[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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