[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]



 
           A REVIEW AND ASSESSMENT OF THE SBA HUBZONE PROGRAM

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

                                HEARING

                               before the

             SUBCOMMITTEE ON CONTRACTING AND INFRASTRUCTURE

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             JULY 14, 2022

                               __________

 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                              
                               




            Small Business Committee Document Number 117-061
             Available via the GPO Website: www.govinfo.gov
             
             
             
                              ______

             U.S. GOVERNMENT PUBLISHING OFFICE 
48-011                  WASHINGTON : 2022 
       
             
             
             
             
                   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
                     CHRISSY HOULAHAN, Pennsylvania
                          ANDY KIM, New Jersey
                         ANGIE CRAIG, Minnesota
                        SCOTT PETERS, California
              BLAINE LUETKEMEYER, Missouri, Ranking Member
                         ROGER WILLIAMS, Texas
                        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
                          MIKE FLOOD, Nebraska

                 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. Pete Stauber................................................     3

                               WITNESSES

Mr. Matthew Schoonover, Managing Member, Schoonover & Moriarty 
  LLC, Olathe, KS................................................     6
Ms. Shirley Bailey, Chief Executive Officer, Summit Federal 
  Services, LLC, Loch Lynn Heights, MD, testifying on behalf of 
  the HUBZone Contractors National Council.......................     7
Ms. Ines Rivas-Hutchins, Founder and President, Intec Group, LLC, 
  Paducah, KY, testifying on behalf of Women Construction Owners 
  and Executives (WCOE)..........................................     9
Mr. Brent Lillard, Chief Executive Officer and Co-Founder, 
  GovSmart, Inc., Charlottesville, VA............................    11

                                APPENDIX

Prepared Statements:
    Mr. Matthew Schoonover, Managing Member, Schoonover & 
      Moriarty LLC, Olathe, KS...................................    27
    Ms. Shirley Bailey, Chief Executive Officer, Summit Federal 
      Services, LLC, Loch Lynn Heights, MD, testifying on behalf 
      of the HUBZone Contractors National Council................    38
    Ms. Ines Rivas-Hutchins, Founder and President, Intec Group, 
      LLC, Paducah, KY, testifying on behalf of Women 
      Construction Owners and Executives (WCOE)..................    44
    Mr. Brent Lillard, Chief Executive Officer and Co-Founder, 
      GovSmart, Inc., Charlottesville, VA........................    51
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    Ho-Chunk Incorporated........................................    65


           A REVIEW AND ASSESSMENT OF THE SBA HUBZONE PROGRAM

                              ----------                              


                        THURSDAY, JULY 14, 2022

              House of Representatives,    
               Committee on Small Business,
    Subcommittee on Contracting and Infrastructure,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:02 a.m., in 
Room 2360, Rayburn House Office Building, Hon. Kweisi Mfume 
[chairman of the Subcommittee] presiding.
    Present: Representatives Mfume, Carter, Andy Kim, Stauber, 
Meuser, Fitzgerald, and Flood.
    Chairman MFUME. Good morning, ladies and gentlemen. I want 
to call this hearing to order. Without objection, the Chair is 
authorized to declare a recess at any time.
    I would like to begin, if I could, by noting a few 
important requirements.
    Standing House and Committee rules will continue to apply 
during this hybrid proceeding. All Members are reminded that 
they are expected to adhere to these rules, including the 
established rules of decorum.
    House regulations require Members to be visible through a 
video connection if they are joining us electronically on this 
proceeding. And if that is the case, please be mindful to keep 
your cameras on.
    Also, please remember to remain muted until you are 
recognized in order to minimize any background noise.
    In the event a Member encounters technical issues that 
prevent them from being recognized for their questioning, I 
will move then to the next available Member of the same party 
and I will recognize that Member at the next appropriate time 
slot, provided they have returned to the proceedings.
    In 1997, Congress created the Historically Underutilized 
Business Zone program, also known as the HUBZone program, as 
part of the Small Business Reauthorization Act. That program 
was intended to provide small businesses in economically 
distressed areas with greater access to federal employment and 
procurement opportunities. This, undoubtedly, was a worthy 
goal, but it still remains, unfortunately, a goal.
    The U.S. Government is the largest purchaser, as most of 
you know, of goods and services, and it is vital that 
underserved small businesses have access to this marketplace. 
When the small firms can compete for and win federal contracts, 
they in turn create jobs that support our local economies.
    Firms that are certified by the SBA as ``Qualified HUBZone 
Small Business Concerns'' have access to a range of incentives, 
including, one, set-asides; two, sole source contracts; three, 
a 10 percent evaluation preference during full and open 
competition; and various other incentives.
    The Small Business Act also sets a government-wide 
contracting goal for participation by qualified HUBZone 
business concerns of not less than 3 percent, both for prime 
contracts and subcontracts. Unfortunately, this goal has never 
been met in the 20-plus years of existence.
    Let me just deliberately be redundant and repeat that. 
Unfortunately, this goal has never been met in the program's 
20-plus years of existence.
    And so if we want to make progress towards achieving the 3 
percent milestone, many of us on this Committee believe that it 
is vital that we understand the factors that are limiting 
HUBZone's reach.
    For example, consolidation is a significant inhibitor to 
small business utilization in contracting. The small business 
contracting base, remarkably, has shrunk substantially over the 
years due to initiatives like Category Management. Category 
Management in many respects has driven a decline in the number 
of small businesses serving as federal prime contractors, 
resulting in fewer, not more, contracting opportunities awarded 
to HUBZone businesses.
    Another vexing issue is the limited number of businesses 
participating in the program. Despite the considerable number 
of areas that have HUBZone designation, there were only 4,870 
participants in the program as of May this year, and that is 
down more than 8,500 participants since 2011.
    In Maryland's congressional district which I have the 
pleasure of representing and the honor it is the home of more 
than 75 HUBZone areas. And there are approximately 288 HUBZone 
areas in the entire State of Maryland, and yet there are only 
355 HUBZone certified firms in that State, which is, on 
average, less than 2 HUBZone certified firms per HUBZone area.
    So today many of us want to hear from our panel about their 
experience with HUBZone programs like the one that we are 
talking about--which is, in fact, the only one--and what 
reforms Congress can, in fact, pursue to increase program 
utilization. And that is really significant here: What reforms 
can Congress pursue to increase program utilization?
    I mean, it has been 20 years. Do we throw the whole thing 
out and start over again? Or do we admit that there are some 
real serious issues that this Committee ought to be looking at 
to try to find a way to enhance the program and the 
participation in the program?
    I want to examine the efficacy of previous program changes 
that this Committee and the SBA have instituted. And over the 
years, it is important to note that this Committee and the SBA 
have worked to provide stability, certainty, and flexibility 
when it comes to complying with eligibility requirements.
    So as we chart this path forward, it is vital that we 
examine how these changes are working for program participants. 
And by improving the HUBZone program to meet its full 
potential, we believe that we can empower small businesses to 
support local economies and uplift socially and economically 
disadvantaged communities.
    So, having said all that, I really want to thank today's 
witnesses for contributing to this hearing. We all look forward 
to gaining more insight and understanding from your testimonies 
about how we can make the HUBZone program more effective in 
meeting its mission.
    And now it is my pleasure to yield to the Ranking Member, 
the distinguished gentleman from Minnesota, Mr. Stauber, for an 
opening statement.
    Mr. STAUBER. Thank you very much, Mr. Chair.
    Before I make my opening statement, Mr. Chair, I would like 
to take a moment to welcome our newest Member of the Committee 
on Small Business and the Subcommittee on Contracting and 
Infrastructure, Representative Mike Flood of Nebraska. 
Representative Flood was sworn in just this Tuesday and is 
ready to hit the ground running here with us today.
    Welcome to the Committee, Mr. Flood, and we look forward to 
working with you.
    Thank you, Mr. Chairman, and thank you for calling today's 
hearing. I want to thank all of today's witnesses for joining 
us this morning to discuss the Small Business Administration's 
Historically Underutilized Business Zones program, or HUBZone 
program.
    The HUBZone program's core mission is to bring economic 
hope, independence, jobs, and businesses to economically 
distressed areas marked by high unemployment and poverty. To 
accomplish this, the program utilizes a valuable government 
resource, a government contract.
    Through the use of federal contracting preferences, the 
program works to encourage small businesses to locate an 
economically distressed area and employ people within that 
area.
    These government contracts to HUBZone small businesses can 
translate into thousands of job opportunities for individuals 
in these areas who are either unemployed or underemployed.
    Since inception over two decades ago, the program has 
undergone significant changes. In 2017, this Committee held 
hearings, assessed the program's successes, and advanced 
bipartisan reforms to ensure continued forward progress.
    Following Congress' passage of these legislative reforms, 
the Small Business Administration published additional 
regulatory reforms to the program. All of these reforms were 
intended to reduce the burden on participating small businesses 
and encourage the participation of even more small businesses.
    Just as we work to assess this program, the Government 
Accountability Office and the SBA Office of Inspector General 
have also examined the HUBZone program for over two decades 
now. In each of the reports from these agencies throughout the 
years, there are several reoccurring themes.
    One of these is regarding technological and communication 
issues within the program, from publicizing accurate HUBZone 
area data to streamlining the online certification process to 
effectively communicating with current HUBZone participants. 
The HUBZone program has consistently struggled in this area.
    Another persistent challenge within the program--and, 
frankly, one that we have seen throughout the SBA's programs 
recently--is the lack of adequate assessments to measure the 
program's effectiveness.
    While I have no doubt we have success stories from the 
program with us today, adequate assessment metrics are 
essential to measuring the overall success of any program and 
should be especially important for this one.
    Finally, there is the issue of potential fraud within the 
program and the effectiveness of SBA's fraud mitigation 
tactics. Watchdog reports have found that deficiencies in 
internal controls have resulted in a lack of reasonable 
assurances that firms within the program are actually eligible 
to participate.
    If and when fraud does occur, there are also questions as 
to whether the SBA is adequately utilizing its suspension and 
debarment powers, its primary tool for deterring fraudulent 
actors.
    From recent legislation and regulatory changes to 
persistent challenges within the program, I look forward to 
hearing from our witnesses about their unique experience with 
this important program. Given the current inflationary 
pressures impacting small businesses, hearings like these are 
paramount.
    With that, Mr. Chairman, I once again thank you for calling 
today's hearing, and I yield back.
    Chairman MFUME. The gentleman yields back.
    And with that, I would like to take a moment to explain how 
this hearing will proceed today.
    Each witness will have 5 minutes to provide a statement, 
and each Committee Member will have 5 minutes for questions.
    Please ensure that your microphone is on when you begin 
speaking and that you return to mute when you are finished.
    And with that, I would like to introduce our witnesses.
    Our first witness is Mr. Matthew Schoonover.
    And, Mr. Schoonover, I hope I am pronouncing your name 
correctly. With a name like mine, I take great pains to make 
sure that I don't mess someone else's name up. So it is 
Schoonover?
    Mr. SCHOONOVER. Schoonover.
    Chairman MFUME. Schoonover, okay.
    Mr. Schoonover is Managing Member of the law firm of 
Schoonover & Moriarty in the State of Kansas. Mr. Schoonover 
counsels clients on how to achieve success in the federal 
marketplace. His main focus is regulatory compliance issues and 
eligibility for the SBA's small business contracting programs.
    In addition, he represents clients on a wide range of 
litigation-related matters, such as bid protests, SBA's size 
and socioeconomic eligibility protests and appeals, and 
performance disputes within federal agencies.
    Mr. Schoonover, we greatly appreciate your expertise and we 
look forward in just a moment to your testimony.
    In fact, why don't I introduce everyone?
    Ms. Bailey is with us by way of--hi there, Ms. Bailey.
    I am going to introduce everyone, and then we will just 
simply proceed after that.
    So our next witness is Ms. Shirley Bailey, the CEO and 
Managing Member of Summit Federal Services, LLC, which is a 
certified HUBZone and women-owned small business located in the 
State of Maryland.
    Summit provides a wide range of services to federal 
contract clients, including acquisition, administrative, and 
information technology support services.
    Ms. Bailey has more than 30 years of management and 
leadership experience. She is also the President and Board 
Chair of the HUBZone Contractors National Council.
    Welcome, Ms. Bailey.
    Our third witness is Ms. Ines Rivas-Hutchins, the founder 
and president of Intec Group, LLC, a certified HUBZone, 8(a), 
and economically disadvantaged women-owned small business 
located in the State of Kentucky.
    The Intec Group specializes in all aspects of general 
construction and has broad experience with military 
construction projects. Some of those projects include serving 
clients like the Department of Army, the Air Force, and the 
Army Corps of Engineers. Ms. Rivas-Hutchins founded Intec in 
2015 and has over 15 years of project management experience.
    Welcome, Ms. Rivas-Hutchins.
    And now I would like to yield to Mr. Stauber, the Ranking 
Member, to introduce our final witness.
    Mr. STAUBER. Thank you, Mr. Chairman.
    Our next witness is Mr. Brent Lillard. Mr. Lillard is the 
co-founder and chief executive officer of GovSmart. GovSmart is 
an SBA HUBZone certified small business providing full-scale IT 
solutions to the federal government and its prime contractors.
    The company sells mostly IT-related products, including 
hardware and software for most major manufacturers. Mr. Lillard 
and his partner started the company in their kitchen in 2009, 
and have grown it steadily to over a quarter billion dollars in 
annual revenue with over 70 employees.
    Mr. Lillard, thank you once again for testifying before 
this Subcommittee and for your participation today.
    I would also like to thank all of the witnesses for joining 
us, and I look forward to today's conversation.
    Mr. Chairman, I yield back.
    Chairman MFUME. The gentleman yields back.
    Before we begin, I want to just simply say welcome to the 
gentleman from Nebraska, Mr. Flood.
    I didn't get to you on the floor yesterday. I tried to. But 
you have got a great family. It was great seeing them. And it 
was great being a part of the group, the bipartisan welcome to 
the United States Congress.
    It is a real opportunity, as, of course, you know, to do so 
many things for so many people who want in so many ways real 
change. I guess that is why we are all called Representatives, 
because we are really supposed to represent them. So we 
congratulate you and we welcome you into this body.
    Mr. FLOOD. Thank you, sir.
    Chairman MFUME. Okay. Mr. Schoonover, you are now 
recognized for 5 minutes.

    STATEMENTS OF MR. MATTHEW SCHOONOVER, MANAGING MEMBER, 
  SCHOONOVER & MORIARTY LLC, OLATHE, KS; MS. SHIRLEY BAILEY, 
  CHIEF EXECUTIVE OFFICER, SUMMIT FEDERAL SERVICES, LLC, LOCH 
     LYNN HEIGHTS, MD, TESTIFYING ON BEHALF OF THE HUBZONE 
CONTRACTORS NATIONAL COUNCIL; MS. INES RIVAS-HUTCHINS, FOUNDER 
  AND PRESIDENT, INTEC GROUP, LLC, PADUCAH, KY, TESTIFYING ON 
BEHALF OF WOMEN CONSTRUCTION OWNERS AND EXECUTIVES (WCOE); AND 
  MR. BRENT LILLARD, CHIEF EXECUTIVE OFFICER AND CO-FOUNDER, 
              GOVSMART, INC., CHARLOTTESVILLE, VA

                STATEMENT OF MATTHEW SCHOONOVER

    Mr. SCHOONOVER. Thank you, Chairman Mfume, Ranking Member 
Stauber, and esteemed Members of the Subcommittee. Good 
morning. And, Mr. Chairman, I certainly hope I pronounced your 
name correctly as well.
    I am honored to join you today to discuss ways to improve 
the government's efforts to contract with a special group of 
small businesses: HUBZone companies. But first I would like to 
tell you a little about me and my role in helping small 
businesses.
    I am the Managing Member of Schoonover & Moriarty, an 
Olathe, Kansas-based law firm that counsels small business 
federal contractors. In my practice I work with clients on a 
broad range of issues, from complying with a myriad of federal 
laws, regulations, and contractual provisions covering their 
work with the federal government; to complying with the Small 
Business Administration's small business and socioeconomic 
program regulations; and representing them in performance 
disputes and bid protests.
    Through my work with these companies, I see firsthand the 
benefits that federal contracting dollars provide to small 
businesses. Perhaps nowhere is this benefit more pronounced, 
though, than when the federal government contracts with HUBZone 
companies.
    A HUBZone company is a company that is located in a 
Historically Underutilized Business Development Zone and that 
employs at least 35 percent of its employees who live in such a 
zone.
    Several different types of tracts qualify as HUBZones, from 
census-designated areas to base closure areas and disaster 
areas. The unifying characteristic, though, is that each of 
these areas is in need of economic development.
    By contracting with companies located in and that employ 
individuals who live in these areas, the HUBZone program seeks 
to develop whole communities--or, as the adage has it, a rising 
tide lifts all boats.
    It is for this reason that I find the government's 
continuing failure to meet its HUBZone contracting goals to be 
particularly offensive. The Small Business Act asks the 
government to try to award only 3 percent of its prime contract 
awards to these companies. Historically, however, the 
government has fallen far short and, in fact, as the Chairman 
noted, it has never met the 3 percent contracting goal.
    In 2020, the latest year for which we have data available, 
the government awarded only 2.44 percent of its prime contracts 
to HUBZone businesses. Considering, however, that many of these 
awards were actually probably double counted among the other 
socioeconomic programs, the number of true HUBZone contracts is 
certainly lower.
    Had the government met its goal, these areas in dire need 
of economic development would have received billions of dollars 
more in investment.
    With this background, I am very happy that the Subcommittee 
is meeting today to discuss ways to improve the HUBZone 
program. In my written testimony, I provided some ideas to do 
so, but I wanted to flag a few for you here.
    First, just as Congress mandated the Department of Veterans 
Affairs to prioritize service-disabled veteran-owned small 
businesses in its contracting efforts, so too should Congress 
require a different agency to prioritize contracting with 
HUBZone companies. This agency should be one uniquely focused 
on providing economic development, perhaps the Department of 
Commerce or Housing and Urban Development.
    Second, work that was awarded to HUBZone companies should 
remain in the HUBZone program unless SBA specifically 
authorizes that work to be released for competition outside of 
the HUBZone program.
    Third, the Department of Transportation's Highway Trust 
Fund should recognize HUBZone set-asides. Currently, it does 
not, meaning that these companies lose out on potential 
valuable contracting opportunities.
    Thank you for the opportunity to join for this important 
discussion. I look forward to your questions and to the 
Committee's efforts to improve contracting with HUBZone 
businesses. Thank you.
    Chairman MFUME. Thank you very much, Mr. Schoonover.
    Ms. Bailey, you are recognized for 5 minutes.

                  STATEMENT OF SHIRLEY BAILEY

    Ms. BAILEY. Thank you. And I apologize in advance for my 
voice. I am still battling COVID.
    Chair Mfume, Ranking Member Stauber, and Members of the 
Subcommittee, thank you for the opportunity to testify today. 
My name is Shirley Bailey, and I am CEO and Managing Member of 
Summit Federal Services located in Oakland, Maryland. My 
company provides business process technical management support 
services to federal agencies.
    We are an SBA certified HUBZone and women-owned small 
business, and I am also a proud Member of the Women's 
Procurement Circle.
    I am testifying here today on behalf of the HUBZone 
Contractors National Council, where I serve as the President 
and Chair of the Board of Directors and have been an active 
HUBZone certified Member since 2000. The Council is a nonprofit 
trade association providing information and support for 
companies and professionals interested in the SBA's HUBZone 
program.
    The Council strives to promote economic development in 
underutilized rural and urban communities as well as maximize 
success for companies participating in the HUBZone program.
    The HUBZone program is designed to provide economic 
assistance to underserved areas by awarding federal contracts 
to small businesses that operate and employ workers in those 
areas. The underlying principle behind the HUBZone program 
established 25 years ago remains the same today--to decrease 
unemployment and revitalize low-income communities by 
encouraging businesses to locate in these HUBZone areas.
    We thank the Committee for its continued commitment to 
support small businesses doing business with the federal 
government. It is because of this Committee's strong commitment 
to improving the HUBZone program that a substantial 
modernization effort was signed into law in 2018.
    Unfortunately, challenges continue to plague certified 
HUBZone firms. Since the program's inception, the government 
has never met its goal to obligate 3 percent of eligible prime 
contract dollars to HUBZone businesses. This represents over 25 
years of missed opportunities and unawarded dollars for 
companies that operate and employ workers in HUBZones.
    In the last 2 years, we have seen how crucial it is for 
government programs to adapt to changing realities, and the 
HUBZone program should be no exception. The workplace 
environment has dramatically shifted to embrace telework. While 
the SBA initially relaxed the eligibility requirement for the 
principal office during the pandemic, this requirement has been 
reinstated.
    To account for the large percentage of contractor employees 
teleworking due to the COVID-19, the Council recommends adding 
flexibility to the principal office requirement and embracing 
telework.
    Navigating business compliance during the pandemic has also 
been challenging for small businesses. The shift for many to 
telework brought additional compliance risks for HUBZone 
companies, especially with the residency and workforce 
requirements.
    A continuing challenge is understanding these requirements, 
and we urge the SBA to provide clear guidance and reasonable 
timeframes for companies to adapt to these changes.
    The Council also recommends the follow actions, which have 
been described in our written testimony, to increase awards to 
HUBZone companies and the communities they serve.
    First, apply the HUBZone price evaluation preferences to 
task orders. A misinterpretation of the FAR has led many 
HUBZone small businesses to miss out on potential 
opportunities. The Council thanks this Committee for 
championing H.R. 5879 to make this change.
    Second, expand the sole source contract opportunities for 
HUBZone companies. As government buying continues to trend 
towards utilizing large contracting vehicles and away from 
direct contracts, the ability for small companies to win sole 
source awards is more important than ever.
    Minimizing the impact of Category Management is also key to 
ensuring maximal participation of HUBZone businesses in the 
federal market. We also applaud the Committee for your proposed 
bipartisan amendment to the fiscal year 2023 NDAA to exempt 
certain contracts from Category Management requirements.
    Third, we believe the acquisition workforce needs 
additional training for small business contracting programs. 
Changes to the SBA's small business contracting programs has 
necessitated the need for recurring training on the 
requirements of the HUBZone program.
    Fourth, change reporting requirements to accurately reflect 
contract set-asides. Agencies should report progress towards 
small business goals based on how the contract was solicited.
    Fifth, revise the definition of ``reside'' and redefine the 
``attempt to maintain'' requirement. These changes would make 
compliance easier for small businesses.
    And finally, prioritizing local vendors. As mentioned 
earlier in my testimony, generating wealth in underserved 
communities is an important mission of the HUBZone program. We 
believe the program would be enhanced by an emphasis on using 
local businesses to perform government contract work in the 
area of the award.
    The HUBZone program is needed now more than ever, as the 
number of HUBZone locations around the country has roughly 
doubled since Congress first created the program. The HUBZone 
contractor community is optimistic that the congressional 
actions to provide more certainty, flexibility, and fair 
requirements for the program will help companies across the 
country meet the program's mission.
    Our Member companies and all HUBZone certified firms are 
ready to compete on federal contracts to bring jobs, 
innovation, training, and economic empowerment to HUBZones.
    Thank you for allowing the Council to testify at this very 
important hearing, and I look forward to answering your 
questions.
    Chairman MFUME. Thank you very much, Ms. Bailey. We wish 
you a speedy recovery.
    Ms. BAILEY. Thank you.
    Chairman MFUME. The Chair recognizes Ms. Rivas-Hutchins for 
5 minutes.

                STATEMENT OF INES RIVAS-HUTCHINS

    Ms. RIVAS-HUTCHINS. Good morning, Chairman Mfume, Ranking 
Member Stauber, and Members of the Committee. Thank you for the 
opportunity to testify today.
    My name is Ines Rivas-Hutchins, founder and president of 
Intec Group, LLC. I am pleased today to also be representing 
WCOE, a national trade association representing the interests 
of women owners and executives in the construction industry. 
WCOE focuses on helping women-owned businesses and women 
executives succeed in the construction industry.
    Intec Group is an economically disadvantaged woman-owned 
small business, SBA 8(a) program participant, and SBA certified 
HUBZone firm in the State of Kentucky that specializes in all 
aspects of general construction. Intec Group has a successful 
history of providing construction services to the federal 
government, Department of Defense specifically.
    I came to the United States from Venezuela 23 years ago 
with a background in architecture studies, but it was 
construction management that became my passion. I started Intec 
Group in 2015, capitalizing on the knowledge I gained and 
connections I made throughout my career. Intec Group has been 
an 8(a) program participant for 2 years and a HUBZone certified 
contractor for 5 years.
    Although being a woman-owned small business since the 
inception, the majority of my work, my federal work, has been 
throughout the HUBZone program, which has maximized my 
company's growth.
    My HUBZone journey is different than some. I became HUBZone 
certified because a contract opportunity was set aside as such, 
which propelled me to getting Intec Group HUBZone certified.
    And I think this is important. It shows that more HUBZone 
set-aside contracts will produce more HUBZone certified 
businesses and not just the other way around.
    To date, Intec has been awarded a total of 225 contracts in 
the order of $151 million, of which 121 awards were HUBZone 
set-asides. It is fair to say that the HUBZone certification 
accounts for over 50 percent of my company's revenue.
    The HUBZone program allows us to be positive contributors 
to our community and to give our workers the opportunity to 
develop and provide for their families. The HUBZone program 
allows us to bring those federal dollars back to our community, 
using local talent.
    It is no secret there is a talent shortage in the 
construction industry, and we need all the people we can get. 
HUBZone ensures there is an incentive for educated and talented 
workers to stay in Kentucky. We want them there where they grew 
up and not having to move to big cities to chase work.
    I think the Committee would like to know there are certain 
changes to the program that have been very beneficial to my 
firm. For instance, map changes. Recent changes have helped 
increase predictability, such as increasing to 5 years the 
HUBZone designation map, allowing firms to be considered a 
HUBZone throughout the life of a contract.
    New long-term investment rules for the main office location 
help me and many others. I recently made a significant move to 
establish our Lexington, Kentucky, office to a HUBZone area, 
and a relocation would be very costly for my firm.
    I found the SBA site visitation program a very positive 
step to reduce fraud. We had a site visit from an SBA district 
official within our first year of certification. And, in fact, 
this visit has strengthened my relationship with my SBA 
business development specialist. Site visits are a good 
investment to keep a check on companies that might want to game 
the system, and WCOE would recommend it continue.
    My personal experience has been overall very positive, but 
there are always changes that could help, such as a more 
vigorous marketing and education campaign aimed at agencies and 
the contracting officers.
    Contracting officers say they are unable to find enough 
qualified firms to set-aside contracts, but, on the other hand, 
HUBZone companies within our group, WCOE, have indicated they 
have a hard time finding HUBZone contracts.
    Incentives for agencies to meet goals without consequences 
for not meeting the goals. There should be at least some 
incentives for meeting them.
    Reform the Procurement Scorecard. WCOE would like changes 
with more transparency and accuracy for the SBA Procurement 
Scorecard.
    Subcontracting plan compliance. For WCOE companies, 
subcontracting is sometimes the only way to enter the federal 
marketplace. It allows construction companies to build a 
positive past performance record. As with agencies, there is no 
incentive for meeting or consequences for failure to meet the 
subcontracting goal.
    Thank you again for your focus on the HUBZone program and 
for all your work supporting small businesses, and I look 
forward to answering your questions.
    Chairman MFUME. Thank you very, very much for your 
testimony.
    I want to recognize the Ranking Member, who will introduce 
our other panelist.
    Mr. STAUBER. Mr. Lillard, you are up for 5 minutes.

                   STATEMENT OF BRENT LILLARD

    Mr. LILLARD. Chairman Mfume, Ranking Member Stauber, and 
Members of the Committee, thank you for the opportunity to 
testify before you today. My name is Brent Lillard, and I am 
the CEO and co-founder of GovSmart, Inc.
    We are an SBA HUBZone certified IT solutions provider and 
value-added reseller to the federal government and its large 
prime contractors. My partner, Hamza Durrani, and I started the 
company out of our kitchen in a rented house in the HUBZone of 
Charlottesville, Virginia, in late 2009.
    Today, GovSmart has successfully completed over $1 billion 
in federal prime contracts and hundreds of millions of dollars 
in federal subcontracts. We currently have over 70 full-time 
employees and continue to grow, along with the federal 
government's HUBZone requirements. We are also Members of 
GovEvolve, a leading advocacy organization for small and 
midsize businesses that support government innovation.
    I have personally been working in the HUBZone program and 
each of the other socioeconomic programs since 2004, when I 
first entered the industry as a federal sales representative. 
My diverse experience working for and running multiple 
companies from each socioeconomic category has given me a 
unique opportunity to observe their strengths and weaknesses 
firsthand.
    I believe the HUBZone program can serve a crucial role in 
reaching underserved communities like ours. I also believe the 
program has some endemic challenges that need to be addressed 
to maximize its reach.
    The method envisioned by the program was to certify HUBZone 
qualified companies that commit to maintaining a workforce 
comprised of at least 35 percent HUBZone residents, with the 
hope that those employees would earn enough to throw off the 
burden of historical poverty and reinvest their wages into 
their communities.
    In my experience, it has been very difficult to maintain 
the 35 percent HUBZone residency requirement for our employees 
due, in part, to the social and economic realities faced by 
HUBZone residents in our city.
    Difficulty in hiring HUBZone residents has long been 
recognized by the HUBZone program, and SBA's new shift towards 
allowing legacy employees has helped tremendously.
    However, in an update to the SBA's Frequently Asked 
Questions published on June 24, 2021, the SBA included a rather 
Earth-shattering qualification change: that employees must have 
established their legacy residence within the HUBZone only 
after December 29, 2019, the date the rule became final.
    Companies relying on pre-2019 legacy HUBZone residence, per 
the written instructions from official SBA HUBZone attorney 
advisers, may find themselves outside the requirement through 
no fault of their own.
    These companies, such as mine, must now take drastic and 
immediate measures to ensure program compliance. We must either 
terminate good employees no longer living in the HUBZone or 
quickly hire potentially underqualified employees from it.
    The biggest challenge to our category is the 
overutilization of the other categories due to the lack of 
parity amongst the programs. HUBZone companies do not have 
direct award authority in the FAR, and the goal is 
substantially lower than that of the SDB and woman-owned 
programs.
    GovSmart was also a small disadvantaged business under the 
SBA's 8(a) Business Development program during our first years 
before we graduated from the program in 2019. During our years 
as an 8(a) SDB, we greatly benefited from the program and 
received many direct awards. We were nevertheless aware that 
our concurrently held HUBZone status was a distant second in 
terms of business growth and development.
    When we graduated early from the 8(a) program in 2019, we 
had, fortunately, already transitioned to lean primarily on our 
HUBZone status with our newly acquired governmentwide 
acquisition contracts, such as NASA's SEWP V and NIH's CIO-CS. 
These large multiyear contracts, which were narrowly awarded to 
GovSmart, enabled us to survive the loss of 8(a) direct awards, 
at least temporarily.
    Our future is uncertain because we struggle to make the 
case to government agencies for why they should set a given 
procurement aside for HUBZones. They know, as we do, that the 
lack of direct award authority means a lack of efficiency. This 
contributes to the government's continued failure to meet the 3 
percent HUBZone goal.
    Additionally, the government continually receives an A 
grade for small business awards while underperforming in 
HUBZone awards. This has happened every single year since 2007 
and comes from the SBA scorecard analysis algorithm, which 
allows extra credit to make up for shortfalls in one 
socioeconomic program by overachieving in other programs that 
are much easier and faster to use.
    GovSmart is a reseller of IT goods and services. With our 
help, the agencies do not need to directly survey the universe 
of available solutions to a given tech problem. They can, 
instead, pose the requirement to us and our competitors and, 
with our mass knowledge and experience, we can compete to 
recommend the best possible technology solutions for the lowest 
price.
    The IT FAR industry, unfortunately, does not have an 
industry code that is descriptive of our industry. Rather, we 
must classify ourselves under NAICS codes that are not 
appropriate for our services, creating additional compliance 
issues and often resulting in a loss of opportunities.
    An industry-specific NAICS code would help my firm and all 
other small federal IT resellers across the country to continue 
to provide the government with critical technology solutions.
    In closing, the HUBZone program is a valuable way to inject 
federal procurement dollars into underserved communities. 
However, the program would benefit greatly from the parity 
recommendations outlined in my testimony.
    These changes will help all HUBZone companies to continue 
benefiting their underserved communities.
    Thank you for your time, and I look forward to answering 
your questions.
    Chairman MFUME. Thank you for your testimony.
    I want to thank everybody who has been here to provide 
information and real experience before this Committee.
    I think it is clear we all agree that there is a problem 
here, and how we go about tackling it will be how we are 
measured as a Congress and as a Committee.
    But it is frustrating, to say the least, that for 20 years 
we have not been able to reach a 3 percent goal. And I agree, 
there has been a lot of double counting, so maybe we are 
further underwater than we actually realize.
    Mr. Schoonover, can you take a minute to talk about this 
whole notion of double counting? It was a part of your 
testimony. I just want to make sure that we explain it here so 
that people understand that there are perils to that.
    Mr. SCHOONOVER. Thank you, Mr. Chairman.
    Yes. When the federal government determines the amount of 
awards that are given to small businesses or any other 
socioeconomic category, be they the 8(a) program, SDVOSBs, 
WOSBs, or HUBZones, one of the things that the government can 
do is, say, for example, an opportunity is set aside for woman-
owned small businesses. If that woman-owned small business also 
happens to be a HUBZone company, then the government can claim 
credit not only for the WOSB award, but also under the HUBZone 
category.
    So we have a problem where the government is not actually 
tracking the tools--easily tracking, I should say--the tools 
that it has available to contract with these businesses, 
through HUBZone set-asides and directed awards to HUBZone 
companies.
    Beyond that, the goals also capture those awards that were 
awarded under full and open competition, meaning awards that 
were unrestricted. Anybody could bid on those. And if a HUBZone 
company happens to win that contract award, then that would be 
counted as complying or going towards the government's 3 
percent HUBZone goal.
    Chairman MFUME. Thank you very much.
    One other quick thing, and I want to go to another witness 
here. In your testimony, you suggested that maybe this body and 
the Congress ought to look at having a different agency to 
oversee compliance. Can you take a quick moment? We don't have 
a lot of time, but I would like to hear your thoughts.
    Mr. SCHOONOVER. I am sorry. That may not have been clear. 
What I was suggesting in my testimony is, much as Congress 
mandated the VA to prioritize contracting with SDVOSBs, I think 
it would be beneficial if Congress also mandated a different 
agency to prioritize contracting with HUBZone companies.
    That is, whenever that agency believes there are two or 
more HUBZone companies that may submit a bid at a fair and 
reasonable price, that agency would be mandated to award that 
company--or, excuse me, set that procurement aside for HUBZone 
companies.
    Chairman MFUME. Okay. Thank you.
    And, Ms. Bailey, when we look at the lack of impact that we 
are having in this program and the information that is being 
collected, do you have some thoughts, as a nonprofit trade 
association, of what you would like to see in terms of 
information collected to be able to better measure success or 
identify failures?
    Ms. BAILEY. Yes, yes. Yes, several metrics that we consider 
to be important would be, of course, the number of HUBZone set-
aside contracts solicited in the dollars awarded for each of 
those, but also to consider that as a percentage of the total 
HUBZone dollars that are set aside.
    Why this is so important for the HUBZone program is because 
the HUBZone program is the only socioeconomic program that has 
the attempt to maintain and requires a benefit to be made based 
on a HUBZone set-aside contract.
    Also, the number of contracts and contract dollars being 
performed in a HUBZone area. If a contract is performed at a 
contractor site, like Matthew might be considering too, it is 
considered HUBZone, because chances are it is going to be 
performed in that HUBZone area.
    The number of HUBZone employees employed over year to year, 
to be able to track that information.
    Also, the number of companies that have purchased 
properties and/or have entered into long-term leases, because 
that shows a major investment in the HUBZone areas. The SBA has 
indicated that one of those areas that they incorporated was 
supporting the long-term investment in communities. So being 
able to track that information would be critical.
    The number of----
    Chairman MFUME. Thank you. Thank you, Ms. Bailey. I am 
sorry. I am going to come back around to you. We don't have a 
lot of time in this first discussion, but if you would stay 
with us, have a follow-up.
    Mr. Lillard, before we move on, I want to yield to the 
Ranking Member. I think the legacy program was a great idea 
also. I was not aware of the effective date and the way it 
handcuffs individuals like yourself and others. Can you take a 
quick moment?
    Mr. LILLARD. Yes, absolutely. Thank you.
    One thing is that originally when they made the rule, it 
didn't have the rule that said it had to be that particular 
date. We actually reached out to the SBA ourselves. Our counsel 
reached out to the SBA, asked specific questions.
    And their attorney advisers responded to us and were very, 
very clear that it did count all of our older HUBZone employees 
that had moved out of the HUBZone that we had basically helped 
make successful enough to afford to move out of the HUBZone.
    They told us that that was the case. We have it in writing 
from them. We used that as our information to decide how to 
grow our company. We hired a bunch more people. Now we have 73, 
I think, or 74 employees.
    And then, actually, while we were preparing the speech for 
this is when we noticed in the Frequently Asked Questions that 
they had updated it. And that is not the official procedure 
that they are supposed to go through, as far as I am aware, to 
announce changes, to make changes, and to formally legislate 
them, I guess.
    And so we are kind of protesting that right now with the 
HUBZone. We talked to the director of the HUBZone--or, excuse 
me, the program manager of the HUBZone program this week and 
talked to them. They basically told us that they are going to--
it is on hold. They are going to wait for the director to get 
back, because we have a unique circumstance.
    Chairman MFUME. Thank you. And we are going to have staff 
to follow up also with the SBA to get some clarity.
    My time is way over, done, and I want to yield to the 
gentleman from Minnesota, Mr. Stauber.
    Mr. STAUBER. Thank you, Mr. Chair.
    Mr. Lillard, one of the longstanding issues of this 
Committee in its examination of the HUBZone program is the 
inability of the SBA to track program effectiveness.
    Has the SBA gathered any data from your company or other 
HUBZone firms that you know of in order to assess program 
effectiveness?
    Mr. LILLARD. Thank you.
    They gather a plethora of information from us every year. 
It is everything from W-2s for our employees. They definitely 
thoroughly vet to make sure that we meet the qualifications.
    And the online databases, like fpds.gov, have all the 
information for who receives what contracts. So I would assume 
they are using that to verify that certain companies are 
receiving their fair share of the awards. But I have no 
visibility to the exact specifications that they use.
    Mr. STAUBER. Have you given the SBA any suggestions or 
ideas that they have incorporated into the overall 
effectiveness of the program?
    Mr. LILLARD. Excuse me, would you repeat that question?
    Mr. STAUBER. Have you given the SBA any suggestions or 
ideas that they have incorporated to allow the HUBZones to be 
even more effective?
    Mr. LILLARD. Yes. We are very outspoken throughout all 
government agencies and especially with the SBA. So we talk to 
them about all these problems. They have told me that we are 
one of the most outspoken of the group.
    Mr. STAUBER. So is the SBA doing anything to track the 
program effectiveness that you are aware of?
    Mr. LILLARD. I assume they are, but I am not sure. I just 
know that they have the tools at their disposal to track that, 
but I am not aware of what their exact metrics are for that.
    Mr. STAUBER. And this is for--the next question is going to 
be for really any witness.
    In response to the COVID-19 government lockdowns, the SBA 
undertook an unprecedented role in assisting American small 
businesses, a role that seems to have stretched the agency's 
capacity to the limit at times.
    As we look at possible reforms to best position the agency 
moving forward, have you observed any operational challenges in 
the HUBZone program's capabilities in light of the pandemic 
response role the agency assumed?
    And this is for anybody.
    Mr. Schoonover, you look like you want to answer. Go ahead.
    Mr. SCHOONOVER. Well, thank you, Ranking Member Stauber.
    I will say in my impression, working on behalf of clients, 
the SBA has really punched above its weight in responding to 
COVID-19 and I think in a lot of ways should really be 
applauded for their efforts to help keep small businesses 
afloat, quite frankly, during very difficult times.
    Certainly that has been a stress on the SBA. I think they 
are one of the agencies that is overworked and understaffed. 
And I would imagine that, yes, that has caused some issues with 
delays in certification for HUBZone certifications, delays in 
review process, and the like.
    Mr. STAUBER. I appreciate you mentioning the SBA that did a 
great job during COVID. We had our Minneapolis rep that did a 
tremendous job throughout our entire district. And it wasn't 
easy, especially trying to get through some of the EIDL loans 
and stuff like that. They did a wonderful job. So thanks for 
bringing that to our attention.
    Mr. Schoonover, you mentioned in your opening statement, 
you talked about working with small businesses and the 
regulations that are put on small businesses.
    Last year, in the year 2021, there were over $201 billion 
of additional regulations placed on small businesses across the 
United States of America. And these aren't my numbers, these 
are administration numbers.
    When regulations such as the amount that were put on, is 
that helpful or hurtful to the businesses that you represent, 
and at times is it a hurdle and maybe some redundancy?
    Mr. SCHOONOVER. Yes. I think certainly regulations tend to 
complicate work with the federal government, but that is not to 
say that they don't serve a purpose.
    I will say that the vast majority of my clients--well, all 
of my clients--really want to comply with the federal 
regulations. They want to do a good job on behalf of the 
government. And they certainly go out of their way to make sure 
that they are doing that.
    Mr. STAUBER. And I would say that the vast majority of 
small businesses across this great country who we know are 
economic drivers always attempt to do their best to follow the 
laws.
    But the additional regulations on small business in coming 
out of COVID I think was stressful enough and we know wasn't 
necessary, because that is what I am hearing from the small 
businesses that are in my community. They talk about not only 
inflation, but they talk about the regulations that have been 
placed on them over and over again.
    And I think it is up to the overall Committee, including 
the Chairman and I, to work on some of those, reduce the 
impact, negative impact for the most part, on our small 
businesses.
    Mr. Chair, I am over time. Thank you for your patience.
    Chairman MFUME. Thank you very much, Mr. Stauber.
    The Chair would like to recognize the gentleman from 
Louisiana, Mr. Carter, for 5 minutes.
    Okay, we will come back to Mr. Carter, who is having a 
great conversation. So we will come back to Mr. Carter.
    Mr. CARTER. I am ready now.
    Chairman MFUME. Okay. Go right ahead.
    Mr. CARTER. Mr. Chairman, thank you.
    Ranking Member, thank you very much.
    And thanks to all of our presenters.
    I have got a quick question, because one of the concerns 
that we hear consistently is how do we get more people involved 
in utilizing the resources of HUBZones and the various 
opportunities.
    So if there are viewers that are looking, what advice would 
you give a person that is interested in applying for and taking 
advantage of HUBZones? Any one of you can answer that as a 
first point.
    No advice?
    Ms. RIVAS-HUTCHINS. I would like to answer that question.
    I believe that the government has a lot of resources for 
businesses that are interested. Local PTAC offices are really 
good about helping businesses certify, apply for the 
certification, the HUBZone certification.
    I believe there are several contracts available at HUBZone 
that once they go through the process and they get certified 
they are able to apply for.
    Thank you.
    Mr. CARTER. Ms. Bailey?
    Chairman MFUME. Mr. Carter, you still control the time.
    Mr. CARTER. Yeah, I was hoping that some of the others 
might have some other information that they might share to 
viewers who are interested, your ups, your downs, your 
experiences. And equally as important is what can we do, as a 
voting body, to make it better?
    Mr. SCHOONOVER. Congressman, if I may, to the last 
question, I think from my vantage, the number one thing that 
can be done to make the HUBZone program better is, quite 
frankly, to award more contracts under it. I tend to think that 
if those contracts come, you will certainly have more companies 
that see the value in the HUBZone program and want to 
participate.
    But given the time and expense that it takes to comply and 
to maintain your certification, unless and until there are more 
contracts awarded under the program, quite frankly, it can be a 
tough sell for some businesses.
    And so I think the overarching goal of fixing the program, 
in my opinion, should be to encourage more awards to be made 
under it.
    Mr. CARTER. Mr. Schoonover, why do you think, in your 
estimation, what has been the issue with awarding contracts? 
Has it been too cumbersome of a process? Has there not been 
enough opportunity? Has there been fraud in the system that 
slowed the process down? Any one of those, all of the above, or 
maybe I missed them all.
    Mr. SCHOONOVER. How much time do we have?
    Mr. CARTER. You got about 30 seconds, because I got about a 
minute 40.
    Mr. SCHOONOVER. I think the combination is an ``all of the 
above'' answer. I don't think that there is one specific reason 
why the HUBZone program has been underutilized.
    I think there is a lack of education and a lack of insight 
of contracting agencies to actually use the tools that are 
available.
    SBA, to its credit, over the last few years has tried to 
make the program more accessible, both for certified businesses 
and for contracting agencies. And, hopefully, those changes 
will start to bear fruit.
    But I tend to think still that the biggest problem with the 
HUBZone program is that not enough awards are being made under 
it and that if more awards are made under the program, 
certainly there will be more HUBZone certified firms. And 
agencies then I think will be more encouraged to use the 
program as well.
    Mr. CARTER. Do you think it would be helpful if SBA and 
other experts in the area of HUBZones did more outreach going 
into the community, as I have suggested to SBA that we do more 
doing business with the federal government opportunities to 
make it plain? We should not hide the ball and make it 
difficult for businesspeople to partake of HUBZone 
opportunities.
    So, Mr. Chairman, I would encourage that SBA engage with us 
to go through our congressional districts for sure to engage 
and have more opportunities for outreach.
    If you guys were starting, Mr. Schoonover, if you were 
starting out new and had the opportunity to have a townhall of 
sorts with Members of SBA to talk about HUBZone, would that 
have made your entree into the system easier?
    Mr. SCHOONOVER. I may not be the most qualified person on 
the panel to answer this, as I am not a HUBZone company myself, 
but certainly I don't think it would hurt SBA to have those 
opportunities.
    I would also say that internal government agencies also 
need to benefit from that education, to understand what the 
HUBZone program is and the contracting tools that are available 
under it. I think contracting offices all across the executive 
really need to be made aware.
    Mr. CARTER. My time is expired. I yield back, sir.
    Chairman MFUME. Thank you. The gentleman yields back.
    The Chair will now recognize the Ranking Member, Mr. 
Meuser, the gentleman from Pennsylvania.
    Mr. MEUSER. Thank you, Chairman Mfume, very much.
    Thank you for testifying. I appreciate you being here. It 
is a very interesting topic, something that I think has very 
much bipartisan support, which is great, and for all the right 
reasons.
    Many of us have districts, such as I, where we have small 
cities that need revitalization, and some of that seems to be 
occurring kind of on a spotty basis. Like where my district is 
in southeast and central Pennsylvania, it is sort of growing 
from the suburbs from the southeast and from Allentown.
    But I think, like the Chairman and many of us here, I don't 
want to wait around another 10 years to see some of this 
progress taking place, because some of these cities have the 
people, have the resources. And when I say cities, they are 
more like towns. But they need a catalyst. They need a spark.
    And that is where we can come in, and with this type of 
contracting and HUBZone initiative a real difference can be 
made. So I am paying a lot of close attention to everything 
that you have to say.
    So, Mr. Schoonover, you gave a couple, you gave three ways 
that we needed to improve this program. One, you used the word 
``compel'' for the government to utilize in order to achieve 
the 3 percent. That will definitely require more outreach, 
because we just can't compel if the resources aren't there, if 
the companies aren't there.
    I know in my district I am not so sure those companies are 
there to actually capture the contracts within or around the 
HUBZones. They simply don't necessarily exist or they are 
simply not aware of the HUBZone opportunity.
    And we don't necessarily just want a company--well, in some 
cases we do--moving from one end of a county to the other. 
Actually, in many ways that provides the advantages that we are 
looking for to advance these small cities.
    But the 35 percent legacy issue seems to be something that 
we can definitely deal with, and I hope everybody is listening 
to that, and we can work on that.
    And you mentioned this ``always'' clause, I will just call 
it that right now. And then one of the other witnesses stated 
how at least for the length of the contract. And I think the 
SBA or the oversight should be able to at least have some 
ability to evaluate, to evaluate the eligibility over time, 
because you do hear some things about fraud in here. And you 
can see how that could occur, but I am not so sure that that is 
too big of a problem.
    So let me just go to you, Mr. Lillard. Expand for us a 
little bit more on what you think can be done, A, to preserve, 
but, B, to improve.
    Mr. LILLARD. Sure. I appreciate the question.
    I think that parity is the biggest issue. I think that the 
HUBZone program is overshadowed by the program, the SDB 8(a) 
program specifically.
    That is easiest program for contracting officers to use. 
They have a huge stack, if you go in their office and meet with 
them, they have a huge stack of all their requisitions that 
they have to get out, and it is a real pain for them to get 
them out in time. And so they are always, in my experience, 
going to use the easiest, fastest possible way.
    8(a) contracts cannot be protested, so you don't have to 
worry about not only not the competition, but you don't have to 
worry about people coming in and slowing down the process by 
saying, okay, you know, it wasn't fair. So that is a huge 
advantage for them to do that. Also, it has a higher goal.
    There are various reasons, but I would say that the number 
one thing that you could do to improve HUBZone is to basically 
put it on parity with those other programs. I think that when 
you have the honey there, the increased incentive, I think that 
all the ants will come. You will get a lot more HUBZone 
companies that will pop up if they feel that they are going to 
be actually utilized.
    We have a very, very low margin structure business just to 
be competitive. And I think the HUBZone industry in general is 
extremely competitive, and it is going to be very hard to go 
into the HUBZone and find people that are currently qualified 
to run a company from scratch to do business specifically with 
the federal government, as complicated as it is.
    Mr. MEUSER. Thanks.
    Mr. Schoonover, you brought up how the SBA is understaffed. 
I agree. And they did a terrific job in Pennsylvania, in my 
district, during the course of COVID and all the PPP and 
everything else.
    I did want to bring this up. I introduced a bill, Truth in 
Small Business Contracting Credit Act, which would limit 
federal agencies to counting contract awards towards one goal, 
instead of multiple goals, as currently allowed. So I would 
certainly encourage, Chairman, the Committee to consider that 
bill.
    I would like to forward it to you folks and get your input 
on it as well to see what you think. And again, I thank you for 
you testimony.
    With that, I yield back, Mr. Chairman.
    Chairman MFUME. Gentleman yields back.
    Ms. Rivas-Hutchins, I want to go back to you and go back to 
Ms. Bailey if we are able to have a second round here.
    But what I would like to do at the moment is to recognize 
the gentleman from Wisconsin, Mr. Fitzgerald, for 5 minutes.
    Mr. FITZGERALD. Thank you, Mr. Chairman.
    I find interesting, I think, listening this morning, kind 
of to the take on whether or not any of these types of programs 
that are created, either at the local level, State level, or 
federal level, have the impact that is oftentimes anticipated, 
I think.
    In Wisconsin, we have Renaissance Zones, which changes the 
Tax Code and manipulates kind of the Tax Code to allow local 
investment to happen. A lot of times there is an economic 
development corporation that is involved maybe at the county 
level or the municipal level, and then there has been some 
success.
    And then, obviously, the one nationwide is TIF districts or 
TID districts that offer the same types of changes to the Tax 
Code for a short--or I should say not short, necessarily, 
temporary period of time to make sure there is more investment 
that is made.
    I think the frustration I see with kind of the discussion 
today is that this is--it has been around since 1997. I think 
it still is viewed as having limited success between 1997 and 
then 2017, when it was revisited with a bipartisan bill to 
reform the HUBZones. And since then, you still aren't seeing 
the impact, I think, that many communities had anticipated.
    So in my estimation it has kind of like run its course. And 
I think that is why in the opening statements and in the 
opening comments there was a question about whether or not it 
should even be kept around or should it simply be scraped and 
start from the ground up and rework this.
    I don't have the confidence in the SBA, I think, that 
certainly some other people may have, whether they are people 
that are involved kind of in economic development or certainly 
even Members of Congress that continue to look at the programs 
and say: What is the measuring stick? When are we actually 
going to be able to determine whether or not this is being 
effective?
    So, I guess, Mr. Lillard, the question I would have for you 
is, what do you think the 30,000-foot perspective on this 
program is or any of these other economic development programs 
created by the government?
    We can almost remove COVID from the discussion, unique 
thing that hopefully never happens again at the scale that we 
saw and hadn't anticipated and didn't have to really work in 
and around it, not having happened for a hundred years.
    But I thought the original comments were maybe there is a 
better way of doing this. And I would just like to hear your 
thoughts on that.
    Mr. LILLARD. I would say the biggest thing is just 
enforcing what you have already got. From my personal 
perspective, I know that GovSmart would lose 100 percent of its 
employees if we lost the HUBZone status. If the HUBZone program 
went away, there are a lot of disadvantaged employees that we 
have hired that otherwise will not have very good opportunities 
in Charlottesville, Virginia, who would be out of a job.
    And so I think that it is a very powerful program. I think 
the biggest challenge is that it is not fully utilized to the 
extent that it was intended. I think that if it was, there 
would be a lot more companies that are doing it. I think there 
would be more profitability involved and therefore it would 
lead to more opportunity and people opening up companies in the 
HUBZone.
    But I do think these programs are very effective. And we 
have given back so much to the community, not just in hiring 
people, but also just reinvesting and donating money 
specifically in HUBZone areas. And I know a lot of companies 
that are successful do that. I know that Charlottesville would 
feel it if GovSmart went away because we do a lot in the 
community.
    So I would say it is not that the HUBZone program doesn't 
have the potential to work, it is just that the rules aren't 
set in stone where they have to make it work.
    Mr. MEUSER. Do you guys participate in any other economic 
development programs at the local level?
    Mr. LILLARD. We did. We were in the SWaM program for a 
little while, but we never were able to make that work. We 
couldn't win contracts with that designation. So we stuck to 
federal.
    Mr. MEUSER. Yeah. I mean, I think there are certainly only 
a few economic development tools that are available to a 
municipality, and certainly a TIF district is one of them.
    And ultimately a school district may benefit, that after a 
12-year run on a TIF district that suddenly the revenue has 
been created, there has been economic development, and then 
that money makes its way back into the community. I mean, it is 
obviously a true and tested model that has worked across this 
country.
    Do you feel that there is support or that there is 
interaction at the local level with HUBZ and whether or not 
people are aware of it, other than if we just award more 
contracts more people are going to show up? That seems like it 
is counterproductive to me.
    Mr. LILLARD. Yeah. I mean, from my perspective, I think 
just the incentive to win more contracts is what will 
ultimately bring more people in.
    But I would say no on the local level, not at all. There 
are not enough HUBZone companies at the local level, generally, 
to have an entire committee or department to have an initiative 
to go do that. I think it would be too hard to find them.
    But I think that from my perspective, when there is more 
benefit for being a HUBZone company, more companies are going 
to take what is preestablished, their successful business 
model, and move it into a HUBZone, or take a business model 
that they have they want to start from scratch and start it in 
a HUBZone. I think it is a good program for starting brand new 
things and bringing it in, rather than finding people that are 
already successful doing it.
    Mr. MEUSER. Well, thanks for being here today.
    Mr. LILLARD. Absolutely.
    Mr. MEUSER. And yield back, Mr. Chair.
    Chairman MFUME. The gentleman yields back.
    I just want to announce to our witnesses, we are going to 
do another round of questions. And thank you again for being 
here.
    Ms. Rivas-Hutchins, I really want to go back and start with 
you. I was impressed, needless to say, of your own story about 
how you got started and what you faced over the years.
    We keep hearing about the unmet goal, and the real issue, 
in my opinion at least, is underutilization and enforcement.
    In fiscal year 2020, only 1.6 percent of the dollars 
awarded were awarded to HUBZone firms through subcontracts. And 
because you are in a unique space in the construction industry, 
where subcontracting is in fact very common, I would like to 
get your thoughts since everybody else has had an opportunity 
to weigh in on this. And I know you are challenged with trying 
to hold on to talent and workers who are chasing opportunities 
in other States.
    But could you take a minute and give me your thoughts on 
that as well?
    Ms. RIVAS-HUTCHINS. Absolutely. My pleasure.
    I believe my experience, construction jobs, are such a team 
effort. So prime contractors in the industry like to use 
subcontractors they know and they have worked very well with, 
which creates a problem for new small HUBZone WCOE--W--woman-
owned small business contractors. And when you don't have a 
penalty for general contractors to meet the subcontracting 
goals, I think you are exploiting those companies from 
competition.
    So I do believe in the subcontracting world. If we were to 
have better consequences and incentives to meet subcontracting 
goals, that will help increase the 1.65 percent of the HUBZone 
subcontractors for sure.
    Chairman MFUME. What is your challenge with keeping 
workers? I mean, has it gotten better or worse since the 
pandemic? Are there some lessons there for contractors, 
subcontractors such as yourself?
    Ms. RIVAS-HUTCHINS. Yes, sir. I believe I am very lucky to 
be in a rural area in Kentucky. We have great talent. I do 
believe the shortage of talent in the construction industry has 
to do more with just what we are facing across the nation. A 
lot of great workers are retiring and not enough to come in and 
take on the roles of the retiring workforce.
    In our location, in western Kentucky and near Fort 
Campbell, we are very lucky to have good talent. We have a big 
area that we can draw really good workers from. That is where 
our main area of work is, in the western Kentucky, Louisville, 
Kentucky area; Nashville district of the Corps of Engineers as 
well.
    So we do see a problem with shortage of workers, but I 
don't think it is specific to the HUBZone in my personal 
experience, because I do have a very vast rural community to 
reach out for and work.
    Chairman MFUME. Thank you very much.
    Sir?
    Mr. LILLARD. [Inaudible.]
    Chairman MFUME. Yeah, I don't have a lot of time, but if 
you can do it in 30 seconds, that would be great.
    Mr. LILLARD. I would say that the difficulty to hire is a 
real thing. There is a significant lack of skilled labor.
    The biggest thing that we have had a problem with is that 
it is hard to hire people because they lose their government 
assistance. I have had so many employees that come on board and 
they find out that they are going to lose their government 
assistance when they get the job that pays better, they lose 
their Section 8 housing and all these other things. And they 
are just like: Sorry, it is not worth it for me to work. And it 
happens over and over again. So I would definitely consider 
that as a factor.
    Chairman MFUME. Thank you very much.
    And, Ms. Bailey, let me come back to you for a second.
    In 2017, Congress required the creation of performance 
metrics for the program. However, the data that continues to be 
collected by the SBA is very limited. It does not, in my 
opinion, assess the impact HUBZones are having on their 
communities.
    And so as a nonprofit trade association, is there some 
information or data that you would like to see collected in an 
effort to really measure the program better and promote 
economic growth?
    Ms. BAILEY. Yes. One I think is the number of companies 
that are entering into long-term leases or purchasing buildings 
and renovating in those areas. I think that that is some 
critical information we need to start collecting.
    The number of HUBZone employees that are being employed. I 
am starting to lose my voice.
    And then also another major thing that we need to be able 
to quantify is those softer investments, like Mr. Lillard was 
talking about, is how these companies are giving back--the 
workforce training programs, the internship programs, the 
contributions to the local communities, the schools, the 
hospitals, those types of things that are all part of this 
HUBZone program.
    And what we find through the HUBZone Council is that a lot 
of our Members in the HUBZone firms are participating very, 
very highly in their local communities, and that this 
information becomes very critical for us to be able to identify 
the real impact that we are seeing in these areas.
    Chairman MFUME. Thank you very much.
    My time has expired.
    The Chair would like to recognize the gentleman from 
Pennsylvania again, Mr. Meuser.
    Mr. MEUSER. Thank you again, Mr. Chairman.
    So I would like to just talk about a couple of regular or--
or regular--everyday business issues facing small businesses as 
I assess it and am fully aware from visits within my district 
and the micro and macro effects on our economy taking place.
    So inflation, how detrimental is it to you, particularly 
since when you are dealing with federal contracts you can't 
raise your prices? How is that affecting your net income? And 
in the end, what needs to be remembered, how that actually 
affects the level of tax revenues received?
    So maybe Mr. Lillard can comment on that?
    Mr. LILLARD. Sure. I have noticed a huge effect of 
inflation on the local community. I haven't noticed a big 
impact on our HUBZone business. The reason is that everyone 
knows what their general costs are regardless of inflation and 
then they mark it up as much as they think they can to win the 
deal. So I think that it is kind of everyone's price goes up at 
the same time when their costs go up.
    So for me, personally, I haven't noticed a big impact. I 
have noticed a huge impact on the local area. It is certainly 
affecting the disadvantaged community the most when the cost of 
groceries goes up and things like that.
    Mr. MEUSER. Okay. So that is noticeable. The most 
disadvantaged are clearly since a dollar extra for a pack of 
hotdogs or whatever it might be is a percentage of someone's 
income.
    Mr. LILLARD. We are loaning out electric scooters to people 
in the community, for example, because they can't afford gas. 
So there are all kinds of things that are going on with that.
    Mr. MEUSER. I see.
    Mr. Schoonover, you have something to add on that?
    Mr. SCHOONOVER. Yes, Congressman.
    I would say that it is no secret that inflation is 
obviously hurting a lot of businesses, particularly small 
business federal contractors who, in my experience, work under 
the fixed-price contract scheme. Meaning, the price they bid is 
the price the government is going to pay, and if that business' 
costs increase, then, well, it is up to the business to eat 
those costs. That is their problem, not the government's.
    And recently we saw DOD issue a memorandum that essentially 
instructed its contracting officials in the context of a fixed-
price contract not to consider requests for equitable 
adjustment or contract claims seeking to recover those costs. 
And I think, though certainly DOD is within its right to do so, 
I would say that that is probably a very shortsighted and very 
harmful impact to small business federal contractors.
    And I would certainly encourage the government to think 
about ways to adjust contract prices even under a fixed-price 
contract if inflation exceeds a certain percentage. 
Particularly for HUBZone businesses, that is vitally important 
because obviously, as inflation continues to increase and as 
those pressures continue to exist, the development for those 
areas is going to be lower and lower.
    So I would encourage Congress to encourage federal agencies 
to work with particularly small businesses under a fixed-price 
contract to really deal with those concerns.
    Mr. MEUSER. All right. Great.
    I also want to go back to this bill that I mentioned, Truth 
in Small Business Contracting Credit Act, that the double 
counting puts you at a disadvantage, right? You are in the HUB.
    Mr. LILLARD. Absolutely. And we used to be 8(a) certified 
as well, so we are familiar with how that could benefit a 
company that has both statuses. It certainly reduces the impact 
of being a HUBZone when you don't have both. It makes it much 
harder.
    I think you will notice the goal achievement will go down 
when you stop double counting, but that will mean more 
opportunities for HUBZones that naturally are winning them 
because they are HUBZone.
    Mr. MEUSER. Right. It is really an unfair score that they 
are using to support their quotas or whatever it might be.
    Mr. Schoonover, comment on that?
    Mr. SCHOONOVER. Oh, I completely agree. And I go back to 
the point of really in order to improve the program, first of 
all you need the data to show really where that metric is.
    And second of all, I think it is an issue with contracting 
agencies who aren't utilizing the program as much as they 
should and really aren't seeking out those HUBZone contracting 
awards.
    Mr. MEUSER. Great. Well, I look forward to continuing the 
conversation with both of you as we are committed to--I 
certainly am--to improving this situation so it is utilized 
that much more effectively for cities that really need this 
level of revitalization.
    So with that, Mr. Chairman, I yield back. Thank you.
    Chairman MFUME. Thank you very much. Gentleman yields back.
    I would like to thank the witnesses again for appearing 
before the Committee, both here and on the screen. Your 
testimony has really shed some light on what is working and 
even what is not working within this program and the SBA, and 
the actions that Congress should, must, and hopefully will take 
to make this more efficient and effective.
    Some Members of this Committee have heard me say before 
that I sat on this Committee in 1987 when I first got here. 
Ronald Reagan was in the White House. Gas was $1.60 a gallon. 
And the issues that we are talking about today were about to be 
taken care of in the next decade with the creation of this 
program.
    And I leave and go back, come back 24 years later, and it 
is like deja vu all over again. So it is frustrating to me, 
particularly, to sit here and to see what is not working and to 
know, number one, SBA has to do a better job of policing 
itself. Number two, if we don't enforce existing laws and 
policies, we will never get anywhere. And number three, we have 
got to find a way to get more people participating in the 
program. The underutilization here is just unbelievable.
    So hopefully that will take place as a result of this 
hearing. I look forward to working with my colleagues on both 
sides of this issue and on both sides of the aisle to advance 
legislation and to improve enforcement in the HUBZone program 
until the program's mission is achieved.
    So again my thanks to all of you for being with us.
    The Committee hearing is now adjourned.
    [Whereupon, at 11:20 p.m., the Subcommittee was adjourned.]
    
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