.
As a metrics person, as a person who lives for numbers, I
can tell you that people will do what they are measured
against. If you measure them against what percentages they do
in each of these tiers, and Tier 0 is not an option for them,
guess what? They are not going to use Tier 0.
Chairman MFUME. Okay. Ms. Casey, you were specific in your
written testimony. You have four recommendations. Is it fair to
assume that all of these recommendations that you listed are
still very much needed and necessary? And if you would, could
you kind of prioritize them and let the Committee know what is
the most important or the second most important issue?
Ms. CASEY. Yes, of course. As Ms. Aleman just said, the
number one item would be to consider the language that allows
small businesses and small business to be considered in
Category Management such that they would not get count against
the metrics. And so that would allow more small businesses to
compete. So I agree with that recommendation. And if that
cannot be done, considering that for professional services
contracts, considering the GSA schedules which are very
successful for both new entrants and current small businesses
to win prime contracts should be considered because they are
competitively awarded under GSA. And so they should be
considered under Category Management.
I would also strongly consider that you look at not only
current SBA increases in small business size standards but
future increases that keep the small business supplier base
very healthy or very important.
Chairman MFUME. Okay. I am going to quickly go to you, Mr.
Holt. You talked specifically about loss of competition,
smaller margins. I think I also heard you say that someone from
your firm or that you associated with came before a similar
hearing back in 2018 and that nothing has changed in many
respects. Any specific ideas? You have heard both Ms. Aleman
and Ms. Casey. What are your thoughts on what we can do and
should do to be able to turn this around?
Mr. HOLT. I echo what they say as far as more language as
it relates to the NDA for inclusion. One of the biggest
challenges that we face as small businesses, especially as it
relates to Category Management, Best-in-Class type contracts as
a subcontractor is playing with very, very razor thin margins
where we are asked to do a lot with a little. And it is sort of
like sometimes just going down the line to whatever company
will sign up for that.
So what we are looking at is how do we hold these primes
that we work with more accountable, understanding their pricing
structure that you see on the procurement side and being able
to say this is fair and justified what they are doing with
their small businesses, that small businesses will be able to
perform. There will not be any false starts on onboarding a
small business, a subcontractor in getting underway and showing
good service delivery to the federal government.
Chairman MFUME. Thank you very much, Mr. Holt.
Ms. Tong, I do not have any time left so I will try to hold
off my comments and questions for our next round. But thank you
very much for your patience.
As I said, my time is expired, so the Ranking Member, Ms.
Salazar of Florida, is now recognized for 5 minutes.
Ms. SALAZAR. Thank you, Mr. Chairman. And thank you to all
the witnesses.
I wanted to start with Ms. Tong. You mentioned, you said
two key words. That you were being bullied and that Google had
written a letter to an agency which I am sorry that I did not--
maybe I did not write the name correctly and I wanted you to
expand on the bullying situation. Who has been bullying you?
And number two, if you could expand on that initiative taken by
Google, and to what agency and what did the letter contain?
Thank you, Ms. Tong.
Ms. TONG. Thank you for the opportunity to talk about this
issue.
Yes, it was Google, the giant. This is a very important
initiative taken by DHA for an organization called Joint
Pathology Center. So DHA had conducted initiatives before and
identified the solutions they want for this effort. And we were
picked to be the integrator for this work. So Google called us
and said we have talked to the executive in DHA and they like
our solution. So I told them the solution was picked by DHA.
All we have to do is to follow the instruction they want and
put together the team to perform this work. So I told them. I
said I will try to help them look for the future but I just
cannot take them to the team. So Google turned around and sent
a letter of concern to DHA complaining that why did DHA award
this contract to an 8(a) company? I do not know the details of
the letter because it was directly sent to a lawyer of DHA. All
I know is that the customer asked us what we had disclosed to
Google, which I did not because we signed an NDA.
This is a very----
Ms. SALAZAR. So you signed an NDA but nonetheless, Google
had the information that it should have not had?
Ms. TONG. They got the information--and also, I think they
know something from their connection in the network in DHA. So
they come to me.
Ms. SALAZAR. Oh.
Ms. TONG. I just tell them I cannot tell them.
Ms. SALAZAR. DHA is working for Google then?
Ms. TONG. They did not get that for the effort. So this is
the way that DHA find out what could be possible solutions out
there for them. And then based on their response, they will
decide what are the solutions they would like to use for this
effort. So Google participated but was not selected.
Ms. SALAZAR. All right. And besides what you just described
as Google's way of conducting itself against your interests,
what other bullying incidents have you felt or have you
experienced in the last while conducting your business as a
small business owner?
Ms. TONG. So I have another contract as an example. We
created software that was very successful at the regional
level. I was able to convince the CIO to bring it to
enterprise-wide and they are very happy about it and would
support this idea. But unfortunately, they were told by the
contracting and one of the organizations that managed the
money, they told them, they say, no, we cannot have more
contracts. And I cannot say it is bullying but I think they
have connections with the large businesses. So the award
actually got pushed through a large business vehicle and it is
not even an IT contract vehicle. So our customer told them, say
we are the ones who create software and they were hoping that
they could leverage us for this effort. But the large business
just turned around and used the money to hire our people.
Ms. SALAZAR. All right. Very, very insightful information
that I am sure our Chairman is understanding that we definitely
need to do something about this and continue protecting people
like you all over the country that are being stolen not only
their intellectual property but their employees, people that
you have invested time and effort and energy into training for
now to be then just stolen away by the bigger guy.
Thank you. I think that my time is coming to an end. I will
get back to you in the second round. Thank you very much for
sharing that with us. I am sure that is not an experience that
you have only felt. I am sure there are thousands of other
small business owners all over the country that are
experiencing the same thing. Thank you, Ms. Tong.
Ms. TONG. Thank you.
Chairman MFUME. Thank you. The gentlewoman's time is
expired.
The Chair recognizes the gentleman from New Jersey, Mr. Kim
for 5 minutes.
Mr. KIM. Thank you, Mr. Chair. I really appreciate it.
Mr. Holt, I wanted to start with you. In your testimony,
you noted that ``with larger contracts being utilized by the
federal government, subcontracting is more important than
ever.'' You identified better oversight of prime contractors'
compliance with subcontracting plans as one solution. I have a
legislation I am trying to put forward called the Put Our
Neighbors to Work Act, which was also included in the House
passed--which would require upcoming DoD subcontracting
opportunities to be posted publicly so local small businesses
have a better chance to compete.
One thing that we have come across that we feel like has
been helpful, for instance, are the procurement technical
assistance centers (PTACs), like the one at the New Jersey
Institute of Technology, which provides one-on-one counseling
to help small businesses become subcontractors.
I wanted to ask your thoughts. What other strategies should
we be using to get more small businesses started in
contracting? Because trying to figure out how to demystify the
process and help them understand what might be feasible. So I
wanted to see if you had other thoughts about the PTACs or
about other opportunities.
Mr. HOLT. We happen to work with the PTAC, specifically DC
PTAC. And they are a great resource for what we have been able
to do and they have been instrumental with our growth as it
relates to having entry points into federal government
introductions as well as understanding certain programs that
are out there. So I would definitely push the PTAC as one of
those resources for you.
In addition, the Putting Our Neighbors to Work, when you
said that I smiled because I always think of our neighbors as
many different neighborhoods but me, as a HUBZone company, that
is something that I really embrace and the HUBZone Council
embraces that where we are always looking at how do we get
subcontracting and prime opportunities put into the HUBZone
arena.
HUBZone companies, and I say this probably more than
anyone, knows how to find these individuals, these neighbors
that you speak of that we can identify, train, employ, coach,
and mentor along their career journey and get them into gainful
employment. Currently, I have about 120 employees in Alabama
with the majority of them, 80 percent plus of them are in
HUBZone communities. And so when I think about that, working
with various local agencies, the Department of Employment
Services, working with PTACs, working with veteran
organizations who they are always looking at how do we find our
returning heroes and our warfighters employment. So those are
some that come to mind.
Mr. KIM. Yeah, thank you. I appreciate that, Mr. Holt.
I wanted to just open this up for anyone who might want to
respond. But another issue that I keep hearing over and over
again is about how small businesses often have fewer resources
than larger businesses in terms of navigating red tape and the
bureaucracy that comes with contracting with federal gvernment.
And that obviously creates these barriers to entry for many
qualified small businesses from the very start. So I wanted to
ask if any one of you had any thoughts about whether or not
there were targeted reforms that could be made to
administrative burdens that would allow accessibility for small
businesses to enter the market and whether or not you have any
thoughts or some concrete thoughts here about what it is that
we can do.
So I will just kind of open that up if anybody has any
thoughts here.
Mr. HOLT. I will speak up real quickly. The HUBZone program
has never met its 3 percent goal requirements since inception,
23 years. There is a lot that can be done there. And I would
offer to work with you on that. The HUBZone Council would offer
to work with you on that.
Mr. KIM. Ms. Tong?
Ms. TONG. Yeah. I would like to suggest can we remove the
J&A requirement for HUBZone, women-owned and SDVOSB sole
source? Because right now, every time we try to do sole source
for those three categories, the contracting officer refuses to
do so because it has to go through the lawyer for legal review
and it takes a long time. So even though we have the FAR saying
that we are allowed to get a sole source but no one is doing
that. Or very few of them.
Mr. KIM. Great. Thank you.
Mr. Chair, I yield back.
Chairman MFUME. Thank you very much. The gentleman yields
back.
The Chair recognizes Mr. Stauber, the gentleman from
Minnesota, for 5 minutes.
Mr. STAUBER. Thank you very much, Mr. Chair. And thanks to
all the witnesses.
This is for anyone on the panel. What hurdles must small
businesses, particularly new small businesses that are just
starting out in the federal marketplace have to overcome to
successfully participate in government contracts under Category
Management? This is for anybody on the panel.
Ms. CASEY. I am happy to take that, Mr. Stauber.
Gosh, to be a small business entry in the market and
telling the federal government is almost impossible. So to
actually even learn about all of the contract peoples and the
experience that you need to start applying for those contracts,
it starts as a subcontractor. So you need to find out
opportunities to subcontract. But then you need opportunities
to prime contract. And there are fewer and fewer opportunities
to prime contract on GSA schedules than there used to be. The
GSA schedules used to provide a great opportunity to
subcontract to get you ready to bid on things like a GWAC or a
Best-in-Class vehicle. And so allowing more opportunities on
the schedules so that small businesses can get the prime
contract experience they need to then be a credible prime for
the Best-in-Class vehicles is a critical pathway and very
important.
Mr. STAUBER. Thank you very much.
Is there anybody else on the panel that would like to
tackle that question or have comments on the question?
Ms. TONG. From my experience I found was very helpful for
the new entrants. They can enter into a Joint Venture with a
larger company and then through the large company they can get
sole source contracts or they can get subcontract opportunities
to help them to get started. That is how I helped my proteges.
Mr. STAUBER. Thank you very much.
And Ms. Aleman, did you want to respond?
Ms. ALEMAN. So the thing that I am look for today is the
opportunity to create opportunities for small emerging
companies. So one of those is through mentorships.
Historically, and we benefitted from large businesses under the
Department of Defense's Mentor-Protege program. And SAIC at
that time was our mentor. We learned so much. They helped us
with our certifications. But the DoD Mentor-Protege program
funds those large businesses. Provides dollars for them to have
staff to help us. So they are incented to. That does not exist
in the civilian space. So for those that are working civilian,
there is no funding for that. And quite frankly, as a mentor to
other small businesses in the Women's Chamber of Commerce, I
find that our smalls are larger smalls, like the ones
represented here today, make better mentors to the small smalls
than the big companies because we get them. We are there every
Saturday and Sunday writing the proposal. We can hit each other
up on Teams. We are talking 24/7. We understand the world they
are living in and we are still facing some of those challenges.
So we are closer to the fire and we have a better shot at
really helping them. So providing funding for mentors would be
ideal.
Mr. STAUBER. Thank you very much.
Mr. Chair, how much time do I have left?
Chairman MFUME. Let's see. It looks like you have got a
minute and one second.
Mr. STAUBER. Okay. You know, I think that the cost savings
for taxpayers, it is absolutely laudable. But it is clear that
Category Management is and has a punishing effect on some of
our small businesses. And so I would ask any of the panelists
real quick, what suggestions do you have to make our federal
marketplace more accessible for small business participation?
And just give me one or two quick examples all three of you
with the time remaining. Thank you.
Ms. CASEY. I would suggest mandating that all of the
agencies use a forecast system to project out what their
requirements are so small businesses can pursue both
subcontracting and prime opportunities and that is not
consistent across agencies.
Mr. STAUBER. Thank you.
Sophia?
Ms. TONG. So I would suggest to stop counting by the quota
of the sole source and set aside for small businesses for the
Category Management. And increase more sole source, more small
business set aside for us.
Mr. STAUBER. Thank you.
Ms. Aleman, real quick.
Ms. ALEMAN. Yeah. So for BICs like Alliant 2 that got
canceled for the small businesses, they only offered 80 seats
at the table for the 400 small business bidders. Percentage-
wise, the 50 larges that got it out of the 80 that bid does not
make any sense. And why GSA stuck to their ground on 80 when
they had the opportunity through the federal procurement
process and the protest process to increase the ceiling to 120
and they refused. They just canceled it and they essentially
locked out small businesses from that BIC vehicle forever
because they canceled the procurement. It is only open for the
larges.
Mr. STAUBER. Well, thank you very much.
Back to you, Mr. Chair. Thank you.
Chairman MFUME. Thank you. The gentleman from Minnesota
yields back.
The Chair recognizes the gentleman from Pennsylvania, Mr.
Meuser, for 5 minutes.
Mr. MEUSER. Thank you, Mr. Chairman. Thank you to our
witnesses very much. This is quite an important hearing. I have
many small businesses in my district throughout Pennsylvania
going through much of what you are all discussing and
revealing. And it is appreciated. And it matters. So hopefully
we can take this information and do something with it. That is
what our role should be. Oversight but also effectuate some
improvements.
And Mr. Stauber's last question on what we can do for you
to make contracting more accessible, efficient, transparent is
a key question here. So I noted that well.
I would ask Lynn Ann Casey, in your original testimony or
your testimony here losing contracts, you have lost contracts,
or all of you have difficulty retaining contracts due to
changes in class requirements. And sometimes that happens sort
of late in the game or during the contracting process. Can you
illustrate that a little more and tell us, that just sounds
like a very challenging situation should a contract requirement
change late in the game.
Ms. CASEY. Yes. Often we find out, we would like to compete
on a contract. We want to do that fairly. We are not asking to
be rewarded a contract without a competition. But we are
finding out later and later that our agencies are at the very
end moving our recompetes to these Best-in-Class vehicles
without even clearly communicating that to us. So we do not
know where those opportunities are going sometimes and we have
to scramble at the last minute to become a subcontractor to
someone who is on those vehicles. And that has happened to us
multiple times, mostly because of the department and agency-
level procurement policies that require mandatory use for
vehicles and for Category Management vehicles. And so often we
see those switching vehicles all the time so we cannot even
track them. We have had multiple contracts go to large business
instead of small on Category Management or to just go onto a
Category Management where we are not a prime contractor and it
does not happen all the time.
Mr. MEUSER. Is it explained to you why that occurs? Like
the agent that you are working with, they explain to you
anything?
Ms. CASEY. No. Actually, at the department level, they will
not even publish what their policy is so we only find out about
it by talking to a contracting officer who says very little.
They say they cannot share a copy of the policy with us and
they would like to get an exception for the policy but they
actually are afraid to put their neck out and go talk to a fair
exception process in their agencies and they really do not have
the information to explain it. They just have to blindly follow
the policy from their agencies.
Mr. MEUSER. Mr. Holt, does this seem like a fair process to
you?
Mr. HOLT. No, it is not. And it is a process that I have
been affected by. We had a Best-in-Class vehicle be a Stars 2--
where we were doing cybersecurity work with the Navy and there
was a contract that we enjoyed for almost 8 years. When the
option period was coming up they took it down to the wire. They
did put it on the street. There was no recompete and that week
we were informed that the small business work was no longer
needed and I saw 75 percent of my team absorbed in a prime who
was already doing work with that program office and they just
took them on. So, this is something that has affected us
personally. And what that did, that hit us, that was worth
about $2.8 million a year in revenue that walked out the door.
Mr. MEUSER. Okay. I am glad to hear this. Sorry it
occurred, but glad to hear it.
I want to change subjects a little bit and ask about
vaccine guidance for federal contractors, both from those who
provide product and service. Have you in your view received
guidance that is to go into effect by December 8th, clear,
understandable, comprehendible guidance on what type of
vaccines or level of vaccination and all that your employees
must have in order to keep your contracts?
Ms. ALEMAN. So we have already published a policy for our
employees regarding that and provided them with timelines,
options, the path for obtaining legitimate exemptions. We have
engaged once the Executive Order was signed, within 2 weeks we
engaged legal counsel to develop how we would roll that out
into our organization. We have been on all-hands calls with our
employees. Everyone that is vaccinated has uploaded their
vaccine cards to a private HR portal. And there are folks that
will not get vaccinated that are not exempt and they know that
their last day with us will be December 8th.
Mr. MEUSER. Okay. And I yield back, Mr. Chairman.
I will say though that I do hear from many small businesses
that have federal contracts that they do not understand clearly
the vaccine requirements which they want to abide by but they
do not have the precise requirements.
I yield back. Thank you.
Chairman MFUME. Thank you very much. The gentleman from
Pennsylvania yields back.
The Chair recognizes the gentleman from Wisconsin, Mr.
Fitzgerald, for 5 minutes.
Mr. FITZGERALD. Thank you, Mr. Chairman.
As somebody that was a former small business owner and a
veteran, you know, a lot of the questions today kind of nibble
on the edges of what is the big frustration. And it is the same
today as I think it has been for many years and that is having
the technical assistance available to navigate the federal
system. And I know personally, and I think if you talk to
specifically a couple of industries, for the most part the
sector, light manufacturing or certainly, I was very familiar
with the printing industry. And if you want a federal contract,
you either need to hire out professional services that can
navigate the federal system and the technical aspects of all
the specs that need to be met, or you need to hire somebody
that is full-time on staff that can work and navigate, like I
said, the entire system. So that is a frustration that has
existed for many years.
I would just say there is a couple of different angles I
think that could be helpful, and I would like maybe Ms. Tong
could comment on this and Mr. Holt for sure. If there were
larger contractors that were granted kind of a larger scope of
what they could enter into or what they could actually bid on
and then the ancillary smaller businesses, whether it is a tool
and die shop down the street or certainly transportation
services, if there was some way of enhancing the synergy
between those two entities, do you think that would be helpful?
Because that seems to be still missing out there in this whole
discussion. And I would offer that to Ms. Tong first.
Ms. TONG. Thank you. So I think the challenge for us to
working with large businesses actually, they take a big cut on
pass through when they give it to us which makes it difficult
for us. Yes, they constantly engage small businesses but they
just did not give us the good rate to recruit talents to be
able to have margin or to work efficiently. And like us, T&T,
we actually have like 15 contract vehicles. We are able to bid
and we see all the opportunities. But challenge is more like
some of the opportunities get consolidated, become a super huge
contract and it is just not something small business or even
midsize companies can bid. That is the main issue.
Mr. FITZGERALD. Mr. Holt, do you have any comment on that?
Mr. HOLT. Yes, sir. We actually have played on both sides
of the field. Right now we are working with a large, coming up
on a year, it has been a very enjoyable, enjoyable opportunity
where they have given us custodial responsibility for the
services that we deliver with the appropriate rates. And that
is an anomaly. That is usually not the norm. And what the norm
is is that depending on the health and the needs of the prime,
a lot of times when the task order comes up for renewal or a
recompete, they are going to ask you to lower your rate. They
are going to ask you how do you lower your rate? And we have
had it happen at mid-contract before where I call it the
bullying effect where the prime will come and say, hey, is
there any room? We need you to go down by X percent. And, you
know, we have held our ground on some and we have had
opportunities where we just have to walk away because we could
not do the business. So, you know, if there was a way to have
more compliance as it relates to the prime and how the
government looked into how they treated their subcontractors, I
think it would go a long way as it relates to compliance and
oversight and ensuring proper revenue shift as far as the
pricing that is being pushed down to us.
Mr. FITZGERALD. Very good. Thank you. Thank you.
In the limited amount of time that I have left, I just
wanted to touch on something that Congressman Meuser brought up
earlier and that is, Mr. Chairman, I think there is kind of a
storm brewing out there on the vaccination. There are so many
different tentacles that are kind of reaching in to the smaller
businesses that do work or are associated with specific types
of sectors, whether they utilize the U.S. Mail or they may have
obviously DoD ties. And you know, what was presented I think by
the Biden Administration as something that was only going to
affect corporations with 100 employees or more, we are starting
to hear, I am back in the district, that this is reaching down
much further than that and I would hope that this Committee
would use its voice to make sure we reach out to the
administration and make them aware of that because, like I
said, I think it is a storm that is brewing that could become a
big problem down the road.
So, and I would yield back. Thank you, Mr. Chair.
Chairman MFUME. The gentleman from Wisconsin yields back.
The gentleman's points are well taken and I will share them
with the larger Committee on Small Business that might want to
pursue that going forward.
We are going to pursue a second round of questioning and I
will recognize myself for 5 minutes.
Can any of you or all of you talk to the fact about whether
or not you were not allowed to recompete at some point in time
on a contract and what was that like and how did you make out?
Anyone?
Ms. CASEY. I can speak to that, Mr. Mfume.
Over the past 3 years, we have not been allowed to
recompete on at least seven different contracts worth probably
well over $15 million of work where we were getting exceptional
ratings from the government on our performance. So it is really
significantly affecting us. It has been many, many contracts.
What ultimately ends up happening----
Mr. FITZGERALD. I am going to have to jump off now, so.
Chairman MFUME. Okay. So you will skip the second round?
Ms. CASEY. What ends up happening is we have to give up the
work and then our people who are doing work at that agency then
get hired by either the large contractor or the company on
Category Management that run the work. So it is hurting our
long-term workforce and it is hurting our long-term revenue,
and it is places where we were doing excellent performance. I
am sure my fellow panelists have seen similar things.
Chairman MFUME. And was there any effort to move you into a
Best-in-Class situation?
Ms. CASEY. Yes. Most of those were because they were moving
it from say a GSA schedule to a Best-in-Class vehicle or they
were moving it from a department-wide vehicle into a Best-in-
Class vehicle. So, yes, it was because of Category Management
and Best-in-Class.
Chairman MFUME. Now, I have heard the term ``bullying'' a
couple times today and it is interesting because I think what I
am really hearing is something that Mr. Holt referenced earlier
and that is the way primes treat subs and that there is
apparently a lack of best practices or a lack of guidelines. I
mean, we put in place a number of guidelines. If you are a
prime in order to get a sub you must do this, you must do that.
There are a number of things that have to be complied with.
Mr. Holt, am I talking out of school? Are you suggesting
here that there ought to be some sort of standards that we can
put in place even if we do it through report language? That
would give primes some sense that they are being watched in
terms of how they are treating subs to make sure this
``bullying'' phenomena does not continue?
Mr. HOLT. Yes, sir. That is exactly what I am saying.
Chairman MFUME. And do you have any suggestions of what
those standards or guidelines should encompass?
Mr. HOLT. I think it should be part of their service level
deliveries being transparent with the government, as well as
being transparent with the subs that are supporting the primes,
understanding what the expected revenue share is up front where
a lot of times primes, they will say, hey, we want you on this
particular opportunity. Give us your pricing. Give us this.
Give us that. And when you go to talk about workshare, they do
not want to have that conversation. That is taboo. And what
usually can come out of that is that they start using us as
staff augmentation as opposed to solutionists where we can
really come in and provide something that is of value, if you
will, that we can create more effect from this, more
efficiency. And on the other side of the coin is for the primes
to partner with us as opposed to just push work down to us that
they may not want to do and that the margin may not be big
enough for them to put their own employees in.
Chairman MFUME. Okay. My time is short.
Ms. Tong, you had mentioned also your not so pleasant
experience with Google and you heard Mr. Holt. Any suggestions
you may have also to kind of prevent that from occurring in the
future?
Ms. TONG. Yes. So I think right now, government only look
at the percentage they sub out to the sub or small business but
they never look at the financial numbers in terms of how much
will the money pass down to small business. Or do they even
offer to pass down the escalation to the subs? For some cases,
we cannot ask escalation for rate adjustment, our rate over the
year remains the same but you know that people's salaries are
going to increase over a year. So things like that. If
government can look at more numbers, or even use cost plus type
of contract i.e. base on what is the actual cost they hire the
sub and then they just give them incentives or the profit, I
think it will help so they do not have to cut our rate in order
to meet their financial goal.
Chairman MFUME. Okay. Thank you very much. My time has
expired.
The Chair recognizes the Ranking Member, Ms. Salazar of
Florida, for 5 minutes.
Ms. SALAZAR. Thank you, Mr. Chairman. And this goes for any
of the witnesses and any of the speakers. I would like to hear
your experiences. I have heard from some of you this term of
``buying your staff and intellectual property for pennies on
the dollar.'' I know that Ms. Tong spoke about it but I would
like to hear Ms. Aleman or Ms. Casey, if there are any examples
that you want to share with us specifically when another bigger
contractor stole from you precious employees after you had
trained them and invested money, time, and energy in keeping
them.
So, Ms. Aleman or Ms. Casey or Ms. Tong. Let's start with
you, Ms. Aleman. I am not sure if you want to share with us. Do
you have examples where we can illustrate this practice is
happening right now? Please do so.
Ms. ALEMAN. Yes. This is a very recent example at the IRS.
We have developed an award-winning solution for Dev Sec Ops,
CICD pipeline, onboarding, saving the IRS 27,000 to 30,000
hours a year for the automation we have done and we have
accelerated that with a patent pending unique solution that we
have actually patented and won a national and international
award for. It was so critical to their filing season that they
gave us, they issued us under the women-owned procurement
preference, they issued us a sole source contract last year to
continue our work because our large agency-wide vehicle got
shut down by a BIC. And that was full and open and it got shut
down by the BICs. So they issued us this wonderful 2-year
contract, sole source, base and option. Come September at the
end of our base year, we still had an option where they did not
need to reprocure. Instead of exercising our option year which
they need the support we provide, they bundled a series of
large contracts into something like a $120, $200 million
contract. So they bundled it and they said, ``No, no.
Everything goes under that now. So you have got to go talk to
them.'' So we did. We went to the prime, Maximus, who said,
``Oh, no, we do not have space for you on our team.'' This is
after award, knowing that our work would be shut down. Then
they sent us, they batted us over, this is the bullying part
but it is almost like collusion. They batted us over to their
key subcontractor which we all know Deloitte is not a small. So
Maximus and Deloitte, both of them telling each other in the
background, ``no, no, no, do not hire them.'' Meanwhile,
calling every single one of our employees on that contract and
now the government is calling our employees. The government.
The federal employees are calling our employees saying, ``Go,
please go. We cannot shut down your work. We need it.'' We have
been off the contract for 3 weeks and the pipeline has been
shut down.
So I am looking forward to January when filing season kicks
off and they are not able to launch this because my employees
refused to go. So they are sitting on my bench now which is
totally fine because that is on me. That is the kind of
decisions we small business owners make. We choose where our
money goes. We choose to invest our profits in our people. And
that is why they do not leave during a shutdown, during COVID,
during contract transitions. They do not go because of that. So
that is not only predatory but they are also positioned to
steal our intellectual property.
Ms. SALAZAR. Absolutely. This cannot happen and I thank you
very much for sharing this testimony.
Chairman, you have been listening to this. We have got to
stop this somehow. That is what we are here for. The government
cannot be stealing away from the private sector. So thank you,
Ms. Aleman.
I think I have a couple of more minutes. Ms. Casey, would
you like to share some of your experiences with us?
Ms. CASEY. I, too, have had similar experiences where large
businesses have signed subcontracts with us and have given us a
workshare. Say 30 percent of the work is supposed to be
performed by Arc Aspicio. And if we are lucky, we will get 5 to
10 percent of that revenue and nobody holds the prime
accountable. And there is no way, you know, they have a lot of
lawyers and there is no way we can kind of argue with them
about standing forward with their teaming agreements. But they
use our teaming agreements to actually win the contracts in the
first place. So they say we are going to team with Arc Aspicio.
They are going to do all this work and then afterwards they do
not do that and I, too, have had similar experiences where a
large prime contractor has literally taken one of my employees,
given that employee to one of the other small businesses on the
contract, and on Friday they leave us and they say that person
will not work there and on Monday they are there working on the
same contract for another small business.
Ms. SALAZAR. Incredible.
Ms. CASEY. Unbelievable.
Ms. SALAZAR. Unbelievable.
Thank you very much for sharing, both of you, and I am sure
that we will, we are going to take action into this. And thanks
once again. I have to yield back. I do not have any more time.
Chairman MFUME. The gentlewoman yields back.
The Chair recognizes again the gentleman from Pennsylvania,
Mr. Meuser, for 5 minutes.
Mr. MEUSER. Thank you again, Mr. Chairman. Thanks,
everyone, again, for all this important information. I agree
with Ms. Salazar. We certainly need to help them and act upon
it.
So in a couple of the testimonies and in the discussion
that just took place, you know, Ms. Aleman referred to as
predatory Joint Ventures between large and small firms and that
has been discussed. But I want to delve into that a little bit
further here where these larger firms will set up subsidiaries
or just new companies and set up Joint Ventures. And therefore,
are able to capture contracts that they would not normally be
able to capture. So large companies can do that and then
perhaps undercut along the way. I mean, that is capitalism to
an extent; right? I mean, if you can do something better you
are going to be able to sell it for less, but when you are
engaged in a deliberate, truly manipulative manner that is not
outlined in a contract. It does not state, hey, if you want to
get a small business contract or a minority-owned contract or a
veteran-owned contract, you cannot just set up a company with
those people as owners and therefore now you are eligible. I
mean, that is just clearly against the grain and inappropriate
and should not be done and perhaps should be illegal.
Is that something that, now, you have all been mentioning
it but I will go to Lynn Ann Casey. Ms. Casey, is that
something that small businesses experience related to federal
contracts?
Ms. CASEY. I would say that there are certain situations
where large business prims enter into Joint Ventures. And I
would call them serial Joint Ventures where they do it over and
over and over. I think Joint Ventures are a good thing for
small businesses, especially under the mentoring programs but I
would look to maybe limit how often a large business can enter
into those Joint Ventures and whether they are serial Joint
Ventures and therefore, preventing other small businesses from
benefitting.
Mr. MEUSER. Yes. It has to be a legitimate Joint Venture,
not just a spinoff.
Would someone else like to comment on that?
Ms. TONG. Yeah, can I? So my situation is my mentor, they
actually have so many proteges which makes our Joint Venture
was not as fruitful as I wish it would be because just with us
it is a food fight within us. So I want to echo what Ms. Casey
said. Limit the number of proteges they can have because we can
only have two mentors but they can have at a minimum three at
the same time within SBA and not to mention other agencies like
DoD or Treasury.
Mr. MEUSER. Thank you.
Ms. Aleman or anyone else care to comment?
Ms. ALEMAN. So I am a big fan of capitalism. I am a Cuban-
American immigrant. This is what my parents brought me here to
this country to do. I believe in America, freedom, the
opportunities it provides. I will live and die by that. And I
can tell you that I hear the pain in Lynn Ann and Victor and
Sophia's voice because we have all been there. And any small
business owner that you put in front of a room and you say, oh,
has this ever happened to you, the intent of Joint Ventures is
a good one. Just like Category Management. It is a good one. It
is to relieve the pressure of procurement offices.
The reason smalls, ultra-smalls, are gravitating towards
them knowing that they are still vulnerable is because they do
not have a choice. So I think it is our responsibility, mutual
responsibility, you as our elected representatives and us with
a voice in our communities and in the organizations we belong,
to create that opportunity for them. Let's give them the
choice. Let's give them the choice to get work so that they can
put other human beings to work, which is what we spend our
money on is other human beings. So I just say create more
opportunity. Do not shut down capitalism. That is not what this
is about. I promise you all the small business owners I deal
with and these on this call, we are not looking for handouts.
We are looking for fair competition, that is all.
Mr. MEUSER. Perfectly well said.
Mr. Holt, last word? You have about 25 seconds.
Mr. HOLT. I agree with everything that has been said. I
think Joint Ventures is a good thing when done correctly. A lot
of times we see that it can become predator where companies
come together to capitalize and create an unfair marketplace.
So as long as it is done correctly, I am 100 percent
supportive.
Mr. MEUSER. Great. Thank you.
Mr. Chairman, I yield back. And thanks again to all of our
witnesses.
Chairman MFUME. The gentleman yields back. The gentleman's
time is expired. All time has expired.
And on behalf of the Ranking Member, I want to thank all of
our witnesses for being here today. Your testimonies showcase
the obstacles and many of the frustrations that Category
Management has created for small businesses like yours across
the country. And the longer we allow these issues to persist
for small firms, they will be pushed out of the federal
supplier base.
This would be bad news, obviously, for businesses, but it
would also be bad news for our government. So I look forward to
working with Committee Members to find ways to improve our
federal procurement systems while ensuring abundant
opportunities for all small businesses.
I would ask unanimous consent that Members have 5
legislative days to submit statements and supporting materials
for the record.
And without objection, so ordered.
And if there is no further business before the Committee,
we stand adjourned. Thank you all very much.
[Responses to Questions by Mr. Victor Holt were not
received in a timely manner.]
[Whereupon, at 1:34 p.m., the subcommittee was adjourned.]
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